Multinational Strategies and
the Global-- Local Dilemma
• The local responsiveness solution
• The global integration solution
Local Solution
• Customize organizations and
products to country or regional
differences
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
Four Broad Multinational
Strategies
• Solutions to the global--local
responsiveness dilemma
– multidomestic
– transnational
– international
– regional
Multidomestic Strategy
• Gives top priority to local
responsiveness issues
• A form of the differentiation
strategy
• Not limited to large
multinationals
Transnational Strategy
• Gives two goals top priority:
– seek location advantages
• global platforms
– gain economic efficiencies from
worldwide networks
International Strategy
• A compromise approach
• Global products, similar
marketing techniques worldwide
• Upstream and support activities
remain concentrated at home
country
Regional Strategy
• A compromise strategy
• Attempts to gain economic
advantages from regional network
• Attempts to gain local adaptation
advantages from regional
adaptation
Regional Trading Blocks
• Encourage regional strategies
• Reduce differences in
government and industry required
specifications for products
EXHIBIT 6.1 MULTINATIONAL STRATEGY CONTENT
Content
Transnational International
Multidomestic Regional
Worldwide
markets
Worldwide
location of
separate
value chain
activities
Global
products
Global
marketing
Global
competitive
moves
Yes
Yes
No
No
Yes
No
No
No
Yes
Yes
No
No
Yes
Yes
No
No
Resources
from any
country used
to attack or
defend
Attacks and
defenses in all
countries resources HQ
No,
competitive
moves planned
and financed
by country
units
No, but
resources from
region can be
used
Mixed Strategies
• Seldom do companies adopt pure
forms
• Different strategies for each
business
• Different strategies for product
differences
The Local-global Dilemma:
Diagnostic Questions for
Strategy Formulation
• The KEY question:
– how global is the industry?
What makes an industry global?
• Globalization drivers
– four categories of global
drivers:
• markets, costs, governments,
and competition
Global Markets
• Are there?
– common customer needs?
– global customers?
• Can you transfer marketing?
• What is the volume of imports
and exports in the industry?
Costs
• Are there?
– global economies of scale?
– global sources of low cost raw
materials?
– cheaper sources of high skilled
labor?
– high product development costs?
Governments
• Do the targeted countries have
favorable trade policies?
• Do the target countries have
regulations that restrict
operations?
The Competition
• Successful strategies of
competitors
• Volume of imports and exports in
industry
Competitive Advantage in the
Value Chain
• Upstream advantages
– favor transnational strategy or
an international strategy
• Downstream advantages
– favor multidomestic strategy
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
Global/
Local
Pressures
Primary Source of Competitive
Advantage in Value Chain
Upstream
Downstream
High
Pressures
for
Globalization
Transnational
Strategy or
International
Strategy
Regional
Strategy
Compromise
High
Pressures
for Local
Responsive
-ness
Regional
Strategy
Compromise
Multidometic
Strategy
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
Participation Strategies
• The choice of how to enter each
international market
– exporting, licensing, strategic
alliances, and foreign direct
investment
Exporting
• The easiest
• Passive exporting
• Active export strategies
Export Strategies
• Indirect exporting
– uses intermediaries
• Direct exporting
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
Direct Exporting
• More aggressive
• Requires more contact with
foreign companies
• Uses foreign sales
representatives, distributors, or
retailers
• May require branch offices in
foreign countries
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
Licensing
• International licensing is a
contractual agreement between a
domestic licensor and a foreign
licensee
Other contractual agreements
• International franchising
• Contract manufacturing
• Turnkey operations
The International Strategic
Alliance
• Cooperative agreements between
two or more firms from different
countries to participate in a
business activity
Two Basic Types
• Equity international joint
ventures (IJV)
• International cooperative alliance
(ICA)
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
Formulating a
Participation Strategy
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
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
–
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
Disadvantages of Licensing
• Gives up control
• May create new competitors
• Often generates only low
revenues
• Opportunity costs (barriers to
other participation strategies
Why Seek Strategic 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
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
Which Type?
• IJV probably more secure
• ICA probably more flexible and
less visible
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
Disadvantages of FDI
• Increased capital investment
• Increased investment of
managerial and other resources
• Greater exposure of the
investment to political and
financial risks
General Strategic and
Operational Considerations
Strategic Intent
• Immediate profit, or..
• Other goals
– e.g., being first in a market
with potential or learning a new
technology
Company Capabilities
•
•
•
•
What can a company afford?
Human resources
Production capabilities
Commitment to using resources
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
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
Geographic Distance
• Transportation costs
• Management of FDI and equity
strategic alliances more difficult
Cultural Distance
• With very different cultures,
direct investment more risky
• Joint ventures, licensing and
exporting
– local partners deal with local
cultural issues
Risk
• Financial risk
• Economic risk
– currencies, markets, etc.
• Political risk
– governments change
– policies regarding foreign firms
change
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
The control versus risk
tradeoff
High
FDI
Strategic
Alliances
Risk
Licensing
Direct
Export
Indirect
Low Export
Low
Control
High
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,
R&D, production, etc.
Multinational strategy and
participation strategies, continued
• A mix of participation strategies
often support the basic
multinational strategy
– see Exhibit 6.9
Conclusions
• Dealing with the global--local
responsiveness dilemma
• Four strategies
– multidomestic
– transnational
– international
– regional
• Participation strategies
– all can be used for sales
– others besides exporting serve
more value chain activities