Multinational and Participation Strategies

11-2

The Firm as Value Chain

• What is the value chain?• Using the value chain

– Configuration– Macro Cost Factors– Cluster Effects– Logistics– Digitization– Economies of Scale– Business Environment

11-3

Change and the Value Chain

• The configuration and coordination of value chains respond to changes in customers, competitors, industries, and environments.

• Caveat: The Risk of Strategy

11-4

Global Integration versus Local Responsiveness

• Pressures for Global Integration– Globalization of Markets– Efficiency Gains of Standardization

• Pressures for Local Responsiveness– Consumer Divergence– Host Government Policies

11-5

When Pressures Interact

The Integration-Responsiveness grid helps

managers measure the global and local

pressures that influence the configuration and

coordination of their value chains.

11-6

Integration Responsiveness Grid

11-7

Types of Strategy

8

Supply Chain and Production Network

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

Multidomestic Strategy

• The company attempts to offer products or services that attract customers by closely satisfying their cultural needs and expectations

• 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

Transnational Strategy

• Two goals get top priority - Seeking location advantages

- Gaining economic efficiencies from operating worldwide

Transnational Strategy (cont.)

• 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

Transnational strategy (cont.)

• With upstream location advantages, the transnational can:- Locate subunits near cheap sources of high-quality

raw material- Locate subunits near centers of research and

innovation- Locate subunits near sources of high-quality or low-

cost labor- Seek low-cost financing anywhere in the world- Share discoveries and innovations made in one part

of the world with operations in other parts of the world

Transnational Strategy (cont.)

• 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

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

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

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

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?

Governments

• Do the targeted countries have favorable trade policies?

• Do the target countries have regulations that restrict operations?

The Competition

• What strategies do your competitors use?

• What is the volume of imports and exports in the industry?

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

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