12-1

Strategies of MNC’s

 Actions managers can take to compete

more effectively
 How firms can increase profitability by
expanding to foreign markets
 Different international strategies
Opportunities and constraints of strategies
Factors affecting strategic choice
12-2
 12-3

The essence of strategy

Performance
Where
Where must
must
we
we be?
be?

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at e
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Emergent strategy
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Unrealized options

Time
 12-4

Dilemma in Global Strategy

Pressures for cost reduction

versus
Pressures for local responsiveness
 In consumer tastes and preferences
 In infrastructure and traditional practices
 In distribution channels
 In host government demands

Unfortunately, these entail higher costs

 12-5

Strategic Choice I
International (export) :
Treating foreign markets as an extension
of the domestic market, by selling abroad
whatever the firm cannot sell domestically
 Advantages:
 Relatively easy to do
 Low risk
 Disadvantages:
 Lack of local responsiveness
 Possibilities of inviting protectionism
 12-6

Strategic Choice II
Localization:
Treating foreign markets in which a firm
operates in as multiple domestic markets
and customizing products and services to
these different markets
 Advantages:
 Maximize local responsiveness
 Disadvantages:
 High cost because of duplicated efforts
 Difficult to exploit the experience curve
 12-7

Strategic Choice III

Global:
Treating the world as one global market by
developing global products and services
with minimal local market adaptation
 Advantages:
 Realize lower costs by driving down the
experience curve
 Benefit from location economies
 Disadvantages:
 Lack of local responsiveness
 12-8

Strategic Choice IV
Transnational:
The newest and most difficult approach
Cost efficient while locally responsive
Global learning and diffusion of competencies
Subsidiaries have a global mandate
 Advantages:
 The best of all the approaches
 Disadvantages:
 The most difficult to organize and manage
 12-9

Profiting from Global Expansion

Firms operating internationally are able to:
 Realize location economies
 Realize greater cost economies
 Earn a greater return from the firm’s distinctive
skills or core competencies
 Earn a greater return by leveraging valuable skills
developed in foreign operations and transferring
them to the firm’s other operations
However, profitability is constrained by product
customization and the “imperative of localization”
 12-10

Location Economies
Assembly
Creating a Global Web

Parts
Sales

Design
Advertising

Parts
Parts
 12-11

Experience Curve
Learning effects: Economies of Scale:
 Cost savings that come  Reduction in unit cost
from “learning by achieved through
doing”
volume production
 More significant in
 Sources:
complex tasks
 Decline then cease  Spread fixed costs
after two years over volume
 Decline after this  Employing specialized
point comes from equipment or
economies of scale personnel
 12-12

Leveraging Core Competencies

Skills and competencies

that competitors can not easily
match or imitate

1. Skills and products

Value greatest when: are most unique
2. Value placed by
consumers is great
3. Few capable
competitors with
skills or products
 12-13

Leveraging Subsidiary Skills

New Challenges
Skills can be 1. Humility to recognize
created valuable skills can come
from anywhere
anywhere in a
2. Establish incentives to
multinational’s encourage local employees
global to acquire new skills
operations 3. Need a process to identify
network new skill development
4. Need to facilitate transfer
of new skills within firm
12-14
 12-15

Pressures for Cost Reduction

and Local Responsiveness

High
Company Company
A C

Generally reflects
Cost the position of most
pressures companies
Company
B
Low

Low High
Pressures for local responsiveness
Figure 12.4
 12-16

Cost Reduction Strategy

 Mass producing standardized product at optimal locations
 Intense pressure:
 in commodity industries
 where competitors are in low cost locations
 where there is persistent excess capacity
 where there are low switching costs
 because of more international competition

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 12-17

Local Responsiveness Strategy

 Required because of:
 Differences in consumer taste and preferences
 Differences in infrastructure and traditional practices
 Differences in distribution channels
 Host government demands

QuickTime™ and a YUV420 codec decompressor are needed to see this picture.
QuickTime™ and a YUV420 codec decompressor are needed to see this picture.
 12-18

Local Responsiveness
Taste and
preference Distribution
channels
Infrastructure
Delegate production And Delegate marketing to
and marketing to practice national subsidiaries
national subsidiaries

Delegate manufacturing
and production to foreign
subsidiaries
Host
government
Manufacture
locally
 12-19
Strategic Choices Reviewed

International Global
Global
International increase
create
createvalue
valuebyby increaseprofitability
profitability
transferring through
throughcost
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reductions
transferringskills
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curve
marketswhere
whereskills
skillsare
are
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effectsand
andlocation
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present
economies
economies

Localization
Localization Transnational
Transnational
toward Exploit
toward Exploitexperienced
experiencedbased
based
achieving
achievingmaximum cost
maximum costand
andlocation
location
local
localresponsiveness economies,
responsiveness economies,transfer
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core
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competencieswithin
withinthe
the
firm,
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andpay
payattention
attentiontoto
local
localresponsiveness
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needs
 12-20

Four Basic Strategies

High
Global Transnational
Strategy Strategy

Cost
pressures
International Localization
Strategy Strategy
Low

Low High
Pressures for local responsiveness
 12-21

Managerial Implications