Basic Strategies &
Multinational and
Participation Strategies
Basic Strategies
• Review of strategic decision making and
strategic management
• Understanding of basic strategies and how to
craft strategies
– Industry analysis
– SWOT analysis
• Situation with diversified companies
Objectives:
• The global-local dilemma
– choice between a local responsiveness or global
approach to a multinational’s strategy
• Some of the broad multinational strategies
–
–
–
–
Multi-domestic
Transnational
International
Regional
• Participation strategies – how should one enter a
market
– Alliance Strategy will be the focus of this course
Multinational Strategies and the Global
Local Dilemma
• The local responsiveness solution
– Customize organizations and products to country
or regional differences
• The 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
–
–
–
–
Multi-domestic
Transnational
International
Regional
Multi-domestic Strategy
• Local markets are linked within a region
• Gives top priority to local responsiveness issues
• A form of the differentiation strategy
• Not limited to large multinationals
Examples of Multidomestic
• Even for standardized products, sometimes
localization is necessary
– Ex: McDonald’s could not sell its famous Big Mac in
India – instead sells a mutton sandwich called
Maharaja sandwich
– See Multinational Management Challenge -p 157
Matsushita: A GLOCAL company
– “go GLObal and act loCAL”
• Has key “go global, act local” strategies and policies
• Be good citizen in all countries
• Give overseas operations your best manufacturing
technology
• Keep expatriate headcount down – groom local
managers
• Let plants set their own rules, fine-tune manufacturing
process to match skills of workers
• Develop local R&D to tailor products to market
• Encourage competition among overseas outposts and
with plants back home
Transnational/Global Strategy
• Gives two goals top priority:
– seek location advantages- Global Platform
– gain economic efficiencies from worldwide networks
• Benefits
– Cost reductions – broader economies of scale
– Higher quality of products
– Customer satisfaction – can obtain and service
product anywhere
– Increased competitive power
– See Case in Point p. 152
International Strategy
• A compromise approach to global/local
dilemma ex/ Boeing
• Global products, similar marketing techniques
worldwide
• Upstream and support activities remain
concentrated at home country- R&D,
manufacturing , marketing approach focuses
on price and technology
Regional Strategy
• A compromise strategy
• Attempts to gain economic advantages from regional
network
• Attempts to gain local adaptation advantages from
regional adaptation
• Managing raw material sourcing, production,
marketing, and support activities within a particular
region
• Rise of trading blocs – EU, NAFTA, ASEAN led to more
uniformity in customer needs and reduced government
and industry-required specifications for products
• Ex. Proctor & Gamble – combined subunits in Mexico,
Canada and USA into one regional organization
International Participation
Strategies: Review
The choice of how to enter each
international market
1. Exporting
2. Licensing
3. Strategic alliances
4. Foreign direct investment
1. Exporting
• The easiest – low risk, minimal investment,
and fast withdrawal
• Passive exporting – treating and
filling overseas orders like domestic orders
• Active export strategies – indirect through
Export Management Companies
Direct Exporting (cont’d)
• More aggressive, requires more contact with
foreign companies
• Uses foreign sales representatives,
distributors, or retailers
• May require branch offices in foreign
countries
Exporting (cont’d)
• Often the only available choices for small
and new firms wanting to go international
• Provide an avenue for larger firms that want
to begin their international expansion with a
minimum of investment
• Exporting and importing can provide easy
access to overseas markets
• Strategy usually is transitional in nature
2. Licensing
• International licensing is a contractual agreement
between a domestic licensor and a foreign
licensee
– International franchising
– Contract manufacturing
– Turnkey operations
•
Licensing distinctions:
– Patent – legal protection for new inventions
– Trademark – legal protection for symbols,
picture [Nike swoosh]
– Copyright
– Trade secret – Coca Cola formula etc.
Licensing (cont’d)
• Widely used in the fast-food and hotel/motel
industries
• With minor adjustments for the local market,
it can result in a highly profitable international
business
Reasons for licensing
• Quick way to recover R&D
• Expand overseas quickly without major
capital outlay
• To squeeze more life out of a mature product
• To test potential of a foreign market
• Inability to enter market because of
government restrictions on export
• Avoids customs duties, trade quotas, and
other export-import restrictions
3. The International Strategic Alliance
• Cooperative agreements between two or more firms from different
countries to participate in a business activity
• Benefits:
--Access to the resources and capabilities of another company
--Learning from one another
--Reducing time-to-market for innovations
--Risk sharing
• Problems:
--Disagreements & conflict between the partners. Disputes
most likely where the partners are also competitors.
• Benefits are seldom shared equally. Distribution of benefits
determined by:
– Strategic intent of the partners- which partner has the clearer
vision of the purpose of the alliance?
– Appropriability of the contribution—which partner’s resources
and capabilities can more easily be captured by the other?
– Absorptive capacity of the company-- which partner is the
more receptive learner?
4. 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
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
Wholly-owned subsidiary
• An overseas operation that is totally owned and
controlled by an MNC
• MNC’s desire for total control and belief that
managerial efficiency is better without outside
partners
• Some host countries are concerned that the MNC will
drive out local enterprises and others prohibit fully
owned subsidiaries
• Home-country unions sometimes view foreign
subsidiaries as an attempt to “export jobs”
• Today many multinationals opt for a merger, alliance,
or joint venture rather than a fullyowned subsidiary
Implementing a Strategic-Alliance Strategy
Decide Where to Link in
Value Chain
Select a
Potential
Partner
Begin Over
NO
Is Partner
Acceptable?
Yes
Choose an Alliance
Type
Negotiate an
Agreement
Build Trust and
Commitment
Build the
Organization
Assess
Performance
Terminate the
Alliance OR Check
and Revise
Implementation
No
Meets Strategic
Objectives?
Yes
Continue or
Increase
Involvement
Company A
Linking Value Chains
Research and Development
R&D
Input Logistics
Raw material supply and
acquisition
Operations
Manufacturing, assembly,
facility operations
Marketing and sales
Promotions, and channel
relations
Output Logistics
delivery
Service
repair
Company B
Research and Development
Input Logistics
Supply/
Production
Operations
Production/
Marketing
Raw material supply and
acquisition
Operations
Manufacturing, assembly,
facility operations
Marketing
Marketing and sales
Promotions, and channel
relations
Delivery
Output Logistics
delivery
Service
repair