CHAPTER TWO: Theoretical Foundations
As more firms enter the international marketplace, the competitive environment is more complex than ever. How can firms determine their level of competitiveness in a marketplace of expanded and increasingly intense rivalry? This chapter seeks to answer that question in a multi-faceted manner. First, the concepts of country-specific and firm-specific advantages are presented from the theories of international trade and the multinational firm. Firms must be aware of which advantages they can utilize in operationalizing their competitive advantages. The extent to which these advantages are transferable to other markets and ...view middle of the document...
2. Competitive Repertoire
3. Global Rivalry
F. Strategy And The Three Hats
FOCAL QUESTIONS ADDRESSED AND TEACHING SUGGESTIONS
Is there any logical and systematic way for a firm to analyze the competitive environment in foreign markets?
Porter's Five Forces model was developed to analyze the competitive environments of various markets. It identifies five sources of competitive pressure on firms in any particular industry, and these include rivalry, new entrants, substitutes, buyer power, and supplier power. The text has expanded the model to be more appropriate for global competition in many markets.
In doing so, the rivalry dimension considers the influences of strategic groups, domestic competitors, and foreign competitors. Strategic groups are comprised of firms in the same industry who share similar resources and markets (i.e., McDonald's, KFC, Pizza Hut; or Sony, Yamaha, Panasonic). The importance of identifying these groups is that members of these groupings tend to execute very similar strategies and tactics. Therefore, predicting likely strategic directions and responses is accomplished with a little more ease and confidence.
Domestic and foreign competitors may have some similarities, but they also possess significant and important differences as players in a given market. Domestic competitors may be hard to challenge due to local regulation and protectionist measures that protect these firms against foreign competitors. Depending upon their history and standing in the local market, they may have established strong brand loyalty. Additionally, being local gives these firms the inherent advantage of being in touch with and knowledgeable about the local culture and customers. They can respond more quickly and confidently to market changes. Foreign competition may be comprised of small- to medium-sized firms seeking to enter a host market. However, a significant portion of foreign competitors are global firms whose resources are daunting and their experience in international marketing is hard to overcome. Some foreign competitors may also have an advantage if they are members of a regional trading area while other foreign firms are left on the outside. It is much easier to be a competitive foreign firm when enjoying the advantages of trade bloc membership or favored status.
The second force in Porter's model is new entrants. These may be new industry entrants or established industry organizations who are new to any given foreign market. New entrants can be first movers or "me too" followers.
Advantages to first movers are: a. higher brand recognition, b. more positive brand image, c. more customer loyalty, d. better access to distribution channels, and e. longer market experience. However, drawbacks exist which include a. necessary training of channel members, b. customers may need educating, c. advertising is more...