ch06 international management

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CHAPTER 6

MULTINATIONAL

AND

PARTICIPATION

STRATEGIES:

CONTENT AND

FORMULATION


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Multinational Strategies andthe Global-- Local Dilemma

The local responsiveness solution

The global integration solution


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Local Solution Customize organizations and

products to country or regionaldifferences


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Global Integration Solution Reduce costs with worldwide

standardized products, uniformpromotional strategies anddistribution channels

Seek lower costs or higherquality anywhere in the valuechain and in the world


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Four Broad MultinationalStrategies

Solutions to the global--local

responsiveness dilemma multidomestic transnational

international regional


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Multidomestic Strategy

Gives top priority to local

responsiveness issues A form of the differentiation

strategy

Not limited to largemultinationals


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Transnational Strategy Gives two goals top priority:

seek location advantagesglobal platforms

gain economic efficiencies fromworldwide networks


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International Strategy A compromise approach

Global products, similarmarketing techniques worldwide

Upstream and support activities

remain concentrated at homecountry


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Regional Strategy A compromise strategy

Attempts to gain economicadvantages from regional network

Attempts to gain local adaptation

advantages from regionaladaptation


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Regional Trading Blocks Encourage regional strategies

Reduce differences ingovernment and industry requiredspecifications for products


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EXHIBIT 6.1 MULTINATIONAL STRATEGY CONTENT

Content Transnational International Multidomestic RegionalWorldwide

markets

Yes Yes No No

Worldwidelocation ofseparatevalue chainactivities

Yes No No No

Globalproducts

Yes Yes No No

Globalmarketing

Yes Yes No No

Global

competitivemoves

Resources

from anycountry used

to attack or

defend

Attacks and

defenses in allcountries -

resources HQ

No,

competitivemoves planned

and financed

by country

units

No, but

resources fromregion can be

used


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Mixed Strategies Seldom do companies adopt pure

forms Different strategies for eachbusiness

Different strategies for productdifferences


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The Local-global Dilemma:Diagnostic Questions forStrategy Formulation

The KEY question:

how global is the industry?


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What makes an industry global? Globalization drivers

four categories of globaldrivers:

markets, costs, governments,

and competition


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Global Markets Are there?

common customer needs? global customers?

Can you transfer marketing?

What is the volume of importsand 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 skilledlabor? high product development costs?


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Governments Do the targeted countries have

favorable trade policies? Do the target countries haveregulations that restrict

operations?


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The Competition Successful strategies of

competitors Volume of imports and exports inindustry


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Competitive Advantage in theValue Chain

Upstream advantages

favor transnational strategy oran international strategy

Downstream advantages favor multidomestic strategy


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Mixed Conditions Competitive strength downstream in

industry with strong globalization

drivers Competitive strength upstream inindustries with local adaptationpressures both favor regional strategies

See summary Exhibit 6.2 next


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Global/LocalPressures

Primary Source of CompetitiveAdvantage in Value Chain

Upstream Downstream

HighPressures

for

Global-ization

Transnational

Strategy or

InternationalStrategy

Regional

Strategy

Compromise

HighPressuresfor LocalResponsive

-ness

RegionalStrategy

Compromise

MultidometicStrategy


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Select an InternationalStrategy over a TransnationalWhen:

Cost savings of centralizationoffset the lower costs or higher

quality raw materials or laboravailable from worldwidelocations


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Participation Strategies

The choice of how to enter each

international market exporting, licensing, strategic

alliances, and foreign directinvestment


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Exporting The easiest

Passive exporting Active export strategies


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Export Strategies Indirect exporting

uses intermediaries Direct exporting


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Export Management and TradingCompanies (EMCs and ETCs)

Specialize in products, countriesor regions Provide ready-made access to

markets Have networks of foreigndistributors


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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 foreigncountries


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Channels in Direct Exporting Sales representatives: use the

company's promotional literatureand samples Foreign distributors: resell the

products Sell directly to foreign retailers

or end users


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Licensing

International licensing is a

contractual agreement between adomestic licensor and a foreignlicensee


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Other contractual agreements

International franchising Contract manufacturing

Turnkey operations


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The International StrategicAlliance

Cooperative agreements betweentwo or more firms from differentcountries 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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Foreign Direct Investment

(FDI)

FDI means that companies own

and control directly a foreignoperation symbolizes the highest stage of

internationalization Mergers and acquisitions versusgreenfield


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Reasons to Invest in ForeignCountries

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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Formulating aParticipation Strategy


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Deciding on an ExportStrategy

Assess control needs for: sales,customer credit, and the eventualsale of the product

Assess financial and humanresources capabilities

to manage export operations


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to design/execute internationalpromotional activities

to support extensiveinternational travel or possiblyan expatriate sales force

to develop overseas contactsand networks

Deciding on an export strategy,

continued


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When Should Companies License?

Based on three factors

1. characteristics of the product2. characteristics of the target

country3. nature of the licensing

company


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Disadvantages of Licensing Gives up control

May create new competitors Often generates only low

revenues

Opportunity costs (barriers toother participation strategies


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Why Seek Strategic 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 Alliances

Pick partners carefully

Seek win-win ventures-last muchlonger Assess need for the alliance

Estimate ability to succeed Plan fordesign and management


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Which Type? IJV probably more secure

ICA probably more flexible andless visible


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Advantages of FDI

Greater control

Lower costs of supplying host

country Avoid import quotas

Greater opportunity to adaptproduct to the local markets

Better local image of the product


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Disadvantages of FDI Increased capital investment

Increased investment ofmanagerial and other resources

Greater exposure of the

investment to political andfinancial risks


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General Strategic andOperational Considerations


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Strategic Intent Immediate profit, or..

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 /Market (e.g.s) Products that spoil quickly or are

difficult to transport poor candidates for exporting

Products that need little localadaptation

good candidates for licensing, jointventures, or FDI


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Geographic Distance Transportation costs

Management of FDI and equitystrategic alliances more difficult


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Cultural Distance With very different cultures,

direct investment more risky

Joint ventures, licensing andexporting

local partners deal with localcultural issues


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Risk Financial risk Economic risk

currencies, markets, etc. Political risk governments change

policies regarding foreign firmschange


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Need for Control Key areas for concern

product quality in the

manufacturing process, productprice, advertising and otherpromotional activities, where the

product is sold, and after marketservice


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The control versus risktradeoff


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High

Low

Risk

Control

Direct

Export

Indirect

Export

Licensing

StrategicAlliances

FDI

Low High


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Multinational and Participation

Strategies

What is the strategic reason to

be in the market? location advantages versus

market penetration

e.g., source of raw materials,R&D, production, etc.


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Multinational strategy and

participation strategies, continued

A mix of participation strategiesoften support the basicmultinational strategy

see Exhibit 6.9


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Conclusions Dealing with the global--local

responsiveness dilemma

Four strategies multidomestic transnational

international regional


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Participation strategies

all can be used for sales others besides exporting serve

more value chain activities

ch06 international management

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