Fluent Essays

Work #1: The mode of entry a company chooses to enter international markets depends on a variety of factors including the nature of the company’s strategic objectives. Select a well-known company that competes in the international markets.  What was the company’s mode of entry? What was the entry designed to achieve? Finally identify two advantages and two disadvantages to the entry mode chosen by the company. NOTE: Make sure you choose a company that has not been selected by one of your classmates. Your initial response to the discussion question should be 250-300 words. You must have at least our course Text and one non-course scholarly/peer reviewed source in your initial posting.  Sources require in-text citations and must be incorporated into the body of the post in addition to a full APA citation at the end of the post. Work #2:   Modes of entry into an international market are the channels which organizations employ to gain entry to a new international market. Within our Thompson (2022) text, read Chapter 7 Assurance of Learning Exercise #2 related to Walgreens’ mode(s) international market entry and respond to the following questions: What was Walgreens’ entry strategy designed to achieve? Why would this make sense for a company like Walgreens? Provide two recommendations on what Walgreens might do differently going forward with their entry strategy? Make sure you support your recommendations? Incorporate our coursework (Thompson text and other material) from this week into your above responses. Submission Details:  Your analysis must be driven by facts, research, and data. Your analysis should be between 1000 and 1500 words . Incorporate a minimum of at least our course text and one non-course scholarly/peer reviewed source in your paper.  All written assignments must include a coverage page, introductory and concluding paragraphs, reference page, double-spaced and proper in-text citations using APA guidelines. chapter 7 Strategies for Competing in International Markets © 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill. Copyright Image Source/Getty Images Chapter 7 presents the concepts and analytical tools for assessing a company’s external environment. Attention centers on the competitive arena in which a company operates, together with the technological, societal, regulatory, or demographic influences in the macro-environment that are acting to reshape the company’s future market arena. © McGraw-Hill Education 3–1 Learning Objectives After reading this chapter, you should be able to: Identify the primary reasons companies choose to compete in international markets. Understand how and why differing market conditions across countries influence a company’s strategy choices in international markets. Identify the differences among the five primary modes of entry into foreign markets. Identify the three main strategic approaches for competing internationally. Explain how companies can to use international operations to improve overall competitiveness. Identify the unique characteristics of competing in developing-country markets. © McGraw Hill In the process of exploring these options, we introduce such concepts as the Porter diamond of national competitive advantage; and discuss the specific market circumstances that support the adoption of multidomestic, transnational, and global strategies. The chapter also includes sections on cross-country differences in cultural, demographic, and market conditions; strategy options for entering foreign markets; the importance of locating value chain operations in the most advantageous countries; and the special circumstances of competing in developing markets such as those in China, India, Brazil, Russia, and eastern Europe. Why Companies Decide to Enter Foreign Markets To gain access to new customers. To achieve lower costs through economies of scale, experience, and increased purchasing power. To gain access to low-cost inputs of production. To further exploit its core competencies. To gain access to resources and capabilities located in foreign markets. © McGraw Hill A company may opt to expand outside its domestic market for any of five major reasons. Why Competing Across National Borders Makes Strategy Making More Complex 1. Different countries with different home-country advantages in different industries. 2. Location-based value chain advantages for certain countries. 3. Differences in government policies, tax rates, and economic conditions. 4. Currency exchange rate risks. 5. Differences in buyer tastes and preferences for products and services. © McGraw Hill Crafting a strategy to compete in one or more countries of the world is inherently more complex for five reasons. Differing market conditions across countries influence a company’s strategy choices in international markets. FIGURE 7.1 The Diamond of National Advantage Source: Adapted from Michael E. Porter, “The Competitive Advantage of Nations,” Harvard Business Review, March-April 1990, pp. 73-93. Copyright ©McGraw-Hill Education. Permission required for reproduction or display. Access the text alternative for slide images. © McGraw Hill Figure 7.1 summarizes the four major factors in a framework developed by Michael Porter and known as the Diamond of National Competitive Advantage. The Diamond Framework The Diamond Framework can be used to: Predict from which countries foreign entrants are most likely to come. Decide which foreign markets to enter first. Choose the best country location for different value chain activities. © McGraw Hill Where industries are more likely to develop competitive strength depends on a set of factors that describe the nature of each country’s business environment and vary from country to country. Because strong industries are made up of strong firms, the strategies of firms that expand internationally are usually grounded in one or more these factors. Thus, the diamond framework is an aid to deciding where to locate different value chain activities most beneficially. Opportunities for Location-Based Advantages Lower wage rates. Higher worker productivity. Lower energy costs. Fewer environmental regulations. Lower tax rates. Lower inflation rates. Proximity to suppliers and technologically related industries. Proximity to customers. Lower distribution costs. Available or unique natural resources. © McGraw Hill Increasingly, companies are locating different value chain activities in different parts of the world to exploit location-based advantages that vary from country to country. Differences in wage rates, worker productivity, energy costs, etc., create sizable variations in manufacturing costs from country to country. The Impact of Government Policies and Economic Conditions in Host Countries Positives: Tax incentives. Low tax rates. Low-cost loans. Site location and development. Worker training. Negatives: Environmental regulations. Subsidies and loans to domestic competitors. Import restrictions. Tariffs and quotas. Local-content requirements. Regulatory approvals. Profit repatriation limits. Minority ownership limits. © McGraw Hill Cross-country variations in government policies and economic conditions affect both the opportunities available to a foreign entrant and the risks of operating within the host country. Political risks stem from instability or weaknesses in national governments and hostility to foreign business. Economic risks stem from the stability of a country’s monetary system, economic and regulatory policies, and the lack of property rights protections. Political and Economic Risk in Host Countries Political Risks: Instability of host government. Revolution against dictatorial government leaders. Legislation or regulations on foreign-owned businesses. Potential for election of corrupt or tyrannical leaders. Nationalization or expropriation of foreign-owned assets. Internal political unrest, terrorism and corruption. Economic Risks: Instability of a host’s economy and monetary system. Inflation rate increases due to uncontrolled deficit spending or risky bank lending practices. Piracy and lack of protection for intellectual property. Fluctuations in the value of different currencies. © McGraw Hill Cross-country variations in government policies and economic conditions affect both the opportunities available to a foreign entrant and the risks of operating within the host country. Political risks stem from instability or weaknesses in national governments and hostility to foreign business. Economic risks stem from the stability of a country’s monetary system, economic and regulatory policies, and the lack of property rights protections. The Risks of Adverse Exchange Rate Shifts Sizable shifts in exchange rates pose significant risks for two reasons: Shifts are hard to predict because of the variety of factors and uncertainties as to when and by how much these factors will change. Shifts create uncertainty regarding which countries represent the low-cost manufacturing locations and which rivals have the upper hand in the marketplace. Effects of sizable exchange rate shifts: Exporters experience a rising demand for their goods whenever their currency grows weaker relative to the importing country’s currency. Exporters experience a falling demand for their goods whenever their currency grows stronger relative to the importing country’s currency. © McGraw Hill Fluctuating exchange rates pose significant economic risks to a firm’s competitiveness in foreign markets. Exporters are disadvantaged when the currency of the country where goods are being manufactured grows stronger relative to the currency of the importing country. Domestic companies facing competitive pressure from lower-cost imports benefit when their government’s currency grows weaker in relation to the currencies of the countries where the lower-cost imports are being made. Thinking Strategically What effects has the adoption of the euro had on the ability of European Union (EU) countries and firms to respond to changes in intra-national economic and trade conditions, given that they now share a common currency? What should an EU firm do to respond to an adverse currency exchange rate shift in a non-EU country? How will exiting the EU affect the United Kingdom’s ability to compete in world markets? © McGraw Hill Instructors may want to discuss the current and collateral effects of tariffs on international trade relationships between and among EU members and other major trading countries (e.g., the United States and China.) Cross-Country Differences in Demographic, Cultural, and Market Conditions Key Strategic Considerations: Whether to customize offerings in each country market to match the tastes and the preferences of local buyers. Whether to pursue a strategy of offering a mostly standardized product worldwide. © McGraw Hill Buyer tastes for a particular product or service sometimes differ substantially from country to country. While making products that are closely matched to local tastes makes them more appealing to local buyers, customizing a company’s products country by country may raise production and distribution costs. The tension between the market pressures to localize a company’s product offerings country by country and the competitive pressures to lower costs is one of the big strategic issues that participants in foreign markets have to resolve. Primary Modes of Entry into Foreign Markets Maintain a home country production base and export goods to foreign markets. License foreign firms to produce and distribute the firm’s products abroad. Employ a franchising strategy in foreign markets. Establish a subsidiary in a foreign market via acquisition or internal development. Rely on strategic alliances or joint ventures with foreign companies. © McGraw Hill Once a company decides to expand beyond its domestic borders, it must consider the question of how to enter foreign markets. There are five primary modes of entry. The modes vary considerably regarding the level of investment required and the associated risks—but higher levels of investment and risk generally provide the firm with the benefits of greater ownership and control. Export Strategies Advantages: Low capital requirements. Economies of scale in utilizing existing production capacity. No distribution risk. No direct investment risk. Disadvantages: Maintaining relative cost advantage of home-based production. Transportation and shipping costs. Exchange rates risks. Tariffs and import duties. Loss of channel control. © McGraw Hill Using domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales. It is a conservative way to test the international waters. Unless an exporter can keep its production and shipping costs competitive with rivals’ costs, secure adequate local distribution and marketing support of its products, and effectively hedge against unfavorable changes in currency exchange rates, its success will be limited. Licensing and Franchising Strategies Advantages: Low resource requirements. Income from royalties and franchising fees. Rapid expansion into many markets. Disadvantages: Maintaining control of proprietary know-how. Loss of operational and quality control. Adapting to local market tastes and expectations. © McGraw Hill Using a licensing strategy as a mode of entry makes sense when a firm with valuable technical know-how, an appealing brand, or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets. While licensing works well for manufacturers and owners of proprietary technology, franchising is often better suited to the international expansion efforts of service and retailing enterprises. Foreign Subsidiary Strategies Advantages: High level of control. Quick large-scale market entry. Avoids entry barriers. Access to acquired firm’s skills. Disadvantages: Costs of acquisition. Complexity of acquisition process. Integration of the firms’ structures, cultures, operations, and personnel. © McGraw Hill Companies that want to participate directly in the performance of all essential value chain activities typically establish a wholly owned subsidiary, either by acquiring a local company or by establishing its own new operating organization from the ground up. Using a Greenfield Strategy for Developing a Foreign Subsidiary A greenfield strategy is appealing when: Creating an internal startup is cheaper than making an acquisition. Adding new production capacity will not adversely impact the supply-demand balance in the local market. A startup subsidiary has the ability to gain good distribution access. A startup subsidiary will have the size, cost structure, and resource strengths to compete head-to-head against local rivals. © McGraw Hill A greenfield venture is a subsidiary business that is established by setting up the entire operation from the ground up. Entering a new foreign country via a greenfield venture makes sense when a company already operates in several countries, has experience in establishing new subsidiaries and overseeing their operations, and has a sufficiently large pool of resources and capabilities to rapidly equip a new subsidiary. Pursuing a Greenfield Strategy Advantages: High level of control over venture. “Learning by doing” in the local market. Direct transfer of the firm’s technology, skills, business practices, and culture. Disadvantages: Capital costs of initial development. Risks of loss due to political instability or lack of legal protection of ownership. Slowest form of entry due to extended time required to construct facility. © McGraw Hill Greenfield ventures in foreign markets can also pose problems, just as other entry strategies do. They represent a costly capital investment, subject to a high level of risk. They require numerous other company resources as well, diverting them from other uses. They do not work well in countries without strong, well-functioning markets and institutions that protect the rights of foreign investors and provide other legal protections. Benefits of Alliance and Joint Venture Strategies Gaining partner’s knowledge of local market conditions. Achieving economies of scale through joint operations. Gaining technical expertise and local market knowledge. Sharing distribution facilities and dealer networks and mutually strengthening each partner’s access to buyers. Directing competitive energies more toward mutual rivals and less toward one another. Establishing working relationships with key officials in the host country government. © McGraw Hill Collaborative strategies involving alliances or joint ventures with foreign partners are a popular way for companies to edge their way into the markets of foreign countries. Cross-border alliances enable a growth-minded firm to widen its geographic coverage and strengthen its competitiveness in foreign markets; at the same time, they offer flexibility and allow a firm to retain some degree of autonomy and operating control. ILLUSTRATION CAPSULE 7.1 Walgreens Boots Alliance, Inc.: Entering Foreign Markets via Alliance Followed by Merger Did industry consolidation provoke Walgreens to make its strategic international acquisition? What strategic advantages does the alliance between Walgreens and Alliance Boots bring to both partners? What internal problems could the merger create for Walgreens as it strives to integrate and adjust to the risks of entry into international markets? © McGraw Hill Alliances may also be used to pave the way for an intended merger; they offer a way to test the value and viability of a cooperative arrangement with a foreign partner before making a more permanent commitment. Illustration Capsule 7.1 shows how Walgreens pursued this strategy with Alliance Boots in order to facilitate its expansion abroad. The Risks of Strategic Alliances with Foreign Partners Outdated knowledge and expertise of local partners. Cultural and language barriers. Costs of establishing the working arrangement. Conflicting objectives and strategies or deep differences of opinion about joint control. Differences in corporate values and ethical standards. Loss of legal protection of proprietary technology or competitive advantage. Overdependence on foreign partners for essential expertise and competitive capabilities. © McGraw Hill Alliances and joint ventures with foreign partners have their pitfalls, however. One of the lessons about cross-border partnerships is that they are more effective in helping a company establish a beachhead of new opportunity in world markets than they are in enabling a company to achieve and sustain global market leadership. International Strategy: The Three Main Approaches Competing Internationally Multidomestic Strategy Global Strategy Transnational Strategy © McGraw Hill FIGURE 7.2 Three Approaches for Competing Internationally Access the text alternative for slide images. © McGraw Hill Figure 7.2 shows a company’s three options for resolving this issue: choosing a multidomestic, global, or transnational strategy. A multidomestic strategy is one in which a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. A transnational strategy is a think-global, act-local approach that incorporates elements of both multidomestic and global strategies. A global strategy is one in which a company employs the same basic competitive approach in all countries where it operates, sells standardized products globally, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. It represents a think-global, act-global approach. TABLE 7.1 Advantages and Disadvantages of a Multidomestic Strategy 1 Multidomestic (think local, act local). Advantages Disadvantages Can meet the specific needs of each market more precisely. Hinders resource and capability sharing or cross-market transfers. Can respond more swiftly to localized changes in demand. Has higher production and distribution costs. Can target reactions to the moves of local rivals. Is not conductive to a worldwide competitive advantage. Can respond more quickly to local opportunities and threats. N/A © McGraw Hill Table 7.1 provides a summary of the pluses and minuses of the multidomestic approach to competing internationally. TABLE 7.1 Advantages and Disadvantages of a Global Strategy 2 Global (think global, act global). Advantages Disadvantages Has lower costs due to scale and scope economies. Cannot address local needs precisely. Can lead to greater efficiencies due to the ability to transfer best practices across markets. Is less responsive to changes in local market conditions. Increases innovation from knowledge sharing and capability transfer. Involves higher transportation costs and tariffs. Offers the benefit of a global brand and reputation. Has higher coordination and integration costs. © McGraw Hill Table 7.1 provides a summary of the pluses and minuses of the multidomestic approach to competing internationally. TABLE 7.1 Advantages and Disadvantages of a Transnational Strategy 3 Transnational (think global, act local). Advantages Disadvantages Offers the benefits of both local responsiveness and global integration. Is more complex and harder to implement. Enables the transfer and sharing of resources and capabilities across borders. Entails conflicting goals, which may be difficult to reconcile and require trade-offs. Provides the benefits of flexible coordination. Involves more costly and time-consuming implementation. © McGraw Hill Table 7.1 provides a summary of the pluses and minuses of the multidomestic approach to competing internationally. ILLUSTRATION CAPSULE 7.2 Four Seasons Hotels: Local Character, Global Service Why has Four Seasons Hotels been so successful in expanding its hospitality operations into a broad diversity of countries? How should local hotel competitors respond to Four Seasons Hotels’ continued expansion into their markets? Why has the global economic slowdown not dampened demand for the Four Seasons luxury hotel offerings? © McGraw Hill Illustration Capsule 7.2 explains how Four Seasons Hotels has been able to compete successfully based on a transnational strategy. International Operations and the Quest for Competitive Advantage Three Main Approaches to Building Competitive Advantage in International Markets Use international location to lower costs or differentiate product. Share resources and capabilities across country borders. Gain cross-border resource coordination opportunities unavailable to domestic rivals. © McGraw Hill Using Location to Build Competitive Advantage Key Location Issues: To customize offerings in each country market to match tastes and preferences of local buyers. To pursue a strategy of offering a mostly standardized product worldwide. © McGraw Hill Companies that compete internationally can pursue competitive advantage in world markets by locating their value chain activities in whatever nations prove most advantageous. When to Concentrate Activities in a Few Locations The costs of manufacturing or other activities are significantly lower in some geographic locations than in others. There are significant scale economies in production or distribution. There are sizable learning and experience benefits associated with performing an activity in a single location. Certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages. © McGraw Hill It is advantageous for a company to concentrate its activities in a limited number of locations for the reason of costs, scale, learning and experience, and availability of resources. When to Disperse Activities across Many Locations Buyer-related activities can be conducted at a distance. There are high transportation costs. There are diseconomies of large size. Trade barriers make a central location too expensive. Dispersing activities reduces exchange rate risks. Dispersion helps prevent supply interruptions. Dispersion helps avoid adverse political developments. Dispersion allows for location-based technology and production cost competitive advantages. © McGraw Hill In some instances, dispersing activities across locations is more advantageous than concentrating them when costs and business risks can be lowered through localization of activities. Sharing and Transferring Resources and Capabilities across Borders to Build Competitive Advantage Building a resource-based competitive advantage requires: Using powerful brand names to extend a differentiation-based competitive advantage beyond the home market. Coordinating activities for sharing and transferring resources and production capabilities across different countries’ domains to develop market dominating depth in key competencies. © McGraw Hill When a company has competitively valuable resources and capabilities, it may be able to leverage them further by expanding internationally. If its resources retain their value in foreign contexts, then entering new foreign markets can extend the company’s resource-based competitive advantage over a broader domain. Sharing and transferring resources and capabilities across country borders may also contribute to the development of broader or deeper competencies and capabilities— helping a company achieve dominating depth in some competitively valuable area. Cross-Border Strategic Moves Offensive strategic options: Based on international competitor’s strong or protected market position in more than one country. Cross-market subsidization: Supporting competitive offensives in one market with resources and profits diverted from operations in another market—a powerful competitive weapon. Defensive Strategic Moves: A defensive action involving multiple markets. © McGraw Hill Firms can choose either offensive or defensive options for conducting strategic operations when competing in international markets. Dumping as a Strategy Dumping: This involves selling goods in foreign markets at prices that are either below normal home market prices or below the full costs per unit. Dumping is NOT a fair-trade practice. Governments can be expected to retaliate against such practices by foreign competitors. The World Trade Organization (WTO) actively polices dumping to discourage such practices. © McGraw Hill When taken to the extreme, cut-rate pricing attacks by international competitors may draw charges of unfair “dumping.” A company is said to be dumping when it sells its goods in foreign markets at prices that are (1) well below the prices at which it normally sells them in its home market or (2) well below its full costs per unit. Defending Against International Rivals Firm A moves against Firm B in Country B. Firm B counters with a response in Country C. © McGraw Hill Cross-border tactics involving multiple country markets can be used as a means of defending against the strategic moves of rivals with multiple profitable markets of their own. If a company finds itself under competitive attack by an international rival in one country market, one way to respond is to conduct a counterattack against the rival in one of its key markets in a different country—preferably where the rival is least protected and has the most to lose. When the same companies compete against one another in multiple geographic markets, the threat of cross-border counterattacks may be enough to deter aggressive competitive moves and encourage mutual restraint among international rivals. Strategies for Competing in Developing-Country Markets Prepare to compete based on low price. Prepare to modify the firm’s business model or strategy to accommodate local circumstances. Try to change the local market to better match the way the firm does business elsewhere. Stay away from developing markets where it is impractical or uneconomical to modify the company’s business model to accommodate local circumstances. © McGraw Hill Companies racing for global leadership must consider competing in developing-economy markets like China, India, Brazil, Indonesia, Thailand, Poland, Mexico, and Russia—countries where the business risks are considerable but where the opportunities for growth are huge, especially as their economies develop and living standards climb toward levels in the industrialized world. There are several options for tailoring a company’s strategy to fit the sometimes unusual or challenging circumstances presented in developing-country markets. Defending against Global Giants: Strategies for Local Companies in Developing Countries Develop a business model that exploits shortcomings in local distribution networks or infrastructure. Utilize knowledge of local customer needs and preferences to create customized products or services. Take advantage of aspects of the local workforce with which large multinational firms may be unfamiliar. Use acquisition and rapid-growth strategies to defend against expansion-minded internationals. Transfer company expertise to cross-border markets and initiate actions to contend on an international level. © McGraw Hill Profitability in developing markets rarely comes quickly or easily—new entrants must adapt their business models to local conditions and be patient in earning a profit. When opportunity-seeking, resource-rich international companies seek to enter developing-country markets; studies of local companies in developing markets have disclosed five strategies that have proved themselves in defending against globally competitive companies. ILLUSTRATION CAPSULE 7.3 WeChat’s Strategy for Defending against International Social Media Giants in China What were the key elements of WeChat’s business model that allowed it to successfully fend off the entry of major international rivals in its market? What changes in WeChat’s external competitive environment will eventually threaten its continued success? How could the Diamond of National Competitive Advantage be useful to WeChat in predicting the likelihood of its continued success in China? © McGraw Hill WeChat has been able to surpass international rivals, because by better understanding local Chinese customer needs, it can anticipate their desires. WeChat added features that allow users to check traffic cameras during rush hour, purchase tickets to movies, and book doctors’ appointments all on the app. Due to common scheduling difficulties, booking doctors’ appointments is a feature that is wildly popular with the Chinese customer base. Essentially, WeChat created its own distribution network for sought-after information and goods in busy Chinese cities. End of Main Content © 2022 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior …