Strategies for Superior Firm Performance and Global Market Entry
Strategies for Superior Firm Performance
Firms achieve superior performance by generating profits exceeding competitive levels.
1. Avoiding Competitors
Focus on positioning the company in markets or segments with reduced competition.
1) Attractive Industry
Target industries with high entry barriers, such as high costs or strict regulations, to deter new competitors.
2) Attractive Strategic Group
Operate in a strategic group within an industry where mobility barriers (e.g., brand loyalty, specialized technology) prevent others from entering.
3) Attractive Niche
Focus on niche markets protected by isolating mechanisms like patents, proprietary technology, or exclusive resources.
2. Outperforming the Competition
Compete directly but outperform rivals by delivering superior value or reducing costs.
1) Cost Advantage
Achieve lower costs through efficiency, scale, or innovation, enabling competitive pricing while maintaining profitability.
2) Differentiation Advantage
Offer unique products or services that customers value, creating a reason to charge premium prices and stand out in the market.
International vs. Global Strategy
International Strategy: Expands to other countries but adapts to local needs. For example, McDonald’s changes its menu in India.
Global Strategy: Operates the same way worldwide with one unified approach. For example, Apple sells the same iPhone everywhere.
Internationalization Drivers
1) Market Drivers: Similar Needs, Global Clients, Marketing.
2) Cost Drivers: Scale Economies, Cheaper Resources, Efficient Logistics.
3) Government Drivers: Trade Policies, Technical Standards, Host Government Support.
4) Competitive Drivers: Interdependence, Follow Rivals.
Benefits of Internationalization
1) Increased Customer Base: Expanding to other countries means reaching more customers and increasing sales.
2) Lower Production Costs: Producing in countries with cheaper labor or materials saves money.
3) Economies of Scale: Producing and selling more reduces the cost per product over time. Achieved through:
- Specializing labor and management.
- Using large-scale machinery or processes efficiently.
- Gaining experience to improve efficiency.
4) Avoiding Protectionist Policies: Producing in a country helps avoid tariffs or import taxes, reducing costs.
Location Advantages
1) Adapt to National Conditions: Companies adjust strategies based on local strengths (focus on increasing quality, premium markets).
2) Specialization by Region: Different countries focus on what they do well.
3) Spread the Value Chain Globally: Companies do different tasks in different countries to save costs and improve efficiency (marketing, R&D).
Global: Products/services are standardized worldwide with strong global control. Focus on efficiency and consistency. For example, jet engines/cars are made the same.
Local: Products/services are adapted to local markets to meet cultural/market needs. Focus on customization. For example, McDonald’s adjustments.
Types of Acquisition Integration
Stand-Alone
The acquired company operates independently with minimal changes. Used to enter a new market. For example, Harvard buys ESIC, keeps operations as is but enters the Spanish market.
Absorption
The buyer fully integrates the acquired company into its own system. The acquired company follows the buyer’s rules and practices. For example, a big company takes over a startup and makes it part of its structure.
Best of Both
Combines the best practices from both companies. Keeps only the most effective processes from each side. For example, two companies merge and adopt the best systems from both.
Transformation
Both companies completely change to form a new entity. Aims to create something entirely new. For example, two firms merge to create a brand-new company with a new identity.
Modes of International Market Entry
Exporting
Produce in your home country and sell abroad without physical presence.
Advantages:
- No need for a physical presence abroad.
- Save costs with home-based production (economies of scale).
- Online tools can support marketing.
Disadvantages:
- Miss out on local benefits in foreign markets.
- Depend on intermediaries and face tariffs/transportation costs.
Joint Ventures & Alliances
Partner with a local company to share resources and risks.
Advantages:
- Share risks and investments with partners.
- Combine complementary resources and skills.
- Necessary for entering some markets.
Disadvantages:
- Finding the right partner can be hard.
- Managing relationships and coordination is challenging.
- Risk of losing competitive advantage to the partner.
Licensing/Franchising
Allow a foreign company to use your brand or business model in exchange for fees/royalties.
Advantages:
- Earn money without major investment.
- Lower financial risks.
Disadvantages:
- Hard to find trustworthy partners.
- Lose some control over your competitive edge.
- Limited benefits from the foreign country’s success.
Foreign Direct Investment (FDI)
Build facilities or acquire businesses in another country (Greenfield or acquisitions).
Advantages:
- Full control over operations.
- Easier to coordinate with global strategies.
- Fast entry through acquisitions, or subsidies for Greenfield projects.
Disadvantages:
- High financial commitment.
- Acquisitions may face coordination issues.
- Greenfield investments take time and have uncertainties.