multinational strategies and the global-- local dilemma u the local responsiveness solution u the...
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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
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