Basic Strategies &Multinational and

Participation Strategies

Objectives

• Choice between a local responsiveness or global approach to a multinational’s strategy

• Some of the broad multinational strategies– Multi-domestic– Transnational– International– Regional

• Participation strategies – how should one enter a market– Alliance Strategy will be the focus of this course

Multinational Strategies and the Global Local Dilemma

• The local responsiveness solution– National or cultural

differences in consumer tastes, variation in customer needs

– National differences in how industry work or political pressure

– Customize organizations and products to country or regional differences

• The 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

Fundamental Strategic Dilemma – “Global-Local Dilemma

4 Broad Multinational Strategies:All offer solutions to the global-local

responsiveness dilemma

Multidome

stic

Transnational

International Regional

4 Strategies

Multidomestic Strategy• Many ways like a differentiation strategy• Offer products/services that satisfy cultural needs and expectation

– Ex. Advertising, packaging, sales outlets, and pricing are adapted to local standards

• Results usually more costly– Different packaging, sizes, colors and as a result need to charge a higher

price to recoup extra costs• MNC often treat subsidiaries as independent business unitsExamples of Multidomestic• Even for standardized products, sometimes localization is

necessary– Ex: McDonald’s could not sell its famous Big Mac in India – instead sells a

mutton sandwich called Maharaja sandwich– See Multinational Management Challenge -p 157

Matsushita: A GLOCAL company– “go GLObal and act loCAL”

• Has key “go global, act local” strategies and policies• Be good citizen in all countries• Give overseas operations your best manufacturing

technology• Keep expatriate headcount down – groom local managers• Let plants set their own rules, fine-tune manufacturing

process to match skills of workers• Develop local R&D to tailor products to market• Encourage competition among overseas outposts and

with plants back home

Transnational/Global Strategy• Gives two goals top priority:

– seek location advantages- Global Platform– gain economic efficiencies from worldwide networks

• Location Advantages– Location based competitive advantages in cost/quality – Locate subunits near cheap sources of high quality raw materials– Locate subunits near sources of research and innovation– Locate subunits near high sources of high quality or low cost labor– Seek low cost financing anywhere around the world– Share discoveries and innovations made in one part of the world

with operations in other parts

– See Case in Point p. 152

International Strategy

• Selling global products and using similar marketing techniques worldwide

• Compromise approach to the G-L Dilemma– Like Transnational Strategies, firms attempt to sell global

products/similar marketing techniques worldwide– Like Multidomestic, if pressured to from economic or political reasons,

will set up subunits (sales/production) in major countries of operation

• Do not locate locate value chain activities anywhere in the world but instead remain concentrated at home– Home country headquarters retain control of local strategies,

marketing, R&D, Finance, and production

Regional Strategy

• A compromise strategy• Attempts to gain economic advantages from regional network• Attempts to gain local adaptation advantages from regional

adaptation• Managing raw material sourcing, production, marketing, and

support activities within a particular region• Rise of trading blocs – EU, NAFTA, ASEAN led to more

uniformity in customer needs and reduced government and industry-required specifications for products

• Ex. Proctor & Gamble – combined subunits in Mexico, Canada and USA into one regional organization

Multinational Strategy ContentStrategy Content Transnational

StrategyInternationalStrategy

MultidomestcStrategy

RegionalStrategy

WorldwideMarkets

Yes as much as possible with flexibility to adapt to local conditions

Yes with little flexibility for local adaptation

No, each country treated as a separate market

No, but major regions treated as similar market (Europe)

Worldwide location of separate value chain activities

Yes anywhere based on best value to the company-lowest cost for highest quality

No, or limited to sales or local production replicating headquarters

No, all or most value chain activities located in country of production and sales

No but region can provide some different country location of activities.

Global Products Yes to the highest degree possible with some local products if necessary; companies rely on worldwide brand recognition

Yes to the highest degree possible with little local adaptation; companies rely on worldwide brand recognition

No, products produced in and tailored to the country of location to best serve the needs of local customers

No, but simpler products offered throughout a major economic region.

Global Marketing Yes similar strategy to global product development

Yes to the highest degree possible

No, marketing focuses on local-country customers

No, but region is often treated similarly.

Global Competitive moves

Resources from any country used to attack or defend

Attacks and defenses in all countries, but resources must come from headquarters

No, competitive moves planned and financed by country units

No, but resources from region can be used to attack or defend.

International Participation Strategies: Review The choice of how to enter each

international market 1. Exporting 2. Licensing

3. Strategic alliances 4. Foreign direct investment

1. Exporting• The easiest – low risk, minimal investment, and

fast withdrawal• Passive exporting – treating and

filling overseas orders like domestic orders• Indirect export strategies – indirect through

Export Management Companies or Export Trading Companies (title)

• Direct Export Strategies- take on the duties of the intermediaries, often use foreign sale representatives, foreign distributors, or foreign retailers to get their product to end users

Exporting (cont’d)

• Often the only available choices for smalland new firms wanting to go international• Provide an avenue for larger firms that want

to begin their international expansion with a minimum of investment

• Exporting and importing can provide easyaccess to overseas markets• Strategy usually is transitional in nature

2. Licensing• International licensing is a contractual agreement between a

domestic licensor and a foreign licensee– International franchising– Contract manufacturing– Turnkey operations

• Licensing distinctions:– Patent – legal protection for new inventions– Trademark – legal protection for symbols,

picture [Nike swoosh]– Copyright– Trade secret – Coca Cola formula etc.

• Widely used in the fast-food and hotel/motel industries• With minor adjustments for the local market, it can result in a

highly profitable international business

Reasons for licensing:

• Quick way to recover R&D• Expand overseas quickly without major

capital outlay• To squeeze more life out of a mature product• To test potential of a foreign market• Inability to enter market because of

government restrictions on export• Avoids customs duties, trade quotas, and

other export-import restrictions

3. The International Strategic Alliance• Cooperative agreements between two or more firms from different

countries to participate in a business activity• Benefits:

--Access to the resources and capabilities of another company--Learning from one another--Reducing time-to-market for innovations--Risk sharing

• Problems: --Disagreements & conflict between the partners. Disputes most likely where the partners are also competitors.

• Benefits are seldom shared equally. Distribution of benefits determined by:– Strategic intent of the partners- which partner has the clearer

vision of the purpose of the alliance?– Appropriability of the contribution—which partner’s resources

and capabilities can more easily be captured by the other?– Absorptive capacity of the company-- which partner is the more

receptive learner?

4. 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 greenfieldReasons 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

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

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

financial risks

Wholly-owned subsidiary

• An overseas operation that is totally owned and controlled by an MNC

• MNC’s desire for total control and belief that managerial efficiency is better without outside partners

• Some host countries are concerned that the MNC will drive out local enterprises and others prohibit fully owned subsidiaries

• Home-country unions sometimes view foreign subsidiaries as an attempt to “export jobs”

• Today many multinationals opt for a merger, alliance, or joint venture rather than a fully owned subsidiary

Implementing a Strategic-Alliance StrategyDecide Where to Link in

Value Chain

Select a Potential Partner

Begin Over

Is Partner Acceptable?

Choose an Alliance Type

Negotiate an Agreement Build the

Organization

Build Trust and Commitment

Assess Performance

Terminate the Alliance OR Check

and Revise Implementation

Meets Strategic Objectives?

Continue or Increase Involvement

NO

No Yes

Yes

Linking Value ChainsCompan

y ACompany

BResearch and Development

Input LogisticsRaw material supply and

acquisition

Research and Development

Input LogisticsRaw material supply and

acquisitionOperationsManufacturing,

assembly, facility operations

OperationsManufacturing,

assembly, facility operationsMarketing and

salesPromotions, and channel relations Output Logistics

deliveryOutput Logistics

delivery

Marketing and sales

Promotions, and channel relations

Servicerepair

Service repair

R&D

Supply/ProductionOperations

Production/MarketingMarketing

Delivery

Alliance Creation Framework

External Analysis (internal and external

environment)Strategy Development Alliance – Type of

Alliance

Partner Selection

Strategic Fit AssessmentResource Fit Assessment

Negotiate Agreement