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Multinational and Participation Strategies: Content and Formulation

5. Multinational and Participation Strategies: Content and Formulation. Learning Objectives. Appreciate the complexities of the global-local dilemma Understand the content of the multinational strategies Formulate a multinational strategy

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Multinational and Participation Strategies: Content and Formulation

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  1. 5 Multinational and Participation Strategies: Content and Formulation

  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

  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

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

  5. Multidomestic Strategy • 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

  6. Transnational Strategy • Two goals get top priority • Seeking location advantages • Gaining economic efficiencies from operating worldwide • Location advantages: dispersing value-chain activities anywhere in the world where they can be done best or cheapest

  7. Transnational Strategy (cont.) • Global platform: country location where a firm can better perform some of its value-chain activities • 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

  8. 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

  9. 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

  10. Exhibit 5.1: Content of the Four Basic Multinational Strategies

  11. 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

  12. Global Markets • Are there common customer needs? • Are there global customers? • Can you transfer marketing?

  13. 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?

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

  15. The Competition • What strategies do your competitors use? • What is the volume of imports and exports in the industry?

  16. 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

  17. 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

  18. Exhibit 5.2: Pressures for Globalization vs. Localization

  19. 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

  20. Participation Strategies: The Content Options • Participation strategies: the choice of how to enter each international market • Exporting • Licensing • Strategic alliances • Foreign direct investment

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. Exhibit 5.3: Contents of a Licensing Agreement

  27. 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

  28. International Strategic Alliances • Cooperative agreements between firms from different countries to participate in business activities • May include any value-chain activity

  29. 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

  30. Foreign Direct Investment • Companies own and control directly a foreign operation • Symbolizes the highest stage of internationalization • Greenfield investments: starting foreign operations from scratch

  31. Exhibit 5.5: World’s Top Companies Ranked by Foreign Assets

  32. Exhibit 5.5: World’s Top Companies Ranked by Foreign Assets

  33. 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

  34. 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 • Does company have resources to design/execute international promotional activities? • If not, use foreign intermediaries and indirect exporting

  35. Export Strategy • Does company have resources to support extensive international travel or possibly an expatriate sales force? If so, choose direct exporting. • 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.

  36. 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

  37. Licensing: Disadvantages • Gives up control • May create new competitors • Often generates only low revenues • Opportunity costs (barriers to other participation strategies)

  38. 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

  39. 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?

  40. 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

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

  42. Exhibit 5.6: Advantages and Disadvantages of FDI

  43. Exhibit 5.6: Advantages and Disadvantages of FDI

  44. 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

  45. Choosing Participation Strategy: Strategic Considerations (cont.) • Geographic and cultural distance • Political and financial risk of investment • Need for control

  46. Exhibit 5.7: The Risk versus Control Tradeoff

  47. Exhibit 5.8: Decision Matrix for Formulating Participation Strategies

  48. 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

  49. Exhibit 5.9: Participation Strategies and the Multinational Strategies

  50. Exhibit 5.9: Participation Strategies and the Multinational Strategies

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