Basic Strategies & Multinational and Participation Strategies

Objectives Choice between a local responsiveness or global approach to a multinational’s strategy Some of the broad multinational strategies Multi-domestic Transnational International Regional Participation strategies – how should one enter a market Alliance Strategy will be the focus of this course

Multinational Strategies and the Global Local Dilemma Fundamental Strategic Dilemma – “Global-Local Dilemma The local responsiveness solution National or cultural differences in consumer tastes, variation in customer needs National differences in how industry work or political pressure Customize organizations and products to country or regional differences The global integration solution Reduce costs with worldwide standardized products, uniform promotional strategies and distribution channels Seek lower costs or higher quality anywhere in the value chain and in the world

4 Broad Multinational Strategies: All offer solutions to the global-local responsiveness dilemma Multidomestic Transnational International Regional

Multidomestic Strategy Many ways like a differentiation strategy Offer products/services that satisfy cultural needs and expectation Ex. Advertising, packaging, sales outlets, and pricing are adapted to local standards Results usually more costly Different packaging, sizes, colors and as a result need to charge a higher price to recoup extra costs MNC often treat subsidiaries as independent business units Examples of Multidomestic Even for standardized products, sometimes localization is necessary Ex: McDonald’s could not sell its famous Big Mac in India – instead sells a mutton sandwich called Maharaja sandwich See Multinational Management Challenge -p 157

Matsushita: A GLOCAL company – “go GLObal and act loCAL” Has key “go global, act local” strategies and policies Be good citizen in all countries Give overseas operations your best manufacturing technology Keep expatriate headcount down – groom local managers Let plants set their own rules, fine-tune manufacturing process to match skills of workers Develop local R&D to tailor products to market Encourage competition among overseas outposts and with plants back home

Transnational/Global Strategy Gives two goals top priority: seek location advantages- Global Platform gain economic efficiencies from worldwide networks Location Advantages Location based competitive advantages in cost/quality Locate subunits near cheap sources of high quality raw materials Locate subunits near sources of research and innovation Locate subunits near high sources of high quality or low cost labor Seek low cost financing anywhere around the world Share discoveries and innovations made in one part of the world with operations in other parts See Case in Point p. 152

International Strategy Selling global products and using similar marketing techniques worldwide Compromise approach to the G-L Dilemma Like Transnational Strategies, firms attempt to sell global products/similar marketing techniques worldwide Like Multidomestic, if pressured to from economic or political reasons, will set up subunits (sales/production) in major countries of operation Do not locate locate value chain activities anywhere in the world but instead remain concentrated at home Home country headquarters retain control of local strategies, marketing, R&D, Finance, and production

Regional Strategy A compromise strategy Attempts to gain economic advantages from regional network Attempts to gain local adaptation advantages from regional adaptation Managing raw material sourcing, production, marketing, and support activities within a particular region Rise of trading blocs – EU, NAFTA, ASEAN led to more uniformity in customer needs and reduced government and industry-required specifications for products Ex. Proctor & Gamble – combined subunits in Mexico, Canada and USA into one regional organization

Multinational Strategy Content Transnational Strategy International Multidomestc Regional Worldwide Markets Yes as much as possible with flexibility to adapt to local conditions Yes with little flexibility for local adaptation No, each country treated as a separate market No, but major regions treated as similar market (Europe) Worldwide location of separate value chain activities Yes anywhere based on best value to the company-lowest cost for highest quality No, or limited to sales or local production replicating headquarters No, all or most value chain activities located in country of production and sales No but region can provide some different country location of activities. Global Products Yes to the highest degree possible with some local products if necessary; companies rely on worldwide brand recognition Yes to the highest degree possible with little local adaptation; companies rely on worldwide brand recognition No, products produced in and tailored to the country of location to best serve the needs of local customers No, but simpler products offered throughout a major economic region. Global Marketing Yes similar strategy to global product development Yes to the highest degree possible No, marketing focuses on local-country customers No, but region is often treated similarly. Global Competitive moves Resources from any country used to attack or defend Attacks and defenses in all countries, but resources must come from headquarters No, competitive moves planned and financed by country units No, but resources from region can be used to attack or defend.

International Participation Strategies: Review The choice of how to enter each international market 1. Exporting 2. Licensing 3. Strategic alliances 4. Foreign direct investment

1. Exporting The easiest – low risk, minimal investment, and fast withdrawal Passive exporting – treating and filling overseas orders like domestic orders Indirect export strategies – indirect through Export Management Companies or Export Trading Companies (title) Direct Export Strategies- take on the duties of the intermediaries, often use foreign sale representatives, foreign distributors, or foreign retailers to get their product to end users

Exporting (cont’d) Often the only available choices for small and new firms wanting to go international Provide an avenue for larger firms that want to begin their international expansion with a minimum of investment Exporting and importing can provide easy access to overseas markets Strategy usually is transitional in nature

2. Licensing International licensing is a contractual agreement between a domestic licensor and a foreign licensee International franchising Contract manufacturing Turnkey operations Licensing distinctions: Patent – legal protection for new inventions Trademark – legal protection for symbols, picture [Nike swoosh] Copyright Trade secret – Coca Cola formula etc. Widely used in the fast-food and hotel/motel industries With minor adjustments for the local market, it can result in a highly profitable international business

Reasons for licensing: Quick way to recover R&D Expand overseas quickly without major capital outlay To squeeze more life out of a mature product To test potential of a foreign market Inability to enter market because of government restrictions on export Avoids customs duties, trade quotas, and other export-import restrictions

3. The International Strategic Alliance Cooperative agreements between two or more firms from different countries to participate in a business activity Benefits: --Access to the resources and capabilities of another company --Learning from one another --Reducing time-to-market for innovations --Risk sharing Problems: --Disagreements & conflict between the partners. Disputes most likely where the partners are also competitors. Benefits are seldom shared equally. Distribution of benefits determined by: Strategic intent of the partners- which partner has the clearer vision of the purpose of the alliance? Appropriability of the contribution—which partner’s resources and capabilities can more easily be captured by the other? Absorptive capacity of the company-- which partner is the more receptive learner?

4. Foreign Direct Investment (FDI) FDI means that companies own and control directly a foreign operation symbolizes the highest stage of internationalization Mergers and acquisitions versus greenfield Reasons to Invest in Foreign Countries: To extract raw materials To find low cost sources of labor, components, parts, or finished goods To penetrate new markets, the major motivation

Advantages of FDI Disadvantages of FDI Greater control Lower costs of supplying host country Avoid import quotas Greater opportunity to adapt product to the local markets Better local image of the product Disadvantages of FDI Increased capital investment Increased investment of managerial and other resources Greater exposure of the investment to political and financial risks

Wholly-owned subsidiary An overseas operation that is totally owned and controlled by an MNC MNC’s desire for total control and belief that managerial efficiency is better without outside partners Some host countries are concerned that the MNC will drive out local enterprises and others prohibit fully owned subsidiaries Home-country unions sometimes view foreign subsidiaries as an attempt to “export jobs” Today many multinationals opt for a merger, alliance, or joint venture rather than a fully owned subsidiary

Implementing a Strategic-Alliance Strategy Decide Where to Link in Value Chain Select a Potential Partner Begin Over Is Partner Acceptable? Choose an Alliance Type Negotiate an Agreement Build the Organization Build Trust and Commitment Assess Performance Terminate the Alliance OR Check and Revise Implementation Meets Strategic Objectives? Continue or Increase Involvement NO Yes No Yes

Linking Value Chains Company A Company B Research and Development R&D Input Logistics Raw material supply and acquisition Input Logistics Raw material supply and acquisition Supply/ Production Operations Manufacturing, assembly, facility operations Operations Manufacturing, assembly, facility operations Operations Production/ Marketing Marketing and sales Promotions, and channel relations Marketing and sales Promotions, and channel relations Marketing Output Logistics delivery Output Logistics delivery Delivery Service repair Service repair

Alliance Creation Framework External Analysis (internal and external environment) Strategy Development Alliance – Type of Alliance Partner Selection Strategic Fit Assessment Resource Fit Assessment Negotiate Agreement