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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