Last Updated 10 Jan 2022

International Companies – Multidomestic Strategy

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Asia is a big continent consisting of many small and big countries. Agriculture is the main livelihood of the majority of the population. 40 to 50 % of the population is living in villages. The three countries chosen are at par as far as their GDP, Agricultural and Industrial progress, Currency and exchange position, and stability of the country is concerned. These countries are members of SAARC and ASEAN where these groups of countries have their own trade system. All the three countries have trade agreements with all other countries of the world except the usual restrictions by UNO or any other international trade bodies.

Funding is done by various agencies like Asia Development Bank, IMF, World Bank etc. for the development programmes. Though mechanised farming is in vogue for quite some time and there are many players who are marketing tractors but the sector is still unorganised and there is plenty of scope of introducing good quality tractors. Since rice and wheat is imported in good quantity by these countries, the respective governments are encouraging to improve agricultural yield to make the country self sufficient in food production to curtail import to the minimum.

There are tax rebates for farmers in purchase of seeds, fertilisers and agricultural implements like tractors etc. Import duty is very low for tractors. Diesel is supplied at a concessional rate to farmers using tractors in the field. Business Strategies  that management implemented to turn around the company

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Companies use four basic strategies to enter and compete in the international environment. Each of these strategies has its advantages and disadvantages.

International strategy

An international strategy, created value by transferring valuable skills and products to foreign markets where local competitors lacked those skills and products. Most international companies have created value by transferring differentiated product offerings developed at home to new markets overseas. Consequently, they tend to centralize product development functions, in their home country. However, they also tend to establish manufacturing and marketing functions in each major country in which they do business.

Although they may undertake some local customization of product offering and marketing strategy, this tends to be limited in scope. Ultimately, as in most international companies, the head quarters, based in Pakistan, retained tight control over marketing and product strategy.

An international strategy makes sense if a company has valuable unique competencies that local competitors in foreign markets lack and if the company faces relatively weak pressures for local responsiveness and cost reductions.

In such situations, an international strategy can be very profitable and tried to follow the same strategy. However, when pressures for local responsiveness are high, companies pursuing this strategy lose out to companies that place a greater emphasis on customizing the product offering and market strategy to local conditions. Furthermore, because of the duplication of manufacturing facilities, that pursued an international strategy had at times tend to incur high operating costs. Therefore, this strategy is often unsuitable for industries in which cost pressures are high.

Pursuing a multidomestic strategy orient themselves toward achieving maximum local responsiveness. As with companies pursuing an international strategy, they tend to transfer skills and products developed at home to foreign markets. However, unlike international companies, multidomestic companies like extensively customize both their product offering and their marketing strategy to different national environments, Consistent with this approach, also tend to establish a complete set of activities--including production, marketing, and R&D in each major national market in which it is doing business.

As a result, generally does not realize value from experience-curve effects and location advantages and, therefore, often have a high cost structure. A multidomestic strategy makes most sense when there are high pressures for local responsiveness and low pressures for cost reductions. The high cost structure associated with the replication of production facilities makes this strategy inappropriate in industries in which cost pressures are intense. Another limitation of this strategy is that have developed into decentralized groupings in which each national subsidiary functions in a largely autonomous manner.

As a result, after some time may begin to lose the ability to transfer the skills and products derived from distinctive competencies to its various national subsidiaries around the world.

Global strategy

A global strategy, focused on increasing profitability by reaping the benefits of cost reductions that come from experience-curve effects and location economies. That is, the company is pursuing a low-cost strategy.

The various activities such as production, marketing, pursuing a global strategy, are concentrated in a few favorable locations. Global companies do not tend to customize their product offering and marketing strategy to local conditions. This is because customization raises costs as it involves shorter production runs and the duplication of functions. Global companies like Elli Lilly’s preferred to market a standardized product worldwide so that it can reap the maximum benefits from the economies of scale that lie behind the experience curve.

This strategy makes sense in those cases in which there are strong pressures for cost reductions and where demands for local responsiveness are minimal. These conditions exist in many industries manufacturing industrial goods.

References

  1. Fred F David, 11th edition, Strategic International Management Concept
  2. Hitt, Michael A, (2001), International export trade and transport law: Competitiveness and globalization, 4th ed. , Thomson Learning.
  3. Hamel, G, Collaborate with your Competitors and Win, Harvard Business review, 67, 1, 1989, 133-9.

Related Questions

on International Companies – Multidomestic Strategy

What is a multidomestic strategy?

A multidomestic strategy is an international marketing approach that chooses to focus advertising and commercial efforts on the needs of a local market rather than taking a more universal or global approach.

What is the difference between global and multidomestic companies?

Global companies are the opposite of multidomestic companies. They offer a standarized product worldwide and have the goal to maximize efficiencies in order to recude costs as much as possible. Global companies are highly centralized and subsidiaries are often very dependent on the HQ.

What are the three types of international strategies used by multinationals?

Multinationals such as Kia and Walmart have chosen an international strategy to guide their efforts across various countries. There are three main international strategies available: (1) multidomestic, (2) global, and (3) transnational ( Figure 7.23 “International Strategy” ).

What are some examples of multidomestic corporations?

Some examples of multidomestic corporations are Coca-Cola, Wal-Mart, Honda and Nestle. Multidomestic companies localize their products and services, so the products and services sold in various countries are tailored to the consumers in each country.

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