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Multinational and Participation Strategies: Content and Formulation. 跨国参与战略:内容与制定. Learning Objectives. Appreciate the complexities of the global-local dilemma Understand the content of the multinational strategies Formulate a multinational strategy

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Multinational and Participation Strategies: Content and Formulation


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multinational and participation strategies content and formulation

Multinational and Participation Strategies: Content and Formulation

跨国参与战略:内容与制定

朱吉庆 博士 讲师 harveyzjq@126.com

learning objectives
Learning Objectives
  • Appreciate the complexities of the global-local dilemma
  • Understand the content of the multinational strategies
  • Formulate a multinational strategy
  • Understand the content of the participation strategies
  • Formulate a participation strategy
  • Understand political risk and ways companies can manage such risks

Multinational and Participation Strategies: Content and Formulation

multinational strategies dealing with the global local dilemma
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

Multinational and Participation Strategies: Content and Formulation

multinational strategies dealing with the global local dilemma1
Multinational Strategies: Dealing with the Global-Local Dilemma
  • Four broad multinational strategies

- Multidomestic

- Transnational

- International

- Regional

Multinational and Participation Strategies: Content and Formulation

multidomestic strategy
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

Multinational and Participation Strategies: Content and Formulation

transnational strategy
Transnational Strategy
  • Two goals get top priority

- Seeking location advantages

- Gaining economic efficiencies from operating worldwide

Multinational and Participation Strategies: Content and Formulation

transnational strategy cont
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

Multinational and Participation Strategies: Content and Formulation

transnational strategy cont1
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

Multinational and Participation Strategies: Content and Formulation

transnational strategy cont2
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

Multinational and Participation Strategies: Content and Formulation

international strategy
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

Multinational and Participation Strategies: Content and Formulation

regional strategy
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

Multinational and Participation Strategies: Content and Formulation

exhibit 6 1 content of the four basic multinational strategies
Exhibit 6.1: Content of the Four Basic Multinational Strategies

Multinational and Participation Strategies: Content and Formulation

resolving the global local dilemma formulating a multinational strategy
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

Multinational and Participation Strategies: Content and Formulation

global markets
Global Markets
  • Are there common customer needs?
  • Are there global customers?
  • Can you transfer marketing?

Multinational and Participation Strategies: Content and Formulation

costs
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?

Multinational and Participation Strategies: Content and Formulation

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

Multinational and Participation Strategies: Content and Formulation

the competition
The Competition
  • What strategies do your competitors use?
  • What is the volume of imports and exports in the industry?

Multinational and Participation Strategies: Content and Formulation

competitive advantage in the value chain
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

Multinational and Participation Strategies: Content and Formulation

competitive advantage in the value chain cont
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

Multinational and Participation Strategies: Content and Formulation

exhibit 6 2 pressures for globalization vs localization
Exhibit 6.2: Pressures for Globalization vs. Localization

Multinational and Participation Strategies: Content and Formulation

transnational or international which way for the global company
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

Multinational and Participation Strategies: Content and Formulation

participation strategies the content options
Participation Strategies: The Content Options
  • Participation strategies: the choice of how to enter each international market

- Exporting

- Licensing

- Strategic alliances

- Foreign direct investment

Multinational and Participation Strategies: Content and Formulation

exporting
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

Multinational and Participation Strategies: Content and Formulation

export strategies
Export Strategies
  • Indirect exporting: uses intermediaries or go-between firms
  • The most common intermediaries
    • - 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

Multinational and Participation Strategies: Content and Formulation

export strategies1
Export Strategies
  • 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

Multinational and Participation Strategies: Content and Formulation

export strategies cont
Export Strategies (cont.)
  • 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

Multinational and Participation Strategies: Content and Formulation

licensing
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

Multinational and Participation Strategies: Content and Formulation

exhibit 6 3 contents of a licensing agreement
Exhibit 6.3: Contents of a Licensing Agreement

Multinational and Participation Strategies: Content and Formulation

special licensing agreements
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

Multinational and Participation Strategies: Content and Formulation

international strategic alliances
International Strategic Alliances
  • Cooperative agreements between firms from different countries to participate in business activities
  • May include any value-chain activity

Multinational and Participation Strategies: Content and Formulation

types of international strategic alliances
Types of International Strategic Alliances
  • 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

Multinational and Participation Strategies: Content and Formulation

foreign direct investment fdi
Foreign Direct Investment (FDI)
  • Companies own and control directly a foreign operation

- Symbolizes the highest stage of internationalization

  • Greenfield investments: starting foreign operations from scratch

Multinational and Participation Strategies: Content and Formulation

exhibit 6 5 world s top companies ranked by foreign assets
Exhibit 6.5: World’s Top Companies Ranked by Foreign Assets

Multinational and Participation Strategies: Content and Formulation

exhibit 6 5 world s top companies ranked by foreign assets1
Exhibit 6.5: World’s Top Companies Ranked by Foreign Assets

Multinational and Participation Strategies: Content and Formulation

formulating participation strategy
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

Multinational and Participation Strategies: Content and Formulation

export strategy
Export Strategy
  • Exporting is the easiest and cheapest participation strategy, although it may not always be the most profitable
  • It is a way to begin to internationalize or t test new markets
  • Which form of exporting should it choose?

Multinational and Participation Strategies: Content and Formulation

deciding on export strategy
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

Multinational and Participation Strategies: Content and Formulation

deciding on export strategy1
Deciding on Export Strategy
  • 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.

Multinational and Participation Strategies: Content and Formulation

deciding on export strategy2
Deciding on Export Strategy
  • 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.

Multinational and Participation Strategies: Content and Formulation

licensing decision
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

Multinational and Participation Strategies: Content and Formulation

licensing disadvantages
Licensing: Disadvantages
  • Gives up control
  • May create new competitors
  • Often generates only low revenues
  • Opportunity costs (barriers to other participation strategies)

Multinational and Participation Strategies: Content and Formulation

motivations for strategic alliances
Motivations for Strategic Alliances
  • Partner’s knowledge of the market
  • Government requirements
  • To share risks
  • To share technology
  • Economies of scale
  • Low cost raw materials or labor

Multinational and Participation Strategies: Content and Formulation

key considerations for alliances
Key Considerations for 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?

Multinational and Participation Strategies: Content and Formulation

foreign direct investment fdi1
Foreign Direct Investment (FDI)
  • Most experienced international firms choose FDI
  • Advantages

- Greater control

- Lower costs of supplying host country

- Avoid import quotas

- Greater opportunity to adapt product to local markets

- Better local image of the product

Multinational and Participation Strategies: Content and Formulation

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

Multinational and Participation Strategies: Content and Formulation

exhibit 6 6 advantages and disadvantages of fdi
Exhibit 6.6: Advantages and Disadvantages of FDI

Multinational and Participation Strategies: Content and Formulation

choosing participation strategy strategic considerations
Choosing Participation Strategy: Strategic Considerations
  • Company’s strategic intent regarding profits vs. learning
  • Company capabilities
  • Local government regulations
  • Characteristics of the target product and market

Multinational and Participation Strategies: Content and Formulation

choosing participation strategy strategic considerations cont
Choosing Participation Strategy: Strategic Considerations (cont.)
  • Geographic and cultural distance
  • Financial risk of the investments
  • Need for control

Multinational and Participation Strategies: Content and Formulation

exhibit 6 7 the risk versus control tradeoff
Exhibit 6.7: The Risk versus Control Tradeoff

Multinational and Participation Strategies: Content and Formulation

exhibit 6 8 decision matrix for formulating participation strategies
Exhibit 6.8: Decision Matrix for Formulating Participation Strategies

Multinational and Participation Strategies: Content and Formulation

participation strategies and the multinational strategies
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

Multinational and Participation Strategies: Content and Formulation

exhibit 6 9 participation strategies and the multinational strategies
Exhibit 6.9: Participation Strategies and the Multinational Strategies

Multinational and Participation Strategies: Content and Formulation

participation strategies synopsis
Participation Strategies: Synopsis
  • The selection of a participation strategy depends on a complex array of factors, including the company’s multinational strategy, its strategic intent, and its need for control of its products
  • Most multinational companies will choose a mixture of participation strategies to fit different products or different businesses

Multinational and Participation Strategies: Content and Formulation

conclusion
Conclusion
  • Multinational manager faces array of complex strategic issues
  • All companies must deal with global-local dilemma
  • Multinationals also face the challenges of choosing participation strategies
  • Political risk is also becoming an important factor

Multinational and Participation Strategies: Content and Formulation