Multinational strategy Flashcards
Competitive strategy (market-level)
process of identifying, implementing and controlling the means to satisfy the goals of the firm
refers to actions undertaken to achieve a firm’s goals
the greater the economic value (V-C) the greater the firm’s competitive advantage
2 strategic approaches - differentiation or low-cost
Differentiation and above-average profits
Charge higher price, create more value to generate more profitability
Low-cost strategy and above-average profits
Low cost can cut costs and keep price same as competitor - profit
Competitive pressures and MNE strategy
pressure for cost reduction: keep costs low, realizing economies of scale, standardization and global supply chain
pressure for local responsiveness: adjust to customer needs, sticking to local preferences, customization.
What is the pressure to cut costs?
most businesses have to standardize to cut costs.
What is the pressure to adapt your offering?
Customise to suit different markets you operate in
Strategic choices for international business
Global standardization - high pressure for cost reductions, low local responsiveness
Transnational - high pressure for cost reductions, high local responsiveness
International - low local responsiveness, low pressures for cost reductions
Multidomestic/ localization - high local responsiveness, low pressure for cost reductions.
International strategy
A strategy that most international firms deploy. Produces a standard product that is not customised to foreign markets. Much of the supply chain of the firm is in the home country. Works best for strong luxury brands
example - Rolex - manufactures, assembles and tests all its watches exclusively in Switzerland.
Localization strategy
Focuses on increasing profitability by customizing goods, services or even business models. Good match to taste and preferences in different national markets - serve diff markets
Localizing business models
Offering - value proposition
Operations - value creation, value delivery
What else will cause a MNE to do localization in a foreign market?
Culture/tastes/preferences - rules and regulations - politics make MNE have to adapt - quality standards.
Wealth and affordability - make products more cheaper and more affordable for people in developing countries.
What are the disadvantages of a localization strategy?
expense - lead to loss of scale economies, adapting a lot of things to suit local conditions
you cannot standardize to reduce costs
threat of brand reputation if adaptation goes wrong
Global standardization strategy
standard product not customised to suit any markets. MNE leverage location economies in diff countries and spreads its value of supply chain across the world - diff to international strategy.
low local responsiveness
strong pressure for cost reductions, demands for local responsiveness are minimal
Issues with cutting costs strategy
Cutting costs means firms become insensitive to local markets - you create a standard product but is that appropriate in all the countries you operate in. trade-off between low costs and market responsiveness.
Transnational strategy
Achieve low costs through location economies, economies of scale and learning effects
differentiate the product offering across geographic markets to account for local differences
centralize or standardize common products or service
cost pressures are intense, pressures for local responsiveness are intense
Which strategy is the best for MNEs?
Home replication - adv: leverage home country-based adv, relatively easy to implement. disadv: lack of local responsiveness, may result in foreign customer alienation.
Localisation - adv: maximises local responsiveness, disadv: high costs due to duplication of efforts in multiple countries, too much local autonomy.
Global standardisation - adv: leverages low-cost advantages, disadv: lack of local responsiveness, too much centralized control.
Transnaitonal - adv: cost efficient while locally repsonsive, engages in global learning and diffusion of innovations, disadv: organizationally complex, difficult to implement
The best strategy?
depends on the industry, and state of competitiveness in the market at a particular place and time. strategic positions should evolve, strategy has to fit a context
Choosing a multinational strategy: some questions..
Do customers from different countries have similar needs?
Can marketing practices and activities be transferred to other countries?
Is there a need for global economies of scale?
Are there cheaper resources in other countries?
Are there barriers to trade in other countries?
What are competitors doing?
In summary:
strategy is important for an MNE - guides the company, adapt it to suit conditions, it must be flexible, strategy must be suitable for corporate needs, the industry and the host nation.
