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Multinational and Participation Strategies
Multinational and Participation Strategies
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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 ways companies can manage such risks
Multinational and Participation Strategies: Content and Formulation
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Multinational Strategies: Dealing with the Global-Local Dilemma Local-responsiveness solution: customize to
country or regional differences Global integration solution: conduct business similarly throughout the world Global-local dilemma: choice between a localresponsiveness or global approach to a multinationals strategies
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Multinational Strategies: Dealing with the Global-Local Dilemma Four broad multinational strategies
- Multidomestic - Transnational - International - Regional
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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 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
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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
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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
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Global Markets
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?
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Governments
Do the targeted countries have favorable trade
policies? Do the target countries have regulations that restrict operations?
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The Competition
What strategies do your competitors use? What is the volume of imports and exports in the
industry?
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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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- Benefits of dispersing activities worldwide offset the costs of coordinating a more complex organization
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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
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Export Strategies
Indirect exporting: uses intermediaries or gobetween 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 Have networks of foreign distributors
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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
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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
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Export Strategy
Exporting is the easiest and cheapest
participation strategy, although it may not always be the most profitable It is a way to begin to internationalize or t test new markets Which form of exporting should it choose?
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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
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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)
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Disadvantages of FDI
Increased capital investment Increased investment of managerial and other
resources Greater exposure of the investment to political and financial risks
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Choosing Participation Strategy: Strategic Considerations (cont.) 5.Geographic and cultural distance 6.Financial risk of the investments 7.Need for control
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Conclusion
Multinational manager faces array of complex
strategic issues All companies must deal with global-local dilemma Multinationals also face the challenges of choosing participation strategies Political risk is also becoming an important factor
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