Slide 1: CHAPTER 6
MULTINATIONAL AND PARTICIPATION STRATEGIES:
CONTENT AND
FORMULATION
Multinational Strategies and the Global-- Local Dilemma : Multinational Strategies and the Global-- Local Dilemma The local responsiveness solution
The global integration solution
Local Solution : Local Solution Customize organizations and products to country or regional differences
Global Integration Solution : Global Integration Solution Reduce costs with worldwide standardized products, uniform promotional strategies and distribution channels
Seek lower costs or higher quality anywhere in the value chain and in the world
Four Broad Multinational Strategies : Four Broad Multinational Strategies Solutions to the global--local responsiveness dilemma
multidomestic
transnational
international
regional
Multidomestic Strategy : Multidomestic Strategy Gives top priority to local responsiveness issues
A form of the differentiation strategy
Not limited to large multinationals
Transnational Strategy : Transnational Strategy Gives two goals top priority:
seek location advantages
global platforms
gain economic efficiencies from worldwide networks
International Strategy : International Strategy A compromise approach
Global products, similar marketing techniques worldwide
Upstream and support activities remain concentrated at home country
Regional Strategy : Regional Strategy A compromise strategy
Attempts to gain economic advantages from regional network
Attempts to gain local adaptation advantages from regional adaptation
Regional Trading Blocks : Regional Trading Blocks Encourage regional strategies
Reduce differences in government and industry required specifications for products
Mixed Strategies : Mixed Strategies Seldom do companies adopt pure forms
Different strategies for each business
Different strategies for product differences
The Local-global Dilemma: Diagnostic Questions for Strategy Formulation : The Local-global Dilemma: Diagnostic Questions for Strategy Formulation The KEY question:
how global is the industry?
What makes an industry global? : What makes an industry global? Globalization drivers
four categories of global drivers:
markets, costs, governments, and competition
Global Markets : Global Markets Are there?
common customer needs?
global customers?
Can you transfer marketing?
What is the volume of imports and exports in the industry?
Costs : Costs Are there?
global economies of scale?
global sources of low cost raw materials?
cheaper sources of high skilled labor?
high product development costs?
Governments : Governments Do the targeted countries have favorable trade policies?
Do the target countries have regulations that restrict operations?
The Competition : The Competition Successful strategies of competitors
Volume of imports and exports in industry
Competitive Advantage in the Value Chain : Competitive Advantage in the Value Chain Upstream advantages
favor transnational strategy or an international strategy
Downstream advantages
favor multidomestic strategy
Mixed Conditions : Mixed Conditions Competitive strength downstream in industry with strong globalization drivers
Competitive strength upstream in industries with local adaptation pressures
both favor regional strategies
See summary Exhibit 6.2 next
Select an International Strategy over a Transnational When: : Select an International Strategy over a Transnational When: Cost savings of centralization offset the lower costs or higher quality raw materials or labor available from worldwide locations
Participation Strategies : Participation Strategies The choice of how to enter each international market
exporting, licensing, strategic alliances, and foreign direct investment
Exporting : Exporting The easiest
Passive exporting
Active export strategies
Export Strategies : Export Strategies Indirect exporting
uses intermediaries
Direct exporting
Export Management and Trading Companies (EMCs and ETCs) : Export Management and Trading Companies (EMCs and ETCs) Specialize in products, countries or regions
Provide ready-made access to markets
Have networks of foreign distributors
Direct Exporting : Direct Exporting More aggressive
Requires more contact with foreign companies
Uses foreign sales representatives, distributors, or retailers
May require branch offices in foreign countries
Channels in Direct Exporting : Channels in Direct Exporting Sales representatives: use the company's promotional literature and samples
Foreign distributors: resell the products
Sell directly to foreign retailers or end users
Licensing : Licensing International licensing is a contractual agreement between a domestic licensor and a foreign licensee
Other contractual agreements : Other contractual agreements International franchising
Contract manufacturing
Turnkey operations
The International Strategic Alliance : The International Strategic Alliance Cooperative agreements between two or more firms from different countries to participate in a business activity
Two Basic Types : Two Basic Types Equity international joint ventures (IJV)
International cooperative alliance (ICA)
Foreign Direct Investment (FDI) : Foreign Direct Investment (FDI) FDI means that companies own and control directly a foreign operation
symbolizes the highest stage of internationalization
Mergers and acquisitions versus greenfield
Reasons to Invest in Foreign Countries : Reasons to Invest in Foreign Countries To extract raw materials
To find low cost sources of labor, components, parts, or finished goods
To penetrate new markets, the major motivation
Formulating a Participation Strategy : Formulating a Participation Strategy
Deciding on an Export Strategy : Deciding on an Export Strategy Assess control needs for: sales, customer credit, and the eventual sale of the product
Assess financial and human resources capabilities
to manage export operations
Deciding on an export strategy, continued : to design/execute international promotional activities
to support extensive international travel or possibly an expatriate sales force
to develop overseas contacts and networks Deciding on an export strategy, continued
When Should Companies License? : When Should Companies License? Based on three factors
1. characteristics of the product
2. characteristics of the target country
3. nature of the licensing company
Disadvantages of Licensing : Disadvantages of Licensing Gives up control
May create new competitors
Often generates only low revenues
Opportunity costs (barriers to other participation strategies
Why Seek Strategic Alliances? : Why Seek Strategic Alliances? Partner’s different capabilities
Partner's knowledge of the market
Government requirements
To share risks
To share technology
Economies of scale
Low cost raw materials or labor
Key Considerations for Alliances : Key Considerations for Alliances Pick partners carefully
Seek win-win ventures-last much longer
Assess need for the alliance
Estimate ability to succeed Plan for design and management
Which Type? : Which Type? IJV probably more secure
ICA probably more flexible and less visible
Advantages of FDI : Advantages of FDI Greater control
Lower costs of supplying host country
Avoid import quotas
Greater opportunity to adapt product to the local markets
Better local image of the product
Disadvantages of FDI : Disadvantages of FDI Increased capital investment
Increased investment of managerial and other resources
Greater exposure of the investment to political and financial risks
General Strategic and Operational Considerations : General Strategic and Operational Considerations
Strategic Intent : Strategic Intent Immediate profit, or..
Other goals
e.g., being first in a market with potential or learning a new technology
Company Capabilities : Company Capabilities What can a company afford?
Human resources
Production capabilities
Commitment to using resources
Local Government Regulations : Local Government Regulations Import or export tariffs, duties, or restrictions
Laws regarding foreign ownership
Other legal and regulatory issues
patent, consumer protection, labor, and tax laws
Characteristics Of The Target Product /Market (e.g.s) : Characteristics Of The Target Product /Market (e.g.s) Products that spoil quickly or are difficult to transport
poor candidates for exporting
Products that need little local adaptation
good candidates for licensing, joint ventures, or FDI
Geographic Distance : Geographic Distance Transportation costs
Management of FDI and equity strategic alliances more difficult
Cultural Distance : Cultural Distance With very different cultures, direct investment more risky
Joint ventures, licensing and exporting
local partners deal with local cultural issues
Risk : Risk Financial risk
Economic risk
currencies, markets, etc.
Political risk
governments change
policies regarding foreign firms change
Need for Control : Need for Control Key areas for concern
product quality in the manufacturing process, product price, advertising and other promotional activities, where the product is sold, and after market service
The control versus risk tradeoff : The control versus risk tradeoff
Multinational and Participation Strategies : Multinational and Participation Strategies What is the strategic reason to be in the market?
location advantages versus market penetration
e.g., source of raw materials, R&D, production, etc.
Multinational strategy and participation strategies, continued : Multinational strategy and participation strategies, continued A mix of participation strategies often support the basic multinational strategy
see Exhibit 6.9
Conclusions : Conclusions Dealing with the global--local responsiveness dilemma
Four strategies
multidomestic
transnational
international
regional
Slide 59: Participation strategies
all can be used for sales
others besides exporting serve more value chain activities