A company may normally desirous of competing in foreign country markets for any of the four major reasons which is to gain access to new customers, in order to achieve lower costs, to enhances the firm’s competitiveness, to capitalize on its core competencies or to spread its business risk across a wider market base. Each of the factors explained in detail below
To gain access to new customers
A company which expand into foreign markets gains the opportunity for an increased profit, increased revenues and also potential of long-term growth. This becomes a very attractive option for companies when the home markets are mature.
To achieve lower costs and enhance the firm’s competitiveness
Many companies are motivated to sell in more than one country sales. This is because domestic sales volume is normally not big to fully capture the manufacturing economies of scale or the learning curve effects and thereby eventually and substantially improve the firm’s cost-competitiveness.
To capitalize on its core competencies
A company may be able to leverage its competencies and capabilities into a position of competitive advantage in foreign markets as well as just domestic markets.
To spread its business risk across a wider market base
A company may spread its business risk by operating in a number of different foreign countries rather than depending entirely on operations in its domestic market.
Besides all the above factors attracts companies to venture into foreign country markets, companies also need to plan and to pay close attention to the advantages of cross-border of competencies and capabilities. One of the biggest concerns of companies competing in foreign markets is whether to customize their product offerings in each different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide. This is because cross-border differences in cultural, demographic and market conditions are strong. As such, regardless of a company’s motivation for expanding outside its domestic markets, the strategies it uses to compete in foreign markets must be situation driven.
Cultural, demographic, and market conditions vary significantly among the countries of the world. Cultures and lifestyles are the most obvious areas in which countries differ and the market demographics are close behind.
Market growth varies from country to country.
In developing markets, market growth potential is far higher than in the more developed economies.
Separately from basic cultural and market differences among countries, a firm also has to pay attention to the location benefits that shoot from country-to-country differences in manufacturing and distribution costs, the risks of unstable exchange rates, and the economic and political demands of host governments. Differences in wages, employee efficiency, inflation rates, energy expenses, tax charges, government rules, and the like create generous variations in manufacturing costs from country to country.
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Besides that, fluctuating exchange rates also affect a company’s competitiveness. Competitiveness of a company’s operations partly depends on whether exchange rate changes affect costs favorably or unfavorably. When the exchange rates are fluctuating, exporters always gain in competitiveness when the currency of the country where goods are manufactured grows weaker. Exporters are disadvantaged when the currency of the country where goods are manufactured grows stronger.
Furthermore, the impact of host government policies on the local business climate also will have impact to the new venturing companies. Some of the host government policies affecting foreign-based companies are local content requirements on goods made inside their borders by foreign-based companies, policies that protect local companies from foreign competition, restrictions on exports because of national security concerns, price regulation of imported and locally produced goods, deliberately burdensome procedures and requirements for imported goods to pass custom inspection, tariffs or quotas on the import of certain goods and subsidies and low-interest loans for domestic companies competing against foreign rivals.
There are three ways in which a firm can gain competitive advantage by expanding outside its domestic markets:
Use location to lower costs or achieve greater product differentiation
Companies that compete multinational can pursue competitive advantages in world markets by locating their value chain activities in whatever nations prove most advantageous.
To use location to build competitive advantage, a company must consider two issues:
Whether to concentrate each activity it performs in a few select countries or to disperse performance of the activity to many nations
In which countries to locate particular activities
When to Concentrate Activities in a Few Locations
When the costs of manufacturing or other activities are significantly lower in some geographic locations than in others
When there are significant scale economies
When there is a steep learning curve associated with performing an activity in a single location
When certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages
When to Disperse Internal Processes across Many Locations
In several instances, dispersing activities is more advantageous than concentrating them.
The classic reason for locating an activity in a particular country is low-cost.
Using Cross-Border Coordination to Build Competitive Advantage
Transferring competencies, capabilities, and resource strengths from country to country contributes to the development of broader and deeper competences and capabilities – ideally helping a company achieve dominating depth in some competitively valuable area. Dominating depth in a competitively valuable capability, resource, or value chain activity is a strong base for sustainable competitive advantage over multinational or global competitors and especially so over domestic-only competitors.
Using Cross-Border Coordination to Build Competitive Advantage
Multinational and global competitors are able to coordinate activities across different countries to build competitive advantage. If a firm learns how to assemble its product more efficiently at one plant, the accumulated expertise and knowledge can be shared with assembly plants in other world locations. Efficiencies can be achieved by shifting workloads from where they are unusually heavy to locations where personnel are underutilized.
In creating a strategy-supportive reward structure, it is important to define jobs and assignments in terms of the results to be accomplished not just in terms of the duties to be performed. True or false? Explain and justify your answer.
Creating a strategy-supportive reward structure for an organization is an important task as it is a powerful management tools for gaining employee buy-in and commitment. Meanwhile, the key to creating a reward system is to promote relevant measures of performance that the dominating basis for designing incentives, evaluating individual and group efforts, and handling out rewards. In a competitive business climate, more business owners are looking at improvements in quality while reducing costs. While businesses need to get more from their employees, their employees are looking for more out of them. Employee reward and recognition programs are one method of motivating employees to change work habits and key behaviour’s to benefit a business.
As the strategy-supportive reward structure motivates and attracts the employee, designing the reward structure for an organization is quite complex. This is because the importance of the reward structure should define on the job and assignment in terms of the results to be accomplished and not just in terms of the duties to be performed.
A properly spelled out reward structure will emphasis all the below items in the process of developing the reward structure:-
Identification of company goals that the reward program will support
The team whom designing a reward program must identify the companies goals to be reached and the behaviour’s or performance that will contribute towards the company goals and develop the reward structure which will attracts the employees to achieve the goals in order to be rewarded.
Identify the desired employee performance or behaviour’s that will reinforce the company’s goals
By identifying the desired employees performance or behaviour’s that will help the company to achieve the goals, the team whom designing the reward program could include in the performance measurement and desired behaviours into the reward structure.
Key measurements of the performance or behaviour determination, based on the individual or group’s previous achievements.
The team whom designing the reward program could benchmark the previous achievements of the individuals or groups in deciding the key measurements of the performance and improve based on the key areas which the company feels that in needs for improvement.
Determination of appropriate rewards
The team whom designing the reward program needs to consider that the designed rewards is matching to the desired end result of the company. It is also important to consider that the rewarding for the both individual and group accomplishments in order to promote both individual initiative and group cooperation and performance.
Communication of program to employees
In order for a rewards program to be successful, the reward program should be clearly communicated to each and every employee. As employees motivation depends on the individual’s ability to understand what is being asked to them, it is necessary for the company management team to explain and consistently remind them on the reward programs.
It is important for a company to identify and tie the right reward and incentives in the strategy execution. There are 3 techniques for winning sustained, energetic commitment of employees to the strategy execution process which is by providing incentives and an engaging in motivational practices that facilitate good strategy execution, striking the right balance between rewards and punishment for individual performance and lastly by linking employee rewards to strategically relevant organizational performance outcomes.
For the non-monetary approaches in enhancing employee motivation, companies could provide the following basics:-
Providing an attractive perks and fringe benefits
By giving awards and other forms of public recognition
Rely on the promotion from and within whenever possible
Invite and act on ideas and suggestions
Create a work atmosphere of caring and mutual respect
State the strategic vision in inspirational terms
Share the firm’s critical information with employees
Maintain attractive office space and facilities
Linking rewards to strategically relevant for performance outcomes as define jobs and assignments in terms of the results is to be accomplished not just in terms of the duties to be performed but to focus on and reward results and not just the effort. It also creates a results-oriented work environment that focuses on what to achieve, not just on what to do. Besides, it also set strategically-relevant, quite specific, and is measurable on the stretch of performance goals that is difficult but achievable. Link the performance goals of each individual in an organizational unit to be the unit’s goals. The rewards and recognize as the success superior performance in accomplishing the goals.
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There are also guidelines for designing effective incentive compensation systems. Some of it are the making the financial incentives a major, not minor, piece of the total compensation package. There are also incentives that extend to all managers and all workers, not just top management. Companies also have to administer the reward system with scrupulous objectivity and fairness. Furthermore, keep the time between achieving targeted performance outcome and payment of the reward as short as possible does help in achieving the desired companies’ goals through the reward programs. Lastly, companies are advised that to avoid rewarding effort rather than results.
Can an industry be attractive to one company and unattractive to another company? Why or why not?
A term that describes the profit possibilities available in a given market or industry is called market attractiveness. Higher potential profits can be discovered if there is a more attractive market. Companies which are in the process of considering into venturing new industries or markets do conduct analyses in determining whether such move would be good for the business or vice versa. The analysis which will be normally conducted is a market attractiveness analysis. It is conducted to find out whether it is profitable and how much would be the profit earing by the new entering in a particular market or industry.
There are several factors which can influence the market attractiveness. The size of the market could influence the amount of competition and also the availability of customers. There are industries with large market share which can put up the rivals businesses quite easily. In addition, the market for specialized industrial which is much smaller compared to other industries will provide fewer opportunities to break into the market and limit its number of available customers.
Another important factor which influences the market attractiveness is the market climate. When the market is heavily regulated, it is much more difficult to enter the market. This is because, the interest in a product may be high, given that a large customer base or low, awarding a challenge to a new company entering a market. Matters such as inflation and economic turmoil also affect the market attractiveness. Discharging a new and expensive invention in a country with runaway inflation may not generate very high profits.
Meanwhile, according to the Michael Porters framework, there are two high-level stages in the creation of competitive strategy. In the each stage, high-level of profitability will be determining the industries attractiveness.
The first stage is the assessment of the attractiveness of the industry in which a given company is embedded based on a structural analysis of the industry. In this stage the five forces that influence industry attractiveness will be identified, as well as the factors which are the number of competitors, competitor’s sizes requirement of capital which will determine the intensity of the each force.
The purpose of the five forces framework is to relate to the intensity of competition in a given industry, which is the combination of strength of five forces that attract the industry and is defined to sustain profitability. Based on the structural analysis, a particular company may be defined as a very attractive industry or in an unattractive industry.
Although a firm may exists in an unattractive industry, it can still be highly profitable by choosing the proper competitive position within the industry.
The second stage of strategy creation addresses the competitive strategy available to the firm in order to achieve a strong competitive position. Ideally, a firm would want to be in a very attractive industry and have a strong competitive within the industry.
The five forces framework for the structural analysis of an industry consist of bargaining power of suppliers, bargaining power of customers, threat of new entrants and threat of substitute products which actually determine the competitive rivalry within an industry as per shown in the diagram below.
In the process of analyzing the process of strategy creation, it can be designed by following the steps as below:-
Create a map of the industry in which the technology company is embedded.
There are five key sets of players that constitute the business landscape which is competitors, new entrants, substitutes, suppliers, and buyers. Industries have to identify the key players for each industry.
Perform a five forces analysis of the industry structure.
The five forces that influence the intensity of competition in a particular industry, and therefore the profitability of the firms within the industry which is the degree of rivalry between the competitors, the threat of new entrants, the threat of substitutes, buyer power and the supplier power.
Select a competitive positioning strategy.
According to Porter and Hall, for a firm to be successful in a market it has to compete based on one of the two sources of competitive advantage either cost or differentiation. Besides that, a firm also needs to select its strategic target either to entire market or offering a product for a particular market segment. Porter proposed the following three generic competitive strategies:
Cost Leadership : offering the lowest costs products to the entire market
Differentiated: offering highly unique products (as perceived by the customer) to the entire market
Focus: offering products which serve the needs of a niche segment of the market
Porter’s claim is that for a company to be successful in the industry in which it operates it must choose between one of the three generic strategies either cost leadership, differentiated, or focus.
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