Purdue Global Chapter 7 Competing in International Markets paper

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You are to create a paper on competing in international markets. Your paper MUST be 1000-1250 words. Please include all references as required.

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Directions:

Prepare a APA paper with 1000-1250 words. You should include facts learned from chapter 7 in the text.

  1. Submit an outline of the paper. Refer to: https://owl.english.purdue.edu/owl/resource/544/02...
  2. Select two major themes from chapter 7 on competing in international markets.
  3. For each major theme, identify at least two empirical or scholarly articles related to the theme.
  4. For each empirical article please include at least one quote or reference for the major theme.
  5. Explain the benefit of each theme and provide an example if appropriate.

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Papers that do not satisfy the minimal requirements below will receive a grade of zero.

*Outline (to be submitted with the paper, but is not part of the paper)

Refer to: https://owl.english.purdue.edu/owl/resource/544/02...

*Minimum word count - 1,000 word minimum (excluding title page and reference page)

*Times New Roman Font

* 12 Point Size

* Double-spaced

* 1” Margins

* Page numeration

*APA format

*Headers (on all pages, title page requires Running head: in the header)

* Proper citations, title page & reference page are mandatory

* Title page to include: Running head:, page number, paper title, Student name, University name

*Abstracts are not required

* Citations are to be from academic peer-reviewed articles (NOT magazine articles: points will be taken away!!!)

Sources: scholar.google.com

Paper must include:

  1. Title page (Running head:, page number, paper title, student name, university name)
  2. Thesis/introduction paragraph (Tell me what you are going to tell me)
  3. Body (Tell me)
  4. Conclusion paragraph (Tell me what you told me)
  5. References

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Strategic Alliances, joint ventures, and other cooperative agreements with foreign companies are a widely used means of entering foreign markets.

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• When adding new production capacity will not adversely impact the supply-demand balance in the local market. • When a startup subsidiary has the ability to gain good distribution access (perhaps because of the company's recognized brand name). • When a startup subsidiary will have the size, cost structure, and capabilities to compete head-to-head against local rivals. Greenfield ventures in foreign markets can also pose problems, just as other entry strategies do. They represent a costly capital investment, subject to a high level of risk. They require numerous other company resources s well, diverting them from other uses. They do not work well in countries without strong, well-functioning markets and institutions that protect the rights of foreign investors and provide other legal protections. Moreover, an important disadvantage of greenfield ventures relative to other means of international expansion is that they are the slowest entry route-particularly if the objective is to achieve a sizable market Page 191 share. On the other hand, successful greenfield ventures may offer higher returns to compensate for their high risk and slower path. Alliance and Joint Venture Strategies Strategic alliances, joint ventures, and other cooperative agreements with foreign companies are a widely used means of entering foreign markets. A company can benefit immensely from a foreign partner's familiarity with local government regulations, its knowledge of the buying habits and product preferences of consumers, its distribution-channel relationships, and so on. Both Japanese and American companies are actively forming alliances with European companies to better compete in the 27-nation European Union (and the five countries that are candidates to become EU members). Many U.S. and European companies are allying with Asian companies in their efforts to enter markets in China, India, Thailand, Indonesia, and other Asian countries. Collaborative strategies involving alliances or joint ventures with foreign partners are a popular way for companies to edge their way into the markets of foreign countries. Another reason for cross-border alliances is to capture economies of scale in production and/or marketing. By joining forces in producing components, assembling models, and marketing their products, companies can realize cost savings not achievable with their own small Cross-border alliances enable a growth-minded company to volumes. A third reason to employ a collaborative strategy is to share distribution facilities and dealer networks, thus mutually widen its geographic coverage and strengthen its competitiveness in foreign markets, at the same time, they offer strengthening each partner's access to buyers. A fourth benefit of a collaborative strategy is the learning and added expertise that comes flexibility and allow a company to retain some degree of from performing joint research, sharing technological know-how, studying one another's manufacturing methods, and understanding how to autonomy and operating control. tailor sales and marketing approaches to fit local cultures and traditions. A fifth benefit is that cross-border allies can direct their competitive energies more toward mutual rivals and less toward one another, teaming up may help them close the gap on leading companies. And, finally, alliances can be a particularly useful way for companies across the world to gain agreement on important technical standards—they have been used to arrive at standards for assorted PC devices, Internet-related technologies, high-definition televisions, and mobile phones. Cross-border alliances are an attractive means of gaining the aforementioned types of benefits (as compared to merging with or acquiring foreign-based companies) because they allow a company to preserve its independence (which is not the case with a merger) and avoid using scarce financial resources to fund acquisitions. Furthermore, an alliance offers the flexibility to readily disengage once its purpose has been served or if the benefits prove elusive, whereas mergers and acquisitions are more permanent arrangements.? Alliances may also be used to pave the way for an intended merger, they offer a way to test the value and viability of a cooperative arrangement with a foreign partner before making a more permanent commitment. Illustration Capsule 7.1 shows how Walgreens pursued this strategy with Alliance Boots in order to facilitate its expansion abroad. ILLUSTRATION CAPSULE 7.1 STRATEGIC OPTIONS FOR ENTERING INTERNATIONAL MARKETS Once a company decides to expand beyond its domestic borders, it must consider the question of how to enter foreign markets. There are five primary strategic options for doing so: LO 3 The five major strategic options for entering foreign markets. 1. Maintain a home-country production base and export goods to foreign markets. 2. License foreign firms to produce and distribute the company's products abroad. 3. Employ a franchising strategy in foreign markets. 4. Establish a subsidiary in a foreign market via acquisition or internal development 5. Rely on strategic alliances or joint ventures with foreign companies. Which option to employ depends on a variety of factors, including the nature of the firm's strategic objectives, the firm's position terms of whether it has the full range of resources and capabilities needed to operate abroad, country-specific factors such as trade barriers, and the transaction costs involved (the costs of contracting with a partner and monitoring its compliance with the terms of the contract, for example). The options vary considerably regarding the level of investment required and the associated risks—but higher levels of investment and risk generally provide the firm with the benefits of greater ownership and control. Export Strategies Using domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales. It is a conservative way to test the international waters. The amount of capital needed to begin exporting is often minimal; existing production capacity may well be sufficient to make goods for export. With an export-based entry strategy, a manufacturer can limit its involvement in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire distribution and marketing function in their countries or regions of the world. If it is more advantageous to maintain control over these functions, however, a manufacturer can establish its own distribution and sales organizations in some or all of the target foreign markets. Either way, a home-based production and export strategy helps the firm minimize its direct investments in foreign countries. Such strategies are commonly favored by Chinese, Korean, and Italian companies-products are designed and manufactured at home and then distributed through local channels in the importing countries. The primary functions performed abroad relate chiefly to establishing a network of distributors and perhaps conducting sales promotion and brand-awareness Page 189 activities. Whether an export strategy can be pursued successfully over the long run depends on the relative -competitiveness of the home-country production base. In some industries, firms gain additional scale economies and learning-curve benefits from centralizing production in plants whose output capability exceeds demand in any one country market; exporting enables a firm to capture such economies. However, an export strategy is vulnerable when (1) manufacturing costs in the home country are substantially higher than in foreign countries where rivals have plants, (2) the costs of shipping the product to distant foreign markets are relatively high, (3) adverse shifts occur in currency exchange rates, and (4) importing countries impose tariffs or erect other trade barriers. Unless an exporter can keep its production and shipping costs competitive with rivals' costs, secure adequate local distribution and marketing support of its products, and effectively hedge against unfavorable changes in currency exchange rates, its success will be limited. Licensing Strategies Licensing as an entry strategy makes sense when a firm with valuable technical know-how, an appealing brand, or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets. Licensing also has the advantage of avoiding the risks of committing resources to country markets that are unfamiliar, politically volatile, economically unstable, or otherwise risky. By licensing the technology, trademark, or production rights to foreign-based firms, a company can generate income from royalties while shifting the costs and risks of entering foreign markets to the licensee. The big disadvantage of technology, trademark, or production rights to foreign-based firms, a company can generate income from royalties while shifting the costs and risks of entering foreign markets to the licensee. The big disadvantage of licensing is the risk of providing valuable technological know-how to foreign companies and thereby losing some degree of control over its use, monitoring licensees and safeguarding the company's proprietary know- how can prove quite difficult in some circumstances. But if the royalty potential is considerable and the companies to which the licenses are being granted are trustworthy and reputable, then licensing can be a very attractive option. Many software and pharmaceutical companies use licensing strategies to participate in foreign markets. Franchising Strategies While licensing works well for manufacturers and owners of proprietary technology, franchising is often better suited to the international expansion efforts of service and retailing enterprises. McDonald's, Yum! Brands (the parent of Pizza Hut, KFC, Taco Bell, and Wing Street), the UPS Store, Roto-Rooter, 7-Eleven, and Hilton Hotels have all used franchising to build a presence in foreign markets. Franchising has many of the same advantages as licensing. The franchisee bears most of the costs and risks of establishing foreign locations, a franchisor has to expend only the resources to recruit, train, support, and monitor franchisees. The problem a franchisor faces is maintaining quality control; foreign franchisees do not always exhibit strong commitment to consistency and standardization, especially when the local culture does not stress the same kinds quality concerns. A question that can arise is whether to allow foreign franchisees to make modifications in the franchisor's product offering so as to better satisfy the tastes and expectations of local buyers. Should McDonald's give franchisees in each nation some leeway in what products they put on their menus? Should franchised KFC units in China be permitted to substitute spices that appeal to Chinese consumers? Or should the Page 190 same menu offerings be rigorously and unvaryingly required of all franchisees worldwide? Foreign Subsidiary Strategies Very often companies electing to compete internationally or globally prefer to have direct control over all aspects of operating in a foreign market. Companies that want to direct performance of all essential value chain activities typically establish a wholly owned subsidiary, either by acquiring a local company or by establishing its own new operating organization from the ground up. A subsidiary business that is established internally from scratch is called an internal startup or a greenfield venture. Acquiring a local business is the quicker of the two options; it may be the least risky and most cost-efficient means of hurdling such entry barriers as gaining access to local distribution channels, building supplier relationships, and establishing working relationships with government officials and other key constituencies. Buying an ongoing operation allows the acquirer to move directly to the task of transferring resources and personnel to the newly acquired business, redirecting and integrating the activities of the acquired business into its own operation, putting its own strategy into place, and accelerating efforts to build a strong market position. CORE CONCEPT A greenfield venture (or internal startup) is a subsidiary business that is established by setting up the entire operation from the ground up. One thing an acquisition-minded firm must consider is whether to pay a premium price for a successful local company or to buy a competitor a bargain price. If the firm has little ledge of the local market but ample ital, it is often better off purchasing a capable, strongly positioned firm. However, when the promising ways to transform a weak firm into a strong one and has the resources and managerial know-how to do so, a struggling company can be the better long-term investment quirer sees Entering a new foreign country via a greenfield venture makes sense when a company already operates in a number of countries, has experience in establishing new subsidiaries and overseeing their operations, and has a sufficiently large pool of resources and capabilities to rapidly equip a new subsidiary with the personnel and competencies it needs to compete successfully and profitably. Four other conditions make a greenfield venture strategy appealing: • When creating an internal startup is cheaper than making an acquisition. • When adding new production capacity will not adversely impact the supply-demand balance in the local market. • When a startup subsidiary has the ability to gain good distribution access (perhaps because of the company's recognized brand name). • When a startup subsidiary will have the size, cost structure, and capabilities to compete head-to-head against local rivals. Greenfield ventures in foreign markets can also pose problems, just as other entry strategies do. They represent a costly capital investment, subject to a high level of risk. They require numerous other company resources s well, diverting them from other uses. They do not work well in countries without strong, well-functioning markets and institutions that protect the rights of foreign investors and provide other legal protections. Moreover, an important disadvantage of greenfield ventures relative to other means of international expansion is that they are the slowest entry route-particularly if the objective is to achieve a sizable market Page 191 share. On the other hand, successful greenfield ventures may offer higher returns to compensate for their high risk and slower path. Alliance and Joint Venture Strategies Strategic alliances, joint ventures, and other cooperative agreements with foreign companies are a widely used means of entering foreign markets. A company can benefit immensely from a foreign partner's familiarity with local government regulations, its knowledge of the buying habits and product preferences of consumers, its distribution-channel relationships, and so on. Both Japanese and American companies are actively forming alliances with European companies to better compete in the 27-nation European Union (and the five countries that are candidates to become EU members). Many U.S. and European companies are allying with Asian companies in their efforts to enter markets in China, India, Thailand, Indonesia, and other Asian countries. Collaborative strategies involving alliances or joint ventures with foreign partners are a popular way for companies to edge their way into the markets of foreign countries. Another reason for cross-border alliances is to capture economies of scale in production and/or marketing. By joining forces in producing components, assembling models, and marketing their products, companies can realize cost savings not achievable with their own small Cross-border alliances enable a growth-minded company to volumes. A third reason to employ a collaborative strategy is to share distribution facilities and dealer networks, thus mutually widen its geographic coverage and strengthen its competitiveness in foreign markets, at the same time, they offer strengthening each partner's access to buyers. A fourth benefit of a collaborative strategy is the learning and added expertise that comes flexibility and allow a company to retain some degree of from performing joint research, sharing technological know-how, studying one another's manufacturing methods, and understanding how to autonomy and operating control. tailor sales and marketing approaches to fit local cultures and traditions. A fifth benefit is that cross-border allies can direct their competitive energies more toward mutual rivals and less toward one another, teaming up may help them close the gap on leading companies. And, finally, alliances can be a particularly useful way for companies across the world to gain agreement on important technical standards—they have been used to arrive at standards for assorted PC devices, Internet-related technologies, high-definition televisions, and mobile phones. Cross-border alliances are an attractive means of gaining the aforementioned types of benefits (as compared to merging with or acquiring foreign-based companies) because they allow a company to preserve its independence (which is not the case with a merger) and avoid using scarce financial resources to fund acquisitions. Furthermore, an alliance offers the flexibility to readily disengage once its purpose has been served or if the benefits prove elusive, whereas mergers and acquisitions are more permanent arrangements.? Alliances may also be used to pave the way for an intended merger, they offer a way to test the value and viability of a cooperative arrangement with a foreign partner before making a more permanent commitment. Illustration Capsule 7.1 shows how Walgreens pursued this strategy with Alliance Boots in order to facilitate its expansion abroad. ILLUSTRATION CAPSULE 7.1 The Risks of Strategic Alliances with Foreign Partners Alliances and joint ventures with foreign partners have their pitfalls, however. Sometimes a local partner's knowledge and expertise turns out to be less valuable than expected (because its knowledge is rendered obsolete by fast-changing market conditions or because its operating practices are archaic). Cross-border allies typically must overcome language and cultural barriers and figure out how deal with diverse (or conflicting) operating practices. The transaction costs of working out a mutually agreeable arrangement and monitoring partner compliance with the terms of the arrangement can be high. The communication, trust Page 192 building, and coordination costs are not trivial in terms of management time. Often, partners soon discover they have conflicting objectives and strategies, deep differences of opinion about how proceed, or important differences in corporate values and ethical standards. Tensions build, working relationships cool, and the hoped-for benefits never materialize. It is not unusual for there to be little personal Page 193 chemistry among some of the key people on whom the success or failure of the alliance depends—the rapport such personnel need to work well together may never emerge. And even if allies are able to develop productive personal relationships, they can still have trouble reaching mutually agreeable ways to deal with key issues or launching new initiatives fast enough to stay abreast of rapid advances in technology or shifting market conditions. One worrisome problem with alliances or joint ventures is that a firm may risk losing some of its competitive advantage if an alliance partner is given full access to its proprietary technological expertise or other competitively valuable capabilities. There is a natural tendency for allies to struggle to collaborate effectively in competitively sensitive areas, thus spawning suspicions on both sides about forthright exchanges of information and expertise. It requires many meetings of many people working in good faith over a period of time to iron out what is to be shared, what is to remain proprietary, and how the cooperative arrangements will work. Even if the alliance proves to be a win-win proposition for both parties, there is the danger of becoming overly dependent on foreign partners for essential expertise and competitive capabilities. Companies aiming for global market leadership need to develop their own resource capabilities in order to be masters of their destiny. Frequently, experienced international companies operating in 50 or more countries across the world find less need for entering into cross-border alliances than do companies in the early stages of globalizing their operations.12 Companies with global operations make it a point to develop senior managers who understand how"the system" works in different countries, plus they can avail themselves of local managerial talent and know-how by simply hiring experienced local managers and thereby detouring the hazards of collaborative alliances with local companies. One of the lessons about cross-border partnerships is that they are more effective in helping a company establish a beachhead new opportunity in world markets than they are in enabling a company to achieve and sustain global market leadership. CROSS-BORDER STRATEGIC MOVES While international competitors can employ any of the offensive and defensive moves discussed in Chapter 6 , there are two types of strategic moves that are particularly suited for companies competing internationally. Both involve the use of "profit sanctuaries. Profit sanctuaries are country markets (or geographic regions) in which a company derives substantial profits because of a strong or protected market position. In most cases, a company's biggest and most strategically crucial profit Sanctuary is its home market, but international and global companies may also enjoy profit Sanctuary status in other nations where they have a strong position based on some type of competitive advantage. Companies that compete globally are likely to have more profit sanctuaries than companies that compete in just a few country markets, a domestic-only competitor, of course, can have only one profit sanctuary. Nike, which markets its products in 190 countries, has two major profit sanctuaries: North America and Greater China (where it earned $13.7 billion and $3.1 billion, respectively, in revenues in 2015). Using Profit Sanctuaries to Wage a Strategic Offensive Profit sanctuaries are valuable competitive assets, providing the financial strength to support strategic offensives in selected country markets and fuel a company's race for world-market leadership. The added financial capability afforded by multiple profit sanctuaries gives an international competitor the financial strength to wage a market offensive against a domestic competitor whose only profit sanctuary is its home market. The international company has the flexibility of lowballing its prices or Page 203 launching high-cost marketing campaigns in the domestic company's home market and grabbing market share at the domestic company's expense. Razor-thin margins or even losses in these markets can be subsidized with the healthy profits earned in its profit sanctuaries- a practice called cross-market subsidization. The international company can adjust the depth of its price cutting to move in and capture market share quickly, or it can shave prices slightly to make gradual market inroads (perhaps over a decade or more) so as not to threaten domestic firms precipitously and trigger protectionist government actions. If the domestic company retaliates with matching price cuts or increased marketing expenses, it thereby exposes its entire revenue stream and profit base to erosion; its profits can be squeezed substantially and its competitive strength sapped, even if it is the domestic market leader. When taken to the extreme, cut-rate pricing attacks by international competitors may draw charges of unfair "dumping." A company is said to be dumping when it sells its goods in foreign markets at prices that are (1) well below the prices at which it normally sells them in its home market or (2) well below its full costs per unit. Almost all governments can be expected to retaliate against perceived dumping practices by imposing special tariffs on goods being imported from the countries of the guilty companies. Indeed, as the trade among nations has mushroomed over the past 10 years, most governments have joined the World Trade Organization (WTO), which promotes fair trade practices among nations and actively polices dumping. Companies deemed guilty of dumping frequently come under pressure from their own government to cease and desist, especially if the tariffs adversely affect innocent companies based in the same country or if the advent of special tariffs raises the specter of an international trade war. CORE CONCEPT Cross-market subsidization supporting competitive offensives in one market with resources and profits diverted from operations in another market-can be a powerful competitive weapon Using Profit Sanctuaries to Defend against International Rivals Cross-border tactics involving profit sanctuaries can also be used as a means of defending against the strategic moves of rivals with multiple profit sanctuaries of their own. If a company finds itself under competitive attack by an international rival in one country market, one way to respond is to conduct a counterattack against the rival in one of its key markets in a different country-preferably where the rival is least protected and has the most to lose. This is a possible option when rivals compete against one another in much the same markets around the world. For companies with at least one profit sanctuary, having a presence in a rival's key markets can be enough to deter the rival from making aggressive attacks. The reason for this is that the combination of market presence in the rival's key markets and a profit Sanctuary elsewhere can send a signal to the rival that the company could quickly ramp up production (funded by the profit sanctuary) to mount a competitive counterattack if the rival attacks one of the company's key markets. CORE CONCEPT When the same companies compete against one another in multiple geographic markets, the threat of cross-border counterattacks may be enough to deter aggressive competitive moves and encourage mutual restraint among international rivals. When international rivals compete against one another in multiple-country markets, this type of deterrence effect can restrain them from taking aggressive action against one another, due to the fear of a retaliatory response that might escalate the battle into a cross-border competitive war. Mutual restraint of this sort tends to stabilize the competitive position of multimarket rivals against one another. And while it may prevent each firm from making any major market share gains at the expense of its rival, it also protects against costly competitive battles that would be likely to erade the profitability of both companies without any compensating gain. Page 204
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Running Head: TWO MAJOR THEMES IN INTERNATIONAL MARKETS

Two Major Themes in International Markets
Author’s Name
Institutional Affiliation
Date

1

TWO MAJOR THEMES IN INTERNATIONAL MARKETS

2

Two Major Themes in International Markets
The themes are extracted from Chapter 7, which broadly discusses international markets.
In a nutshell, chapter 7 discusses market conditions in many countries that influence
organization’s strategic choice to enter foreign markets to compete. In this assignment, the first
theme picked is “why companies decide to enter foreign markets.”There are underlying reasons
why some business organizations elect to go beyond their national borders to do business. The
second theme is “the impact of government policies and economic conditions in host countries.”
Without a doubt, the policies the government of foreign countries makes for businesses that enter
their markets impact business operations of multinational corporations. Thus, this essay
evaluates the decisions that influence companies to enter foreign markets and how government
policies in the host countries impact their operations.
Theme 1: “Why companies decide to enter foreign markets”
Internationalization has been growing and creating opportunities for businesses across
their national borders. According to Banioniene, and Dagiliene, (2017) note that papers have
been analyzing the technological catch up at domestic foreign company’s level. The authors
evaluated the relationship between macro-economic indicators, technological progress and
investment in technology to approximate opportunities available investing in technology as an
approach to get closer to developed countries especially at the macro level. Borrowing from this
research, it comes out that companies move to foreign countries to investment opportunities
available in technology. At present developing countries present great opportunities as a majority
of government begin to embrace technological investments as a means to draw near developed
nations like the UK at the macro level. It is impossible, for developing nations to catch up with

TWO MAJOR THEMES IN INTERNATIONAL MARKETS

3

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