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MULTINATIONAL STRATEGIES AND THE GLOBAL-- LOCAL DILEMMA The local responsiveness solution The global solution 2

LOCAL SOLUTION Customize organizations and products to country or regional differences 3

GLOBAL 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

FOUR BROAD MULTINATIONAL STRATEGIES Solutions to the global--local responsiveness dilemma Multilocal Transnational International Regional 5

Gives top priority to local responsiveness issues MULTILOCAL STRATEGY Gives top priority to local responsiveness issues A form of the differentiation strategy Not limited to large multinationals 6

TRANSNATIONAL STRATEGY Gives two goals top priority: Seeking location advantages Gaining economic efficiencies from worldwide network 7

INTERNATIONAL STRATEGY A compromise approach Global products, similar marketing techniques worldwide Upstream and support activities remain concentrated at home country 8

Attempts to gain economic advantages from regional network REGIONAL STRATEGY A compromise strategy Attempts to gain economic advantages from regional network Attempts to gain local adaptation advantages from regional adaptation 9

REGIONAL TRADING BLOCKS Encourage regional strategies Reduce differences in government and industry required specifications for products 10

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Seldom do companies adopt pure forms MIXED STRATEGIES Seldom do companies adopt pure forms Different strategies for each business Different strategies for product differences 12

THE LOCAL VERSUS GLOBAL DILEMMA: DIAGNOSTIC QUESTIONS How global is the industry? What makes an industry global? Global drivers Four categories of global drivers: Markets, costs, governments, and competition 13

Are there common customer needs? Are there global customers? GLOBAL MARKETS Are there common customer needs? Are there global customers? Can you transfer marketing? What is the volume of imports and exports in the industry? 14

global economies of scale? global sources of low cost raw materials? COSTS Are there: global economies of scale? global sources of low cost raw materials? cheaper sources of high skilled labor? high product development costs? 15

Do the targeted countries have favorable trade policies? GOVERNMENTS Do the targeted countries have favorable trade policies? Do the target countries have regulations that restrict operations? The competition 16

COMPETITIVE ADVANTAGE IN THE VALUE CHAIN Upstream advantages Favor transnational strategy or an international strategy Downstream advantages Favor multilocal strategy 17

Competitive strength upstream in industries for local adaptation MIXED CONDITIONS Competitive strength downstream in industry with strong globalization drivers Competitive strength upstream in industries for local adaptation Favor regional strategy See summary next 18

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SELECT AN INTERNATIONAL STRATEGY OVER A TRANSNATIONAL WHEN Cost savings of centralization offset the lower costs or high quality raw materials and labor of worldwide locations 20

THE PARTICIPATION STRATEGIES The choice of how to enter each international market Exporting, licensing, strategic alliances, and foreign direct investment 21

Important-see following examples EXPORTING The easiest Passive exporting Important-see following examples 22

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EXPORT STRATEGIES Indirect exporting Direct exporting 24

EXPORT MANAGEMENT COMPANY (EMC)/EXPORT TRADING COMPANY (ETC) Specialize in products, countries or regions Provide ready-made access to markets Have networks of foreign distributors 25

Requires more contact with foreign companies DIRECT EXPORTING More aggressive Requires more contact with foreign companies Uses foreign sales representatives, distributors, or retailers May require branch offices in foreign countries 26

CHANNELS IN DIRECT EXPORTING Sales representatives: use the company's promotional literature and samples Foreign distributors: resell the products Sell directly to foreign retailers or end users 27

DECIDING ON AN EXPORT STRATEGY Assess control needs for: sales, customer credit, and the eventual sale of the product Assess financial and human resources capabilities to manage export operations 28

to design and execute international promotional activities to support extensive international travel or possibly an expatriate sales force to develop overseas contacts and networks 29

LICENSING International licensing is a contractual agreement between a domestic licensor and a foreign licensee 30

WHEN DO COMPANIES LICENSE? Based on three factors The characteristics of the product The characteristics of the target country The nature of the licensing company 31

OTHER CONTRACTUAL AGREEMENTS International franchising Contract manufacturing Turnkey operations 32

THE INTERNATIONAL STRATEGIC ALLIANCE Cooperative agreements between two or more firms from different countries to participate in a business activity 33

Equity international joint ventures (IJV) TWO BASIC TYPES Equity international joint ventures (IJV) International cooperative alliance (ICA) 34

Partner’s different capabilities Partner's knowledge of the market WHY SEEK ALLIANCES? Partner’s different capabilities Partner's knowledge of the market Government requirements To share risks To share technology Economies of scale Low cost raw materials or labor 35

KEY CONSIDERATIONS FOR ALLIANCE Pick their partners carefully Win-win ventures last much longer Need for the alliance Ability to succeed in the alliance Plans for design and management 36

IJV probably more secure ICA probably more flexible and less visible WHICH TYPE? IJV probably more secure ICA probably more flexible and less visible 37

FOREIGN DIRECT INVESTMENT FDI symbolizes the highest stage of internationalization FDI means that companies own and control directly a foreign operation Acquisitions versus greenfield 38

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 39

POSSIBLE ADVANTAGES OF FDI Greater control Lower costs of supplying host country Avoiding import quotas Greater opportunity to adapt product to the local markets Better local image of the product 40

POSSIBLE DISADVANTAGES OF FDI INCLUDE Increased capital investment Increased investment of managerial and other resources Greater exposure of the investment to political and financial risks 41

FORMULATING A PARTICIPATION STRATEGY 42

MULTINATIONAL STRATEGY AND PARTICIPATION STRATEGY Why is the company in the market? E.g. Source of raw materials, R&D, Production, etc. Location advantages versus market penetration 43

OTHER REASONS 44

Profit always major goal Other goals STRATEGIC INTENT Profit always major goal Other goals E.g., Being first in a market with potential or learning a new technology 45

What can a company afford? Human resources Production capabilities COMPANY CAPABILITIES What can a company afford? Human resources Production capabilities Commitment to using resources 46

LOCAL GOVERNMENT REGULATIONS Import or export tariffs, duties, or restrictions Laws regarding foreign ownership Other legal and regulatory issues Patent, consumer protection, labor, and tax laws 47

CHARACTERISTICS OF THE TARGET PRODUCT AND ITS MARKET (examples) Products that spoil quickly or are difficult to transport Poor candidates for exporting Products that need little local Good candidates for licensing, joint ventures, or FDI 48

GEOGRAPHIC DISTANCE Transportation costs More difficult for managers to communicate face-to-face and local managers may feel "out of the loop" in corporate decision making 49

With very different cultures, direct investment more risky CULTURAL DISTANCE With very different cultures, direct investment more risky Joint ventures, licensing and exporting Local partners deal with local cultural issues 50

POLITICAL AND FINANCIAL RISK Economic risk Currencies, markets, etc. Political risk Governments change Policies regarding foreign firms change 51

NEED FOR CONTROL Key areas for concern Product quality in the manufacturing process, product price, advertising and other promotional activities, where the product is sold, and after market service 52

THE CONTROL VERSUS RISK TRADEOFF 53

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Dealing with the global--local responsiveness dilemma Four strategies CONCLUSIONS Dealing with the global--local responsiveness dilemma Four strategies Transnational Multilocal International Regional 55

Participation strategies All can be used for sales Others serve more value chain activities 56