Dealing with the Global-Local Dilemma. Local-responsiveness solution: customize to country or regional differencesGlobal integration solution: conduct business similarly throughout the worldGlobal-local dilemma: choice between a local-responsiveness or global approach to a multinational's strategiesFour broad multinational strategies: Multidomestic, Transnational, International, and Regional .
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1. 5 Multinational and Participation Strategies: Content and Formulation
2. 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
Four broad multinational strategies: Multidomestic, Transnational, International, and Regional
3. 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
4. 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
5. 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
6. 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
7. Exhibit 5.1: Content of the Four Basic Multinational Strategies
8. 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
9. Global Markets & Costs Global Markets
Are there common customer needs?
Are there global customers?
Can you transfer marketing?
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?
10. Governments & Competition Governments
Do the targeted countries have favorable trade policies?
Do the target countries have regulations that restrict operations?
What strategies do your competitors use?
What is the volume of imports and exports in the industry?
11. 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 strength downstream in industry with strong globalization drivers
Competitive strength upstream in industries with local adaptation pressures
Both favor regional strategies
12. Exhibit 5.2: Pressures for Globalization vs. Localization
13. 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
14. Participation (Entry) Strategies Participation strategies: the choice of how to enter each international market
Foreign direct investment
15. 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
16. 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 company’s promotional literature and samples; 2) Foreign distributors resell the products, and 3) Sell directly to foreign retailers or end users
17. 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
18. Exhibit 5.3: Contents of a Licensing Agreement
19. 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
20. International Strategic Alliances Cooperative agreements between firms from different countries to participate in business activities
May include any value-chain activity
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
21. Foreign Direct Investment Companies own and control directly a foreign operation
Symbolizes the highest stage of internationalization
Greenfield investments: starting foreign operations from scratch
22. 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
23. 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.
24. 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
Gives up control
May create new competitors
Often generates only low revenues
Opportunity costs (barriers to other participation strategies
25. Motivations for Strategic Alliances Partner’s knowledge of the market
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 company’s objectives?
What is expected payoffs?
26. Foreign Direct Investment (FDI) Most experienced international firms choose FDI
Lower costs of supplying host country
Avoid import quotas
Greater opportunity to adapt product to local markets
Better local image of the product\
Increased capital investment
Increased investment of managerial and other resources
Greater exposure of the investment to political and financial risks
27. Exhibit 5.6: Advantages and Disadvantages of FDI
28. Exhibit 5.6: Advantages and Disadvantages of FDI
29. Choosing Participation Strategy: Strategic Considerations Company’s strategic intent regarding profits vs. learning
Local government regulations
Characteristics of the target product and market
Geographic and cultural distance
Political and financial risk of investment
Need for control
30. Exhibit 5.7: The Risk versus Control Tradeoff
31. Exhibit 5.8: Decision Matrix for Formulating Participation Strategies
32. 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
33. Exhibit 5.9: Participation Strategies and the Multinational Strategies
34. Exhibit 5.9: Participation Strategies and the Multinational Strategies