Basic Strategies &
Multinational and
Participation Strategies
Objectives
• 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
Fundamental Strategic Dilemma – “Global-Local Dilemma
• The local
responsiveness solution
– National or cultural
differences in consumer
tastes, variation in
customer needs
– National differences in
how industry work or
political pressure
– 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
4 Broad Multinational Strategies:
All offer solutions to the global-local
responsiveness dilemma
Multidomestic
Transnational
4 Strategies
International
Regional
Multidomestic Strategy
• Many ways like a differentiation strategy
• Offer products/services that satisfy cultural needs and
expectation
– Ex. Advertising, packaging, sales outlets, and pricing are adapted to
local standards
• Results usually more costly
– Different packaging, sizes, colors and as a result need to charge a
higher price to recoup extra costs
• MNC often treat subsidiaries as independent business units
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
• Location Advantages
– Location based competitive advantages in cost/quality
– Locate subunits near cheap sources of high quality raw
materials
– Locate subunits near sources of research and innovation
– Locate subunits near high sources of high quality or low cost
labor
– Seek low cost financing anywhere around the world
– Share discoveries and innovations made in one part of the world
with operations in other parts
– See Case in Point p. 152
International Strategy
• Selling global products and using similar marketing
techniques worldwide
• Compromise approach to the G-L Dilemma
– Like Transnational Strategies, firms attempt to sell global
products/similar marketing techniques worldwide
– Like Multidomestic, if pressured to from economic or political
reasons, will set up subunits (sales/production) in major
countries of operation
• Do not locate locate value chain activities anywhere in the
world but instead remain concentrated at home
– Home country headquarters retain control of local strategies,
marketing, R&D, Finance, and production
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
Multinational Strategy Content
Strategy Content
Transnational
Strategy
International
Strategy
Multidomestc
Strategy
Regional
Strategy
Worldwide
Markets
Yes as much as
possible with
flexibility to adapt
to local conditions
Yes with little
flexibility for local
adaptation
No, each country
treated as a
separate market
No, but major
regions treated as
similar market
(Europe)
Worldwide
location of
separate value
chain activities
Yes anywhere based
on best value to the
company-lowest
cost for highest
quality
No, or limited to
sales or local
production
replicating
headquarters
No, all or most value
chain activities
located in country of
production and sales
No but region can
provide some
different country
location of
activities.
Global Products
Yes to the highest
degree possible
with some local
products if
necessary;
companies rely on
worldwide brand
recognition
Yes to the highest
degree possible
with little local
adaptation;
companies rely on
worldwide brand
recognition
No, products
produced in and
tailored to the
country of location
to best serve the
needs of local
customers
No, but simpler
products offered
throughout a
major economic
region.
Global Marketing
Yes similar strategy
to global product
development
Yes to the highest
degree possible
No, marketing
focuses on localcountry customers
No, but region is
often treated
similarly.
Global
Competitive
Resources from any
country used to
Attacks and
defenses in all
No, competitive
moves planned and
No, but resources
from region can be
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
• Indirect export strategies – indirect through
Export Management Companies or Export
Trading Companies (title)
• Direct Export Strategies- take on the duties of the
intermediaries, often use foreign sale
representatives, foreign distributors, or foreign
retailers to get their product to end users
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.
• 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 fully owned 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
Compan
Linking
yA
Research and
Development
Input Logistics
Raw material supply and
acquisition
Operations
Manufacturing,
assembly, facility
Marketing
and
operations
sales
Promotions, and
channel relations
Output Logistics
delivery
Service
repair
Company
Value Chains
B
Research and
R&D
Development
Input Logistics
Raw material supply and
Supply/
acquisition
Operations
Production
Manufacturing,
Operations
assembly, facility
and
Production/ Marketing
operations
sales
Marketing
Marketing Promotions, and
channel relations
Output Logistics
Delivery
delivery
Service
repair
Alliance Creation Framework
External Analysis
(internal and external
environment)
Partner Selection
Strategy Development
Strategic Fit
Assessment
Resource Fit
Assessment
Alliance – Type of
Alliance
Negotiate Agreement