Chapter Multinational and Participation Strategies: Content and Formulation Copyright© 2004 Thomson Learning All rights reserved Learning Objectives •• •• •• •• •• Appreciate Appreciate the the complexities complexities ofof the the global-local global-local dilemma dilemma Understand Understand the the content content ofof the the multinational multinational strategies strategies Formulate Formulate aa multinational multinational strategy strategy Understand Understand the the content content ofof the the participation participation strategies strategies Formulate Formulate aa participation participation strategy strategy Copyright© 2005 South-Western/Thomson Learning All rights reserved Multinational Strategies: Dealing with the Global-Local Dilemma •• Local-responsiveness Local-responsiveness solution: solution: customize customize toto country country or or regional regional differences differences •• Global Global integration integration solution: solution: conduct conduct business business similarly similarly throughout throughout the the world world •• Global-local Global-local dilemma: dilemma: choice choice between between aa locallocalresponsiveness responsiveness or or global global approach approach toto aa multinational’s multinational’s strategies strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved Multinational Strategies: Dealing with the Global-Local Dilemma •• Four Four broad broad multinational multinational strategies strategies •• Multidomestic Multidomestic •• Transnational Transnational •• International International Regional Regional Copyrightâ 2005 South-Western/Thomson Learning All rights reserved Multidomestic Strategy •• Emphasizing Emphasizing local-responsiveness local-responsiveness issues issues •• Ex.: Ex.: different different packages, packages, colors colors •• Costs Costs more more toto produce, produce, need need toto charge charge higher higher prices prices toto recoup recoup •• AAform form ofof the the differentiation differentiation strategy strategy •• Not Not limited limited toto large large multinationals multinationals Copyright© 2005 South-Western/Thomson Learning All rights reserved Transnational Strategy •• Two Two goals goals get get top top priority priority •• Seeking Seeking location location advantages advantages •• Gaining Gaining economic economic efficiencies efficiencies from from operating operating worldwide worldwide •• Location Location advantages: advantages: dispersing dispersing value-chain value-chain activities activities anywhere anywhere inin the the world world where where they they can can be be done done best best or or cheapest cheapest Copyright© 2005 South-Western/Thomson Learning All rights reserved Transnational Strategy (cont.) •• Global Global platform: platform: country country location location where where aa firm firm can can better better perform perform some some ofof its its value-chain value-chain activities activities •• Comparative Comparative advantage: advantage: advantages advantages ofof nations nations over over other other nations nations •• No No longer longer only only available available toto domestic domestic firms firms •• Location Location advantages advantages can can exist exist for for all all activities activities ofof the the value value chain chain Copyright© 2005 South-Western/Thomson Learning All rights reserved International Strategy •• International International strategy: strategy: selling selling global global products products and and using using similar similar marketing marketing techniques techniques worldwide worldwide •• AAcompromise compromise approach approach •• Limited Limited adjustment adjustment inin product product offerings offerings and and marketing marketing strategies strategies •• Upstream Upstream and and support support activities activities remain remain concentrated concentrated atat home home country country Copyright© 2005 South-Western/Thomson Learning All rights reserved Regional Strategy •• Regional Regional strategy: strategy: managing managing raw-material raw-material sourcing, sourcing, production, production, marketing, marketing, and and support support activities activities within within aa particular particular region region •• Another Another compromise compromise strategy strategy •• Attempts Attempts toto gain gain economic economic advantages advantages from from regional regional network network •• Attempts Attempts toto gain gain local local adaptation adaptation advantages advantages from from regional regional adaptation adaptation Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 5.1: Content of the Four Basic Multinational Strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved Licensing Decision •• Based Based on on three three factors factors •• Characteristics Characteristics ofof the the products products •• Best Best products products are are older older or or soon-to-be soon-to-be replaced replaced •• Characteristics Characteristics ofof the the target target country country •• Situation Situation inin target target country country •• Nature Nature ofof the the licensing licensing company company •• Company Company may may lack lack resources resources toto go go international international Copyright© 2005 South-Western/Thomson Learning All rights reserved Licensing: Disadvantages •• •• •• •• Gives Gives up up control control May May create create new new competitors competitors Often Often generates generates only only low low revenues revenues Opportunity Opportunity costs costs (barriers (barriers toto other other participation participation strategies) strategies) Copyright© 2005 South-Western/Thomson Learning All rights reserved Motivations for Strategic Alliances •• •• •• •• •• •• Partner’s Partner’s knowledge knowledge ofof the the market market Government Government requirements requirements To To share share risks risks To To share share technology technology Economies Economies ofof scale scale Low Low cost cost raw raw materials materials or or labor labor Copyright© 2005 South-Western/Thomson Learning All rights reserved Key Considerations for Alliances •• Could Could other other participation participation strategies strategies better better satisfy satisfy strategic strategic objectives? objectives? •• Does Does firm firm have have management management and and capital capital resources resources toto contribute? contribute? •• Can Can partner partner benefit benefit the the company’s company’s objectives? objectives? •• What What isis expected expected payoffs? payoffs? Copyright© 2005 South-Western/Thomson Learning All rights reserved Foreign Direct Investment (FDI) •• •• Most Most experienced experienced international international firms firms choose choose FDI FDI Advantages Advantages •• Greater Greater control control •• Lower Lower costs costs ofof supplying supplying host host country country •• Avoid Avoid import import quotas quotas •• Greater Greater opportunity opportunity toto adapt adapt product product toto local local markets markets •• Better Better local local image image ofof the the product product Copyright© 2005 South-Western/Thomson Learning All rights reserved Disadvantages of FDI •• •• Increased Increased capital capital investment investment Increased Increased investment investment ofof managerial managerial and and other other resources resources •• Greater Greater exposure exposure ofof the the investment investment toto political political and and financial financial risks risks Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 5.6: Advantages and Disadvantages of FDI Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 5.6: Advantages and Disadvantages of FDI Copyright© 2005 South-Western/Thomson Learning All rights reserved Choosing Participation Strategy: Strategic Considerations •• Company’s Company’s strategic strategic intent intent regarding regarding profits profits vs vs learning learning •• Company Company capabilities capabilities •• Local Local government government regulations regulations •• Characteristics Characteristics ofof the the target target product product and and market market Copyright© 2005 South-Western/Thomson Learning All rights reserved Choosing Participation Strategy: Strategic Considerations (cont.) •• •• •• Geographic Geographic and and cultural cultural distance distance Political Political and and financial financial risk risk ofof investment investment Need Need for for control control Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 5.7: The Risk versus Control Tradeoff Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 5.8: Decision Matrix for Formulating Participation Strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved Participation Strategies and the Multinational Strategies •• What What isis the the strategic strategic reason reason toto be be inin the the market? market? •• Location Location advantages advantages vs vs market market penetration penetration •• E.g., E.g., source source ofof raw raw materials, materials, R&D, R&D, production, production, etc etc •• AAmix mix ofof participation participation strategies strategies often often support support the the basic basic multinational multinational strategy strategy Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 5.9: Participation Strategies and the Multinational Strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved Exhibit 5.9: Participation Strategies and the Multinational Strategies Copyright© 2005 South-Western/Thomson Learning All rights reserved ... firms firms •• The The most most common common intermediaries intermediaries •• Export Export Management Management Company Company (EMC) (EMC) and and Export Export Trading Trading Company Company... 2005 South-Western/Thomson Learning All rights reserved Exhibit 5.5: World’s Top Companies Ranked by Foreign Assets Copyright© 2005 South-Western/Thomson Learning All rights reserved