Chapter 2

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Questions and Answers

What is a key consideration when evaluating a product's competitiveness in foreign markets?

Evaluating the product's branding strategy

Understanding customer preferences in the domestic market

Assessing the degree of novelty in the foreign market (correct)

Determining the product's price abroad

Which of the following is essential for determining if a product satisfies needs in foreign markets?

Assessing the marketing strategies used at home

Analyzing the competitive advantages in the domestic market

Evaluating the product's manufacturing costs

Identifying current products meeting those needs (correct)

When selecting a product for internationalization, which aspect does NOT typically need consideration?

Local market share of the competitor (correct)

Availability of productive elements abroad

Complementary services required

What factor is crucial for the adaptation of a product for foreign markets?

The need to modify attributes of the product Signup and view all the answers

Which question should be asked regarding the availability of productive elements outside the domestic market?

Do specific productive elements exist abroad to meet demand? Signup and view all the answers

What is an important aspect to consider when analyzing marketing channels for a product?

Whether the product can be marketed similarly in foreign markets Signup and view all the answers

Why is it important to analyze the competitive advantages of a product in foreign markets?

It identifies strengths and weaknesses in the competitive landscape. Signup and view all the answers

Which consideration is generally least relevant when selecting a product for a target international market?

Market saturation in the domestic market Signup and view all the answers

What is a primary factor that defines a multinational company's operation in different national environments?

Integrating differences to enhance competitive advantage Signup and view all the answers

Which component is critical in the organizational structure of international activities?

Parent-subsidiary relationships Signup and view all the answers

What aspect of market entry strategies is primarily affected by cultural differences?

Entry mechanisms and methods Signup and view all the answers

Which of the following best describes 'country risk' in the international business context?

The potential for financial loss due to political or economic instability Signup and view all the answers

When selecting geographical markets, which factor is essential for formulating an internationalization path?

Sequence and process of international expansion Signup and view all the answers

How does political-economic distance influence multinational companies?

It can affect risk assessment and operational strategies. Signup and view all the answers

Which strategy should a multinational company consider when entering new geographical markets?

Adapting strategies based on local market conditions Signup and view all the answers

What role does cultural distance play in the failure of international operations?

It can lead to misunderstandings and ineffective management. Signup and view all the answers

What is one internal factor that can drive a company to start an internationalization process?

Natural resource seeking Signup and view all the answers

Which strategy aims to strengthen a company's competitive position during internationalization?

Strategic assets search Signup and view all the answers

What does the term 'efficiency search' imply in the context of internationalization?

Achieving economies of scale and specialization Signup and view all the answers

In which stage of the International Product Life Cycle is a product usually introduced to the market?

Domestically focused stage Signup and view all the answers

What is a key factor to consider when selecting geographical markets for expansion?

Local competition density Signup and view all the answers

Which of the following is NOT a reason for market search in internationalization?

Reduction in operational risks Signup and view all the answers

What characteristic of the iPhone's international product life cycle demonstrates successful domestic growth?

Achieving economies of scale Signup and view all the answers

What is commonly a goal during the strategic assets search in an international market?

Enhance competitive position Signup and view all the answers

Study Notes

Section 2: Deciding Whether to Enter an International Market

Contents:
- Reasons for internationalization
- Product selection
- Geographical market selection

1. Reasons Why a Company Should Start an Internationalization Process

Internal Factors (Dunning, 1979):
- Seeking (Natural) Resources
  - Raw materials
  - Qualified staff
  - Intangible resources
- Efficiency Search
  - Economies of scale
  - Specialization and scope
  - Production relocation (international)
- Strategic Assets Search
  - Competitive positioning enhancement
  - Business portfolio diversification
  - Strategic synergies
- Market Search
  - Access to local markets
  - Adjacent market access
  - Import substitution
External Factors:
- Unplanned opportunities
- Following suppliers and/or customers
- Domestic rivalry intensity
Internationalization Decision: A result of considering both internal and external factors.

2. Selecting the Product

Criteria for a Good International Candidate:
- Strong market acceptance in the home country
- Potential for increase in success outside the home country (e.g., Toyota Prius)
- Product life cycle in a saturation/decline phase in the domestic market but growing in foreign markets
- Necessary production resources readily available
- Ability to transfer marketing and experience/know-how
Main Questions about the Product:
- Competitiveness in the Own Market:
  - Is the product competitive in the domestic market?
  - What are its strengths and weaknesses?
- Satisfaction of Needs in the Market:
  - What needs does the product satisfy in the domestic market?
  - Are similar needs present in foreign markets?
  - Can the product meet those needs if they exist in foreign markets?
  - Does the product satisfy other needs in foreign markets?
- Competitiveness Abroad:
  - Novelty degree in the foreign market
  - Anticipated competition level
  - Advantages and disadvantages for foreign markets
- Availability of Productive Elements:
  - Are necessary resources (labor, technology, raw materials, etc.) available abroad?
  - Do sufficient resources exist abroad to address growing demand?
- Terms of Use: Are use conditions similar in foreign markets to the domestic market?
- Complementary Services: Does the product require after-sale services? Are these services available abroad?
Product Standardization/Adaptation Strategies:
- Standardization Strategy:
  - Global approach
  - Low adaptation costs, high promotional costs
  - Suitable for industrial products
- Adaptation Strategy:
  - Multiple domestic markets
  - High adaptation costs, low promotional costs
  - Customizable approach
- Hybrid Strategy: A mix of standardization and adaptation.
Example: Starbucks' failure in Australia highlights the importance of understanding local market nuances.

3. Selecting the Geographical Markets

Market Research:
- Size (population, GDP, growth rate, demographics)
- Sales potential
- Consumer profiles
- Product adaptability
Psychic Distance: The difference due to cultural, institutional, and geographic factors between the domestic and foreign market.
- Geographic distance: Physical distance (km/hours of travel).
- Formal institutional distance: Differences in business structures, laws.
- Cultural distance: Cultural differences between the company's home country and target country
Market/Country Selection: The process of choosing which foreign markets to target.
Factors Affecting Selection: Political risk
- Political risk: Stability of the political/economic system and potential for future disruption, expropriation, nationalization, or actions restricting capital transfer.
- Administrative risk: Regulatory aspects of the foreign market, including restrictions related to market operation and factor mobility (e.g., difficulty to repatriate money, or difficulties importing/exporting materials)
- Sovereign risk: The likelihood that the foreign government cannot meet its financial obligations (e.g., national debt).
Country Risk Index (CRI): A method for determining risk levels. It considers different factors, and assigns weights to these variables for calculating an overall risk index
Sources of Country Risk Indices: Includes agencies like Bank of America, Moody's, Standard and Poor's, Fitch Ratings, and the Economist Intelligence Unit.
Case Study: Fluidra is the leading Spanish company in the pool & wellness industry.

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Explore the factors influencing a company's decision to enter international markets. This quiz covers the internal and external elements affecting the internationalization process, including resource seeking and market access strategies. Understand how these factors shape a business's global strategy.