Multi-Domestic Marketing Strategy - Research Paper Example

Multi-Domestic Marketing Strategy Introduction In the last half of the twentieth century, the world has seen a considerable reduction in international trade barriers and an increase in people’s income levels have provided an economic impetus towards the development of global markets. The formation of bodies such as WTO (World Trade Organization) and GATT (General Agreement on Tariff and Trade) have eliminated trade barriers between countries since the Second World War (Blenkhorn & Fleisher 2005, p.24). But this has led not only in markets becoming global but also industries have evolved into global industries with their value chains spanning far and wide around the world. Such an example is of the fashion house, Yves Saint Laurent the marketing and designing of which is based in Francewhile the products are developed in Far East. The reasons why companies want to go global is quite evident. Firstly, in order to gain a competitive advantage in terms of economies of scale; to exploit other country’s resources; to benefit from operational flexibility, cross subsidization, transfer of prices and diversification of risk; toenhance learning; to extend the product life cycle as well as to broaden the product line and finally to gain a reputation as an international seller which large profits and a brand which everyone can trust. A company that operates at a global level takes advantage of both comparative and competitive advantage. Michel E. Potter (1990, p.23) argued that companies can create their own endowments to gain a comparative advantage such as skilled labor, learning, gaining government support and a supportive culture. An international strategy is necessary to go to global. Porter said that companies can either pursue a global or a multi-domestic strategy. This paper will look closely at the concepts of both these strategies and will identify which strategy is better for a multinational organization. Multi-domestic Marketing Strategy Multi-domestic strategy is often pursued by food, beverage, clothing and fashion industries where a country by countryapproach is undertaken to satisfy the tastes and needs, laws and regulations of particular markets. The concept of multi-domestic strategy is mainly of ‘we were successful in the home market, lets export the management talent and processes, not necessarily the product, to accommodate another market’ (Cavusgil, Knight, & Riesenberger 2007, Chapter 11) Features Multi-domestic strategy is most suited for franchises, subsidiaries and joint venture type businesses. The multi-domestic strategy has decentralized authority with substantialautonomy at each business. Using a multi-domestic strategy means that the organization is accommodating the local needs and tastes of each individual country, hence producing a customized product for each of its different markets. Control and authority is de-centralized to each of the different locations in order to facilitate decision making based on the local needs and requirements. This strategy is most useful when large differences are evident between countries such as cultural, language, religious and major ethnic differences. A multi-domestic strategy value chain means that each of the functions of Research and Development, Marketing and Distribution will be done at a local level in each country. Each of the country managers is highly independent entrepreneurswho enjoy their room for autonomy and responsibility and do not have much incentive to share their knowledge and tactics with managers elsewhere. The managers recognize and emphasize the market differences that vary from country to country and are often allowed subsidies by the internationalizing company to vary products, services and business functions to meet the needs of the individual markets specifically. Competition varies on a country to country basis and each subsidiary country has its own set of competitor firms. Industries that havecompetition on a country by country basis are known as multi-domestic industry. An example of a company pursuing multi-domestic strategy has been Heinz which accommodates the local tastes of its different markets as global integration of production processes is not so critical. Another example is McDonalds which alter its menu from country to country in order to meet local responsiveness. As a result, McDonalds is able to serve wine in France, beer in Germany and hamburgers without beef in India (Examples of Multidomestic, transnational and global companies 2009, p.1). Advantages One of the companies to adopt the multi-domestic strategy has been Phillips which benefited greatly from it. Some of the advantages that accrued to Phillips include a greater and a more strengthenedorganizational commitment and entrepreneurial spirit that drove the company to greater height. Secondly, Phillips benefited from innovation and research and development as products were developed tailored to the specific needs and tastes of the different countries. Coupled with innovation is the quality driven culture of Phillips which gained all the more from backward integration, ensuring high quality products at affordable prices to meet the needs of each of its markets and hence all leading to successful marketing effort and consequently high sales. So specifically, the major advantages of adopting a multi-domestic strategy are: Product differentiation: differentiation can be defined as distinguishing the offerings of an organization in any way that the consumer perceives as adding value to the product or service. Product differentiation automatically occurs as the company caters to the individual needs of the market and hence adds value to it and makes it a better purchase option than the competitor’s product. As a result, the company benefits greatly from competitive advantage (Etzel, Walker, Walker & Stanton 2001, p.143). Local responsiveness: as the organization undertakes marketing strategies, research and development and innovation all tailored to meet the specific needs of the different markets, the product earns local responsiveness and a better image than the competitor firms. Low pressure on headquarters staff: this strategy ensures that responsibilities, functions and management activities are being undertaken by the company’s subsidiaries in individual markets which takes off the burden and pressure off the staff at the headquarters who can then attend to more important ov.erall business needs. An easier strategy: Often firms consider multi-domestic approach a more easier and convenient option especially if the company does not have any prior international experience. Hence, delegating authority and responsibility to individual countries mean that the needs and requirements of that particular market will be fully met. Risk minimization: developing and delivering a product catering to the specific needs of a market means the risk product failure is considerably reduced. The product or service can be expected to be well-received by the target market if proper research and development has been undertaken. Minimized exchange rate risk: as distinguishedproducts are being developed for each individual market, this reduces the risks associated with the fluctuations in the exchange rate especially if country-specific products are being manufactured within those boundaries only (Global Strategic Management 2009, p13). Disadvantages Phillips had to face a number of challenges in order to undertake its multi-domestic strategy. The high cost associated with meeting the specific needs and requirements of each market mean that heavy investment is done. Hence, the organization should have finance readily available to itself with an expert finance department handling the monetary requirements in each of the countries. Some of the disadvantages of pursuing a multi-domestic strategy are: Costly: heavy investment is needed to undertake the research and development and marketing of tailored products in each of the different markets. Often, there can also be redundant manufacturing, management practices or organizationalfunctions all leading to higher and avoidable costs (Global Business, Global Strategy 2009, p.1). Country-level vision: often, decentralization results in foreign managers developing strategic vision, culture and management practices that differ considerably from those at the headquarters leading to a lack of a single vision or organizational strategy. Duplication: if proper research is not done, it may result in a duplication of products in two markets and especially if communication between countries is disturbed in some way. It can also happen if decentralized authority is seen as not being reporting to a central authority. Moreover, managers in each country may not have any incentive to share knowledge and tactics with those in other countries which means that there will be less communication and flow of information and hence resulting in duplication of activities and reduced economies of scale. R&D driven products: it is possible that the products developed are more research driven than market driven. This maybe the case when R&D is not consistent with the market requirements. Hence, innovation from local groups may produce products that research indicated but market does not want now (Katherine 2009, p.14). Lack of knowledge-based competitive advantage: lack of information flow between managers of the different countries mean that knowledge and learning is not being shared which results in a lack of knowledge-based competitive advantage. Competition among subsidiaries: it is possible that competition among foreign subsidiaries may escalate due to a lack of a common corporate vision and commitment. Hence, instead of competing with rival firm, the company may engage in competition with its own subsidiaries leading to inefficient and wasteful practices. Time to market is slow: decentralized control may mean that the national buy-in is required before the product is introduced in the market. Hence, the time taken to market the product can be slow and it will all be time-consuming (Etzel, Walker, Walker & Stanton 2001, p.156). Global Marketing Strategy Firms such as telecommunications, computers, metals and chemicals operate on the global strategy which is characterized by a standard product or service being offered to all the different countries. The underlying concept of global strategy is of ‘why not make the same thing, the same way, everywhere?’ (Ireland, Hoskisson, & Hitt 2007, p155). Features Global strategy is a wiser option when differences between countries are very less. Global strategy has a high degree of centralization where the headquarters undertake most of the management practices and other activities relating to the product and service being offered. The offerings to the customers are standardized and the headquarters ensure that there is a coordination of standardization, knowledge and learning between plants and hence generation of economies of scale. The headquarter maintains and ensures that communication is undisturbed between the different facilities and seeks substantial control over its country operations to avoid redundancy of activities and achieve maximum efficiency, integration and knowledge. Some managers and leaders have to take on a global role and assume worldwide responsibilities for task and functions. The concept of global strategy directs the management to view the world as a single market and activities such as Research and Development and manufacturing are all centralized and integrated. Competition is on a global basis as well with only a handful of players dominating the worldwide marketplace (Campbell, Stonehouse, & Houston 1999, p.257). An example of organization following the global strategy is Kodak which competes with its rivals on a global basis which include Japan’s Fuji and the European multinational Agfa-Gevaert. Another example of a firm pursuing global strategy has been Caterpillar, the world’s largest earth-moving equipment manufacturer and Texas instruments, a leading firm in semiconductors. These organizations resorted to the global strategy because they realized that the end products to be received by the consumers were the same in all the countries. The earth-moving equipment to be used in Nigeria is the same that is being used in Iowa which allows the individualfactories to focus manufacturing on a limited product line in an objective to achieve economies of scale and worldwide learning at each of the facility. Texas Instruments also benefits from global strategy as it has similar optimum size plants to undertake production at a lower cost but ensures effective communication between the plants. Global strategy allows these firms to take advantage of considerable cost reduction. Advantages Matsushita is one of the companies to undertake the global strategy and has benefited greatly from following it. Some of the advantages that Matsushita has gained from a global strategy have been the ability to develop a strong global distribution network around the world, a strong centralized financial control of all its operations worldwide, a company wide commitment and organizational spirit that engages all the employees worldwide, a more applied and acted upon research and development and the ability to market in less time as a country by country buy-in was not necessary (Blenkhorn & Fleisher 2005, p.162). The advantages of following a global marketing strategy are as follows: Economies of scale: standardization of products, services and organizational activities with great degree of coordination and communication lead to world-wide economies of scale. Operational and running costs are considerably reduced and the company can focus of undertaking newer investment as a result of lower costs incurred. Worldwide opportunities: management is more capable to respond and to take advantage of worldwide opportunities and establish itself firmly against competitors. Knowledge based competitive advantage: communication and coordination between plants and subsidiaries allows the information and knowledge flow which leads to increased opportunities for cross-national learning and cross-fertilization of the firm’s knowledge and hence providing the organization knowledge based competitive advantage (THE LINK BETWEEN BUSINESS STRATEGY AND INTERNATIONAL HUMAN RESOURCE MANAGEMENT PRACTICES 2009, p.22). A single corporatevision: organizations following a global strategy mean that all subsidiaries have a single common visionand commitment towards the organization and its goalsand objectives. Improvement in manufacturing process: since costs being incurred are low, the firm can focus attention on constantly improving the quality of products and service by simplifying or innovating manufacturing processes. Higher quality will lead to better global presence and brand recognition and give rise to customer presence and international marketing programs. Lower time to market: market and product research and development take less time as theseactivities are being done at a global level using standardized procedures and processes. Hence, the time to launch and market a product are also considerable reduced and the effects of product marketing and the success or failure can also be judged in less time (Etzel, Walker, Walker & Stanton 2001, p.156). Coordinated activities: there is a great degree of coordination and communication which keeps the firm’s activities on a common path and greatly reduces chances of redundancy of operations andefficient operational or management practices. Disadvantages The global strategy adopted by Matsushita presented it a few challenges as well. Firstly, the value of yen was very strong and it posed the company a major problem. Secondly, there was too much dependency on just one product which is the VCR which meant that Matsushita if faced with a sudden fall in sales or change in consumer’s tastes would have no other product to fall back on and recover its lost market in the short term at least. Thirdly, in Asia, due to the construction of the outlets with glass ceilings which is how their centers are developed globally, a lot of employees left and turnover increased. This is because in Asia, the concept of glass ceilings is not very common and hence, caused problem for the company (Examples of Multidomestic, transnational and global companies 2009, p.77). Following are the disadvantages of adopting a global strategy: Coordination problems: it is not easy to closely coordinate international operations, activities and management practices in a highly centralized organization having functions and facilities dispersed widely around the world.If tasks and operations are not coordinated well, then the entire organization will not be on the same path or have the same knowledge, vision and commitment which will ultimately cause problems for the organization (THE LINK BETWEEN BUSINESS STRATEGY AND INTERNATIONAL HUMAN RESOURCE MANAGEMENT PRACTICES, 2009). Communication problems: communication needs are immense in such an organization and special staffs to overlook and maintain effective communication between the headquarters and the subsidiaries in each of the countries need to be deployed. No local responsiveness: global strategy does not take into account the needs and tastes of locals of the countriesin which they operate. A standardized product is offered to the masses all around the world which greatly reduces the flexibility and responsiveness of the company to cater to the needs of individual countries. Difficult strategy: a global strategy is a difficult one to plan, design, implement and then follow up. This is because all operations are centralized and adhering and attending to each individual subsidiary facility is not an easy job. Communication and coordination disruption between the different facilities can greatly have a negative impact on the work operations and regular tasks (Aboy 2009, p.1). Lack of autonomy: local managers in each of the subsidiaries may get a feeling of demoralization and demotivation as they have not been given any sole authority or entrepreneurialresponsibilities. As a result of not being empowered enough, they lose their commitment towards their work and towards the organization. High risk: as companies following a global strategy deliver a standardized product in all its markets, they face a real high threat of not being received by consumers as they have expected it to be. Therefore, the chances of failure are quite high in case a product fails to please the customers. As a result, risks are high when a same product is being marketed in different countries. Analysis of the two strategies The two strategies of global and multi-domestic strategies are both widely evident in today’s world. It seems from the features and characteristics of the two strategies that they are quite opposite and are suitable for different types of organizationspursuing a different organizational objective or goal. If we look at the two strategies side by side, we will see that they both differ considerably. For a multinational organization to take to decision as to which strategy to adopt it first needs to lay down its international objectives; that is what it really needs to achieve and then move forward to which strategy to pursue. The two main attributes on which the organizationfirst needs to set itself and then judge in order to decide which international strategy to go forward with are namelydifferentiation strategy which is the degree to which the company wants to achieve local responsiveness and secondly if or not the company wants to achieve cost reduction which namely is the cost leadership strategy (Blenkhorn & Fleisher 2005, p.162). The adoption of one of the two strategies will mean loosing the advantages of the other e.g. if differentiation is wanted then the company will have to do so at a higher cost and hence will have to give up on the benefits of cost leadership strategy. If an organization wants to cater to the local needs of each country and it realizes that a single type of product cannot satisfy all the markets, it has to naturally adopt a multi-domestic strategy. If on the other hand, the organization finds its same products fully capable of being sold in all the markets without any alteration to meet the local tastes, it will go for the global strategy. The other attribute is cost reduction. If the organization wants to adopt a cost leadership strategy, global strategy will be best as there is less pressure to conform subsidiaries to local environment as compared to a multi-domestic strategy. The processes and procedures will remain quite consistent in a global strategy and hence, the objective of cost reduction will be achieved. On the other hand, if the company has enough resources and wants to spend to achieve local responsiveness, it will adhere to the multi-domestic strategy. If an organization chooses a global strategy, there will be less stress of differentiation and certain costs will be avoided such as existence of R&D, manufacturing and other management practices in all the countries. There will be high centralization will a common vision throughout the organization (Cavusgil, Knight, & Riesenberger 2007, p.155). However, if the organization chooses to adopt a multi-domestic approach, then there will be the added costs of R&D and other operations and tasks in all the subsidiary centers. De-centralization will be present and there can be a disarray of the common vision that should be present in the organization in all the different locations. As a result of the disadvantages that both these strategies bring with them, these days, the shift has been towards the modern approach to multi-domestic and global strategies (Campbell, Stonehouse, & Houston 1999, p.257). These modern strategies are a less extreme version of the traditional strategies and bring both of these strategies a bit closer to one another in terms of their characteristics. The characteristics of both the modern multi-domestic strategy and global strategy are almost the same which include the subsidiaries role focusing on local strategies and their implementation while the role of the headquarter is more of being a coordinator, integrator, resource allocator and knowledgetransferor; management decisions will be both bottom up for differentiation and top-down for global integration and technology and knowledge transfer will be done across borders. The major difference in both the modern global and multi-domestic strategy is that the modern multi-domestic strategy focuses on medium global integration and high localization to meet the individual needs of countries while the modern global strategy emphasizes on high global integration and moderate level of local responsiveness. An example of an organization working on the pattern of modern multi-domestic strategy is Nestle which makes huge profits in foreign markets while an example of an organizationfollowing modern global strategy is Gillete which again reaps huge profits in international markets. Difference in Marketing Strategies In multi-domestic and global strategy, visible differences in marketing strategies exist. In fact, the approaches themselves individually define how the marketing will be conducted for them. In multi-domestic strategy, the corporation designs, develops and implements a separate marketing strategy for each of its different locations. In the multi-domestic strategy product development is done specifically for that particular location or region where the consumer or the target audience is the focal point of research and development. R&D is done separately for all the locations without any standardization. For each region, product positioning is done separately to suit the needs of that place only. Prices may also differ considerably from region to region as products will tend to differ. In multi-domestic strategy, various distribution channels will exist each ensuring the availability and placementof the product for a country or region only. The packaging will also be altered to meet the specific tastes of the country. Not just the product, but also the facility and outlets where the products or services are being sold will have a localized touch which will vary from its subsidiaries in other locations. Customer service may also be designed according to the specifications of the country (Etzel, Walker, Walker & Stanton 2001, p.78). Global Strategies Differ Global strategy starkly differs from multi-domestic strategy in marketing aspect. The marketing strategy for global strategy is usually designed, developed and implemented the center which is the company’s headquarter. The product is not differentiated to meet the specifications of the locations. Instead, the company’s offerings are highly standardized and almost the marketing strategy is implemented throughput the organizationat all its locations. The product remains the same without any local touch being given to it. Prices also to a certain degree remain close in different countries as the production cost is the same. Differences in prices may be due to government regulations or the exchange rate. The product packaging and the factory and retail outlets of the company will also be standardized across all the nations. Product positioning and branding will also be done at the headquarter and it will be the same for all locations (Hitt 2009, p.66). There is a single distribution channel which provides for the availability and placement of products at all the subsidiary locations. It is clear that the marketing strategy needed to implement in multi-domestic approach requires more resources both in terms of financial and human. MNC need to see if they have available the finance to undertake the same activity in different locations or will it be satisfied with a single marketing strategy to be implemented in all its subsidiary countries (Ireland, Hoskisson, & Hitt 2007, p.155). Conclusion After deeply studying both multi-domestic and global strategies, we now need to arrive at the answer to the question if multi-domestic strategy will be more beneficial to MNCs than global strategy. The answer is thatit cannot be determined if one strategy is better than the other. Both the strategies have their own advantage and disadvantages. The selection of one strategy to be developed and implemented is entirely dependent on the needs of the organization and a few factors such as need for differentiation and cost reduction. Automatically, if the most appropriate strategy is followed keeping in view the business and product needs, the company will benefit from and it will lead to success. However, if the factors which decide whether a multi-domestic or global strategy should be selectedare incorrectly diagnosed and the wrong strategy is taken, then it can prove financially and resourcefully wasteful or redundant for the organization (Katherine 2009, p.11). If the organization realizes that it can satisfy all its dispersed markets with a standardized product then it will go for a global strategy, otherwise if differentiated products are needed then it would adhere to multi-domestic strategy. Also, the company needs to make sure that it has enough funds available to undertake multi-domestic strategy as it is more costly to implement. If the firm has enough capable human resources to successfully undertake the tasks at the individual facilities in different locations, then again multi-domestic strategy would work. Also, if the organization is content with the idea of having de-centralizedcenters at each subsidiary allowing the managers there with great authority, then multi-domestic strategy will work. For global strategy to be successful, the organization needs to ensure that it has sufficientcommunication techniques in place to coordinate with all the subsidiaries and also be sure that the research and development that has been undertaken has taken into account all the markets and will entirelysatisfy them (Blenkhorn & Fleisher 2005, p.162). Thus, it is entirely impossible to give a statement as to which strategy is better. Both strategies suit a particular business type that has been discussed at length throughout the paper and if implemented correctly, it will produce great benefits for the organization. We have highly successful examples of companies like Phillips, McDonald and Caterpillar that have adopted these strategies and hence, if new companies take a look into their practices and operations, they will know the secrets of success for both the strategies (Aboy 2009, p.6). References Aboy, Mateo. Importance of MNE Structure Models and Typologies and Empirical Evidence. 2009. http://www.mateoaboy.com/f6/blog_files/category-mnes-.html (accessed August 23, 2009). Blenkhorn, David L., and Craig S. Fleisher. Global Competitive Intelligence Management p.162. Westport: Praeger Publishers, 2005. Campbell, David, George Stonehouse, and Bill Houston. International and Global strategies p.257. Burlington: Elsevier Butterworth-Heinamann, 1999. Cavusgil, Knight, and Riesenberger. 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