1. MULTINATIONAL AND PARTICIPATION STRATEGIES:
CHAPTER 6
MULTINATIONAL AND PARTICIPATION STRATEGIES:
CONTENT AND
FORMULATION

2. Multinational Strategies and the Global-- Local Dilemma
The local responsiveness solution
The global integration solution

3. Local Solution
Customize organizations and products to country or regional differences

4. 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

5. Four Broad Multinational Strategies
Solutions to the global--local responsiveness dilemma
multidomestic
transnational
international
regional

6. Multidomestic Strategy
Gives top priority to local responsiveness issues
A form of the differentiation strategy
Not limited to large multinationals

7. Transnational Strategy
Gives two goals top priority:
seek location advantages
global platforms
gain economic efficiencies from worldwide networks

8. International Strategy
A compromise approach
Global products, similar marketing techniques worldwide
Upstream and support activities remain concentrated at home country

9. Regional Strategy A compromise strategy
Attempts to gain economic advantages from regional network
Attempts to gain local adaptation advantages from regional adaptation

10. Regional Trading Blocks
Encourage regional strategies
Reduce differences in government and industry required specifications for products

12. Mixed Strategies Seldom do companies adopt pure forms
Different strategies for each business
Different strategies for product differences

13. The Local-global Dilemma: Diagnostic Questions for Strategy Formulation
The KEY question:
how global is the industry?

14. What makes an industry global?
Globalization drivers
four categories of global drivers:
markets, costs, governments, and competition

15. Global Markets Are there? common customer needs? global customers?
Can you transfer marketing?
What is the volume of imports and exports in the industry?

16. Costs Are there? global economies of scale?
global sources of low cost raw materials?
cheaper sources of high skilled labor?
high product development costs?

17. Governments Do the targeted countries have favorable trade policies?
Do the target countries have regulations that restrict operations?

18. The Competition Successful strategies of competitors
Volume of imports and exports in industry

19. Competitive Advantage in the Value Chain
Upstream advantages
favor transnational strategy or an international strategy
Downstream advantages
favor multidomestic strategy

20. 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

22. 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

23. Participation Strategies
The choice of how to enter each international market
exporting, licensing, strategic alliances, and foreign direct investment

24. Exporting
The easiest
Passive exporting
Active export strategies

25. Export Strategies Indirect exporting uses intermediaries

26. 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

27. Direct Exporting More aggressive
Requires more contact with foreign companies
Uses foreign sales representatives, distributors, or retailers
May require branch offices in foreign countries

28. 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

29. Licensing
International licensing is a contractual agreement between a domestic licensor and a foreign licensee

30. Other contractual agreements
International franchising
Contract manufacturing
Turnkey operations

31. The International Strategic Alliance
Cooperative agreements between two or more firms from different countries to participate in a business activity

32. Two Basic Types Equity international joint ventures (IJV)
International cooperative alliance (ICA)

33. 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

34. 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

35. Formulating a Participation Strategy

36. 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

37. 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

38. 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

39. Disadvantages of Licensing
Gives up control
May create new competitors
Often generates only low revenues
Opportunity costs (barriers to other participation strategies

40. 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

41. 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

42. Which Type? IJV probably more secure
ICA probably more flexible and less visible

43. 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

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

45. General Strategic and Operational Considerations

46. Strategic Intent Immediate profit, or.. Other goals
e.g., being first in a market with potential or learning a new technology

47. Company Capabilities What can a company afford? Human resources
Production capabilities
Commitment to using resources

48. 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

49. 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

50. Geographic Distance Transportation costs
Management of FDI and equity strategic alliances more difficult

51. Cultural Distance
With very different cultures, direct investment more risky
Joint ventures, licensing and exporting
local partners deal with local cultural issues

52. Risk Financial risk Economic risk currencies, markets, etc.
Political risk
governments change
policies regarding foreign firms change

53. 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

54. The control versus risk tradeoff

56. 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.

57. Multinational strategy and participation strategies, continued
A mix of participation strategies often support the basic multinational strategy
see Exhibit 6.9

58. Conclusions Dealing with the global--local responsiveness dilemma
Four strategies
multidomestic
transnational
international
regional

59. Participation strategies
all can be used for sales
others besides exporting serve more value chain activities