1. Multinational and Participation Strategies: Content and Formulation
跨国参与战略：内容与制定
朱吉庆 博士 讲师

2. Learning Objectives
Appreciate the complexities of the global-local dilemma
Understand the content of the multinational strategies
Formulate a multinational strategy
Understand the content of the participation strategies
Formulate a participation strategy
Understand political risk and ways companies can manage such risks
Multinational and Participation Strategies: Content and Formulation

3. Multinational Strategies: Dealing with the Global-Local Dilemma
Local-responsiveness solution: customize to country or regional differences
Global integration solution: conduct business similarly throughout the world
Global-local dilemma: choice between a local-responsiveness or global approach to a multinational’s strategies
Multinational and Participation Strategies: Content and Formulation

4. Multinational Strategies: Dealing with the Global-Local Dilemma
Four broad multinational strategies
- Multidomestic
- Transnational
- International
- Regional
Multinational and Participation Strategies: Content and Formulation

5. Multidomestic Strategy
The company attempts to offer products or services that attract customers by closely satisfying their cultural needs and expectations
Emphasizing local-responsiveness issues
- Ex.: different packages, colors
- Costs more to produce, need to charge higher prices to recoup
- A form of the differentiation strategy
- Not limited to large multinationals
Multinational and Participation Strategies: Content and Formulation

6. Transnational Strategy
Two goals get top priority
- Seeking location advantages
- Gaining economic efficiencies from operating worldwide
Multinational and Participation Strategies: Content and Formulation

7. Transnational Strategy (cont.)
Location advantages: dispersing value-chain activities anywhere in the world where they can be done best or cheapest
Global platform: country location where a firm can better perform some of its value-chain activities
Multinational and Participation Strategies: Content and Formulation

8. Transnational strategy (cont.)
With upstream location advantages, the transnational can:
Locate subunits near cheap sources of high-quality raw material
Locate subunits near centers of research and innovation
Locate subunits near sources of high-quality or low-cost labor
Seek low-cost financing anywhere in the world
Share discoveries and innovations made in one part of the world with operations in other parts of the world
Multinational and Participation Strategies: Content and Formulation

9. Transnational Strategy (cont.)
Comparative advantage: advantages of nations over other nations
- No longer only available to domestic firms
Location advantages can exist for all activities of the value chain
Multinational and Participation Strategies: Content and Formulation

10. International Strategy
International strategy: selling global products and using similar marketing techniques worldwide
- A compromise approach
- Limited adjustment in product offerings and marketing strategies
- Upstream and support activities remain concentrated at home country
Multinational and Participation Strategies: Content and Formulation

11. Regional Strategy
Regional strategy: managing raw-material sourcing, production, marketing, and support activities within a particular region
- Another compromise strategy
- Attempts to gain economic advantages from regional network
- Attempts to gain local adaptation advantages from regional adaptation
Multinational and Participation Strategies: Content and Formulation

12. Exhibit 6.1: Content of the Four Basic Multinational Strategies
Multinational and Participation Strategies: Content and Formulation

13. Resolving the Global-Local Dilemma: Formulating a Multinational Strategy
Selection of strategy depends on degree of globalization in an industry
Globalization drivers: conditions in a industry that favor transnational or international strategies
Four categories of global drivers: markets, costs, governments, and competition
Multinational and Participation Strategies: Content and Formulation

14. Global Markets Are there common customer needs?
Are there global customers?
Can you transfer marketing?
Multinational and Participation Strategies: Content and Formulation

15. Costs Are there global economies of scale?
Are there global sources of low-cost raw materials?
Are there cheaper sources of highly skilled labor?
Are product-development costs high?
Multinational and Participation Strategies: Content and Formulation

16. Governments Do the targeted countries have favorable trade policies?
Do the target countries have regulations that restrict operations?
Multinational and Participation Strategies: Content and Formulation

17. The Competition What strategies do your competitors use?
What is the volume of imports and exports in the industry?
Multinational and Participation Strategies: Content and Formulation

18. Competitive Advantage in the Value Chain
Location of competitive advantage in value chain determines choice of generic strategy
Upstream advantages: low-cost or high-quality design
- Favor transnational strategy or an international strategy
Downstream advantages: marketing, sales, service
- Favor multidomestic strategy
Multinational and Participation Strategies: Content and Formulation

19. Competitive Advantage in the Value Chain (cont.)
Mixed conditions
- Competitive strength downstream in industry with strong globalization drivers
- Competitive strength upstream in industries with local adaptation pressures
Both favor regional strategies
Multinational and Participation Strategies: Content and Formulation

20. Exhibit 6.2: Pressures for Globalization vs. Localization
Multinational and Participation Strategies: Content and Formulation

21. Transnational or International: Which Way for the Global Company?
Select a transnational over an international strategy when:
- Benefits of dispersing activities worldwide offset the costs of coordinating a more complex organization
Select an international strategy over a transnational when:
- Cost savings of centralization offset the lower costs of higher quality raw materials/labor from worldwide locations
Multinational and Participation Strategies: Content and Formulation

22. Participation Strategies: The Content Options
Participation strategies: the choice of how to enter each international market
- Exporting
- Licensing
- Strategic alliances
- Foreign direct investment
Multinational and Participation Strategies: Content and Formulation

23. Exporting Easiest way to sell a product in international market
Passive exporter: company that treats and fills overseas orders like domestic orders
Alternatively, a company can put extensive resources into exporting with dedicated export department
Multinational and Participation Strategies: Content and Formulation

24. Export Strategies
Indirect exporting: uses intermediaries or go-between firms
The most common intermediaries
- Export Management Company (EMC) and Export Trading Company (ETC)
Specialize in products, countries, or regions
Provide ready-made access to markets
Have networks of foreign distributors
Multinational and Participation Strategies: Content and Formulation

25. Export Strategies
Direct exporting: direct contact with customers in the foreign market
- More aggressive exporting strategy
- Requires more contact with foreign companies
- Uses foreign sales representatives, distributors, or retailers
- May require branch offices in foreign countries
Multinational and Participation Strategies: Content and Formulation

26. Export Strategies (cont.)
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
Multinational and Participation Strategies: Content and Formulation

27. Licensing
Licensing: contractual agreement between a domestic licensor and a foreign licensee
Licenser has valuable patent, know-how, or trademark
Foreign licensee pays royalties for use
Multinational and Participation Strategies: Content and Formulation

28. Exhibit 6.3: Contents of a Licensing Agreement
Multinational and Participation Strategies: Content and Formulation

29. Special Licensing Agreements
International franchising: the franchisor grants the use of a whole business operation
Contract manufacturing: production following the foreign companies’ specifications
Turnkey operation: multinational company makes a project fully operational before the foreign owner takes control
Multinational and Participation Strategies: Content and Formulation

30. International Strategic Alliances
Cooperative agreements between firms from different countries to participate in business activities
May include any value-chain activity
Multinational and Participation Strategies: Content and Formulation

31. Types of International Strategic Alliances
Equity International Joint Ventures (IJV): two or more firms from different countries have an equity position in a separate company
International Cooperative Alliance (ICA): two or more firms from different countries agree to cooperate in any value-chain activity
Multinational and Participation Strategies: Content and Formulation

32. Foreign Direct Investment (FDI)
Companies own and control directly a foreign operation
- Symbolizes the highest stage of internationalization
Greenfield investments: starting foreign operations from scratch
Multinational and Participation Strategies: Content and Formulation

33. Exhibit 6.5: World’s Top Companies Ranked by Foreign Assets
Multinational and Participation Strategies: Content and Formulation

34. Exhibit 6.5: World’s Top Companies Ranked by Foreign Assets
Multinational and Participation Strategies: Content and Formulation

35. Formulating Participation Strategy
Must take into account several issues:
- Basic functions of each participation strategy
- Strategic considerations and intent of company
- How best to support company’s multinational strategy
Multinational and Participation Strategies: Content and Formulation

36. Export Strategy
Exporting is the easiest and cheapest participation strategy, although it may not always be the most profitable
It is a way to begin to internationalize or t test new markets
Which form of exporting should it choose?
Multinational and Participation Strategies: Content and Formulation

37. Deciding on Export Strategy
Does management need to control sales, customer credit, and sale of the product?
- If yes, choose direct exporting
Does company have resources to manage export operations?
- If not, use indirect exporting
Multinational and Participation Strategies: Content and Formulation

38. Deciding on Export Strategy
Does company have resources to design/execute international promotional activities?
- If not, use foreign intermediaries and indirect exporting
Does company have resources to support extensive international travel or possibly an expatriate sales force?
- If so, choose direct exporting.
Multinational and Participation Strategies: Content and Formulation

39. Deciding on Export Strategy
Does company have time and expertise to develop overseas contacts and networks?
- If not, rely on foreign intermediaries or indirect exporting.
Will time and resources affect domestic operations?
- If not, choose direct exporting.
Multinational and Participation Strategies: Content and Formulation

40. Licensing Decision Based on three factors
- Characteristics of the products
Best products are older or soon-to-be replaced
- Characteristics of the target country
Situation in target country
- Nature of the licensing company
Company may lack resources to go international
Multinational and Participation Strategies: Content and Formulation

41. Licensing: Disadvantages
Gives up control
May create new competitors
Often generates only low revenues
Opportunity costs (barriers to other participation strategies)
Multinational and Participation Strategies: Content and Formulation

42. Motivations for Strategic Alliances
Partner’s knowledge of the market
Government requirements
To share risks
To share technology
Economies of scale
Low cost raw materials or labor
Multinational and Participation Strategies: Content and Formulation

43. Key Considerations for Alliances
Could other participation strategies better satisfy strategic objectives?
Does firm have management and capital resources to contribute?
Can partner benefit the company’s objectives?
What is expected payoffs?
Multinational and Participation Strategies: Content and Formulation

44. Foreign Direct Investment (FDI)
Most experienced international firms choose FDI
Advantages
- Greater control
- Lower costs of supplying host country
- Avoid import quotas
- Greater opportunity to adapt product to local markets
- Better local image of the product
Multinational and Participation Strategies: Content and Formulation

45. Disadvantages of FDI Increased capital investment
Increased investment of managerial and other resources
Greater exposure of the investment to political and financial risks
Multinational and Participation Strategies: Content and Formulation

46. Exhibit 6.6: Advantages and Disadvantages of FDI
Multinational and Participation Strategies: Content and Formulation

47. Choosing Participation Strategy: Strategic Considerations
Company’s strategic intent regarding profits vs. learning
Company capabilities
Local government regulations
Characteristics of the target product and market
Multinational and Participation Strategies: Content and Formulation

48. Choosing Participation Strategy: Strategic Considerations (cont.)
Geographic and cultural distance
Financial risk of the investments
Need for control
Multinational and Participation Strategies: Content and Formulation

49. Exhibit 6.7: The Risk versus Control Tradeoff
Multinational and Participation Strategies: Content and Formulation

50. Exhibit 6.8: Decision Matrix for Formulating Participation Strategies
Multinational and Participation Strategies: Content and Formulation

51. Participation Strategies and the Multinational Strategies
What is the strategic reason to be in the market?
- Location advantages vs. market penetration
E.g., source of raw materials, R&D, production, etc.
A mix of participation strategies often support the basic multinational strategy
Multinational and Participation Strategies: Content and Formulation

52. Exhibit 6.9: Participation Strategies and the Multinational Strategies
Multinational and Participation Strategies: Content and Formulation

53. Participation Strategies: Synopsis
The selection of a participation strategy depends on a complex array of factors, including the company’s multinational strategy, its strategic intent, and its need for control of its products
Most multinational companies will choose a mixture of participation strategies to fit different products or different businesses
Multinational and Participation Strategies: Content and Formulation

54. Conclusion
Multinational manager faces array of complex strategic issues
All companies must deal with global-local dilemma
Multinationals also face the challenges of choosing participation strategies
Political risk is also becoming an important factor
Multinational and Participation Strategies: Content and Formulation