Multinational Strategies Chapter 5, pages

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