STRATEGIES FOR INTERNATIONAL MARKETS: CONTENT AND FORMULATION

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MULTINATIONAL STRATEGIES AND THE GLOBAL-- LOCAL
DILEMMA

• The local responsiveness solution
• The global solution

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LOCAL SOLUTION

• Customize organizations and products to country
  or regional differences

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GLOBAL 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

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FOUR BROAD MULTINATIONAL STRATEGIES

• Solutions to the global--local responsiveness
  dilemma
• Multilocal
• Transnational
• International
• Regional

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MULTILOCAL STRATEGY

• Gives top priority to local responsiveness issues
  
• A form of the differentiation strategy
• Not limited to large multinationals

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TRANSNATIONAL STRATEGY

• Gives two goals top priority
• Seeking location advantages
• Gaining economic efficiencies from worldwide
  network

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INTERNATIONAL STRATEGY

• A compromise approach
• Global products, similar marketing techniques
  worldwide
• Upstream and support activities remain
  concentrated at home country

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REGIONAL STRATEGY

• A compromise strategy
• Attempts to gain economic advantages from
  regional network
• Attempts to gain local adaptation advantages from
  regional adaptation

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REGIONAL TRADING BLOCKS

• Encourage regional strategies
• Reduce differences in government and industry
  required specifications for products

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MIXED STRATEGIES

• Seldom do companies adopt pure forms
• Different strategies for each business
• Different strategies for product differences

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THE LOCAL VERSUS GLOBAL DILEMMA DIAGNOSTIC
QUESTIONS

• How global is the industry?
• What makes an industry global?
• Global drivers
• Four categories of global drivers
• Markets, costs, governments, and competition

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GLOBAL MARKETS

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

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COSTS

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

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GOVERNMENTS

• Do the targeted countries have favorable trade
  policies?
• Do the target countries have regulations that
  restrict operations?
• The competition

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COMPETITIVE ADVANTAGE IN THE VALUE CHAIN

• Upstream advantages
• Favor transnational strategy or an international
  strategy
• Downstream advantages
• Favor multilocal strategy

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MIXED CONDITIONS

• Competitive strength downstream in industry with
  strong globalization drivers
• Competitive strength upstream in industries for
  local adaptation
• Favor regional strategy
• See summary next

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SELECT AN INTERNATIONAL STRATEGY OVER A
TRANSNATIONAL WHEN

• Cost savings of centralization offset the lower
  costs or high quality raw materials and labor of
  worldwide locations

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THE PARTICIPATION STRATEGIES

• The choice of how to enter each international
  market
• Exporting, licensing, strategic alliances, and
  foreign direct investment

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EXPORTING

• The easiest
• Passive exporting
• Important-see following examples

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EXPORT STRATEGIES

• Indirect exporting
• Direct exporting

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EXPORT MANAGEMENT COMPANY (EMC)/EXPORT TRADING
COMPANY (ETC)

• Specialize in products, countries or regions
• Provide ready-made access to markets
• Have networks of foreign distributors

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DIRECT EXPORTING

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

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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

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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

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• to design and execute international promotional
  activities
• to support extensive international travel or
  possibly an expatriate sales force
• to develop overseas contacts and networks

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LICENSING

• International licensing is a contractual
  agreement between a domestic licensor and a
  foreign licensee

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WHEN DO COMPANIES LICENSE?

• Based on three factors
• The characteristics of the product
• The characteristics of the target country
• The nature of the licensing company

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OTHER CONTRACTUAL AGREEMENTS

• International franchising
• Contract manufacturing
• Turnkey operations

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THE INTERNATIONAL STRATEGIC ALLIANCE

• Cooperative agreements between two or more firms
  from different countries to participate in a
  business activity

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TWO BASIC TYPES

• Equity international joint ventures (IJV)
• International cooperative alliance (ICA)

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WHY SEEK ALLIANCES?

• Partners 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

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KEY CONSIDERATIONS FOR ALLIANCE

• Pick their partners carefully
• Win-win ventures last much longer
• Need for the alliance
• Ability to succeed in the alliance
• Plans for design and management

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WHICH TYPE?

• IJV probably more secure
• ICA probably more flexible and less visible

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FOREIGN DIRECT INVESTMENT

• FDI symbolizes the highest stage of
  internationalization
• FDI means that companies own and control directly
  a foreign operation
• Acquisitions versus greenfield

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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

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POSSIBLE ADVANTAGES OF FDI

• Greater control
• Lower costs of supplying host country
• Avoiding import quotas
• Greater opportunity to adapt product to the local
  markets
• Better local image of the product

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POSSIBLE DISADVANTAGES OF FDI INCLUDE

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

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FORMULATING A PARTICIPATION STRATEGY
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MULTINATIONAL STRATEGY AND PARTICIPATION STRATEGY

• Why is the company in the market?
• E.g. Source of raw materials, RD, Production,
  etc.
• Location advantages versus market penetration

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OTHER REASONS
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STRATEGIC INTENT

• Profit always major goal
• Other goals
• E.g., Being first in a market with potential or
  learning a new technology

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COMPANY CAPABILITIES

• What can a company afford?
• Human resources
• Production capabilities
• Commitment to using resources

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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

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CHARACTERISTICS OF THE TARGET PRODUCT AND ITS
MARKET (examples)

• Products that spoil quickly or are difficult to
  transport
• Poor candidates for exporting
• Products that need little local
• Good candidates for licensing, joint ventures, or
  FDI

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GEOGRAPHIC DISTANCE

• Transportation costs
• More difficult for managers to communicate
  face-to-face and local managers may feel "out of
  the loop" in corporate decision making

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CULTURAL DISTANCE

• With very different cultures, direct investment
  more risky
• Joint ventures, licensing and exporting
• Local partners deal with local cultural issues

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POLITICAL AND FINANCIAL RISK

• Financial risk
• Economic risk
• Currencies, markets, etc.
• Political risk
• Governments change
• Policies regarding foreign firms change

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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

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THE CONTROL VERSUS RISK TRADEOFF
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CONCLUSIONS

• Dealing with the global--local responsiveness
  dilemma
• Four strategies
• Transnational
• Multilocal
• International
• Regional

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• Participation strategies
• All can be used for sales
• Others serve more value chain activities