6MultinationalandEntry-ModeStrategies:ContentandFormulationLearningObjectives(1of2)Appreciatethecomplexitiesoftheglobal-localdilemmafacingthemultinationalcompany.Understandthecontentofthemultinationalstrategies:transnational,international,multi-domestic,®ional.FormulateamultinationalstrategybyapplyingthediagnosticquestionsthataidMNCsinsolvingtheglobal-localdilemma.LearningObjectives(2of2)Understandthecontentoftheentry-modestrategies:exporting,alliances/internationaljointventures(IJVs),licensing&foreigndirectinvestment.Formulateanentry-modestrategybasedonthestrengthsandweaknessesofeachapproach,andtheneedsoftheMNC.Understandpoliticalriskandhowmultinationalcompaniescanmanagesuchrisks.MultinationalStrategies:Dealingwiththe

Global-LocalDilemmaTheGlobal-LocalDilemma:MNCsface:pressurestorespondtotheuniqueneedsofthemarketsineachcountryorregion(alocalresponsivenesssolution)efficiencypressuresthatencouragethemtode-emphasizelocaldifferences,andconductbusinesssimilarlythroughouttheworld(aglobalintegrationsolution)TheseconflictingdemandsrepresenttheGlobal-localdilemma–towhichshouldtheMNCrespond?TheMNC’schoiceformsitsbasicstrategicorientation.MultinationalStrategies:Dealingwiththe

Global-LocalDilemmaFourbroadmultinationalstrategiesoffersolutionstotheGlobal-Localdilemma:-MultidomesticTransnationalInternational-RegionalMultidomesticStrategyMultidomesticStrategy:TheMNCattemptstoofferproductsorservicesthatattractcustomersbycloselysatisfyingtheirculturalneedsandexpectationsEmphasizeslocal-responsivenessissues-Example:differentpackages,colors-Costsmoretoproduce,somustchargehigherpricestorecoupcosts-Inmanyrespects,aformofdifferentiationstrategy-NotlimitedtolargemultinationalsTransnationalStrategyATransnationalStrategyadoptstwopriorities:Seekinglocationadvantages:DispersevaluechainactivitieswheretheMNCcandoitbestorcheapest,asrequired.Gainingeconomicefficienciesfromoperatingworldwide:Globalplatform:acountrywhereafirmcanbestperformsomeofitsvalue-chainactivities,thusgainingacomparativeadvantageInternationalStrategyInternationalStrategy:theMNCsellsproductsandusessimilarmarketingtechniquesworldwide.Thisisacompromiseapproachtoglobal-localdilemma.-Adaptationtolocalcultureisminor,ifitexistsatall.-UpstreamandsupportactivitiesremainconcentratedattheMNC’shomecountry,unliketransnationalcompanies.RegionalStrategyRegionalStrategy:theMNCmanagesraw-materialsourcing,production,marketing,andsupportactivitieswithinaparticularregion.-Thisisanothercompromisestrategywhichattemptstobalancebetweenalloftheothers.-ARegionalStrategytriestogaineconomicadvantagesfromitsregionalnetwork.TherelativeuniformityofRegionaltradingblocsmayleadtoadvantagesfromlocaladaptation.ABriefSummary&CaveatAlloftheforegoingstrategiesaregeneraldescriptions,andcompaniesseldomadopttheminpureform.Companieswithmorethanonebusinessmayuseadifferentmultinationalstrategyforeachunit,andsingle-businessfirmsmayalterstrategiestoadjustforproductdifferences.Governmentalregulations,thecostofswitchingstrategies,andotherfactorsmaypreventfullimplementationofanygivenstrategy.ResolvingtheGlobal-LocalDilemma:FormulatingaMultinationalStrategySelectionofastrategydependsonthedegreeofglobalizationintheMNC’sindustry.Globalizationdriversareconditionsinanindustrythatfavortransnationalorinternationalstrategies.FourcategoriesofGlobalDrivers:GlobalMarketsCostsGovernmentsCompetitionGlobalizationDrivers(1of2)GlobalMarkets:Aretherecommoncustomerneeds?Arethereglobalcustomers?Canyoutransfermarketing?Costs:Arethereglobaleconomiesofscale?Aretherecheapersourcesoflow-costrawmaterials?Aretherecheapersourcesofhighlyskilledlabor?GlobalizationDrivers(2of2)

Governments:Dothetargetedcountrieshavefavorabletradepolicies?Dothetargetcountrieshaveregulationsthatrestrictoperations?TheCompetition:Whatstrategiesdoyourcompetitorsuse?Whatisthevolumeofimportsandexportsintheindustry?TransnationalorInternational:WhichWayfortheGlobalCompany?Selectatransnationaloveraninternationalstrategywhen:BenefitsofdispersingactivitiesworldwideoffsetthecostsofcoordinatingamorecomplexorganizationSelectaninternationalstrategyoveratransnationalwhen:Costsavingsofcentralizationoffsetthelowercostsofhigherqualityrawmaterials/laborfromworldwidelocationsEntry-ModeStrategies:

TheContentOptionsEntry-ModeStrategiesareoptionsforenteringforeignmarketsandcountries:Exporting-Licensing-InternationalStrategicAlliances-ForeignDirectInvestmentExportingExportingistheeasiestwaytosellaproductininternationalmarketApassiveexporterisacompanythattreatsandfillsoverseasorderslikedomesticorders.Attheotherextreme,MNCscanputextensiveresourcesintoexporting.Aftermovingbeyondpassiveexporting,twostrategies:IndirectDirectExportStrategies(1of2)Indirectexporting:intermediariesorgo-betweenfirmsprovideknowledgeandcontactsoverseas.Themostcommonintermediaries: -ExportManagementCompany(EMC)Specializeinproducts,countries,orregionsProvideready-madeaccesstomarketsHavenetworksofforeigndistributors -ExportTradingCompany(ETC)TakestitletoproductbeforeexportingExportStrategies(2of2)Directexporting:TheMNCtakesondutiesofintermediariesandmakedirectcontactwithcustomersintheforeignmarket.MoreaggressiveexportingstrategyRequiresmorecontactwithforeigncompaniesUsesforeignsalesrepresentatives,distributors,orretailersMayrequireownbranchofficesinforeigncountriesLicensingLicensing:AcontractualagreementbetweenadomesticlicensorandaforeignlicenseeLicensorhasvaluablepatent,know-how,ortrademarkForeignlicenseepaysroyaltiesforuseProvideseasiest,leastrisky,andmostlowcostwaytogointernationalSpecialLicensingAgreementsInternationalfranchising:Thefranchisorgrantstheuseofawholebusinessoperationtothefranchisee.Contractmanufacturing:Thisrepresentsproductionbyafirmfollowingtheforeigncompany’sspecifications.Turnkeyoperation:Amultinationalcompanymakesaprojectfullyoperationalbeforeturningitovertotheforeignowner.InternationalStrategicAlliancesInternationalstrategicalliancesarecooperativeagreementsbetweenfirmsfromdifferentcountriestoparticipateinbusinessactivities.ActivitiesmayincludeanyvaluechainactivityfromR&Dtosalesandservice.Oneofthedominantentry-modestrategiesforMNCsForeignDirectInvestment(FDI)InForeignDirectInvestment(FDI),anMNCownspartofallofaforeignoperation.InternationalJointVentures(IJVs)areaformofFDIFDIreflectsthehigheststageofinternationalizationGreenfieldinvestments:usingFDItostartaforeignsubsidiaryfromscratchFormulatingan

Entry-modeStrategyMusttakeintoaccountseveralissues:-Basicfunctionsofeachentry-modestrategy-Strategicconsiderationsrecompany,strategicintent,products,andmarkets-Howbesttosupportcompany’smultinationalstrategyBasicFunctionsof

Entry-modeStrategies:Exporting

(1of3)DecidingonanExportStrategy;Managersshouldask:Doesmanagementneedtocontrolforeignsales,customercredit,andsaleoftheproducttothecustomer?Ifyes,choosedirectexportingDoescompanyhavefinancialandhumanresourcestocreatepositionstomanageexportoperations?Ifnot,useindirectexporting;relyonintermediaries.BasicFunctionsof

Entry-modeStrategies:Exporting

(2of3)Doescompanyhaveresourcestodesignandexecuteinternationalpromotionalactivitiesinforeignlanguage?Ifnot,useforeignintermediariesandindirectexportingDoescompanyhaveresourcestosupportextensiveinternationaltravelorpossiblyanexpatriatesales

force?

Ifso,choosedirectexporting.BasicFunctionsof

Entry-modeStrategies:Exporting

(3of3)Doescompanyhavetimeandexpertisetodevelopitsownoverseascontactsandnetworks?

-Ifnot,relyonforeignintermediariesorchooseindirectexporting.Willtimeandresourcesaffectdomesticoperations? -Ifnot,choosedirectexporting.WhenShouldanMNCLicense?Thedecisiontolicenseisbasedonthreefactors:-CharacteristicsoftheproductsBestproductsareolderorsoon-to-bereplaced-CharacteristicsofthetargetcountrySituationintargetcountry-NatureofthelicensingcompanyCompanymaylackresourcestogointernationalSomeDisadvantages

ofLicensingFourmajordrawbacks:TheMNCgivesupcontrol.Thefirmmaycreatenewcompetitors.Licensesoftengenerateonlylowrevenues.Opportunitycosts:TheMNClosesopportunitiestoenterthecountrythroughothermeanssuchasexportingorFDI.AdvantagesandDisadvantagesof

ForeignDirectInvestment(FDI)AllbutthemostexperiencedinternationalfirmstryotherformsofentrybeforeFDI.Exporting,licensingoralliancescanprepareafirmforFDIandminimizechancesoffailure.Amongadvantages,greatercontrolofmarketing,avoidsimportquotas,betterlocalimageofproduct.Amongdisadvantages,increasedcapitalinvestment,drainonmanagerialtalent,greaterexposuretofinancialrisks.TheControlvs.RiskTradeoff:

TheNeedforControl(1of2)Afirmgoinginternationalmustaskhowimportantitistomonitorandcontroloverseasoperations.Keyareasofconcernovercontrolare:ProductqualityinthemanufacturingprocessProductpriceAdvertisingOtherpromotionalactivitiesWheretheproductissoldAftermarketserviceTheControlvs.RiskTradeoff:

TheNeedforControl(2of2)Usually,entry-modechoicesthatincreasecontrolentailgreaterrisk.Example:Exportingandlicensingarelow-risk,buttheysurrendercontrolovertheproductorservice.FDIallowsfirmstomaximizecontrol,butalsoexposethefirmtothegreatestfinancialandpoliticalrisks.Entry-modeStrategies&

MultinationalStrategies(1of2)Todetermineanentry-mode&multi-nationalstrategy,askthesequestions:Whichentry-modestrategybestservesthefirm’sobjectivesforbeinginthecountryorregion?Isthestrategicintenttolearnthemarketortobecomeimmediatelyprofitable?Whatarethecompany’sresourcesinfinancesandinternationalexpertise?Arelocalgovernmentregulationsfavorableornot?Entry-modeStrategies&

MultinationalStrategies(2of2)Todetermineanentry-mode&multi-nationalstrategy,askthesequestions(cont’d):Whatisthegeographyofthearea?Istherealongdistancebetweenmarkets?Aretheresignificantculturaldifferencesbetweenthefirmandthemarkets?Whatisthefirm’sneedforcontrolinthisinstance?PoliticalRisk(1of2)PoliticalRiskreferstotheimpactofpoliticaldecisionsoreventsonthebusinessclimateinacountrysuchthatamultinational’sprofitabilityandfeasibilityofitsglobaloperationsarenegativelyaffected.Examples:Russia’spoliticallymotivatedjailingofMikhailKhodorkovsky,thebusinesstycoonTheUkraine’srecentdisputedelections,resultinginpresidentialuncertaintiesPoliticalRisk(2of2)Whyshouldamultinationalcompanybeconcernedaboutpoliticalrisk?Suchriskcanhaveaseriousimpactonitsprofitability.Theworldisdependentonenergycomingfromlocationswithhighpoliticalrisk.Theworldissointerconnected,politicaluncertaintiesinonecountrycanhaveworldwideimpact.PoliticalRiskAssessment(1of3)

Someofthefactorsthatinfluencepoliticalriskinasociety:ChangesinthegovernmentAsuddenshiftingovernmentalpoliciesorideologySocialvolatilityThepassageofnewlawsLeadershipchangesandthepotentialforrelatedunrestThelevelofcorruptionAllfactorsthatmaypoliticallystabilizeordestabilizeacountryPoliticalRiskAssessment(2of3)Toassessthesefactors,ask:Howdurableandresilientisthepoliticalsystem?Howpeacefulhavegovernmentaltransitionsbeeninthepast