Compare and contrast global, multidomestic, and transnational strategies.

Question

What will be an ideal response?

Answer 1

Answers may vary but may include the following: Companies pursuing a home replication strategy typically centralize product development functions in their home country. After they develop differentiated products in the home market, these innovations are then transferred to foreign markets to capture additional value. To be successful, the company has to possess a valuable distinctive competency that local competitors lack in the foreign markets. The company's home-country headquarters usually maintains tight control over marketing and product strategy, and the primary responsibility of local subsidiaries is to leverage home-country capabilities. The extent of local customization of product offerings or marketing strategy tends to be limited. As a result, once local demand and circumstances justify such an investment, the company will tend to establish manufacturing and marketing functions in each major country in which it does business. This strategy can be appropriate if the company faces relatively weak pressures for local responsiveness and cost reductions. When there are strong pressures for local responsiveness, however, companies pursuing a home replication strategy will be at a disadvantage compared with competitors that emphasize customization of the product offering and market strategy for local conditions. Companies pursuing a home replication strategy may also face high operating costs, due to duplication of manufacturing facilities across the markets they serve.
A multidomestic strategy tends to be used when there is strong pressure for the company to adapt its products or services for local markets. Under these circumstances, decision making tends to be more decentralized to allow the company to modify its products and to respond quickly to changes in local competition and demand. Subsidiaries are expected to develop and exploit local market opportunities, which means that knowledge and competencies should be developed at the subsidiary level. By tailoring its products for specific markets, the company may be able to charge higher prices. However, local adaptation of products usually will increase the company's cost structure. To effectively adapt products, the company will have to invest in additional capabilities and knowledge in terms of local culture, language, customer demographics, human resource practices, government regulations, distribution systems, and so forth. Adapting products too much to local tastes may also take away the distinctiveness of a company's products. The extent of local adaptation may also change over time, as when customer demands start to converge due to the emergence of global telecommunications, media, and travel, as well as reduced differences in income between nations. The cost and complexity of coordinating a range of different strategies and product offerings across national and regional markets can also be substantial.
A global strategy tends to be used when a company faces strong pressures for reducing costs and limited pressure to adapt products for local markets. Strategy and decision making are typically centralized at headquarters, and the company tends to offer standardized products and services. Overseas offices are expected to adopt the most efficient strategies found within the entire corporation. Value chain activities are often located in only one or a few geographic locations to assist the company in achieving cost reductions due to economies of scale. International subsidiaries are expected to transmit information to headquarters and to submit to centralized controls imposed by headquarters. There tends to be strong emphasis on close coordination and integration of activities across products and markets, as well as the development of efficient logistics and distribution capabilities. However, global strategies may also confront challenges such as limited ability to adjust quickly and effectively to changes in customer needs across national or regional markets, increased transportation and tariff costs for exporting products from centralized production sites, and the risks of locating activities in a centralized location.
A transnational strategy tends to be used when a company confronts simultaneous pressures for cost-effectiveness and local adaptation and when there is a potential for competitive advantage from responding to both of these two divergent forces. The location of a company's assets and capabilities will be based on where it would be most beneficial for each specific activity, neither highly centralized as with a global strategy nor widely dispersed as with a multidomestic strategy. International subsidiaries are expected to contribute actively to the development of the company's capabilities, as well as to develop and share knowledge with company operations worldwide. Typically, "upstream" value chain activities, such as product development, raw materials sourcing, and manufacturing, will be more centralized, while the "downstream" activities, such as marketing, sales, and service, will be more decentralized, located closer to the customer. Of course, achieving an optimal balance in locating activities is a challenge for management, as is maintaining this balance over time as the company faces changes in competition, customer needs, regulations, and other factors. Management must ensure that the comparative advantages of the locations of the company's various value chain activities are captured and internalized, rather than wasted due to limitations of the organization's people, structures, and coordination and control systems. The complexity associated with the strategic decisions, as well as the supporting structures and systems of the organization, will be much greater with a transnational strategy.