MULTINATIONAL STRATEGIES AND THE GLOBAL LOCAL DILEMMA u

MULTINATIONAL STRATEGIES AND THE GLOBAL-- LOCAL DILEMMA u. The local responsiveness solution u. The global solution

LOCAL SOLUTION u. Customize organizations and products to country or regional differences

GLOBAL SOLUTION u. Reduce costs with worldwide standardized products, uniform promotional strategies and distribution channels u. Seek lower costs or higher quality anywhere in the value chain and in the world

FOUR BROAD MULTINATIONAL STRATEGIES u. Solutions to the global--local responsiveness dilemma – Multilocal – Transnational – International – Regional

MULTILOCAL STRATEGY u. Gives top priority to local responsiveness issues u. A form of the differentiation strategy u. Not limited to large multinationals

TRANSNATIONAL STRATEGY u. Gives two goals top priority: – Seeking location advantages – Gaining economic efficiencies from worldwide network

INTERNATIONAL STRATEGY u. A compromise approach u. Global products, similar marketing techniques worldwide u. Upstream and support activities remain concentrated at home country

REGIONAL STRATEGY u. A compromise strategy u. Attempts to gain economic advantages from regional network u. Attempts to gain local adaptation advantages from regional adaptation

REGIONAL TRADING BLOCKS u. Encourage regional strategies u. Reduce differences in government and industry required specifications for products

MIXED STRATEGIES u. Seldom do companies adopt pure forms u. Different strategies for each business u. Different strategies for product differences

THE LOCAL VERSUS GLOBAL DILEMMA: DIAGNOSTIC QUESTIONS u. How global is the industry? u. What makes an industry global? – Global drivers u. Four categories of global drivers: – Markets, costs, governments, and competition

GLOBAL MARKETS u. Are there common customer needs? u. Are there global customers? u. Can you transfer marketing? u. What is the volume of imports and exports in the industry?

COSTS u. Are there: – global economies of scale? – global sources of low cost raw materials? – cheaper sources of high skilled labor? – high product development costs?

GOVERNMENTS u. Do the targeted countries have favorable trade policies? u. Do the target countries have regulations that restrict operations? u. The competition

COMPETITIVE ADVANTAGE IN THE VALUE CHAIN u. Upstream advantages – Favor transnational strategy or an international strategy u. Downstream advantages – Favor multilocal strategy

MIXED CONDITIONS u. Competitive strength downstream in industry with strong globalization drivers u. Competitive strength upstream in industries for local adaptation u. Favor regional strategy u. See summary next

SELECT AN INTERNATIONAL STRATEGY OVER A TRANSNATIONAL WHEN u. Cost savings of centralization offset the lower costs or high quality raw materials and labor of worldwide locations

THE PARTICIPATION STRATEGIES u. The choice of how to enter each international market u. Exporting, licensing, strategic alliances, and foreign direct investment

EXPORTING u. The easiest u. Passive exporting u. Important-see following examples

EXPORT STRATEGIES u. Indirect exporting u. Direct exporting

EXPORT MANAGEMENT COMPANY (EMC)/EXPORT TRADING COMPANY (ETC) u. Specialize in products, countries or regions u. Provide ready-made access to markets u. Have networks of foreign distributors

DIRECT EXPORTING u. More aggressive u. Requires more contact with foreign companies u. Uses foreign sales representatives, distributors, or retailers u. May require branch offices in foreign countries

CHANNELS IN DIRECT EXPORTING u. Sales representatives: use the company's promotional literature and samples u. Foreign distributors: resell the products u. Sell directly to foreign retailers or end users

DECIDING ON AN EXPORT STRATEGY u. Assess control needs for: sales, customer credit, and the eventual sale of the product u. Assess financial and human resources capabilities – to manage export operations

– to design and execute international promotional activities – to support extensive international travel or possibly an expatriate sales force – to develop overseas contacts and networks

LICENSING u. International licensing is a contractual agreement between a domestic licensor and a foreign licensee

WHEN DO COMPANIES LICENSE? u. Based on three factors – The characteristics of the product – The characteristics of the target country – The nature of the licensing company

OTHER CONTRACTUAL AGREEMENTS u. International franchising u. Contract manufacturing u. Turnkey operations

THE INTERNATIONAL STRATEGIC ALLIANCE u. Cooperative agreements between two or more firms from different countries to participate in a business activity

TWO BASIC TYPES u. Equity international joint ventures (IJV) u. International cooperative alliance (ICA)

WHY SEEK ALLIANCES? u. Partner’s different capabilities u. Partner's knowledge of the market u. Government requirements u. To share risks u. To share technology u. Economies of scale u. Low cost raw materials or labor

KEY CONSIDERATIONS FOR ALLIANCE u. Pick their partners carefully u. Win-win ventures last much longer u. Need for the alliance u. Ability to succeed in the alliance u. Plans for design and management

WHICH TYPE? u. IJV probably more secure u. ICA probably more flexible and less visible

FOREIGN DIRECT INVESTMENT u. FDI symbolizes the highest stage of internationalization u. FDI means that companies own and control directly a foreign operation u. Acquisitions versus greenfield

REASONS TO INVEST IN FOREIGN COUNTRIES u. To extract raw materials u. To find low cost sources of labor, components, parts, or finished goods u. To penetrate new markets, the major motivation

POSSIBLE ADVANTAGES OF FDI u. Greater control u. Lower costs of supplying host country u. Avoiding import quotas u. Greater opportunity to adapt product to the local markets u. Better local image of the product

POSSIBLE DISADVANTAGES OF FDI INCLUDE u. Increased capital investment u. Increased investment of managerial and other resources u. Greater exposure of the investment to political and financial risks

FORMULATING A PARTICIPATION STRATEGY

MULTINATIONAL STRATEGY AND PARTICIPATION STRATEGY u. Why is the company in the market? – E. g. Source of raw materials, R&D, Production, etc. u. Location advantages versus market penetration

OTHER REASONS

STRATEGIC INTENT u. Profit always major goal u. Other goals – E. g. , Being first in a market with potential or learning a new technology

COMPANY CAPABILITIES u. What can a company afford? u. Human resources u. Production capabilities u. Commitment to using resources

LOCAL GOVERNMENT REGULATIONS u. Import or export tariffs, duties, or restrictions u. Laws regarding foreign ownership u. Other legal and regulatory issues – Patent, consumer protection, labor, and tax laws

CHARACTERISTICS OF THE TARGET PRODUCT AND ITS MARKET (examples) u. Products that spoil quickly or are difficult to transport – Poor candidates for exporting u. Products that need little local – Good candidates for licensing, joint ventures, or FDI

GEOGRAPHIC DISTANCE u. Transportation costs u. More difficult for managers to communicate face-to-face and local managers may feel "out of the loop" in corporate decision making

CULTURAL DISTANCE u. With very different cultures, direct investment more risky u. Joint ventures, licensing and exporting – Local partners deal with local cultural issues

POLITICAL AND FINANCIAL RISK u. Financial risk u. Economic risk – Currencies, markets, etc. u. Political risk – Governments change – Policies regarding foreign firms change

NEED FOR CONTROL u. Key areas for concern – Product quality in the manufacturing process, product price, advertising and other promotional activities, where the product is sold, and after market service

THE CONTROL VERSUS RISK TRADEOFF

CONCLUSIONS u. Dealing with the global--local responsiveness dilemma u. Four strategies – Transnational – Multilocal – International – Regional

u. Participation strategies – All can be used for sales – Others serve more value chain activities