Multinational and Participation Strategies: Content and Formulation

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• Multinational and Participation Strategies
  Content and Formulation

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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
  multinationals strategies
• Four broad multinational strategies
  Multidomestic, Transnational, International, and
  Regional

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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

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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
• 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

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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

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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

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Exhibit 5.1 Content of the Four Basic
Multinational Strategies
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Resolving the Global-Local Dilemma Formulating a
Multinational Strategy

• Selection of strategy depends on degree of
  globalization / standardization 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

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Global Markets Costs

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

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Governments Competition

• Governments
• Do the targeted countries have favorable trade
  policies?
• Do the target countries have regulations that
  restrict operations?
• Competition
• What strategies do your competitors use?
• What is the volume of imports and exports in the
  industry?

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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
• Mixed conditions
• Competitive strength downstream in industry with
  strong globalization drivers
• Competitive strength upstream in industries with
  local adaptation pressures
• Both favor regional strategies

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Exhibit 5.2 Pressures for Globalization vs.
Localization
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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

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Participation (Entry) Strategies

• Participation strategies the choice of how to
  enter each international market
• Exporting
• Licensing
• Strategic alliances
• Foreign direct investment

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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

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Export Strategies

• Indirect exporting uses intermediaries or
  go-between firms
• The most common intermediaries are 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
• 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
• Channels in direct exporting 1) Sales
  representatives use the companys promotional
  literature and samples 2) Foreign distributors
  resell the products, and 3) Sell directly to
  foreign retailers or end users

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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

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Exhibit 5.3 Contents of a Licensing Agreement
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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

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International Strategic Alliances

• Cooperative agreements between firms from
  different countries to participate in business
  activities
• May include any value-chain activity
• Two Types
• 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

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Foreign Direct Investment

• Companies own and control directly a foreign
  operation
• Symbolizes the highest stage of
  internationalization
• Greenfield investments starting foreign
  operations from scratch

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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 companys multinational
  strategy

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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
• 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.

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

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Motivations for Strategic Alliances

• Partners knowledge of the market
• Government requirements
• To share risks
• To share technology
• Economies of scale
• Low cost raw materials or labor
• Key Considerations for Strategic Alliances
• Could other participation strategies better
  satisfy strategic objectives?
• Does firm have management and capital resources
  to contribute?
• Can partner benefit the companys objectives?
• What is expected payoffs?

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

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Exhibit 5.6 Advantages and Disadvantages of FDI
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Exhibit 5.6 Advantages and Disadvantages of FDI
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Choosing Participation Strategy Strategic
Considerations

1. Companys strategic intent regarding profits vs.
   learning
2. Company capabilities
3. Local government regulations
4. Characteristics of the target product and market
5. Geographic and cultural distance
6. Political and financial risk of investment
7. Need for control

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Exhibit 5.7 The Risk versus Control Tradeoff
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Exhibit 5.8 Decision Matrix for Formulating
Participation Strategies
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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, RD, production,
  etc.
• A mix of participation strategies often support
  the basic multinational strategy

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Exhibit 5.9 Participation Strategies and the
Multinational Strategies
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Exhibit 5.9 Participation Strategies and the
Multinational Strategies