international strategies competing in foreign markets

International Strategies

Competing in Foreign Markets

Winning New Business Abroad 2

Agenda• Why look abroad?

– The business benefits of trading abroad

• What opportunities are out there?– The business benefits of trading abroad– Identifying your markets

• The Export Process– strategies for success

• Analysing your competitors– Understand your key competitors

• How to get started in International Trade– What support is available?

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Barriers to Export

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Why Look AbroadWhat are the benefits of Export?

• Financial – increase turnover and command tighter margins

• Strategic – Ease dependence on domestic markets

• Operational – Exposure to new practices, new products and marketing ideas– Providing you with a highly skilled workforce


Why Look AbroadWhat are the benefits of Export?


Why Expand into Foreign Markets

• Gain access to new customers– Offers potential for increased revenues– Particularly when domestic markets are mature or

saturated• Achieve lower costs and enhance firm’s

competitiveness– Domestic sales volume is not large enough to fully capture

economies of scale– Smaller European countries, eg Ireland grow has come

from exports as domestic demand is insufficient to sustain growth

Why Expand into Foreign Markets cont.

• To capitalise on its core competencies– A firm may be able to leverage its competencies in foreign

countries as well as its domestic market, eg. Nokia

• To spread business risk across a wider market base– Spread business risk by operating in a number of countries

rather than depending on its domestic market entirely, EG. Downturn in the Japanese economy

Other Reasons for International Diversity

Market-based Exploit cultural/geographic differences

Globalisation of markets & competition Cash in on differences in culture

Following customers Administrative differences

Specific geographical/economic differences

Utilise strategic capabilities Economic benefits

Broaden market size Economies of scale

Internationalise value-adding activities Stabilisation of earnings across markets

Enhance knowledge

• Improve productivity

• Achieve levels of growth not possible domestically

• Increase commercial lifespan of products

• Improve financial performance

• Increase resilience of revenues and profits


Why Look AbroadCompanies that export;

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Whatever your product or service; as a potential exporter you must understand key issues including;


Commitment and Planning

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Its essential to develop export and marketing plans.

This will help identify where you are now, where you are going and how to get there.


Am I ready to export?

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Am I ready to Export?

• Do you have an exportable product or service?

• Is your product selling in the UK?

• Have you already received export sales?

• Do you have the capacity to increase production?

• Do you have finance available?

• Have you researched any markets?


The Export Process


Identifying your market• Market research methods• Country and market selection• Competing companies, products and services• Market entry models• Relevant regulations and requirements• Product liability• Freight and export documentation• Finance for export


Domestic or International Expansion

Which International Markets

How to Enter these Markets

Operationalising

KEY INTERNATIONALISING

DECISIONS

WHICH MARKETS TO CHOOSE

• Most text books advocate a logical and sequential process for choosing international markets– Geographical and cultural proximity

• In practice a number of approaches can be used

Macro level Research (general market potential)

General market relating to product/service

Micro level Research (specific factors affecting the product)

Target Markets

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T

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Countries Priority List

Filter 1

Filter 2

Filter 3

Filter 4

Factors for Market Selection and Entry • Macro-economic conditions• Political environment• Infrastructure

– Transport and communication– Availability of local resources– Tariff and non-tariff trade barriers

• Cultural norms and social structures

Factors for Market Selection and Entry• Political & legal risks

– Sovereign risk– Absence of regulation and control

• Protection of intellectual property• Corruption

– International risk– Security risk

Routes to MarketHow will you sell into the market?What do you need to be effective?


Time

LEVEL

OF

INVOVEMENT

Risk & Return

Control

Exporting

Licensing & Franchising

Joint Ventures & S. A

Direct Investment

Entry Modes

Exporting

• Indirect Exporting– Via a domestic client– Piggy backing

• Direct Export– Via distributors– Direct selling– Mail order– On-line

Advantages & Disadvantages

• Advantages– Easiest and least costly way– Gain from local knowledge of agent or distributor– Relatively low investment costs– Internet access for small firms

Exporting

• Disadvantages– Lower profit potential– Loss of control over marketing– Lack of feed back from market – Identifying suitable agent/distributor – Agency agreements of agent– Transportation costs

Licensing

• An international licensing agreement grants the rights of a firm in the host country to either produce or sell a product or both in return for royalty payments (Deresky, 2000)

• Useful when a firm has neither the resources or capabilities to directly enter foreign markets– Patents – Trademarks

Advantages

• Rapid entry to foreign markets• Does not require large capital investment• Reduces problems– Trade barriers– Foreign ownership issues

• Avoids committing resources in unstable, politically volatile countries

Disadvantages

• Creates a competitor• Control over licensee and product quality• Safeguarding IP• If the royalty potential is considerable

Franchising

• One of the most rapidly growing methods of foreign market entry

• Often better suited to the global expansion of retail and services enterprises– EG. McDonalds. KFC, Hilton Hotels, Holiday Inn

Franchising- advantages

• Rapid entry and market penetration can be achieved

• The franchisee bears most of the costs and risks of establishing in foreign locations– Franchiser bears costs of training, support and

monitoring

Franchising- Disadvantages

• The big problem the franchiser faces is maintaining quality control, standards and consistency

• Will the franchisee modify to the franchiser’s product?

Joint Ventures

• Seeking a foreign partner with which to establish a new separate business entity owned jointly by the 2+ parents.

• Undertaking by the entities to achieve business goals through a collaborative effort and to share profits and losses by doing so.

Joint Ventures- Types

• Dominant parent– A venture where one of the parents is clearly dominant in

terms of size and market share

• Independent child– The joint subsidiary operates at arms length from the

corporate parents

• Multi-parent– Where there are several parent companies, eg. Airbus

Reasons for Joint Ventures

• To acquire market expertise/knowledge/distribution channels in unfamiliar overseas markets

• Expansion with limited outlay of capital. • The risks and costs of international expansion are

shared. • Necessary to gain entry into certain markets, when,

for example, government legislation requires local participation, eg. China

• To improve sales prospects, particularly in terms of government and public sector contracts

Issues with Joint Ventures• Conflicting objectives of partners– EG. Profit/dividend policy, sourcing, production and pricing

issues• Trade-off between the drive for control and the quest

for additional resources (Stopford & Wells, 1972)• Lack of synergy• High “divorce” rate– 45% judged as successful– 60% lasted longer than 4 years– 14% lasted more than 10 years

Strategic Alliances• Companies from different parts of the world have

formed S.A.s to strengthen their mutual ability to serve whole continents and move toward global market participation– USA and Japanese firms forming S.A.s with European

firms to enter the E.U with an eye to the emerging markets of the new states

• S.A.s are increasingly undertaken for strategic reasons to achieve competitive advantage in terms of technology and product development, cost reduction and marketing, – Examples, Volvo/Renault, Philips/Matsushita

Types of Strategic Alliances• Porter and Fuller (1986) suggest that strategic

alliances can occur at any point along the value chain– Technology development– Operations and logistics– Marketing sales and service– Multiple activity

• Type X– Divide value chain activities among themselves, eg

aircraft industry• Type Y– Firms co-operate in the same value chain activities

Motivation for Strategic Alliances

• Learning– Organisational – Technology– geographical

• Cost minimisation – Financial/marketing/research/sourcing

• Market positioning– Market access

Issues with Strategic Alliances

• Managing relationship. Eg Northwest Airlines and KLM in Detroit and Amsterdam

• Implications of downside risk when the relationship fails, and how that affects the company’s value chain. eg. Honda/Rover– Suggests that firms need to have an exit strategy

Issues with Strategic Alliances

• Rigidity of decision making : flexibility of response and policy changes could be more difficult as a result of international collaboration. Eg. BT and AT&T 8 months to find a CEO

• Hidden Agenda? Is one partner using the coalition to acquire the partner’s IP and expertise

• Dependability. S.A could prevent one partner from moving down the experience curve

Guidelines for Successful S.A.s

• Complementary• Agreement on Objectives• Compatible Strategies• Compatible cultures• Comparable rewards• Stakeholder blessing• Thorough and lengthy planning process

Foreign Direct Investment (FDI)

The control of manufacturing plants or other productive assets in the foreign market place

through whole or part ownership– Via acquisition & mergers –dominant mode of FDI– Greenfield operation –Seagate, Ford in Valencia,

Volkswagen/Skoda in Czech Rep– Equity buy-out – Toyota/General Motors

Advantages of FDI

• Control of resources/capabilities• Integration/coordination of activities across countries• Acquisitions – rapid entry • Greenfield – state of art and government finance try• Attractiveness of host country– Low wages, lower Corp. tax, government subsidies

Disadvantages of FDI

• Substantial investment – financial exposure• Problems of integration/coordination of

acquisitions• Greenfield – time consuming and

unpredictable cost• Political and economic risk exposure

International Mergers and Acquisitions

• Acquisitions and Mergers involve change in corporate ownership

• “Friendly” acquisition = agreed by management

• “Hostile” acquisition= contested by the targeted company’s management

Reasons for International M&A

• Strategic objectives – Reinforce competitive position & achieve profits

• Corporate growth– Faster than by organic growth

• Pursuit of size and synergy and scale– Benefiting from resources and scale advantages

that come with increased size

Reasons for International M&A

• Market dominance, Defence of market share– Pursuing market power, eliminating competition

Problems with International M&A

While the acquired and merged firms show +ve results in terms of size their share price and profitability have not had such +ve outcomes (Porter, 1987; Auerbach, 1988)

• Cost of acquisition – – price is often excessive -£1.6B Ford/Jaguar: £2.5B

Nestle/Rowntree

Problems with International M&A

• Management failure– Management has seen the acquisition as an end in

itself, and has failed to manage the post acquisition integration

• Strategic mismatch- extends the company beyond the range of its core competencies

• Government anti-trust and competition policies

Cultural Considerations

• Material culture – level of economic/technology development

• Language• Aesthetics • Education• Religious beliefs

Internationalising Issues

• The main issues in international expansion concern

• Cost• Control• Risk• Return• Resource allocation

Strategy for Success SWOT analysis looks at your companies

– Strengths, Weaknesses, Opportunities, Threats

It aims to:1. Reveal your competitive edge2. Analyse your prospects for sales and profitability3. Prepare your company for potential problems4. Allow for the development of contingency plans


Strategy for Success Strengths and Weaknesses

Focus on your past performance, present strategy, resources and capabilities.

Analyse of facts and assumptions about the company, including;


Strategy for Success Opportunities and Threats

Analyse and examine external factors in your domestic and export market(s).This can be broken down into environmental factors and

competitors;


Analyse the CompetitionIt pays to do your homework


Communication StrategyWithout clear direction, it is easy to get distracted.

A simple, practical promotional plan gives you focus and direction.• Review your overall aim

– what do you hope to achieve?

• Define your target market– Targeted marketing is effective marketing

• Set clear promotional objectives– SMART

• Develop tactics– direct mail, brochures, telemarketing


Communication Strategy• Visit the market

– Face – to face meetings– Organised appointments to use time effectively

• Trade fairs– International trade fairs, sector or industry focussed– Identify trends or product launch

• In market promotion– Effective promotional goods– Point of sale material, sampling or tasting

• Advertising and PR– Media partners and PR Agencies



Export

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international strategies competing in foreign markets

Documents

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growth slide

new products

foreign markets

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knowledge slide