This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Chapter 7: Why companies decide to enter foreign markets? 1. to gain access to new customers 2. to achieve lower costs and economies of scales 3. to exploit core competencies 4. to access resources and capabilities in foreign markets 5. to spread business risk across a wider market base Why competing across national borders makes strategy making more complex: 1. industry competitiveness factors that vary from country to country 2. location-based advantages for certain countries 3. differences in government policies and economic conditions 4. currency exchange rate risks 5. differences in cultural, demographic, and market conditions The diamond of national advantage: Demand conditions: home-market relative size; domestic buyers needs Related/supporting industries: proximity of suppliers, end users, and complementary industry Factor conditions: availability, quality, and relative prices of inputs Firm strategy, structure, and Rivalry Diamond Framework Competing on an international basis: Predicting where new foreign entrants are likely to come from their strengths Highlighting foreign market opportunities where rivals are weakest Identifying the location-based advantages of conducting certain value chain activities of the firm in a particular country Reasons for locating value chain activities for competitive advantage • 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/unique natural resources 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 Political and economic risks Stem from instability or weaknesses in national governments and hostility to foreign business Economic risks: stem from stability of a country’s monetary system, economic and regulatory policies, lack of property rights protections, and risks due to exchange rate fluctuation The risks of adverse exchange rate shifts Effects of 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 Cross country diffenreces in demographic, cultural, and market conditions Key strategic considerations – to customize offerings in each country market to match the tastes and preferences of local buyers- to pursue a strategy of offering a mostly standardized product worldwide The concepts of multidomestic competition and global completion...
View Full Document
- Spring '10