MULTINATIONAL STRATEGIES MULTINATIONAL STRATEGIES AND THE GLOBAL-- LOCAL AND THE GLOBAL-- LOCAL

DILEMMA DILEMMA

The local responsiveness solutionThe local responsiveness solution The global solution The global solution

LOCAL SOLUTIONLOCAL SOLUTION

Customize organizations and Customize organizations and products to country or regional products to country or regional differences differences

GLOBAL SOLUTIONGLOBAL SOLUTION

Reduce costs with worldwide Reduce costs with worldwide standardized products, uniform standardized products, uniform promotional strategies and promotional strategies and distribution channelsdistribution channels

Seek lower costs or higher quality Seek lower costs or higher quality anywhere in the value chain and in anywhere in the value chain and in the world the world

FOUR BROAD FOUR BROAD MULTINATIONAL STRATEGIES MULTINATIONAL STRATEGIES

Solutions to the global--local Solutions to the global--local responsiveness dilemma responsiveness dilemma

–Multilocal Multilocal

–TransnationalTransnational

–InternationalInternational

–RegionalRegional

MULTILOCAL STRATEGY MULTILOCAL STRATEGY

Gives top priority to local Gives top priority to local responsiveness issues responsiveness issues

A form of the differentiation A form of the differentiation strategy strategy

Not limited to large Not limited to large multinationals multinationals

TRANSNATIONAL STRATEGYTRANSNATIONAL STRATEGY

Gives two goals top priority: Gives two goals top priority:

–Seeking location advantages Seeking location advantages

–Gaining economic efficiencies Gaining economic efficiencies from worldwide network from worldwide network

INTERNATIONAL STRATEGY INTERNATIONAL STRATEGY

A compromise approach A compromise approach Global products, similar Global products, similar

marketing techniques worldwide marketing techniques worldwide Upstream and support activities Upstream and support activities

remain concentrated at home remain concentrated at home countrycountry

REGIONAL STRATEGY REGIONAL STRATEGY

A compromise strategyA compromise strategy Attempts to gain economic Attempts to gain economic

advantages from regional networkadvantages from regional network Attempts to gain local adaptation Attempts to gain local adaptation

advantages from regional advantages from regional adaptation adaptation

REGIONAL TRADING BLOCKS REGIONAL TRADING BLOCKS

Encourage regional strategiesEncourage regional strategies Reduce differences in Reduce differences in

government and industry government and industry required specifications for required specifications for products products

EXHIBIT 5-1 MULTINATIONAL STRATEGY CONTENT

Content Transnational International Multilocal RegionalWorldwidemarkets

Yes Yes No No

Worldwidelocation ofseparatevaluechainactivities

Yes No No No

Globalproducts

Yes Yes No No

Globalmarketing

Yes Yes No No

Globalcompetitive moves

Resourcesfrom anycountry usedto attack ordefend

Attacks anddefenses in allcountries -resources HQ

No,competitivemoves plannedand financedby countryunits

No, butresources fromregion can beused

MIXED STRATEGIESMIXED STRATEGIES

Seldom do companies adopt pure Seldom do companies adopt pure forms forms

Different strategies for each Different strategies for each business business

Different strategies for product Different strategies for product differencesdifferences

THE LOCAL VERSUS GLOBAL THE LOCAL VERSUS GLOBAL DILEMMA: DIAGNOSTIC DILEMMA: DIAGNOSTIC

QUESTIONSQUESTIONS How global is the industry?How global is the industry? What makes an industry global?What makes an industry global?

–Global driversGlobal drivers Four categories of global drivers: Four categories of global drivers:

–Markets, costs, governments, Markets, costs, governments, and competition and competition

GLOBAL MARKETSGLOBAL MARKETS

Are there common customer Are there common customer needs? needs?

Are there global customers? Are there global customers? Can you transfer marketing? Can you transfer marketing? What is the volume of imports What is the volume of imports

and exports in the industry?and exports in the industry?

COSTSCOSTS Are there:Are there:–global economies of scale? global economies of scale? –global sources of low cost raw global sources of low cost raw

materials? materials? –cheaper sources of high skilled labor? cheaper sources of high skilled labor? –high product development costs? high product development costs?

GOVERNMENTS GOVERNMENTS

Do the targeted countries have Do the targeted countries have favorable trade policies? favorable trade policies?

Do the target countries have Do the target countries have regulations that restrict regulations that restrict operations? operations?

The competitionThe competition

COMPETITIVE ADVANTAGE IN COMPETITIVE ADVANTAGE IN THE VALUE CHAINTHE VALUE CHAIN

Upstream advantages Upstream advantages

–Favor transnational strategy or Favor transnational strategy or an international strategyan international strategy

Downstream advantagesDownstream advantages

–Favor multilocal strategyFavor multilocal strategy

MIXED CONDITIONSMIXED CONDITIONS Competitive strength downstream in Competitive strength downstream in

industry with strong globalization industry with strong globalization drivers drivers

Competitive strength upstream in Competitive strength upstream in industries for local adaptationindustries for local adaptation

Favor regional strategyFavor regional strategy See summary nextSee summary next

Global/LocalPressures

Primary Source of CompetitiveAdvantage in Value Chain

Upstream Downstream

HighPressuresfor

Global-ization

TransnationalStrategy or

InternationalStrategy

RegionalStrategy

Compromise

HighPressuresfor LocalResponsive-ness

RegionalStrategy

Compromise

MultilocalStrategy

SELECT AN INTERNATIONAL SELECT AN INTERNATIONAL STRATEGY OVER A STRATEGY OVER A

TRANSNATIONAL WHENTRANSNATIONAL WHEN

Cost savings of centralization Cost savings of centralization offset the lower costs or high offset the lower costs or high quality raw materials and labor quality raw materials and labor of worldwide locations of worldwide locations

THE PARTICIPATION THE PARTICIPATION STRATEGIESSTRATEGIES

The choice of how to enter each The choice of how to enter each international market international market

Exporting, licensing, strategic Exporting, licensing, strategic alliances, and foreign direct alliances, and foreign direct investment investment

EXPORTINGEXPORTING

The easiestThe easiest Passive exporting Passive exporting Important-see following Important-see following

examplesexamples

CompanyExports%of Sales

TotalExportSalesMillions

Major Exports

Boeing 54.0 25,285 Commercial AircraftNovell 43.0 860Intel 33.9 4,561 Microcomputer

components,modules, andsystems

Motorola 33.1 7,370 Communicationsequipment

EXPORT STRATEGIESEXPORT STRATEGIES

Indirect exportingIndirect exporting Direct exportingDirect exporting

EXPORT MANAGEMENT COMPANY EXPORT MANAGEMENT COMPANY (EMC)/EXPORT TRADING COMPANY (EMC)/EXPORT TRADING COMPANY

(ETC) (ETC) Specialize in products, countries Specialize in products, countries

or regions or regions Provide ready-made access to Provide ready-made access to

markets markets Have networks of foreign Have networks of foreign

distributorsdistributors

DIRECT EXPORTINGDIRECT EXPORTING More aggressiveMore aggressive Requires more contact with foreign Requires more contact with foreign

companiescompanies Uses foreign sales representatives, Uses foreign sales representatives,

distributors, or retailersdistributors, or retailers May require branch offices in foreign May require branch offices in foreign

countriescountries

CHANNELS IN DIRECT EXPORTINGCHANNELS IN DIRECT EXPORTING Sales representatives: Sales representatives: use the use the

company's promotional company's promotional literature and samplesliterature and samples

Foreign distributors: Foreign distributors: resell the resell the productsproducts

Sell directly to foreign retailers Sell directly to foreign retailers or end users or end users

DECIDING ON AN EXPORT DECIDING ON AN EXPORT STRATEGYSTRATEGY

Assess control needs for: sales, Assess control needs for: sales, customer credit, and the eventual customer credit, and the eventual sale of the productsale of the product

Assess financial and human Assess financial and human resources capabilities resources capabilities

– to manage export operations to manage export operations

– to design and execute international to design and execute international promotional activities promotional activities

– to support extensive international to support extensive international travel or possibly an expatriate travel or possibly an expatriate sales force sales force

– to develop overseas contacts and to develop overseas contacts and networksnetworks

LICENSINGLICENSING

International licensing is a International licensing is a contractual agreement between a contractual agreement between a domestic licensor and a foreign domestic licensor and a foreign licenseelicensee

WHEN DO COMPANIES LICENSE?WHEN DO COMPANIES LICENSE?

Based on three factors Based on three factors

–The characteristics of the productThe characteristics of the product

–The characteristics of the target The characteristics of the target countrycountry

–The nature of the licensing The nature of the licensing companycompany

OTHER CONTRACTUAL OTHER CONTRACTUAL AGREEMENTSAGREEMENTS

International franchisingInternational franchising Contract manufacturingContract manufacturing Turnkey operationsTurnkey operations

THE INTERNATIONAL THE INTERNATIONAL STRATEGIC ALLIANCESTRATEGIC ALLIANCE

Cooperative agreements between Cooperative agreements between two or more firms from different two or more firms from different countries to participate in a countries to participate in a business activitybusiness activity

TWO BASIC TYPESTWO BASIC TYPES

Equity international joint Equity international joint ventures (IJV)ventures (IJV)

International cooperative International cooperative alliance (ICA)alliance (ICA)

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

KEY CONSIDERATIONS FOR KEY CONSIDERATIONS FOR ALLIANCEALLIANCE

Pick their partners carefullyPick their partners carefully Win-win ventures last much longer Win-win ventures last much longer Need for the alliance Need for the alliance Ability to succeed in the alliance Ability to succeed in the alliance Plans for design and managementPlans for design and management

WHICH TYPE?WHICH TYPE?

IJV probably more secureIJV probably more secure ICA probably more flexible and ICA probably more flexible and

less visibleless visible

FOREIGN DIRECT FOREIGN DIRECT INVESTMENTINVESTMENT

FDI symbolizes the highest stage FDI symbolizes the highest stage of internationalization of internationalization

FDI means that companies own FDI means that companies own and control directly a foreign and control directly a foreign operation operation

Acquisitions versus greenfieldAcquisitions versus greenfield

REASONS TO INVEST IN REASONS TO INVEST IN FOREIGN COUNTRIESFOREIGN COUNTRIES

To extract raw materialsTo extract raw materials To find low cost sources of labor, To find low cost sources of labor,

components, parts, or finished components, parts, or finished goods goods

To penetrate new markets, the To penetrate new markets, the major motivation major motivation

POSSIBLE ADVANTAGES OF FDIPOSSIBLE ADVANTAGES OF FDI Greater controlGreater control Lower costs of supplying host countryLower costs of supplying host country Avoiding import quotas Avoiding import quotas Greater opportunity to adapt product Greater opportunity to adapt product

to the local marketsto the local markets Better local image of the product Better local image of the product

POSSIBLE DISADVANTAGES POSSIBLE DISADVANTAGES OF FDI INCLUDEOF FDI INCLUDE

Increased capital investmentIncreased capital investment Increased investment of Increased investment of

managerial and other resourcesmanagerial and other resources Greater exposure of the Greater exposure of the

investment to political and investment to political and financial risksfinancial risks

FORMULATING A FORMULATING A PARTICIPATION STRATEGYPARTICIPATION STRATEGY

MULTINATIONAL STRATEGY MULTINATIONAL STRATEGY AND PARTICIPATION AND PARTICIPATION

STRATEGYSTRATEGY Why is the company in the Why is the company in the

market?market?

–E.g. Source of raw materials, E.g. Source of raw materials, R&D, Production, etc.R&D, Production, etc.

Location advantages versus Location advantages versus market penetrationmarket penetration

OTHER REASONSOTHER REASONS

STRATEGIC INTENT STRATEGIC INTENT

Profit always major goalProfit always major goal Other goalsOther goals

–E.g., Being first in a market E.g., Being first in a market with potential or learning a with potential or learning a new technologynew technology

COMPANY CAPABILITIESCOMPANY CAPABILITIES

What can a company afford? What can a company afford? Human resources Human resources Production capabilities Production capabilities Commitment to using resourcesCommitment to using resources

LOCAL GOVERNMENT LOCAL GOVERNMENT REGULATIONS REGULATIONS

Import or export tariffs, duties, or Import or export tariffs, duties, or restrictionsrestrictions

Laws regarding foreign ownershipLaws regarding foreign ownership Other legal and regulatory issuesOther legal and regulatory issues

–Patent, consumer protection, Patent, consumer protection, labor, and tax lawslabor, and tax laws

CHARACTERISTICS OF THE CHARACTERISTICS OF THE TARGET PRODUCT AND ITS TARGET PRODUCT AND ITS

MARKET (examples)MARKET (examples) Products that spoil quickly or Products that spoil quickly or

are difficult to transport are difficult to transport

–Poor candidates for exporting Poor candidates for exporting Products that need little local Products that need little local

–Good candidates for licensing, Good candidates for licensing, joint ventures, or FDI joint ventures, or FDI

GEOGRAPHIC DISTANCEGEOGRAPHIC DISTANCE

Transportation costs Transportation costs More difficult for managers to More difficult for managers to

communicate face-to-face and communicate face-to-face and local managers may feel "out of local managers may feel "out of the loop" in corporate decision the loop" in corporate decision makingmaking

CULTURAL DISTANCECULTURAL DISTANCE

With very different cultures, With very different cultures, direct investment more risky direct investment more risky

Joint ventures, licensing and Joint ventures, licensing and exportingexporting

–Local partners deal with local Local partners deal with local cultural issues cultural issues

POLITICAL AND FINANCIAL RISKPOLITICAL AND FINANCIAL RISK Financial riskFinancial risk Economic riskEconomic risk–Currencies, markets, etc.Currencies, markets, etc.

Political riskPolitical risk–Governments change Governments change –Policies regarding foreign firms Policies regarding foreign firms

change change

NEED FOR CONTROL NEED FOR CONTROL Key areas for concern Key areas for concern –Product quality in the manufacturing Product quality in the manufacturing

process, product price, advertising process, product price, advertising and other promotional activities, and other promotional activities, where the product is sold, and after where the product is sold, and after market service market service

THE CONTROL VERSUS RISK THE CONTROL VERSUS RISK TRADEOFFTRADEOFF

High

Low

Risk

Control

DirectExport

IndirectExport

Licensing

StrategicAlliances

FDI

Low High

CONCLUSIONSCONCLUSIONS Dealing with the global--local Dealing with the global--local

responsiveness dilemmaresponsiveness dilemma Four strategiesFour strategies

–TransnationalTransnational

–MultilocalMultilocal

–InternationalInternational

–RegionalRegional

Participation strategiesParticipation strategies

–All can be used for salesAll can be used for sales

–Others serve more value chain Others serve more value chain activitiesactivities