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 local-
responsiveness or global approach to a multinationals
strategies

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The Value Chain

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 Competitive Advantage in the
Value Chain

Location of competitive advantage in value chain

determines choice of generic strategy
Upstream advantages: low-cost or high-quality design
Favor transnational strategy or an international
strategy
Downstream advantages: marketing, sales, service
Favor multidomestic strategy

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 Competitive Advantage in the
Value Chain (cont.)

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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 Multinational Strategies:
Dealing with the Global-Local
Dilemma
Four broad multinational strategies
Multidomestic
Transnational
International
Regional

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 Multidomestic Strategy

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

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 Transnational Strategy (cont.)

Global platform: country location where a firm can

better perform some of its value-chain activities
Comparative advantage: advantages of nations over
other nations
No longer only available to domestic firms
Location advantages can exist for all activities of the
value chain

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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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 Resolving the Global-Local
Dilemma: Formulating a
Multinational Strategy
Selection of strategy depends on degree of
globalization in an industry
Globalization drivers: conditions in a industry that favor
transnational or international strategies
Four categories of global drivers: markets, costs,
governments, and competition

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 Transnational or International:
Which Way for the Global
Company?
Select a transnational over an international strategy
when:
Benefits of dispersing activities worldwide offset the
costs of coordinating a more complex organization
Select an international strategy over a transnational
when:
Cost savings of centralization offset the lower costs
of higher quality raw materials/labor from worldwide
locations
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 Participation Strategy Options

Participation strategies: the choice of how to enter

each international market
Exporting
Licensing
Strategic alliances
Foreign direct investment

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 Exporting

Passive exporting: filling overseas orders as if they

were domestic orders
The most common intermediaries (indirect exporting)
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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 Export Strategies (cont.)

Channels in direct exporting

Sales representatives use the companys
promotional literature and samples
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

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 Licensing Decision

Based on three factors

Characteristics of the products
Best products are older or soon-to-be replaced
Allows the co. to still make $ from an older product-
demand may still be high for it in LDCs
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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 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

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 International Strategic
Alliances

Cooperative agreements between firms from different

countries to participate in business activities
May include any value-chain activity

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 Types of International
Strategic Alliances

Equity International Joint Ventures (IJV): two or more

firms from different countries have an equity position in
a separate company
There are also non-equity joint ventures, no?
International Cooperative Alliance (ICA): two or more
firms from different countries agree to cooperate in any
value-chain activity

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 Motivations for Strategic
Alliances

Partners knowledge of the market

Government requirements
To share risks
To share technology
Economies of scale
Low cost raw materials or labor

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 Key Considerations for
Alliances

Could other participation strategies better satisfy

strategic objectives?
Does firm have management and capital resources to
contribute?
Can partner benefit the companys objectives?
What is expected payoffs?

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 Foreign Direct Investment

Companies own and control directly a foreign

operation
Symbolizes the highest stage of internationalization
Greenfield investments: starting foreign operations
from scratch
Turn-key investment- when a company builds
something (e.g. hydroelectric dam), trains the people,
then turns it over to host country.

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 Foreign Direct Investment
(FDI)

Most experienced international firms choose FDI

Advantages
Greater control
Lower costs of supplying host country
Avoid import quotas
Greater opportunity to adapt product to local
markets
Better local image of the product
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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
1. Companys strategic intent regarding profits vs. learning
2. Company capabilities
3. Local government regulations
4. Characteristics of the target product and market
5. Geographic and cultural distance
6. Political and financial risk of investment
7. Need for control

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Exhibit 5.7: The Risk versus
Control Tradeoff

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 Participation Strategies and
the Multinational Strategies

What is the strategic reason to be in the market?

Location advantages vs. market penetration
e.g., source of raw materials, R&D, production,
etc.
A mix of participation strategies often support the basic
multinational strategy

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