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CHAPTER 6 MULTINATIONAL AND PARTICIPATION STRATEGIES: CONTENT AND FORMULATION

CHAPTER 6 MULTINATIONAL AND PARTICIPATION STRATEGIES: CONTENT AND FORMULATION. Multinational Strategies and the Global-- Local Dilemma . The local responsiveness solution The global integration solution . Local Solution.

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CHAPTER 6 MULTINATIONAL AND PARTICIPATION STRATEGIES: CONTENT AND FORMULATION

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  1. CHAPTER 6 MULTINATIONAL AND PARTICIPATION STRATEGIES: CONTENT AND FORMULATION

  2. Multinational Strategies and the Global-- Local Dilemma • The local responsiveness solution • The global integration solution

  3. Local Solution • Customize organizations and products to country or regional differences

  4. Global Integration 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

  5. Four Broad Multinational Strategies • Solutions to the global--local responsiveness dilemma • multidomestic • transnational • international • regional

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

  7. Transnational Strategy • Gives two goals top priority: • seek location advantages • global platforms • gain economic efficiencies from worldwide networks

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

  9. Regional Strategy • A compromise strategy • Attempts to gain economic advantages from regional network • Attempts to gain local adaptation advantages from regional adaptation

  10. Regional Trading Blocks • Encourage regional strategies • Reduce differences in government and industry required specifications for products

  11. Mixed Strategies • Seldom do companies adopt pure forms • Different strategies for each business • Different strategies for product differences

  12. The Local-global Dilemma: Diagnostic Questions for Strategy Formulation • The KEY question: • how global is the industry?

  13. What makes an industry global? • Globalization drivers • four categories of global drivers: • markets, costs, governments, and competition

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

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

  16. Governments • Do the targeted countries have favorable trade policies? • Do the target countries have regulations that restrict operations?

  17. The Competition • Successful strategies of competitors • Volume of imports and exports in industry

  18. Competitive Advantage in the Value Chain • Upstream advantages • favor transnational strategy or an international strategy • Downstream advantages • favor multidomestic strategy

  19. Mixed Conditions • Competitive strength downstream in industry with strong globalization drivers • Competitive strength upstream in industries with local adaptation pressures • both favor regional strategies • See summary Exhibit 6.2 next

  20. Select an International Strategy over a Transnational When: • Cost savings of centralization offset the lower costs or higher quality raw materials or labor available from worldwide locations

  21. Participation Strategies • The choice of how to enter each international market • exporting, licensing, strategic alliances, and foreign direct investment

  22. Exporting • The easiest • Passive exporting • Active export strategies

  23. Export Strategies • Indirect exporting • uses intermediaries • Direct exporting

  24. Export Management and Trading Companies (EMCs and ETCs) • Specialize in products, countries or regions • Provide ready-made access to markets • Have networks of foreign distributors

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

  26. 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

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

  28. Other contractual agreements • International franchising • Contract manufacturing • Turnkey operations

  29. The International Strategic Alliance • Cooperative agreements between two or more firms from different countries to participate in a business activity

  30. Two Basic Types • Equity international joint ventures (IJV) • International cooperative alliance (ICA)

  31. Foreign Direct Investment (FDI) • FDI means that companies own and control directly a foreign operation • symbolizes the highest stage of internationalization • Mergers and acquisitions versus greenfield

  32. 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

  33. Formulating a Participation Strategy

  34. 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

  35. Deciding on an export strategy, continued • to design/execute international promotional activities • to support extensive international travel or possibly an expatriate sales force • to develop overseas contacts and networks

  36. When Should Companies License? • Based on three factors 1. characteristics of the product 2. characteristics of the target country 3. nature of the licensing company

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

  38. Why Seek Strategic Alliances? • Partner’s 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

  39. Key Considerations for Alliances • Pick partners carefully • Seek win-win ventures-last much longer • Assess need for the alliance • Estimate ability to succeed Plan for design and management

  40. Which Type? • IJV probably more secure • ICA probably more flexible and less visible

  41. Advantages of FDI • Greater control • Lower costs of supplying host country • Avoid import quotas • Greater opportunity to adapt product to the local markets • Better local image of the product

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

  43. General Strategic and Operational Considerations

  44. Strategic Intent • Immediate profit, or.. • Other goals • e.g., being first in a market with potential or learning a new technology

  45. Company Capabilities • What can a company afford? • Human resources • Production capabilities • Commitment to using resources

  46. 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

  47. 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 local adaptation • good candidates for licensing, joint ventures, or FDI

  48. Geographic Distance • Transportation costs • Management of FDI and equity strategic alliances more difficult

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