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Why Companies Expand Into
International Markets
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Factors That Shape Strategy Choices
in International markets
1. The degree to which there are important cross-
country differences in demographic, cultural,
market conditions.
2. Whether opportunities exist to gain a location-
based advantage based on wage rates, worker
productivity, inflation rates, energy costs, tax
rates, and other factors that impact cost structure.
3. The risks of adverse shifts in currency exchange
rates.
4. The extent to which governmental policies affect
the local business climate.
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Cross-Country Differences in Demographic,
Cultural, and Market Conditions
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How Markets Demographics Differ
from Country to Country
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How Markets Demographics Differ
from Country to Country
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Opportunities for Location-Based
Cost Advantages
Wage Environmental
rates regulations
Energy Inflation
costs rates
Access to
resources
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Opportunities for Location-Based
Cost Advantages
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The Risks of Adverse
Exchange Rate Shifts
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The Impact of Government Policies on
the Business Climate in Host Countries
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The Impact of Host Government Policies
on the Business Climate (contd)
Negative
Customs requirements, impact of host Local ownership or
tariffs and quotas government partner requirements
policies
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The Impact of Host Government Policies
on the Business Climate (contd)
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CORE CONCEPT
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Strategy Options for Entering
Foreign Markets
1. Maintain a national (one-country) production base
and export goods to foreign markets.
2. License foreign firms to produce and distribute the
companys products abroad.
3. Employ a franchising strategy.
4. Establish a subsidiary in a foreign market via
acquisition or internal development.
5. Rely on strategic alliances or joint ventures with
foreign partners to enter new country markets.
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Export Strategies
Exporting involves using domestic plants as a
production base for exporting to foreign markets.
Advantages:
Conservative way to test international waters.
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Licensing Strategies
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Franchising Strategies
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Foreign Subsidiary Strategies
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Internal Development and Start-up
of a Foreign Subsidiary
An internal start-up strategy is appealing when:
The parent firm has the experience, competencies, and
resources required to develop and operate foreign subsidiaries.
Creating an internal start-up is less costly than making
an acquisition in a foreign market.
Adding new production capacity will not adversely impact
the supplydemand balance in the local market.
The start-up subsidiary can gain access to local distribution
networks (perhaps due to the firms recognized brand name).
A start-up subsidiary will have the size, cost structure, and
resources to compete head-to-head against local rivals.
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Alliance and Joint Venture Strategies
Mutual Benefits of Cross-Border Alliances:
Facilitating first entry into foreign markets
Strengthening of a firms competitiveness in world markets
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Alliance and Joint Venture Strategies
(contd)
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Concepts & SOLAZYMES CROSS-BORDER ALLIANCES WITH UNILEVER,
Connections 7.1 SEPHORA, QANTAS, AND ROQUETTE
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The Risks of Strategic Alliances
with Foreign Partners
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International Strategy:
The Three Principal Options
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International Strategy:
The Three Principal Options
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CORE CONCEPT
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FIGURE 7.1 A Companys Three Principal Strategic Options
for Competing Internationally
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Multidomestic StrategyA Think Local,
Act Local Approach to Strategy Making
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CORE CONCEPT
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Global StrategyA Think Global, Act
Global Approach to Strategy Making
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CORE CONCEPT
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Transnational StrategyA Think Global,
Act Local Approach to Strategy Making
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CORE CONCEPT
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Using International Operations to
Improve Overall Competitiveness
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Using Location to Build
Competitive Advantage
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When to Concentrate Internal Processes
in a Few Locations
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Using Cross-Border Coordination
to Build Competitive Advantage
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Concepts & YUM! BRANDSS STRATEGY FOR BECOMING
Connections 7.2 THE LEADING FOOD SERVICE BRAND IN CHINA
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Strategies for Competing in the Markets
of Developing Countries
Developing-Economy Markets
China, India, Brazil, Indonesia, Thailand, Poland,
Russia, and Mexicocountries where business risks
are considerable but opportunities for growth are
huge as their economies develop and living standards
climb toward those of the industrialized world.
Tailoring products to fit conditions in
emerging markets often involves:
Making more than minor product adaptations.
Becoming more familiar with local cultures and habits.
Rethinking pricing, packaging and product features.
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Strategy Options for Competing in
Developing-Country Markets
Prepare to compete on the basis of low price.
Modify aspects of the firms business model or
strategy to accommodate local circumstances.
Try to change the local market to better match the
way the firm does business elsewhere.
Shun emerging markets where it is impractical or
uneconomical to modify the firms business model
to accommodate local circumstances.
Be patient, work within the system to improve the
infrastructure, and lay the foundation for generating
sizable revenues and profits once conditions are
ripe for market take-off.
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