Basic Strategies & Multinational and Participation Strategies

Basic Strategies Review of strategic decision making and strategic management Understanding of basic strategies and how to craft strategies Industry analysis SWOT analysis Situation with diversified companies

Objectives: The global-local dilemma choice between a local responsiveness or global approach to a multinational’s strategy Some of the broad multinational strategies Multi-domestic Transnational International Regional Participation strategies – how should one enter a market Alliance Strategy will be the focus of this course

Multinational Strategies and the Global Local Dilemma The local responsiveness solution Customize organizations and products to country or regional differences The 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 Solutions to the global—local responsiveness dilemma Multi-domestic Transnational International Regional

Multi-domestic Strategy Local markets are linked within a region Gives top priority to local responsiveness issues A form of the differentiation strategy Not limited to large multinationals Examples of Multidomestic Even for standardized products, sometimes localization is necessary Ex: McDonald’s could not sell its famous Big Mac in India – instead sells a mutton sandwich called Maharaja sandwich See Multinational Management Challenge -p 157

Matsushita: A GLOCAL company – “go GLObal and act loCAL” Has key “go global, act local” strategies and policies Be good citizen in all countries Give overseas operations your best manufacturing technology Keep expatriate headcount down – groom local managers Let plants set their own rules, fine-tune manufacturing process to match skills of workers Develop local R&D to tailor products to market Encourage competition among overseas outposts and with plants back home

Transnational/Global Strategy Gives two goals top priority: seek location advantages- Global Platform gain economic efficiencies from worldwide networks Benefits Cost reductions – broader economies of scale Higher quality of products Customer satisfaction – can obtain and service product anywhere Increased competitive power See Case in Point p. 152

International Strategy A compromise approach to global/local dilemma ex/ Boeing Global products, similar marketing techniques worldwide Upstream and support activities remain concentrated at home country- R&D, manufacturing , marketing approach focuses on price and technology

Regional Strategy A compromise strategy Attempts to gain economic advantages from regional network Attempts to gain local adaptation advantages from regional adaptation Managing raw material sourcing, production, marketing, and support activities within a particular region Rise of trading blocs – EU, NAFTA, ASEAN led to more uniformity in customer needs and reduced government and industry-required specifications for products Ex. Proctor & Gamble – combined subunits in Mexico, Canada and USA into one regional organization

International Participation Strategies: Review The choice of how to enter each international market 1. Exporting 2. Licensing 3. Strategic alliances 4. Foreign direct investment

1. Exporting The easiest – low risk, minimal investment, and fast withdrawal Passive exporting – treating and filling overseas orders like domestic orders Active export strategies – indirect through Export Management Companies

Direct Exporting (cont’d) More aggressive, requires more contact with foreign companies Uses foreign sales representatives, distributors, or retailers May require branch offices in foreign countries

Exporting (cont’d) Often the only available choices for small and new firms wanting to go international Provide an avenue for larger firms that want to begin their international expansion with a minimum of investment Exporting and importing can provide easy access to overseas markets Strategy usually is transitional in nature

2. Licensing International licensing is a contractual agreement between a domestic licensor and a foreign licensee International franchising Contract manufacturing Turnkey operations Licensing distinctions: Patent – legal protection for new inventions Trademark – legal protection for symbols, picture [Nike swoosh] Copyright Trade secret – Coca Cola formula etc.

Licensing (cont’d) Widely used in the fast-food and hotel/motel industries With minor adjustments for the local market, it can result in a highly profitable international business

Reasons for licensing Quick way to recover R&D Expand overseas quickly without major capital outlay To squeeze more life out of a mature product To test potential of a foreign market Inability to enter market because of government restrictions on export Avoids customs duties, trade quotas, and other export-import restrictions

3. The International Strategic Alliance Cooperative agreements between two or more firms from different countries to participate in a business activity Benefits: --Access to the resources and capabilities of another company --Learning from one another --Reducing time-to-market for innovations --Risk sharing Problems: --Disagreements & conflict between the partners. Disputes most likely where the partners are also competitors. Benefits are seldom shared equally. Distribution of benefits determined by: Strategic intent of the partners- which partner has the clearer vision of the purpose of the alliance? Appropriability of the contribution—which partner’s resources and capabilities can more easily be captured by the other? Absorptive capacity of the company-- which partner is the more receptive learner?

4. 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 To extract raw materials To find low cost sources of labor, components, parts, or finished goods To penetrate new markets, the major motivation

Advantages of FDI Disadvantages 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 Increased capital investment Increased investment of managerial and other resources Greater exposure of the investment to political and financial risks

Wholly-owned subsidiary An overseas operation that is totally owned and controlled by an MNC MNC’s desire for total control and belief that managerial efficiency is better without outside partners Some host countries are concerned that the MNC will drive out local enterprises and others prohibit fully owned subsidiaries Home-country unions sometimes view foreign subsidiaries as an attempt to “export jobs” Today many multinationals opt for a merger, alliance, or joint venture rather than a fullyowned subsidiary

Implementing a Strategic-Alliance Strategy Decide Where to Link in Value Chain Select a Potential Partner Begin Over Is Partner Acceptable? Choose an Alliance Type Negotiate an Agreement Build the Organization Build Trust and Commitment Assess Performance Terminate the Alliance OR Check and Revise Implementation Meets Strategic Objectives? Continue or Increase Involvement NO Yes No Yes

Linking Value Chains Company A Company B Research and Development R&D Input Logistics Raw material supply and acquisition Input Logistics Raw material supply and acquisition Supply/ Production Operations Manufacturing, assembly, facility operations Operations Manufacturing, assembly, facility operations Operations Production/ Marketing Marketing and sales Promotions, and channel relations Marketing and sales Promotions, and channel relations Marketing Output Logistics delivery Output Logistics delivery Delivery Service repair Service repair