Most issues in competitive strategy that apply to domestic companies apply also to companies that compete internationally. But there are four strategic issues unique to competing across national boundaries:
Whether to customize the company's offerings in each different country market to match the tastes and preferences of local buyers or offer a mostly standardized product worldwide.
Whether to employ essentially the same basic competitive strategy in all countries or modify the strategy country by country to fit the specific market conditions and competitive circumstances the company encounters.
Where to locate the company's production facilities, distribution centers, and customer service operations so as to realize the greatest locational advantages.
Whether and how to efficiently transfer the company's resource strengths and capabilities from one country to another in an effort to secure competitive advantage.
Companies opt to expand outside their domestic market for any of four major reasons: to gain access to new customers for their products or services, to achieve lower costs and become more competitive on price, to leverage their core competencies, and to spread their business risk across a wider market base. Acompany is an international or multinational competitor when it competes in several foreign markets; it is a global competitor when it has or is pursuing a market presence in virtually all of the world's major countries.
The strategies a company uses to compete in foreign markets have to be situation-driven— cultural, demographic, and market conditions vary significantly from country to country. One of the biggest concerns of competing in foreign markets is whether to customize the company's offerings to cater to the tastes and preferences of local buyers in all or most different country markets or whether to offer a mostly standardized product worldwide. While being responsive to local tastes makes a company's products more appealing to local buyers, customizing a company's products country by country may have the effect of raising production and distribution costs due to the greater variety of designs and components, shorter production runs, and the complications of added inventory handling and distribution logistics. In contrast, greater standardization of the company's product offering enhances the capture of scale economies and learning- and experience-curve effects, contributing to the achievement of a low-cost advantage. The tension between the market pressures to customize and the competitive pressures to lower costs is one of the big strategic issues that participants in foreign markets have to resolve.
Multi-country competition exists when competition in one national market is independent of competition in another national market—there is no "international market," just a collection of self-contained country markets. Global competition exists when competitive conditions across national markets are linked strongly enough to form a true world market and when leading competitors compete head-to-head in many different countries.
In posturing to compete in foreign markets, a company has three basic options: (1) a think-local, act-local approach to crafting a strategy, (2) a think-global, act-global approach to crafting a strategy, and (3) a combination think-global, act-local approach. A think-local, act-local, or multi-country, strategy is appropriate for industries where multi-country competition dominates; a localized approach to strategy making calls for a company to vary its product offering and competitive approach from country to country in order to accommodate differing buyer preferences and market conditions. A think-global, act-global approach (or global strategy) works best in markets that are globally competitive or beginning to globalize; global strategies involve employing the same basic competitive approach (low-cost, differentiation, best-cost, focused) in all country markets and marketing essentially the same products under the same brand names in all countries where the company operates. A think-global, act-local approach can be used when it is feasible for a company to employ essentially the same basic competitive strategy in all markets but still customize its product offering and some aspect of its operations to fit local market circumstances. Other strategy options for competing in world markets include maintaining a national (one-country) production base and exporting goods to foreign markets, licensing foreign firms to use the company's technology or produce and distribute the company's products, employing a franchising strategy, and using strategic alliances or other collaborative partnerships to enter a foreign market or strengthen a firm's competitiveness in world markets.
The number of global strategic alliances, joint ventures, and other collaborative arrangements has exploded in recent years. Cooperative arrangements with foreign partners have strategic appeal from several angles: gaining wider access to attractive country markets, allowing capture of economies of scale in production and/or marketing, filling gaps in technical expertise and/or knowledge of local markets, saving on costs by sharing distribution facilities and dealer networks, helping gain agreement on important technical standards, and helping combat the impact of alliances that rivals have formed. Cross-border strategic alliances are fast reshaping competition in world markets, pitting one group of allied global companies against other groups of allied global companies.
There are three ways in which a firm can gain competitive advantage (or offset domestic disadvantages) in global markets. One way involves locating various value chain activities among nations in a manner that lowers costs or achieves greater product differentiation. A second way involves efficient and effective transfer of competitively valuable competencies and capabilities from its domestic markets to foreign markets. A third way draws on a multinational or global competitor's ability to deepen or broaden its resource strengths and capabilities and to coordinate its dispersed activities in ways that a domestic-only competitor cannot.
Profit sanctuaries are country markets in which a company derives substantial profits because of its strong or protected market position. They are valuable competitive assets, providing the financial strength to support competitive offensives in one market with resources and profits diverted from operations in other markets, and aid a company's race for global market leadership. Companies with large, protected profit sanctuaries have a competitive advantage over companies that don't have a protected sanctuary. Companies with multiple profit sanctuaries have a competitive advantage over companies with a single sanctuary. The cross-market subsidization capabilities provided by multiple profit sanctuaries gives a global or international competitor a powerful offensive weapon.
Companies racing for global leadership have to consider competing in emerging markets like China, India, Brazil, Indonesia, and Mexico—countries where the business risks are considerable but the opportunities for growth are huge. To succeed in these markets, it is usually necessary to attract buyers with bargain prices as well as better products—an approach that can entail a radical departure from the strategy used in other parts of the world. Moreover, building a market for the company's products in these markets is likely to be a long-term process, involving the investment of sizable sums to alter buying habits and tastes and reeducate consumers. Profitability is unlikely to come quickly or easily.
The outlook for local companies in emerging markets wishing to survive against the entry of global giants is by no means grim. The optimal strategic approach hinges on whether a firm's competitive assets are suitable only for the home market or can be transferred abroad and on whether industry pressures to move toward global competition are strong or weak. Local companies can compete against global newcomers by (1) defending on the basis of home-field advantages, (2) transferring their expertise to cross-border markets, (3) dodging large rivals by shifting to a new business model or market niche, or (4) launching initiatives to compete on a global level themselves.
