CHAPTER 6 MULTINATIONAL AND PARTICIPATION STRATEGIES: CONTENT AND FORMULATION

1. 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 • Direct exporting

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