COMPETING INTERNATIONALLY: THE THREE MAIN STRATEGIC APPROACHES

Corporate / Business level Strategies

COMPETING INTERNATIONALLY: THE THREE MAIN STRATEGIC APPROACHESMultidomestic StrategyGlobalStrategyTransnational StrategyCompeting Internationally

Approaches to International StrategyMultidomestic StrategyVaries product offerings and competitive approaches from country to country.Global StrategyEmploys the same basic competitive approach in all countries where the firm operates.Transnational StrategyIs a think-global, act-local approach that incorporates elements of both multidomestic and global strategies.

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Three Approaches for Competing Internationally

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Advantages and Disadvantages of Multidomestic, Global, and Transnational Approaches

Multidomestic ApproachAdvantagesDisadvantagesCan meet the specific needs of each market more preciselyCan respond more swiftly to localized changes in demandCan target reactions to the moves of local rivalsCan respond more quickly to local opportunities and threatsHinders resource and capability sharing or cross-market transfersHigher production and distribution costs Not conducive to a worldwide competitive advantage

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Advantages and Disadvantages of Multidomestic, Global, and Transnational Approaches (contd)

Transnational ApproachAdvantagesDisadvantagesOffers the benefits of both local responsiveness and global integrationEnables the transfer and sharing of resources and capabilities across bordersProvides the benefits of flexible coordination More complex and harder to implementConflicting goals may be difficult to reconcile and require trade-offsImplementation more costly and time-consuming

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Advantages and Disadvantages of Multidomestic, Global, and Transnational Approaches (contd)

Global ApproachAdvantagesDisadvantagesLower costs due to scale and scope economiesGreater efficiencies due to the ability to transfer best practices across marketsMore innovation from knowledge sharing and capability transferThe benefit of a global brand and reputation Unable to address local needs preciselyLess responsive to changes in local market conditionsHigher transportation costs and tariffsHigher coordination and integration costs

STRATEGIC OPTIONS FOR ENTERINGAND COMPETING IN INTERNATIONAL MARKETSMaintain a national (one-country) production base and export goods to foreign markets.License foreign firms to produce and distribute the firms products abroad.Employ an overseas franchising strategy.Establish a wholly-owned subsidiary by either acquiring a foreign company or through a greenfield venture.Form strategic alliances or joint ventures with foreign companies.

Export StrategiesAdvantagesLow capital requirementsEconomies of scale in utilizing existing production capacityNo distribution risk No direct investment riskDisadvantagesMaintaining relative cost advantage of home-based productionTransportation and shipping costsExchange rates risksTariffs\import dutiesLoss of channel controlUsing domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales.

Licensing and Franchising StrategiesAdvantagesLow resource requirementsIncome from royalties and franchising feesRapid expansion into many marketsDisadvantagesMaintaining control of proprietary know-howLoss of operational and quality controlAdapting to local market tastes and expectationsLicensing makes sense when a firm with valuable technical know-how, an appealing brand, or 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.

Acquisition StrategiesAdvantagesHigh level of controlQuick large-scale market entryAvoids entry barriersAccess to acquired firms skillsDisadvantagesCosts of acquisitionComplexity of acquisition processIntegration of the firms structures, cultures, operations and personnelAcquisition strategies have the advantages of a high level of control as well as speed, which can be significant factor when a firm wants to enter a foreign market at a relatively large scale.

Greenfield StrategiesAdvantagesHigh level of control over ventureLearning by doing in the local marketDirect transfer of the firms technology, skills, business practices, and cultureDisadvantagesCapital costs of initial developmentRisks of loss due to political instability or lack of legal protection of ownershipSlowest form of entry due to extended time required to construct facilityGreenfield venture strategy is one in which the company creates a subsidiary business in the foreign market by setting up the entire operation (plants, distribution system, etc) from the ground up.

Alliance and Joint Venture StrategiesAdvantagesAvoid entry barriersAllow for resource and risk sharingPartners knowledge of local market conditionsJoint learning and sharingPreservation of partner independenceDisadvantagesCultural and language barriersCosts of establishing the working arrangementIssues of joint controlProtection of proprietary technology or competitive advantage

THE FIVE GENERIC COMPETITIVE STRATEGIES -Which One to Employ ?

Why Do Strategies Differ?Is the competitive advantagepursued linked to low costs or product differentiation?Is the firms market target broad or narrow?Key factors that distinguish one strategy from another

THE FIVE GENERIC COMPETITIVE STRATEGIESLow-Cost ProviderStriving to achieve lower overall costs than rivals on products that attract a broad spectrum of buyers.Broad DifferentiationDifferentiating the firms product offering from rivals with attributes that appeal to a broad spectrum of buyers.Focused Low-CostConcentrating on a narrow price-sensitive buyer segment and on costs to offer a lower-priced product.Focused DifferentiationConcentrating on a narrow buyer segment by meeting specific tastes and requirements of niche membersBest-Cost ProviderGiving customers more value for the money by offering upscale product attributes at a lower cost than rivals

The Five Generic Competitive Strategies: Each Stakes Out a Different Market Position

Distinguishing Features of the Five Generic Competitive Strategies

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Distinguishing Features of the Generic Competitive Strategies (contd)

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Distinguishing Features of the Generic Competitive Strategies (contd)