Firms competing in the international markets

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MNE as a corporation which has his managerial head quarters in one country known as the home country and operates in several other countries known as host countries. When an MNE go to do business in the host country then many types of challenges it has to face and overcome. Not even in host country, in today's boundary free economy or in the global village it is very tough to compete or sometimes to survive. Each MNE have to think about these existing challenges and about potential challenges which may put them in competitive deficiencies.

Now competitions are not country based. Competition are company based because firms acting as exploiters of imperfections. Now these firms exploiting through:

Imperfection in access.

Imperfections in factor mobility.

Imperfections in management.

There are some major challenges firm's facing in global competition. Some of these are:

Acquiring scarce resources with competitive price.

Changing demand.

Intensity of competitor.

Supporting industry.

Outsourcing. Etc.

When we want to run through international trade then we have to obviously consider some theories. Some important theories are given below:

The Major Trade Theories:

We will discuss there three theories.

Absolute advantage

Comparative advantage

National competitive advantage

The firms have to have some absolute features that will provide it competitive periphery and also have to gain comparative advantage over its competitor. It is a major challenge even to survive.

Absolute advantage:

Principle of absolute advantage refers to the ability of a party (an individual, or firm, or country) to produce more of a good or service than competitors, using the same amount of resources. Adam Smith first described the principle of absolute advantage in the context of international trade, using labor as the only input.

Since absolute advantage is determined by a simple comparison of labor productivities, it is possible for a party to have no absolute advantage in anything; in that case, according to the theory of absolute advantage, no trade will occur with the other party. It can be contrasted with the concept of comparative advantage which refers to the ability to produce a particular good at a lower opportunity cost.

Example :

Party A can produce 5 widgets per hour with 3 employees.

Party B can produce 10 widgets per hour with 3 employees.

Assuming that the employees of both parties are paid equally, Party B has an absolute advantage over Party A in producing widgets per hour. This is because Party B can produce twice as many widgets as Party A can with the same number of employees.

Party B has the absolute advantage.

Strengths over the theory:

Labor could become more skilled by repeating the same tasks.

Labor would not lose time in switching from the production of one kind of product to another.

Long production runs would provide incentives for the development of more effective working methods.

Weaknesses over the theory:

1. Repeating tasks may result boredom.

Such like the firm have to gain absolute advantage in acquiring resources, which will better able the firm to be cost effective by overcoming weaknesses and taking chance of strengths.

Comparative advantage:

The principle of comparative advantage refers to the ability of a party (an individual, a firm, or a country) to produce a particular good or service at a lower opportunity cost than another party. It is the ability to produce a product most efficiently given all the other products that could be produced. It can be contrasted with absolute advantage which refers to the ability of a party to produce a particular good at a lower absolute cost than another.Comparative advantage explains how trade can create value for both parties even when one can produce all goods with fewer resources than the other. The net benefits of such an outcome are called gains from trade. It is the main concept of the pure theory of international trade.


Two men live alone on an isolated island. To survive they must undertake a few basic economic activities like water carrying, fishing, cooking and shelter construction and maintenance. The first man is young, strong, and educated. He is also, faster, better, more productive at everything. He has an absolute advantage in all activities. The second man is old, weak, and uneducated. He has an absolute disadvantage in all economic activities. In some activities the difference between the two is great; in others it is small.

Despite the fact that the younger man has absolute advantage in all activities, it is not in the interest of either of them to work in isolation since they both can benefit from specialization and exchange. If the two men divide the work according to comparative advantage then the young man will specialize in tasks at which he is most productive, while the older man will concentrate on tasks where his productivity is only a little less than that of the young man. Such an arrangement will increase total production for a given amount of labor supplied by both men and it will benefit both of them.

Strengths over the theory:

Make the firm more effective

Gain cost effectiveness.

Ensure better quality.

Weaknesses over the theory:

1. Firms may compete through deceptive practice like as dumping.

Thus through the principle the firm have to be gainer in term of acquiring resources , outsourcing, meeting customer demand through better way comparatively its competitor.

Factor conditions. The nation's position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry.

Demand conditions. The nature of home demand for the industry's product or service

Related and supporting industries. The presence or absence in the nation of supplier industries and related industries that are internationally competitive.

Firm strategy, structure, and rivalry. The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry.

The determinants, individually and as a system, create the context in which the nation's firms are born and compete; the availability of resources and skills necessary for competitive advantage in an industry; the information that shapes what opportunities are perceived and the directions in which the resources and skills are deployed; the goals of the owners, managers, and employees that are involved in or carry out competition; and most importantly, the pressures on firms to invest and innovate

Factor Conditions

Porter groups the factors into broad categories:

Human resources: the quantity, skills, and cost of personnel including management.

Physical resources: the abundance, quality, accessibility and costs of the nation's land, water, mineral, or timber deposits, hydroelectric power sources, fishing grounds, and other physical traits. Location, climate and geographical size can also be considered physical resources.

Knowledge resources: the nation's stock of scientific, technical, and market knowledge bearing on goods and services.

Capital resources: the amount and cost of capital to finance industry.

Infrastructure: the type, quality and user cost of infrastructure available that affects competition, including the transportation system, the communications system, mail and parcel delivery, payments or funds transfer, health care, housing stocks, and so on.

He argues that the rate at which these factors are created, upgraded, and made more specialized to particular industries is more important than the abundance of factors at any given time. He makes the point that a selective disadvantage in factors, through influencing strategy and innovation, often contributes to sustained competitive success.

Porter differentiates between basic factors and advanced factors. Basic factors include natural resources, climate, location, unskilled and semiskilled labor, and debt capital. Advanced factors include modern digital data communications infrastructure, highly educated personnel such as graduate engineers and computer scientists, and university institutions in sophisticated disciplines. The importance of basic factors has been undermined by either their diminished necessity, their widening availability, or ready access to them by global firms. They remain important in extractive or agriculturally based industries. Advanced factors are now the most significant ones for competitive advantages. They are necessary to achieve higher-order competitive advantages such as differentiated products and proprietary production technology.

Demand Conditions

Home demand for an industry's product or service can create economies of scale and can shape the rate and character of improvement and innovation at the nation's firms. Three broad attributes of home demand are significant: the composition or nature of home demand (or nature of buyer needs), the size and pattern of growth of home demand, and the mechanisms by which the nation's domestic preferences are transmitted to foreign markets.

The composition of home demand shapes how firms perceive, interpret, and respond to buyer needs. Nations gain competitive advantage in industries or industry segments where the home demand gives local firms a clearer or earlier picture of buyer needs than foreign rivals have. Nations also gain advantage if home buyers pressure local firms to innovate faster and achieve more sophisticated competitive advantages compared to foreign rivals. There are three characteristics of the composition of home demand particularly significant to achieving national competitive advantage:

Segment Structure of demand. A nation's firms are likely to gain competitive advantage in global segments that represent a large or highly visible share of home demand but account for a less significant share in other nations. The relatively large segments in a nation receive the greatest and earliest attention by the nation's firms. Small nations can be competitive in segments that represent an important share of local demand but a small share of demand elsewhere, even if the absolute size of the segment is greater in other nations.

Sophisticated and Demanding Buyers. A nation's firms gain competitive advantage if domestic buyers are, or are among, the world's most sophisticated and demanding buyers for the product or service. Such buyers provide a window into the most advanced buyer's needs. They pressure local firms to meet high standards in terms of product quality, features, and service.

Anticipatory Buyer Needs. A nation's firms gain advantages if the needs of home buyers anticipate those of other nations. This provides an early warning indicator of buyer needs that will become widespread. Anticipatory demand often result from having the world's most sophisticated buyers, because sophisticated buyers are often early adopters of new products and service varieties that will come to be demanded elsewhere.

The size and pattern of growth of home demand can reinforce national advantage in an industry. Large home markets can lead to a competitive advantage in industries where there are economies of scale or learning by encouraging a nation's firms to invest aggressively in large-scale facilities, technology development, and productivity improvements. The presence of a number of independent buyers in a nation, each with its own ideas about product needs, expands the pool of market information and motivates progress. Rapid domestic growth leads a nation's firms to adopt new technologies faster with less fear that they will make existing investments redundant, and to build large, efficient facilities with the confidence that they will be utilized. Early home demand helps local firms to move sooner than foreign rivals to become established in an industry. Early saturation of markets forces firms to continue innovating and upgrading. It forces consolidation of the industry. And it often results in firms attempting to penetrate foreign markets.

Home demand can internationalize and pull a nation's products and services abroad. If the nation's buyers for a product or service are mobile or are multinational companies, and advantage is created for the nation's firms because the domestic buyers are also foreign buyers. Domestic demand conditions can pull through foreign sales when domestic needs and desires get transmitted to or inculcated in foreign buyers. An example is when foreigners come to a nation for training. Another example is the demonstration effect. Foreign scientists seek to emulate the practices of the nations' scientists that are perceived to be the world's leaders. Domestic buyers needs are also transmitted abroad through movies and television programs. Emigration creates a base of foreign demand and a demonstration effect.

Related and Supporting Industries

Competitive advantage in some supplier industries confers potential advantages on a nation's firms in many other industries, because they product inputs that are widely used and important to innovation and to internationalization. Internationally competitive supplier industries provide efficient, early, rapid, and sometimes preferential access to the most cost-effective inputs. Home based suppliers provide an advantage in terms of ongoing coordination. Suppliers help firms perceive new methods and opportunities to apply new technology. Firms gain quick access to information, to new ideas, and to supplier innovation. They have the opportunity to influence suppliers' technical efforts as well as serve as test sites for development work.

The presence in a nation of competitive industries that are related often leads to new competitive industries. Related industries are those in which firms can coordinate or share activities in the value chain when competing, or those that involve products that are complementary, (such as computers and applications software). Sharing of activities can occur in technology development, manufacturing, distribution, marketing, or service. The presence of related industries provide opportunities for information flow and technical interchange. Domestic companies in related industries often share activities and sometimes forge formal alliances. International success in one industry can also pull through demand for complementary products or services.

Firm Strategy, Structure, and Rivalry

The goals, strategies, and ways of organizing and managing firms in industries vary widely among nations. National advantage results from a good match between these choices and the sources of competitive advantage in a particular industry. Important national differences in management practices and approaches occur in such areas as the training, background, and orientation of leaders, group versus hierarchical style, the strength of individual initiative, the tools for decision making, the nature of the relationships with customers, the ability to coordinate across functions, the attitudes toward international activities, and the relationship between labor and management. These differences create advantages and disadvantages in competing in different types of industries.

Specific aspects highlighted by Porter include:

Attitudes toward authority

Norms of interpersonal interaction

Attitudes of workers toward management and vice versa,

Social norms of individualistic or group behavior

Professional standards

Attitudes toward travel

Language skills and attitudes toward learning new languages,

Government policy regarding foreign exchange controls and neutrality,

Nature of company ownership, corporate governance, and company goals

Nature of capital markets and capital formation

Individual goals and reward systems

Attitude towards individual wealth

Individual attitudes toward skill development and toward company activities

Attitudes toward risk taking.

Immigration policies

Influence on national prestige/priorities on goals

Willingness to maintain a sustained commitment.

The pattern of rivalry at home also has a profound role to play in the process of innovation and the ultimate prospects for international success. Nations with leading world positions often have a number of strong local rivals. In global competition, successful firms compete vigorously at home and pressure each other to improve and innovate. Additional scale is obtained by selling worldwide. The scale of the entire national industry is as important as that of individual firms.

Domestic rivalry creates pressure on firms to improve and innovate. Local rivals push each other to lower costs, to improve quality and service, and to create new products and processes. Vigorous local competition often pressures domestic firms to sell abroad in order to grow. Intense domestic rivalry depends on new business formation to crate new competitors. New companies serve new segments and try new approaches that older rivals fail to recognize or to which they are inflexible to respond. These new companies may be established by spin-offs from established firms, founded by employees of suppliers and customers, or the result of ideas gleaned during academic training or university result.

If a firm become able to gain or manage these factors better than another firms which may of home country firm or host country firm then it will able to gain competitive advantage. It is a major challenge in today's competitive era. The firm has to also gain absolute advantage and comparative advantage.

So, we can summarize that through gaining absolute advantage , comparative advantage and national competitive advantage the can become efficient to overcome major challenges faces in global market place.

Now firms are internalizers. So, actually we can say that Firms, not individual nations, compete in international markets.

Ques 1. (a) Why are cultural factors considered by many writers on international marketing, such as Usunier (1996), to be the 'central core' of marketing policy? Explain giving specific reasons and illustrate the points made with examples.


Culture is acquired knowledge that people use to interpret experience and to generate social behavior.

Conducting market research in an international market requires a great deal of new learning. From a managerial perspective, this includes amore comprehensive understanding of native culture. Cultural elements such as social institutions, gender roles, language, religion, aesthetics, education, and time orientation are closely intertwined with national culture, and have a major impact on the acceptability and adoption of new products and services. The effect of culture is multifaceted in the sense that cultural values that are important to one group of people may mean little to another. Cultural differences deeply affect adoption of products and services and other forms of market behavior. Clearly, cultural forces have taken on strategic importance that cannot be ignored when marketing new and/or existing products and services.

Usunier (1996, p. 192-193) further states that culture-related differences

related to consumer-behavior and marketing environments may diminish

progressively in the long term. However, language-related differences will remain.

Thus, in adopting an intercutlural marketing strategy, local knowledge needs to be

generated within the realm of the organizational discourse. Such a marketing

strategy will eventually be more respectful to local cultures. It will attempt to serve

both national as well as transnational market segments.

According to Usunier (1996, p. 404-406), the management process for

marketing communication consists of six basic steps. First, the communication

problem needs to be isolated. Second, the target audience has to be identified.

Third, the marketing communication objective needs to be identified including

decisions about influencing the audience at either the attitudinal or the behavioral

level. Fourth, the advertising themes and creative strategy is selected. Fifth, a media

plan is established. Finally, the advertising campaign is implemented and

monitored. Internationalization has the strongest impact on the target audience and

the media, when these steps incorporate local factors. Other steps that are

influenced by culture include the creative strategy and media planning implemented

in such a campaign. Defining a communication problem or objective, or testing the

effectiveness of the campaign are less influenced by cultural elements and call for a

similar approach in each country, although the solution may be different.

To be successful in international business , managers must understand the cultures of other countries and learn how to adopt to them. In most cases , managers are home country oriented ; they like to do things the way they do in their home market. The challenges they must meet is learning how to broaden their perspective, adapt to other cultures, and make decisions that reflect the needs and desires of those cultures.

In this process , managers have to fight against ethnocentrism.

Some of the most common types of ethnocentrism business behavior include actions such as:

1.not adapting a product to a particular market's special needs

2. filling key positions in overseas units with national managers who have done well in the home market, while overlooking local managers who have performed well.

Culture is a complex, multidimensional subject and, in understanding its nature we need to examine these elements:



Values & attitudes

Customs & manners

Material goods

Aesthetics and


Language: is critical to culture because is the primary means used to transmit and interpret information and ideas. When you are in host country then knowledge of the local language is mandatory.

A knowledge of local language can help in three ways:

It permits a clearer understanding of the situation.

Language provide direct access to local people.

An understanding of local language allows the person to pick up nuances, implied meanings, and other information that is not stated outright.

A knowledge of language is also important because direct translation may be inadequate or misleading.

Religion: Religions influence lifestyles, beliefs, values, and attitudes and can have a dramatic effect on the way people in a society act toward those in other societies. Religion can also affect the work habit of people.

Such as, protestant work ethic, which holds that people should work hard, be industrious and save their money. This work ethic helped to develop capitalism in the country because of the importance it assigns to saving and to the reinvestment of capital.

Religion also affects politics and business.

Values & attitudes: Values are basic convictions that people have regarding what is right and wrong, good and bad, important and unimportant. An attitude is a persistent tendency to feel and behave in a particular way toward some object. Values influence culture. The attitudes that emanate from values directly influence international business.

In short, by being aware of the values and attitudes of the people in the culture, a business firm can effectively position its product. In other cases there are negative attitudes toward foreign made goods, causing firms to de-emphasize their origin.

There is no work where values do not arise. Attention, organisation, comprehension, integrity, truthfulness, etc. are just a few of the values we know.

When we examine the lives of famous people, we often see how personal values guided them, propelling them to the top of their fields.

For example, one actor was motivated by his commitment to social justice, which led to important acting roles related to that value that made him world famous. Likewise, a well-known business CEO was motivated by the personal value that technology should be easy to use, which caused his company to spawn a technology revolution. Whatever one's values, when we take them to heart and implement them in the smallest details of our lives, great accomplishment and success are sure to follow.

Customs & manners: Customs are common or established practices.

Manners are behavior that are regarded as appropriate in a particular

society. Customs dictate how things are to be done, manners are used

in carrying them out.

Customs also dictate the ways companies advertise and market their

Products. Unless business firms understand the customs and manners

of the country , they are likely to have trouble marketing their products.

Material goods: Consist of object that people make. When studying

Material goods, we examine how people make things and who makes them and why.

Aesthetics: Relates to the artistic tastes of culture. The difference of

aesthetic values can be reflected by art, literature, music, and artistic

tastes of the peoples.

Quite clearly, aesthetic values influence behavior and we need to understand aesthetic values if we are to appropriate another culture and the way in which business must address these values in the international arena.

Education: influence many aspects of culture. Literate people read widely

and have a much better understanding of what is happening in the world.

Additionally, higher rates of literacy usually result in greater economic

productivity and technological advances. Education also helps to provide

the infrastructure needed for developing managerial talent. As a result,

education is a critical factor in understanding culture.

It is very important to understand and do as per accordingly to these factors to become successful.

Hofstede's Framework for Assessing Culture

Hofstede has found five dimensions of culture in his study of national work related values. Replication studies have yielded very similar results, pointing to stability of the dimensions across time. They are:

Small vs. large power distance -This dimension measures how much the less powerful members of institutions and organizations expect and accept that power is distributed unequally. In cultures with small power distance (e.g. Ireland, Austria, Australia, Denmark, New Zealand), people expect and accept power relations that are more consultative or democratic. People relate to one another more as equals regardless of formal positions. Subordinates are more comfortable with and demand the right to contribute to and critique the decisions of those in power. In cultures with large power distance (e.g. Malaysia), the less powerful accept power relations that are autocratic or paternalistic. Subordinates acknowledge the power of others based on their formal, hierarchical positions. Thus, Small vs. Large Power Distance does not measure or attempt to measure a culture's objective, "real" power distribution, but rather the way people perceive power differences.

Individualism vs. collectivism - This dimension measures how much members of the culture define themselves apart from their group memberships. In individualist cultures, people are expected to develop and display their individual personalities and to choose their own affiliations. In collectivist cultures, people are defined and act mostly as a member of a long-term group, such as the family, a religious group, an age cohort, a town, or a profession, among others. This dimension was found to move towards the individualist end of the spectrum with increasing national wealth.

Masculinity vs. femininity - This dimension measures the value placed on traditionally male or female values (as understood in most Western cultures). In so-called 'masculine' cultures, people (whether male or female) value competitiveness, assertiveness, ambition, and the accumulation of wealth and material possessions. In so-called 'feminine' cultures, people ( whether male or female)value relationships and quality of life. This dimension is often renamed by users of Hofstede's work, e.g. to Quantity of Life vs. Quality of Life. Another reading of the same dimension holds that in 'M' cultures, the differences between gender roles are more dramatic and less fluid than in 'F' cultures; but this strongly depends on other dimensions as well.

Weak vs. strong uncertainty avoidance - This dimension measures how much members of a society are anxious about the unknown, and as a consequence, attempt to cope with anxiety by minimizing uncertainty. In cultures with strong uncertainty avoidance, people prefer explicit rules (e.g. about religion and food) and formally structured activities, and employees tend to remain longer with their present employer. In cultures with weak uncertainty avoidance, people prefer implicit or flexible rules or guidelines and informal activities. Employees tend to change employers more frequently.

Michael Harris Bond and his collaborators subsequently found a fifth dimension which was initially called Confucian dynamism. Hofstede later incorporated this into his framework as:

Long vs. short term orientation - This dimension describes a society's "time horizon," or the importance attached to the future versus the past and present. In long term oriented societies, people value actions and attitudes that affect the future: persistence/perseverance, thrift, and shame. In short term oriented societies, people value actions and attitudes that are affected by the past or the present: normative statements, immediate stability, protecting one's own face, respect for tradition, and reciprocation of greetings, favors, and gifts.

These cultural differences describe averages or tendencies and not characteristics of individuals. A Japanese person for example can have a very low 'uncertainty avoidance' compared to a Filipino even though their 'national' cultures point strongly in a different direction. Consequently, a country's scores should not be interpreted as deterministic.

So from above discussion we are clear that for why many writers on international marketing, cultural factors considered 'central core' of marketing policy.

Ques 1. (b) Cateora and Ghauri (2006) state that 'for the inexperienced marketer, the 'similar but different' aspect of culture creates an illusion of similarity that usually does not exist'.

What do they mean by this statement? Explain and give specific examples to illustrate the points made.


For the inexperienced marketer, the similar but different aspect of culture creates illusions of similarity that usually do not exist. Several nationalities can speak the same language or have similar race and heritage, but it does not follow that similarities exist in other respects - that a product acceptable to one culture will be readily acceptable to the other, or that a promotional message that succeeds in one country will succeed in the other. Even though people start with a common idea or approach, as is the case among English speaking Americans and the British, cultural borrowing and assimilation to meet individual needs translate over time into quite distinct cultures. A common language does not guarantee similar interpretation of words or phrases. Both British and Americans speak English, but their cultures are sufficiently different so that a single phrase has different meanings to each and can even be completely misunderstood. In England, one asks for a lift instead of an elevator and an American, when speaking of a bathroom, generally refers to a toilet, whereas in England a bathroom is a place to take a tub bath. Also, the English "hoover" a carpet whereas Americans vacuum. The movie title The Spy Who Shagged Me means nothing to most Americans but much to British consumers. Indeed, anthropologist Edward Hall warns that Americans and British have a harder time understanding each other because of apparent and assumed cultural similarities.

The growing economic unification of Europe has fostered a tendency to speak of the "European consumer." Many of the obstacles to doing business in Europe have been or will be eliminated as the European Union takes shape, but marketers, eager to enter the market, must not jump to the conclusion that an economically unified Europe means a common set of consumer wants and needs. Cultural differences among the members of the European Union are the product of centuries of history that will take centuries to erase. The United States itself has many subcultures that even today, with mass communication and rapid travel, defy complete homogenization. To suggest that the South is in all respects culturally the same as the north eastern or mid western parts of the United States would be folly, just as it would be folly to assume that the unification of Germany has erased cultural differences that arose from over 40 years of political and social separation.

Marketers must assess each country thoroughly in terms of the proposed products or services n never rely on an often used axiom that if it sells in one country, it will surely sell in another. As worldwide mass communications and increased economic and social interdependence of countries grow, similarities among countries will increase and common market behaviors, wants, and needs will continue to develop. As this process occurs, the tendency will be rely more on apparent similarities when they may not exist. A marketer is wise to remember that a culture borrows and then adapts and customizes to its own needs an idiosyncrasies thus what may appear to be the same on the surface may be different in its cultural meaning.

The scope of culture is broad. It covers every aspect of behavior within a society. The task of foreign marketers is to adjust marketing strategies and plans to the needs of the culture in which they plan to operate. Whether innovations develop internally through invention, experimentation or by accident, or are introduced from outside through a process of borrowing or immigration cultural dynamics always seem to take on both positive and negative aspects.