STRATEGIES FOR INTERNATIONAL MARKETS: CONTENT AND FORMULATION

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CHAPTER 6 MULTINATIONAL AND PARTICIPATION
STRATEGIES CONTENT AND FORMULATION
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Multinational Strategies and the Global-- Local
Dilemma

• The local responsiveness solution
• The global integration solution

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Local Solution

• Customize organizations and products to country
  or regional differences

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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

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Four Broad Multinational Strategies

• Solutions to the global--local responsiveness
  dilemma
• multidomestic
• transnational
• international
• regional

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Multidomestic Strategy

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

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Transnational Strategy

• Gives two goals top priority
• seek location advantages
• global platforms
• gain economic efficiencies from worldwide
  networks

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International Strategy

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

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Regional Strategy

• A compromise strategy
• Attempts to gain economic advantages from
  regional network
• Attempts to gain local adaptation advantages from
  regional adaptation

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Regional Trading Blocks

• Encourage regional strategies
• Reduce differences in government and industry
  required specifications for products

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Mixed Strategies

• Seldom do companies adopt pure forms
• Different strategies for each business
• Different strategies for product differences

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The Local-global Dilemma Diagnostic Questions
for Strategy Formulation

• The KEY question
• how global is the industry?

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What makes an industry global?

• Globalization drivers
• four categories of global drivers
• markets, costs, governments, and competition

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Global Markets

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

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Costs

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

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Governments

• Do the targeted countries have favorable trade
  policies?
• Do the target countries have regulations that
  restrict operations?

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The Competition

• Successful strategies of competitors
• Volume of imports and exports in industry

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Competitive Advantage in the Value Chain

• Upstream advantages
• favor transnational strategy or an international
  strategy
• Downstream advantages
• favor multidomestic strategy

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Mixed Conditions

• Competitive strength downstream in industry with
  strong globalization drivers
• Competitive strength upstream in industries with
  local adaptation pressures
• both favor regional strategies
• See summary Exhibit 6.2 next

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Select an International Strategy over a
Transnational When

• Cost savings of centralization offset the lower
  costs or higher quality raw materials or labor
  available from worldwide locations

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Participation Strategies

• The choice of how to enter each international
  market
• exporting, licensing, strategic alliances, and
  foreign direct investment

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Exporting

• The easiest
• Passive exporting
• Active export strategies

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Export Strategies

• Indirect exporting
• uses intermediaries
• Direct exporting

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Export Management and Trading Companies (EMCs and
ETCs)

• Specialize in products, countries or regions
• Provide ready-made access to markets
• Have networks of foreign distributors

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Direct Exporting

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

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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

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Licensing

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

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Other contractual agreements

• International franchising
• Contract manufacturing
• Turnkey operations

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The International Strategic Alliance

• Cooperative agreements between two or more firms
  from different countries to participate in a
  business activity

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Two Basic Types

• Equity international joint ventures (IJV)
• International cooperative alliance (ICA)

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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

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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

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Formulating a Participation Strategy
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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

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Deciding on an export strategy, continued

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

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When Should Companies License?

• Based on three factors
• 1. characteristics of the product
• 2. characteristics of the target country
• 3. nature of the licensing company

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Disadvantages of Licensing

• Gives up control
• May create new competitors
• Often generates only low revenues
• Opportunity costs (barriers to other
  participation strategies

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Why Seek Strategic Alliances?

• Partners 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

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Key Considerations for Alliances

• Pick partners carefully
• Seek win-win ventures-last much longer
• Assess need for the alliance
• Estimate ability to succeed Plan for design and
  management

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Which Type?

• IJV probably more secure
• ICA probably more flexible and less visible

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Advantages 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

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Disadvantages of FDI

• Increased capital investment
• Increased investment of managerial and other
  resources
• Greater exposure of the investment to political
  and financial risks

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General Strategic and Operational Considerations
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Strategic Intent

• Immediate profit, or..
• Other goals
• e.g., being first in a market with potential or
  learning a new technology

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Company Capabilities

• What can a company afford?
• Human resources
• Production capabilities
• Commitment to using resources

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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

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Characteristics Of The Target Product /Market
(e.g.s)

• Products that spoil quickly or are difficult to
  transport
• poor candidates for exporting
• Products that need little local adaptation
• good candidates for licensing, joint ventures, or
  FDI

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Geographic Distance

• Transportation costs
• Management of FDI and equity strategic alliances
  more difficult

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Cultural Distance

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

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Risk

• Financial risk
• Economic risk
• currencies, markets, etc.
• Political risk
• governments change
• policies regarding foreign firms change

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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

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The control versus risk tradeoff
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Multinational and Participation Strategies

• What is the strategic reason to be in the market?
  
• location advantages versus market penetration
• e.g., source of raw materials, RD, production,
  etc.

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Multinational strategy and participation
strategies, continued

• A mix of participation strategies often support
  the basic multinational strategy
• see Exhibit 6.9

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Conclusions

• Dealing with the global--local responsiveness
  dilemma
• Four strategies
• multidomestic
• transnational
• international
• regional

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• Participation strategies
• all can be used for sales
• others besides exporting serve more value chain
  activities