ch06 international management
TRANSCRIPT
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CHAPTER 6
MULTINATIONAL
AND
PARTICIPATION
STRATEGIES:
CONTENT AND
FORMULATION
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Multinational Strategies andthe Global-- Local Dilemma
The local responsiveness solution
The global integration solution
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Local Solution Customize organizations and
products to country or regionaldifferences
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Global Integration Solution Reduce costs with worldwide
standardized products, uniformpromotional strategies anddistribution channels
Seek lower costs or higherquality anywhere in the valuechain and in the world
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Four Broad MultinationalStrategies
Solutions to the global--local
responsiveness dilemma multidomestic transnational
international regional
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Multidomestic Strategy
Gives top priority to local
responsiveness issues A form of the differentiation
strategy
Not limited to largemultinationals
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Transnational Strategy Gives two goals top priority:
seek location advantagesglobal platforms
gain economic efficiencies fromworldwide networks
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International Strategy A compromise approach
Global products, similarmarketing techniques worldwide
Upstream and support activities
remain concentrated at homecountry
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Regional Strategy A compromise strategy
Attempts to gain economicadvantages from regional network
Attempts to gain local adaptation
advantages from regionaladaptation
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Regional Trading Blocks Encourage regional strategies
Reduce differences ingovernment and industry requiredspecifications for products
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EXHIBIT 6.1 MULTINATIONAL STRATEGY CONTENT
Content Transnational International Multidomestic RegionalWorldwide
markets
Yes Yes No No
Worldwidelocation ofseparatevalue chainactivities
Yes No No No
Globalproducts
Yes Yes No No
Globalmarketing
Yes Yes No No
Global
competitivemoves
Resources
from anycountry used
to attack or
defend
Attacks and
defenses in allcountries -
resources HQ
No,
competitivemoves planned
and financed
by country
units
No, but
resources fromregion can be
used
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Mixed Strategies Seldom do companies adopt pure
forms Different strategies for eachbusiness
Different strategies for productdifferences
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The Local-global Dilemma:Diagnostic Questions forStrategy Formulation
The KEY question:
how global is the industry?
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What makes an industry global? Globalization drivers
four categories of globaldrivers:
markets, costs, governments,
and competition
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Global Markets Are there?
common customer needs? global customers?
Can you transfer marketing?
What is the volume of importsand exports in the industry?
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Costs Are there?
global economies of scale? global sources of low cost raw
materials?
cheaper sources of high skilledlabor? high product development costs?
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Governments Do the targeted countries have
favorable trade policies? Do the target countries haveregulations that restrict
operations?
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The Competition Successful strategies of
competitors Volume of imports and exports inindustry
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Competitive Advantage in theValue Chain
Upstream advantages
favor transnational strategy oran international strategy
Downstream advantages favor multidomestic strategy
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Mixed Conditions Competitive strength downstream in
industry with strong globalization
drivers Competitive strength upstream inindustries with local adaptationpressures both favor regional strategies
See summary Exhibit 6.2 next
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Global/LocalPressures
Primary Source of CompetitiveAdvantage in Value Chain
Upstream Downstream
HighPressures
for
Global-ization
Transnational
Strategy or
InternationalStrategy
Regional
Strategy
Compromise
HighPressuresfor LocalResponsive
-ness
RegionalStrategy
Compromise
MultidometicStrategy
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Select an InternationalStrategy over a TransnationalWhen:
Cost savings of centralizationoffset the lower costs or higher
quality raw materials or laboravailable from worldwidelocations
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Participation Strategies
The choice of how to enter each
international market exporting, licensing, strategic
alliances, and foreign directinvestment
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Exporting The easiest
Passive exporting Active export strategies
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Export Strategies Indirect exporting
uses intermediaries Direct exporting
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Export Management and TradingCompanies (EMCs and ETCs)
Specialize in products, countriesor regions Provide ready-made access to
markets Have networks of foreigndistributors
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Direct Exporting
More aggressive Requires more contact with foreign
companies Uses foreign sales representatives,distributors, or retailers
May require branch offices in foreigncountries
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Channels in Direct Exporting Sales representatives: use the
company's promotional literatureand samples Foreign distributors: resell the
products Sell directly to foreign retailers
or end users
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Licensing
International licensing is a
contractual agreement between adomestic licensor and a foreignlicensee
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Other contractual agreements
International franchising Contract manufacturing
Turnkey operations
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The International StrategicAlliance
Cooperative agreements betweentwo or more firms from differentcountries to participate in a
business activity
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Two Basic Types Equity international joint
ventures (IJV) International cooperative alliance(ICA)
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Foreign Direct Investment
(FDI)
FDI means that companies own
and control directly a foreignoperation symbolizes the highest stage of
internationalization Mergers and acquisitions versusgreenfield
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Reasons to Invest in ForeignCountries
To extract raw materials
To find low cost sources of labor,components, parts, or finished
goods To penetrate new markets, the
major motivation
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Formulating aParticipation Strategy
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Deciding on an ExportStrategy
Assess control needs for: sales,customer credit, and the eventualsale of the product
Assess financial and humanresources capabilities
to manage export operations
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to design/execute internationalpromotional activities
to support extensiveinternational travel or possiblyan expatriate sales force
to develop overseas contactsand networks
Deciding on an export strategy,
continued
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When Should Companies License?
Based on three factors
1. characteristics of the product2. characteristics of the target
country3. nature of the licensing
company
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Disadvantages of Licensing Gives up control
May create new competitors Often generates only low
revenues
Opportunity costs (barriers toother participation strategies
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Why Seek Strategic Alliances? Partners 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
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Key Considerations for Alliances
Pick partners carefully
Seek win-win ventures-last muchlonger Assess need for the alliance
Estimate ability to succeed Plan fordesign and management
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Which Type? IJV probably more secure
ICA probably more flexible andless visible
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Advantages of FDI
Greater control
Lower costs of supplying host
country Avoid import quotas
Greater opportunity to adaptproduct to the local markets
Better local image of the product
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Disadvantages of FDI Increased capital investment
Increased investment ofmanagerial and other resources
Greater exposure of the
investment to political andfinancial risks
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General Strategic andOperational Considerations
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Strategic Intent Immediate profit, or..
Other goals e.g., being first in a market
with potential or learning a new
technology
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Company Capabilities What can a company afford?
Human resources Production capabilities
Commitment to using resources
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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
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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 localadaptation
good candidates for licensing, jointventures, or FDI
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Geographic Distance Transportation costs
Management of FDI and equitystrategic alliances more difficult
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Cultural Distance With very different cultures,
direct investment more risky
Joint ventures, licensing andexporting
local partners deal with localcultural issues
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Risk Financial risk Economic risk
currencies, markets, etc. Political risk governments change
policies regarding foreign firmschange
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Need for Control Key areas for concern
product quality in the
manufacturing process, productprice, advertising and otherpromotional activities, where the
product is sold, and after marketservice
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The control versus risktradeoff
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High
Low
Risk
Control
Direct
Export
Indirect
Export
Licensing
StrategicAlliances
FDI
Low High
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Multinational and Participation
Strategies
What is the strategic reason to
be in the market? location advantages versus
market penetration
e.g., source of raw materials,R&D, production, etc.
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Multinational strategy and
participation strategies, continued
A mix of participation strategiesoften support the basicmultinational strategy
see Exhibit 6.9
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Conclusions Dealing with the global--local
responsiveness dilemma
Four strategies multidomestic transnational
international regional
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Participation strategies
all can be used for sales others besides exporting serve
more value chain activities