Cross cultural management 5e by cullen CH06

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Chapter 6

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

• Understand political risk and how multinational

companies can manage such risks

• 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

• Understand political risk and how multinational

companies can manage such risks

Multinational Strategies:

Dealing with the Global-Local Dilemma

• Local-responsiveness solution: respond to differences

in markets/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

• Forms basic strategic orientation of a multinational

company

• Local-responsiveness solution: respond to differences

in markets/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

• Forms basic strategic orientation of a multinational

company

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Multidomestic Strategy

• The company attempts to offer products or services

that attract customers by closely satisfying their

cultural needs and expectations

• Emphasizes local-responsiveness issues

- Ex.: different packages, colors

- Costs more to produce, need to charge higher prices to

recoup

- In many respects, a form of differentiation strategy

- Not limited to large multinationals

• The company attempts to offer products or services

that attract customers by closely satisfying their

cultural needs and expectations

• Emphasizes local-responsiveness issues

- Ex.: different packages, colors

- Costs more to produce, need to charge higher prices to

recoup

- In many respects, a form of 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

• Two goals get top priority:

- Seeking location advantages

- Gaining economic efficiencies from operating worldwide

Transnational Strategy (cont.)

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

• Global platform: country location where a firm can

better perform some of its value-chain activities

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

• Global platform: country location where a firm can

better perform some of its value-chain activities

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Transnational strategy (cont.)

• With location advantages, the transnational can:

- Set up global platforms to gain better quality and low costs

- Locate subunits near cheap manufacturing

- Be close to key and most demanding customers

• Location advantages can exist for all activities of the

value chain

• With location advantages, the transnational can:

- Set up global platforms to gain better quality and low costs

- Locate subunits near cheap manufacturing

- Be close to key and most demanding customers

• Location advantages can exist for all activities of the

value chain

Transnational Strategy (cont.)

• Comparative advantage: advantages of nations over

other nations

- Quality advantages associated with a specific nation

- No longer only available to domestic firms

• Comparative advantage: advantages of nations over

other nations

- Quality advantages associated with a specific nation

- No longer only available to domestic firms

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International Strategy

• International strategy: selling global products and using similar marketing techniques worldwide

- A compromise approach to global-local dilemma

- Limited adaptations in product offerings and marketing

strategies

- Upstream and support activities remain concentrated at

home country, unlike transnational companies

• International strategy: selling global products and using similar marketing techniques worldwide

- A compromise approach to global-local dilemma

- Limited adaptations in product offerings and marketing

strategies

- Upstream and support activities remain concentrated at

home country, unlike transnational companies

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

- Attempts to balance between other three strategies

• 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

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Exhibit 6.1: Content of the Four

Basic Multinational Strategies

Resolving the Global-Local Dilemma: Formulating a

Multinational Strategy

• Selection of strategy depends on degree of

globalization in an industry

• Globalization drivers: conditions in an industry that

favors transnational or international strategies

• Four categories of global drivers:

• Globalization drivers: conditions in an industry that

favors transnational or international strategies

• Four categories of global drivers:

• Markets

• Costs

• Governments

• 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?

Costs

• Are there global economies of scale?

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

• Are there cheaper sources of highly skilled labor?

• Are there global economies of scale?

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

• Are there cheaper sources of highly skilled labor?

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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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Exhibit 6.2: Pressures for

Globalization vs Localization

• Cost savings of centralization offset the lower costs of

higher quality raw materials/labor from worldwide locations

• Select a transnational over an international strategy

• 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: options for entering foreign

markets and countries

- Exporting

- Licensing

- Strategic alliances

- Foreign direct investment

• Participation strategies: options for entering foreign

markets and countries

Exporting

• Easiest way to sell a product in international market

• Passive exporter: company that treats and fills

overseas orders like domestic orders

• At the other extreme, companies can put extensive

resources into exporting with dedicated export

department or division with an international sales force

• Easiest way to sell a product in international market

• Passive exporter: company that treats and fills

overseas orders like domestic orders

• At the other extreme, companies can put extensive

resources into exporting with dedicated export

department or division with an international sales force

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Export Strategies

• Indirect exporting: uses intermediaries or go-between

firms to provide knowledge and contacts overseas

• The most common intermediaries:

- Export Management Company (EMC)

• Specialize in products, countries, or regions

• Provide ready-made access to markets

• Have networks of foreign distributors

- Export Trading Company (ETC)

• Takes title to product before exporting

• Indirect exporting: uses intermediaries or go-between

firms to provide knowledge and contacts overseas

• The most common intermediaries:

- Export Management Company (EMC)

• Specialize in products, countries, or regions

• Provide ready-made access to markets

• Have networks of foreign distributors

- Export Trading Company (ETC)

• Takes title to product before exporting

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Export Strategies

• Direct exporting: take on duties of intermediaries and make 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 own branch offices in foreign countries

• Direct exporting: take on duties of intermediaries and make 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 own branch offices in foreign countries

Export Strategies (cont.)

• Channels in direct exporting

- Sales representatives use the company’s promotional

literature and samples to sell product

- 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 to sell product

- 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

• Provides easiest, least risky, and most low cost way to internationalize

• 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

• Provides easiest, least risky, and most low cost way to internationalize

Exhibit 6.3: 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

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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Foreign Direct Investment (FDI)

• 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

Exhibit 6.4: Cross Border

Mergers and Acquisitions

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Formulating a Participation Strategy

• Must take into account several issues:

- Basic functions of each participation strategy

- Strategic considerations, intent, products, and markets

- How best to support company’s multinational strategy

• Must take into account several issues:

- Basic functions of each participation strategy

- Strategic considerations, intent, products, and markets

- How best to support company’s multinational strategy

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 create positions to

manage export operations?

• If not, use indirect exporting

• Does management need to control sales, customer

credit, and sale of the product?

• If yes, choose direct exporting

• Does company have resources to create positions to

manage export operations?

• If not, use indirect exporting

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Deciding on Export Strategy

• Does company have resources to design/execute

international promotional activities?

• If not, use foreign intermediaries and indirect exporting

• Does company have resources to support extensive

international travel or possibly an expatriate sales

force?

• If so, choose direct exporting.

• Does company have resources to design/execute

international promotional activities?

• If not, use foreign intermediaries and indirect exporting

• Does company have resources to support extensive

international travel or possibly an expatriate sales

force?

• If so, choose direct exporting.