Cross cultural management 3e by cullen ch05

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5

Multinational and Participation

Strategies: Content and Formulation

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Learning Objectives

• Appreciate the complexities of the global-local dilemma

• Understand the content of the multinational strategies

• Formulate a multinational strategy

• Understand the content of the participation strategies

• Formulate a participation strategy

• Appreciate the complexities of the global-local dilemma

• Understand the content of the multinational strategies

• Formulate a multinational strategy

• Understand the content of the participation strategies

• Formulate a participation strategy

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• Global-local dilemma: choice between a

local-responsiveness or global approach to a multinational’s strategies

• Local-responsiveness solution: customize to country or regional differences

• Global integration solution: conduct business similarly throughout the world

• Global-local dilemma: choice between a

local-responsiveness or global approach to a multinational’s strategies

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Multidomestic Strategy

• Emphasizing local-responsiveness issues

• Ex.: different packages, colors

• Costs more to produce, need to charge higher

prices to recoup

• A form of the differentiation strategy

• Not limited to large multinationals

• Emphasizing local-responsiveness issues

• Ex.: different packages, colors

• Costs more to produce, need to charge higher

prices to recoup

• A form of the differentiation strategy

• Not limited to large multinationals

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Transnational Strategy

• Two goals get top priority

• Seeking location advantages

• Gaining economic efficiencies from operating

worldwide

• Location advantages: dispersing value-chain activities anywhere in the world where they can be done best or cheapest

• Two goals get top priority

• Seeking location advantages

• Gaining economic efficiencies from operating

worldwide

• Location advantages: dispersing value-chain activities anywhere in the world where they can be done best or cheapest

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Transnational Strategy (cont.)

• Global platform: country location where a firm can

better perform some of its value-chain activities

• Comparative advantage: advantages of nations over

other nations

• No longer only available to domestic firms

• Location advantages can exist for all activities of the

value chain

• Global platform: country location where a firm can

better perform some of its value-chain activities

• Comparative advantage: advantages of nations over

other nations

• No longer only available to domestic firms

• Location advantages can exist for all activities of the

value chain

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International Strategy

• International strategy: selling global products and

using similar marketing techniques worldwide

• A compromise approach

• Limited adjustment in product offerings and

marketing strategies

• Upstream and support activities remain

concentrated at home country

• International strategy: selling global products and

using similar marketing techniques worldwide

• A compromise approach

• Limited adjustment in product offerings and

marketing strategies

• Upstream and support activities remain

concentrated at home country

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Regional Strategy

• Regional strategy: managing raw-material sourcing,

production, marketing, and support activities within a

particular region

• Another compromise strategy

• Attempts to gain economic advantages from

regional network

• Attempts to gain local adaptation advantages from regional adaptation

• Regional strategy: managing raw-material sourcing,

production, marketing, and support activities within a

particular region

• Another compromise strategy

• Attempts to gain economic advantages from

regional network

• Attempts to gain local adaptation advantages from

regional adaptation

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Exhibit 5.1: Content of the Four

Basic Multinational Strategies

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Resolving the Global-Local Dilemma: Formulating a

• Four categories of global drivers: markets, costs,

governments, and competition

• Selection of strategy depends on degree of

globalization in an industry

• Globalization drivers: conditions in a industry that favor transnational or international strategies

• Four categories of global drivers: markets, costs,

governments, and competition

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Global Markets

• Are there common customer needs?

• Are there global customers?

• Can you transfer marketing?

• Are there common customer needs?

• Are there global customers?

• Can you transfer marketing?

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Costs

• Are there global economies of scale?

• Are there global sources of low-cost raw materials?

• Are there cheaper sources of highly skilled labor?

• Are product-development costs high?

• Are there global economies of scale?

• Are there global sources of low-cost raw materials?

• Are there cheaper sources of highly skilled labor?

• Are product-development costs high?

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The Competition

• What strategies do your competitors use?

• What is the volume of imports and exports in the

industry?

• What strategies do your competitors use?

• What is the volume of imports and exports in the

industry?

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Competitive Advantage in the Value Chain

• Location of competitive advantage in value chain

determines choice of generic strategy

• Upstream advantages: low-cost or high-quality design

• Favor transnational strategy or an international

strategy

• Downstream advantages: marketing, sales, service

• Favor multidomestic strategy

• Location of competitive advantage in value chain

determines choice of generic strategy

• Upstream advantages: low-cost or high-quality design

• Favor transnational strategy or an international

strategy

• Downstream advantages: marketing, sales, service

• Favor multidomestic strategy

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Competitive Advantage in the Value Chain (cont.)

• Mixed conditions

• Competitive strength downstream in industry with

strong globalization drivers

• Competitive strength upstream in industries with

local adaptation pressures

• Both favor regional strategies

• Mixed conditions

• Competitive strength downstream in industry with

strong globalization drivers

• Competitive strength upstream in industries with

local adaptation pressures

• Both favor regional strategies

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Exhibit 5.2: Pressures for

Globalization vs Localization

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• Benefits of dispersing activities worldwide offset the

costs of coordinating a more complex organization

• Select an international strategy over a transnational

when:

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

locations

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Participation Strategies:

The Content Options

• Participation strategies: the choice of how to enter

each international market

• Exporting

• Licensing

• Strategic alliances

• Foreign direct investment

• Participation strategies: the choice of how to enter

each international market

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Exporting

• Easiest way to sell a product in international market

• Passive exporter: company that treats and fills

overseas orders like domestic orders

• Alternatively, a company can put extensive resources into exporting with dedicated export department

• Easiest way to sell a product in international market

• Passive exporter: company that treats and fills

overseas orders like domestic orders

• Alternatively, a company can put extensive resources into exporting with dedicated export department

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Export Strategies

• Indirect exporting: uses intermediaries or go-between firms

• The most common intermediaries

• Export Management Company (EMC) and Export

Trading Company (ETC)

• Specialize in products, countries, or regions

• Provide ready-made access to markets

• Indirect exporting: uses intermediaries or go-between firms

• The most common intermediaries

• Export Management Company (EMC) and Export

Trading Company (ETC)

• Specialize in products, countries, or regions

• Provide ready-made access to markets

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Export Strategies

• Direct exporting: direct contact with customers in the

foreign market

• More aggressive exporting strategy

• Requires more contact with foreign companies

• Uses foreign sales representatives, distributors, or retailers

• May require branch offices in foreign countries

• Direct exporting: direct contact with customers in the

foreign market

• More aggressive exporting strategy

• Requires more contact with foreign companies

• Uses foreign sales representatives, distributors, or

retailers

• May require branch offices in foreign countries

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Export Strategies (cont.)

• 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

• 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

• Licensing: contractual agreement between a domestic licensor and a foreign licensee

• Licenser has valuable patent, know-how, or trademark

• Foreign licensee pays royalties for use

• Licensing: contractual agreement between a domestic licensor and a foreign licensee

• Licenser has valuable patent, know-how, or trademark

• Foreign licensee pays royalties for use

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Exhibit 5.3: Contents of a

Licensing Agreement

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Special Licensing Agreements

• International franchising: the franchisor grants the use

of a whole business operation

• Contract manufacturing: production following the

foreign companies’ specifications

• Turnkey operation: multinational company makes a

project fully operational before the foreign owner takes control

• International franchising: the franchisor grants the use

of a whole business operation

• Contract manufacturing: production following the

foreign companies’ specifications

• Turnkey operation: multinational company makes a

project fully operational before the foreign owner takes control

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International Strategic Alliances

• Cooperative agreements between firms from different countries to participate in business activities

• May include any value-chain activity

• Cooperative agreements between firms from different countries to participate in business activities

• May include any value-chain activity

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Types of International Strategic Alliances

• Equity International Joint Ventures (IJV): two or more firms from different countries have an equity position in

a separate company

• International Cooperative Alliance (ICA): two or more firms from different countries agree to cooperate in any value-chain activity

• Equity International Joint Ventures (IJV): two or more

firms from different countries have an equity position in

a separate company

• International Cooperative Alliance (ICA): two or more

firms from different countries agree to cooperate in any value-chain activity

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Foreign Direct Investment

• Companies own and control directly a foreign

operation

• Symbolizes the highest stage of internationalization

• Greenfield investments: starting foreign operations

from scratch

• Companies own and control directly a foreign

operation

• Symbolizes the highest stage of internationalization

• Greenfield investments: starting foreign operations

from scratch

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Exhibit 5.5: World’s Top

Companies Ranked by Foreign

Assets

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Exhibit 5.5: World’s Top

Companies Ranked by Foreign

Assets

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Formulating Participation Strategy

• Must take into account several issues:

• Basic functions of each participation strategy

• Strategic considerations and intent of company

• How best to support company’s multinational

strategy

• Must take into account several issues:

• Basic functions of each participation strategy

• Strategic considerations and intent of company

• How best to support company’s multinational

strategy

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Deciding on Export Strategy

• Does management need to control sales, customer

credit, and sale of the product?

• If yes, choose direct exporting

• Does company have resources to manage export

operations?

• If not, use indirect exporting

• Does company have resources to design/execute

international promotional activities?

• If not, use foreign intermediaries and indirect

• Does management need to control sales, customer

credit, and sale of the product?

• If yes, choose direct exporting

• Does company have resources to manage export

operations?

• If not, use indirect exporting

• Does company have resources to design/execute

international promotional activities?

• If not, use foreign intermediaries and indirect

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Export Strategy

• Does company have resources to support extensive

international travel or possibly an expatriate sales

force? If so, choose direct exporting

• Does company have time and expertise to develop

overseas contacts and networks? If not, rely on

foreign intermediaries or indirect exporting

• Will time and resources affect domestic operations? If not, choose direct exporting

• Does company have resources to support extensive

international travel or possibly an expatriate sales

force? If so, choose direct exporting

• Does company have time and expertise to develop

overseas contacts and networks? If not, rely on

foreign intermediaries or indirect exporting

• Will time and resources affect domestic operations? If not, choose direct exporting

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Licensing Decision

• Based on three factors

• Characteristics of the products

• Best products are older or soon-to-be replaced

• Characteristics of the target country

• Situation in target country

• Nature of the licensing company

• Company may lack resources to go international

• Based on three factors

• Characteristics of the products

• Best products are older or soon-to-be replaced

• Characteristics of the target country

• Situation in target country

• Nature of the licensing company

• Company may lack resources to go international

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Licensing: Disadvantages

• Gives up control

• May create new competitors

• Often generates only low revenues

• Opportunity costs (barriers to other participation

strategies)

• Gives up control

• May create new competitors

• Often generates only low revenues

• Opportunity costs (barriers to other participation

strategies)

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