Competing in international markets allows multinational companies to (1) gain access to new customers, (2) achieve lower costs and enhance the firm's competitiveness by more easily capturing scale economies or learning-curve effects, (3) leverage core competencies refined domestically in additional country markets, and (4) spread business risk across a wider market base.
Companies electing to expand into international markets must consider cross-country differences in cultural, demographic, and market conditions, location-based cost drivers, adverse exchange rates, and host government policies when evaluating strategy options.
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 multicountry strategy is appropriate for industries or companies that must vary their product offerings and competitive approaches 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 support employing the same basic competitive approach (low-cost, differentiation, 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 fi t 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.
Strategic alliances with foreign partners have 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 general 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 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. A third involves utilizing profit sanctuaries in protected markets to wage strategic offenses in various international markets. 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. A company with multiple profit sanctuaries has the financial strength to support competitive offensives in one market with resources and profits diverted from its operations in other markets—a practice called cross-market subsidization. The ability of companies with multiple profit sanctuaries to employ cross-subsidization gives them a powerful offensive weapon and a competitive advantage over companies with a single sanctuary.
