Chapter 7: Strategies for Competing in Foreign Markets

1. Chapter 7: Strategies for Competing in Foreign Markets Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University

2. The Four Big Strategic Issuesin Competing Multinationally • Whether to customize a company’s offerings in each different country market to match preferences of local buyers or offer a mostly standardizedproduct worldwide • Whether to employ essentially the samebasic competitive strategy in all countriesor modify the strategy country by country • Where to locate a company’s production facilities,distribution centers, and customer service operations to realize the greatest locational advantages • How to efficiently transfer a company’s resource strengths and capabilitiesfrom one country to another to secure competitive advantage

3. Why Do Companies Expandinto Foreign Markets? Gain access to new customers Obtain access to valuable natural resources Achieve lowercosts and enhance competitiveness Spread business risk across widermarket base Capitalize on core competencies

4. International vs. Global Competition Company operates in a select few foreign countries, with modest ambitions to expand further International Competitor Company markets products in 50 to 100 countries andis expanding operations into additional country markets annually Global Competitor

5. Factors Shaping Strategy Choices in Foreign Markets Cross-country differences in cultural, demographic, and market conditions Gaining competitive advantage basedon where activities are located Risks of adverse shifts incurrency exchange rates Impact of host government policieson the local business climate

6. How Markets Differ from Country to Country • Consumer tastes and preferences • Consumer buying habits • Market size and growth potential • Distribution channels • Driving forces • Competitive pressures One of the biggest concerns of companies competing in foreign markets is whether tocustomizetheir product offerings in each different country market to match the tastes and preferences of local buyers or whether tooffera mostly standardized product worldwide.

7. Differences in HostGovernment Trade Policies • Local content requirements • Restrictions on exports • Regulations on prices of imports • Import tariffs or quotas • Other regulations • Technical standards • Product certification • Prior approval of capital spending projects • Withdrawal of funds from country • Ownership (minority or majority) by local citizens

8. Multi-country Competition Global Competition Two Primary Patternsof International Competition

9. Strategy Options for Competing in Foreign Markets • Exporting • Licensing • Franchising strategy • Strategic alliances orjoint ventures • Multi-country strategy • Global strategy

10. Export Strategies • Involve using domestic plants as a production base for exporting to foreign markets • Excellent initial strategy topursue international sales • Advantages • Conservative way to test international waters • Minimizes both risk and capital requirements • Minimizes direct investments in foreign countries • An export strategy is vulnerable when • Manufacturing costs in home country are higherthan in foreign countries where rivals have plants • High shipping costs are involved • Adverse fluctuations in currency exchange rates occur

11. Licensing Strategies • Licensing makes sense when a firm • Has valuable technical know-how or a patented product but does not have international capabilities to enter foreign markets • Desires to avoid risks of committing resources to markets which are • Unfamiliar • Politically volatile • Economically unstable • Disadvantage • Risk of providing valuable technical know-how to foreign firms and losing some control over its use

12. Franchising Strategies • Often is better suited to global expansion efforts of service and retailing enterprises • Advantages • Franchisee bears most of costs andrisks of establishing foreign locations • Franchisor has to expend only theresources to recruit, train, and support franchisees • Disadvantage • Maintaining cross-country quality control

13. Achieving Global Competitivenessvia Cooperative Agreements • Cooperative agreements withforeign companies are a means to • Enter a foreign market or • Strengthen a firm’scompetitiveness in world markets • Purpose of alliances / joint ventures • Joint research efforts • Technology-sharing • Joint use of production or distribution facilities • Marketing / promoting one another’s products

14. Strategic Appeal of Strategic Alliances • Gain better access to attractive country markets • Capture economies of scale in production and/or marketing • Fill gaps in technical expertise or knowledge of local markets • Share distribution facilities and dealer networks • Direct combined competitive energies toward defeating mutual rivals • Take advantage of partner’s local marketknowledge and working relationships withkey government officials in host country • Useful way to gain agreement onimportant technical standards

15. Pitfalls of Strategic Alliances • Overcoming language and cultural barriers • Dealing with diverse or conflicting operating practices • Time consuming for managers interms of communication,trust-building, and coordination costs • Mistrust when collaborating in competitively sensitive areas • Clash of egos and company cultures • Dealing with conflicting objectives, strategies, corporate values, and ethical standards • Becoming too dependent on another firm for essential expertise over the long-term

16. What Is a “Think-Local, Act-Local” Approach to Strategy Making? A company varies its product offerings and basic competitive strategy from country to countryin an effort to be responsive todiffering buyer preferencesand market conditions.

17. What Is a “Think-Global, Act-Global” Approach to Strategy Making? A company employs the same basic competitive approach in all countries where it operates.

18. What Is a “Think-Global, Act-Local” Approach to Strategy Making? A company uses the same basiccompetitive theme in each country but gives local managers the latitude to • Incorporate whatever country-specific variations in product attributes are needed to best satisfy local buyers and • Make whatever adjustments in production, distribution, and marketing are needed to compete under local market conditions.

19. The Quest for CompetitiveAdvantage in Foreign Markets • Three ways to gain competitive advantage 1.Locating activities among nationsin ways that lower costs or achievegreater product differentiation 2.Efficient/effective transfer of competitivelyvaluable competencies and capabilities fromcompany operations in one country to company operations in another country 3.Coordinating dispersed activities in ways a domestic-only competitor cannot

20. Characteristics of Competingin Emerging Foreign Markets • Tailoring products for big, emerging markets often involves • Making more than minor product changes and • Becoming more familiar with local cultures • Companies have to attract buyers withbargain prices as well as better products • Specially designed and/or speciallypackaged products may be needed toaccommodate local market circumstances • Management team must usually consistof a mix of expatriate and local managers

21. Strategic Options: How to Competein Emerging Country Markets • Prepare to compete on the basis of low price • Be prepared to modify aspects ofthe company’s business model toaccommodate local circumstances • Try to change the local marketto better match the way thecompany does business elsewhere • Stay away from those emerging markets where it is impractical or uneconomicto modify the company’s businessmodel to accommodate local circumstances

22. Chapter 9: Ethical Business Strategies, Social Responsibility, and Environmental Sustainability Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University

23. Linking Strategy to Ethicsand Social Responsibility Key Issues • Should there be a link between a company’s efforts to craft and execute a winning strategy and its dutiesto • Conduct activities in an ethical manner? • Demonstrate socially responsible behavior by • Being a committed corporate citizen? • Attending to needs ofnon-owner stakeholders? • Limit its strategic initiatives to those meeting needs of consumers without depleting resources needed by future generations

24. What Is Business Ethics? • Business ethics involves applying general ethical principles and standards to business behavior • Ethical principles in business are not different from ethical principles in general • Business actions are judged • By general ethical standards of society • Not by a set of rules businesspeopleapply to their own conduct

25. How Do Ethical Standards Impact the Tasks of Crafting and Executing Strategy? • Two sets of questions must be considered by senior executives when reviewing a new strategic initiative • Is what we are proposing to do fully compliant with our code of ethical conduct? Is there anything here that could be considered ethically objectionable? • Is it apparent that this proposed action is in harmony with our core values? Are any conflicts or concerns evident? The litmus test of a company’s code of ethics isthe extent to which it is embraced in crafting strategy and in operating the business day to day!

26. Ethical Universalism Ethical Relativism Integrative Social Contracts Theory Are Ethical Standards Universal or Dependent on Local Norms? Three schools of thought regarding extentto which ethical standards can be applied . . .

27. Concept of Ethical Universalism • According to the school of ethical universalism. . . • Same standards of what is ethical andwhat is unethical resonate with peoplesof most societies regardless of • Local traditions and • Cultural norms • Thus, common ethical standards can be used to judge conduct of personnel at companies operating in a variety of • Country markets and • Cultural circumstances

28. Examples of UniversalEthical Principles or Norms • Honesty • Trustworthiness • Respecting rights of others • Practicing the Golden Rule • Treating people with dignity and respect • Exercising due diligence in product safety • Acting in a manner that does not • Harm others or • Pillages the environment

29. Concept of Ethical Relativism • According to the school of ethical relativism . . . • Different societies/cultures/countries • Put more/less emphasis on some values than others • Have different standards of right and wrong • Have different social moresand behavioral norms • What is ethical or unethical • Must be judged in light of localcustoms and social mores and • Can vary from one country to another

30. Payment of Bribes and Kickbacks • A thorny ethical problem is facedby multinational companies • Degree of cross-country variability in payingbribes as part of business transactions • Companies forbidding payment of bribes in their codes of ethics face a formidable challenge in countries where payments are entrenched as a local custom • Foreign Corrupt Practices Act prohibits U.S. companies from paying bribes in all countries where they do business

31. Ethical Relativism =Multiple Sets of Ethical Standards • Proponents of the ethical relativism school maintain there are • Few ethical absolutes to judge a company’sconduct in various countries • Plenty of situations where ethicalnorms are contoured to fit • Local customs and traditions • Local beliefs about what is fair • Local standards of “right” and “wrong” • Ethical problems in business cannot be fully resolved without appealing to the shared convictions of the parties in question

32. Concept of IntegrativeSocial Contracts Theory • According to the integrative social contracts theory,the ethical standards a company should try to uphold are governed by both • A limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and • The circumstances of local cultures,traditions, and shared values that further prescribe what constitutes • Ethically permissible behavior and • What does not

33. Moral manager Managerial ethical and moral principles Immoral manager Amoral manager Three Categories of Management Morality

34. Characteristics of a Moral Manager • Dedicated to high standards of ethical behavior in • Own actions • How the company’s business is to be conducted • Considers it important to • Be a steward of ethical behavior • Demonstrate ethical leadership • Pursues business success • Within confines of both letter and spirit of laws • With a habit of operating well above what laws require

35. Characteristics of an Immoral Manager • Actively opposes ethical behavior in business • Willfully ignores ethical principles in making decisions • Views legal standards as barriers to overcome • Pursues own self-interests • Is an example of self-serving greed • Ignores interests of others • Focuses only on bottom line –making one’s numbers • Will trample on others to avoid being trampled upon

36. Characteristics of anIntentionally Amoral Manager • Believes business and ethics should notbe mixed since different rules apply to • Business activities • Other realms of life • Does not factor ethical considerations intoown actions since business activity liesoutside sphere of moral judgment • Views ethics as inappropriate fortough, competitive business world • Concept of right and wrong islawyer-driven (what can we get bywith without running afoul of the law)

37. Characteristics of an Unintentionally Amoral Manager • Is blind to or casual about ethics ofdecision-making and business actions • Displays lack of concern regardingwhether ethics applies to company actions • Sees self as well-intentionedor personally ethical • Typical beliefs • Do what is necessary to comply with laws and regulations • Government provides legal framework stating what society will put up with—if it is not illegal, it is allowed

38. Evidence of Managerial Immoralityin the Global Business Community • Evidence exists a sizable majority of managers are either • Amoral or • Immoral • Results of recent issues of the Global Corruption Report indicate corruption is widespread across the world • Corruption extends beyond bribes and kickbacks

39. What Are the Drivers of Unethical Strategies and Business Behavior? Large numbers of immoraland amoral business people Overzealous pursuit of personal gain, wealth, and other selfish interests Heavy pressures on company managersto meet or beat earnings targets Company cultures that place profits andgood performance ahead of ethical behavior

40. Heavy Pressures on Company Managersto Meet or Beat Earnings Targets • Managers often feel enormous pressure to do whatever it takesto deliver good financial performance • Actions often taken by managers • Cut costs wherever savings show up immediately • Squeeze extra sales out of early deliveries • Engage in short-term maneuvers to make the numbers • Stretch rules to extreme, until limits of ethical conduct are overlooked • Executives feel pressure to hit performance targets since their compensation depends heavily on company performance • Fundamental problem with a “make the numbers” syndrome • Company does not create additional value for customers or improve its competitiveness

41. Company Cultures that Put BottomLine Ahead of Ethical Behavior • In an ethically corrupt or amoral work climate, people have a company-approved license to • Ignore “what’s right” • Engage in most any behavior or employ mostany strategy they think they can get away with • Pressures to conform to cultural norms can prompt otherwise honorable people to • Make ethical mistakes • Succumb to the many opportunitiesto engage in unethical practices

42. Why Ethical Strategies Matter • An unethical strategy • Is morally wrong • Reflects badly on the character of company personnel • An ethical strategy is • Good business • In the best interest of shareholders

43. Characteristics of Managers Committedto Ethical Approaches to Strategy-Making • Possess strong moral and ethical characteristics • Strongly advocate a corporate codeof ethics and strict ethics compliance • Display genuine commitment to certain corporate values and business practices • Walk the talk in • Displaying a company’s stated values • Living up to ethical business principles and standards • Adopt values statements/ethics codes that truly paint the white lines for a company’s business practices • Consciously opt for strategic actions passing moral scrutiny

44. Figure 9.1: The Business Costs of Ethical Failures

45. Approaches to Managing a Company’s Ethical Conduct Unconcerned or Nonissue Approach Damage Control Approach Compliance Approach Ethical Culture Approach

46. What Is Corporate Social Responsibility? • The notion that corporate executives should balance interests of all stakeholders began to blossom in the 1960s • Social responsibility as it applies to businesses concerns a company’s dutyto • Operate in an honorable manner • Provide good working conditions for employees • Be a good steward of the environment • Actively work to better quality of life in • Local communities where it operates and • Society at large

47. Figure 9.2: Demonstrating a Social Conscience: The FiveComponents of Socially Responsible Business Behavior

48. What Is a Social Responsibility Strategy? • A company’s specific combinationof socially beneficial and community citizenship activities it opts to support via contributions of • Time, • Money, • Other resources.

49. What Is an Environmental Sustainability Strategy? • A company’s concerted actions to meet current needs of all stakeholders to • Protect the environment, • Provide for the longevityof natural resources, • Maintain ecological supportsystems for future generations, and • Guard against ultimate endangermentof the planet.

50. Crafting Social Responsibility and Sustainability Strategies • The socially responsible/sustainability strategies a company pursues impacts its ability to achieve a competitive advantage • Management should match a company’ssocial responsibility/sustainabilty strategy to its • Core values • Business mission • Overall strategy • Some companies are integrating social responsibility and/or environmentally sustainability objectives into their • Missions • Performance targets • Strategies