Creating Value in Global Markets

CHAPTER 7 International Strategy: Creating Value in Global Markets Copyright Anatoli Styf /Shutterstock ©McGraw - Hill Education. International Strategy (1 of 2) Consider . . . The global marketplace provides many opportunities for firms to increase their revenue base and their profitability. However, managers face many opportunities and risks when they diversify abroad. What should a firm do in order to create value and attain a competitive advantage in this global marketplace? ©McGraw - Hill Education. International Strategy: Globalization Globalization has to do with the rise of market capitalization around the world. International exchanges have increased. Trade in goods & services Exchange of money, information, & ideas Laws, rules, norms, values, and ideas are growing more similar across countries. Challenges include balancing between emerging markets & developed markets. How to meet the needs of customers at very different income levels? ©McGraw - Hill Education. Competitiveness diamond of national advantage explains why some nations and their industries outperform others. Factor endowments Demand conditions Related and supporting industries Firm strategy, structure, & rivalry ©McGraw - Hill Education. Competitiveness: Factor Endowments Factor endowments involve factors of production. Land Capital Labor Factors of production must be industry & firm specific. Must be rare, valuable, difficult to imitate, and rapidly & efficiently deployed ©McGraw - Hill Education. Competitiveness: Demand Conditions Demand conditions refer to the demands that consumers place on an industry. Demanding consumers drive firms in that country to: Meet high standards. Upgrade existing products and services. Create innovative products and services. Better anticipate future global demand. Proactively respond to product & service requirements. ©McGraw - Hill Education. Competitiveness: Related & Supporting Industries Related and supporting industries enable firms to manage inputs more effectively. A competitive supplier base Reduces manufacturing costs Close working relationships with suppliers Allows for joint research & development Development of related industries Forces existing firms to practice cost control, product innovation, better distribution methods ©McGraw - Hill Education. Competitiveness: Firm Strategy Firm strategy, structure, & rivalry due to Strong consumer demand Strong supplier base High new entrant potential from related industries Domestic rivalry leads to a search for new markets. Response to rivalry is a strong indicator of global competitive success. ©McGraw - Hill Education. Competitiveness Exhibit 7.2 in Software Source: From Kampur D.,and Ramamurti R., Academy of Management Executive: The Thinking Managers Source. Copyright © 2001 by Academy of Management. Jump to Appendix 1 for long description. ©McGraw - Hill Education. International Strategies: Entry Modes Options for international market expansion include: Exporting Low risk, locals know more; but products may not meet local needs Licensing or franchising Limits risk; but licensor gives up control & profit Strategic alliance or joint venture Shares risk; but trust & culture issues can lead to conflict Wholly owned subsidiary Greatest control, highest returns; but expensive, greater potential for miss - steps ©McGraw - Hill Education. International Strategies: Entry Modes, Chart Exhibit 7.8 Entry Modes for International Expansion Jump to Appendix 3 for long description. ©McGraw - Hill Education. International Strategies: Entry Modes Refer to the smart book on LMS for the Benefits + Risk and Limitations For each Entry Mode