Multidomestic Strategy

Firms pursuing a multidomestic strategy orient themselves toward achieving maximum local responsiveness. Multidomestic firms extensively customize both their product offering and their marketing strategy to match different national conditions. They also tend to establish a complete set of value creation activities--including production, marketing, and R&D--in each major national market in which they do business. As a consequence, they generally fail to realize value from experience curve effects and location economies. Accordingly, many multidomestic firms have a high cost structure. They also tend to do a poor job of leveraging core competencies within the firm. General Motors, profiled in the opening case, is a good example of a company that has historically functioned as a multidomestic corporation, particularly with regard to its extensive European operations, which are largely self-contained entities.  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 duplication of production facilities makes this strategy inappropriate in industries where cost pressures are intense (which is the case in the automobile industry, a fact that explains GM's current attempts to change its strategic orientation). Another weakness associated with this strategy is that many multidomestic firms have developed into decentralized federations in which each national subsidiary functions in a largely autonomous manner. This was exemplified by the failure of Philips NV to establish its V2000 format as the standard in the VCR industry during the late 1970s. Philips' US subsidiary refused to adopt the V2000 format; instead, it bought VHS-format VCRs produced by Matsushita and put its own label on them!

Global Strategy

Firms that pursue a global strategy focus on increasing profitability by reaping the cost reductions that come from experience curve effects and location economies. They are pursuing a low-cost strategy. The production, marketing, and R&D activities of firms pursuing a global strategy are concentrated in a few favorable locations. Global firms tend not to customize their product offering and marketing strategy to local conditions because customization raises costs (it involves shorter production runs and the duplication of functions). Instead, global firms prefer to market a standardized product worldwide so they can reap the maximum benefits from the economies of scale that underlie the experience curve. They also tend to use their cost advantage to support aggressive pricing in world markets.

This strategy makes most sense where there are strong pressures for cost reductions and where demands for local responsiveness are minimal. Increasingly, these conditions prevail in many industrial goods industries. For example, global standards have emerged in the semiconductor industry. Accordingly, firms such as Intel, Texas Instruments, and Motorola all pursue a global strategy. However, as we noted earlier, these conditions are not found in many consumer goods markets, where demands for local responsiveness remain high (e.g., audio players, automobiles, processed food products). The strategy is inappropriate when demands for local responsiveness are high.