11.3: Pressures of cost reduction and local responsiveness Flashcards
What are the two types of competitive pressures firms face in the global marketplace?
Firms face pressures for cost reductions to leverage location economies and experience effects, and pressures to be locally responsive to accommodate diverse demands from different countries.
Why do firms face pressures for cost reductions?
Firms face pressures for cost reductions to lower the costs of value creation. This can be achieved by producing standardized products at optimal locations, outsourcing to low-cost suppliers, or mass-producing commodity-type products where differentiation is less feasible
What causes pressures for local responsiveness in firms?
Pressures for local responsiveness arise from national or regional differences in consumer tastes and preferences, infrastructure, accepted business practices, and distribution channels, as well as from host government demands.
How do consumer tastes and preferences affect multinational corporations?
Multinational corporations must customize products and marketing strategies to appeal to the varied tastes and preferences of local customers, which can lead to pressure to delegate production and marketing responsibilities to local subsidiaries.
Why must firms be responsive to infrastructure and traditional practices in different countries?
Differences in infrastructure or traditional practices, such as electrical systems or driving sides, require firms to customize their products, which may necessitate local production and adaptation of functions to foreign subsidiaries.
How do differences in distribution channels affect multinational firms?
Multinational firms must adapt their marketing and distribution strategies to accommodate different distribution systems across countries, which often require local customization of strategies.
How do host government demands impact multinational firms?
Host government demands, such as local content rules and protectionist measures, require firms to be locally responsive, often leading to local manufacturing and customization to meet these demands.
What is regionalism, and how does it affect local responsiveness pressures?
Regionalism refers to the convergence of tastes, preferences, and business practices within a trading bloc or region, suggesting that localization may sometimes be more appropriate at the regional rather than national level.
