Multinational Strategies

Chapter 5, pages 148-154

Globalization or
National Responsiveness?

Globalization

Production and distribution of products and services

of a uniform type and quality on a worldwide basis
Many customers of MNCs have similar tastes, which
helps spread global products and services

National responsiveness

Understand different consumer tastes in segmented

national or regional markets
Respond to different national standards and
regulations imposed by governments and regional
trade blocs (Example: the EU)

Reasons for Globalization

Economies of scale: cost savings that result

from producing a high volume of goods in one
location
Location economies (location advantages): cost
savings that result from low costs for doing a
value chain activity in a particular location
research and development
manufacturing
technical service or customer service
low-cost financing

Types of
International Business Strategies

Multidomestic
Transnational
Compromise strategies

International
Regional

Some companies use a combination of

strategies

Multidomestic Strategy

A strategy that attempts to maximize national

responsiveness
Firm usually has product development,
production, and marketing in each country

This strategy does not take advantage of economies

of scale and location economies
No coordinated global strategy or global brand

Often used by companies that serve niche

markets

National responsiveness is more important than cost

pressures.

Multidomestic Strategy (2)

Legal and trade restrictions may require a

multidomestic strategy in some countries.
Problems with multidomestic strategies

High costs
Product designs, production knowledge, and
marketing expertise is not transferred among
subsidiaries in different countries
If a competitor switches to a strategy based on
global production or global products, a
multidomestic company can no longer charge the
prices needed to make a profit

Transnational Strategy

A strategy that seeks to

Achieve low costs by using economies of scale
and location economies
Maintain a global brand
Transfer core competencies within the firm
Achieve a high degree of national responsiveness
Home-country headquarters maintains tight control
Some firms that use this strategy: Toyota,
Caterpillar, AT & T

Transnational Strategy (2)

Requirements for success:

Transfer of knowledge throughout the
company (global learning)
Coordination of production, purchasing, and
marketing throughout the company
A corporate culture that encourages mutual
trust, coordination, and knowledge sharing
Difficult strategy to implement, but often the
most successful

Exhibit 5.1: Content of the Four Basic

Multinational Strategies

International Strategy

Attempts to sell global products and use similar

marketing techniques worldwide
Global brand
Home country headquarters maintains tight
control
R and D is usually located in the home country
Manufacturing used to be located in the home
country that is not always possible today
Local facilities are replicas of those in the home
country
Companies that use this strategy: Boeing, IBM

Regional Strategy

Products and value-chain activities are

managed on a regional basis

This strategy is often used to compete in

the EU and NAFTA

Companies that once used a

multidomestic strategy often switch to a
regional strategy, particularly in a trade
bloc

Example: Procter and Gamble