Chapter Multinational and Participation Strategies: Content and Formulation © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 Understand Understand political political risk risk and and how how multinational multinational companies companies can can manage manage such such risks risks © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Multinational Strategies: Dealing with the Global-Local Dilemma •• Local-responsiveness Local-responsiveness solution: solution: respond respond toto differences differences inin markets/customize markets/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 •• Forms Forms basic basic strategic strategic orientation orientation ofof aa multinational multinational company company © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Multinational Strategies: Dealing with the Global-Local Dilemma •• Four Four broad broad multinational multinational strategies strategies Multidomestic Multidomestic Transnational Transnational International International Regional Regional © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Multidomestic Strategy •• The The company company attempts attempts toto offer offer products products or or services services that that attract attract customers customers by by closely closely satisfying satisfying their their cultural cultural needs needs and and expectations expectations •• Emphasizes Emphasizes local-responsiveness local-responsiveness issues issues Ex.: Ex.:different differentpackages, packages,colors colors Costs Costsmore moretotoproduce, produce,need needtotocharge chargehigher higherprices pricestoto recoup recoup InInmany manyrespects, respects,aaform formofofdifferentiation differentiationstrategy strategy Not Notlimited limitedtotolarge largemultinationals multinationals © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Transnational Strategy •• Two Two goals goals get get top top priority: priority: Seeking Seekinglocation locationadvantages advantages Gaining Gainingeconomic economicefficiencies efficienciesfrom fromoperating operatingworldwide worldwide © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Transnational Strategy (cont.) •• 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 •• 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 © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Transnational strategy (cont.) •• With With location location advantages, advantages, the the transnational transnational can: can: Set Setup upglobal globalplatforms platformstotogain gainbetter betterquality qualityand andlow lowcosts costs Locate Locatesubunits subunitsnear nearcheap cheapmanufacturing manufacturing Be Beclose closetotokey keyand andmost mostdemanding demandingcustomers customers •• Location Location advantages advantages can can exist exist for for all all activities activities ofof the the value value chain chain © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Transnational Strategy (cont.) •• Comparative Comparative advantage: advantage: advantages advantages ofof nations nations over over other other nations nations Quality Qualityadvantages advantagesassociated associatedwith withaaspecific specificnation nation No Nolonger longeronly onlyavailable availabletotodomestic domesticfirms firms © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 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 compromiseapproach approachtotoglobal-local global-localdilemma dilemma Limited Limitedadaptations adaptations ininproduct productofferings offeringsand andmarketing marketing strategies strategies Upstream Upstreamand andsupport supportactivities activitiesremain remainconcentrated concentratedatat home homecountry, country,unlike unliketransnational transnationalcompanies companies © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Choosing Participation Strategy: General Strategic Considerations 1.1.Company’s Company’s strategic strategic intent intent regarding regarding profits profits vs vs learning learning 2.2.Company Company capabilities capabilities 3.3.Local Local government government regulations regulations 4.4.Characteristics Characteristics ofof the the target target product product and and market market © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Choosing Participation Strategy: Strategic Considerations (cont.) 5.5.Geographic Geographic and and cultural cultural distance distance 6.6.Trade Trade off off between between risk risk and and control control © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 6.6: The Risk versus Control Tradeoff © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 6.7: Decision Matrix for Formulating Participation Strategies © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Participation Strategies and the Multinational Strategies •• What What isis the the strategic strategic reason reason toto be be inin the the market? market? Location Locationadvantages advantagesvs vs.market marketpenetration penetration •• •• •• E.g., E.g., source source ofof raw raw materials, materials, R&D, R&D, production, production, etc etc This This reason reason dictates dictates choice choice ofof multinational multinational strategy strategy Basic Basic diagnostic diagnostic question: question: which which participation participation strategy strategy best best serves serves firm’s firm’s objectives objectives toto be be inin the the country country © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 6.8a: Participation Strategies and the Multinational Strategies © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 6.8b: Participation Strategies and the Multinational Strategies © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Political Risk •• Refers Refers toto the the impact impact ofof political political decisions decisions or or events events on on the the business business climate climate inin aa country country such such that that aa multinational’s multinational’s profitability profitability and and feasibility feasibility ofof its its global global operations operations are are negatively negatively affected affected © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Political Risk •• Why Why should should aa multinational multinational company company be be concerned concerned about about political political risk? risk? •• •• ItItcan canhave haveaaserious seriousimpact impacton onits itsprofitability profitability World Worldisisdependent dependenton onenergy energycoming comingfrom fromlocations locationswith with high highpolitical politicalrisk risk •• World Worldisisso sointerconnected, interconnected,political politicaluncertainties uncertaintiesininone one country countrycan canhave haveworldwide worldwideimpact impact © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Political Risk •• Some Some ofof the the factors factors that that influence influence political political risk risk inin aa society society Changes Changes inin the the government government Sudden Sudden shift shift inin governmental governmental policies policies or or ideology ideology Social Social volatility volatility Passage Passage ofof new new laws laws Leadership Leadership changes changes and and potential potential for for related related unrest unrest Level Level ofof corruption corruption © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Political Risk •• Key Key questions questions which which provide provide some some preliminary preliminary insights insights into into the the political political risk risk ofof aa market market that that aa multinational multinational firm firm isis choosing choosing toto enter: enter: •• •• How Howdurable durableand andresilient resilientisisthe thepolitical politicalsystem? system? How Howpeaceful peacefulhave havegovernmental governmentaltransitions transitionsbeen beenininthe the past? past? •• What Whatroles rolesdo doother othernongovernmental nongovernmentalorganizations organizationsplay playinin the thecountry’s country’spolitical politicalstability? stability? © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Political Risk •• Key Key questions questions which which provide provide some some preliminary preliminary insights insights into into the the political political risk: risk: •• Are Arethere thereinternal internalfactors factorsthat thatcould couldresult resultininsocial socialunrest unrestor or civil civilwar? war? •• What Whatisisthe thelevel levelofofcorruption? corruption? •• How Howreliable reliableisisthe therule ruleofoflaw? law? •• What Whatisisthe thelikelihood likelihoodthat thatthe thecountry countrycan canbe behit hitby bynatural natural disasters? disasters? © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Political Risk •• MNCs MNCs have have several several options options toto assess assess and and manage manage risk risk Private Private and and government government agencies agencies offer offer insurance: insurance: Political Politicalrisk riskinsurance insurance Political Political violence violenceinsurance insurance Foreign Foreigncurrency currencyinconvertability inconvertabilityinsurance insurance Expropriation Expropriationinsurance insurance Business Businessinterruption interruptioninsurance insurance © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 6.9: Index of Democracy © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Conclusion •• Multinational Multinational manager manager faces faces array array ofof complex complex strategic strategic issues issues •• All All companies companies must must deal deal with with global-local global-local dilemma dilemma •• Multinationals Multinationals also also face face the the challenges challenges ofof choosing choosing participation participation strategies strategies •• Political Political risk risk isis also also becoming becoming an an important important component component ofof investment investment decisions decisions overseas overseas © 2011 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part ... services services that that attract attract customers customers by by closely closely satisfying satisfying their their cultural cultural needs needs and and expectations expectations •• Emphasizes... overseas •• The The most most common common intermediaries: intermediaries: Export Export Management Management Company Company (EMC) (EMC) •• Specialize Specialize inin products, products, countries,... copied or duplicated, or posted to a publicly accessible website, in whole or in part Exhibit 6.4: Cross Border Mergers and Acquisitions © 2011 Cengage Learning All Rights Reserved May not be scanned,