Monday, January 14, 2013

Define and Explain Multi Domestic Business Strategy

A multi domestic company, sometimes called a locally responsive company, follows a strategy that allows each of its foreign-country operations to act fairly independently.

The company's subsidiaries in their respective local markets have the authority to design, make, and market Products that directly respond to local customers' preferences. Johnson & Johnson is an example of a company that follows a multi domestic strategy to great success.

Foreign Companies are independent
ulti domestic Strategy and the Value Chain :  Firms applying a multi domestic strategy design a value chain that gives each country's operations the discretion to respond to its local cultural, legal-political, and economic environments.
Companies applying a multi domestic strategy customize their products, marketing and service program to local conditions. These decisions require the multi domestic company to decentralize decision making from head quarters to subsidiary operations so local executives have the authority to manage their responsibilities.

Basically, managers in a multi domestic company hold a polycentric point of view that people who are close to the market (philosophically, culturally, and physically) ought to run the business. Thus, for example, the managers of a backpack factory in Singapore have the right to decide what sort of backpack they want to make-even if the size, shape, and style differ from those made in the United  States, Mexico, or Ukraine.

Benefits of Multi domestic Strategy: A multi domestic strategy makes great sense when the company faces a high need for local responsiveness and low need to reduce costs via global integration. It has other benefits, such as minimizing political risk given the local standing of the company, lower exchange rate risk given  the low need to repatriate funds to the home  office, greater prestige given  its national prominence, higher potential for innovative products from  local R&D, and  higher  growth potential due to entrepreneurial spirit.

For example, Procter & Gamble has followed a multi domestic strategy. The R&D unit at its Japanese subsidiary, responding to the low storage space in the typical Japanese home, invented technology that reduced the thickness of an infant's diaper without any loss of absorbency. This innovation created value for Procter & Gamble in Japan and, eventually, for Procter & Gamble worldwide.

Limitations of Multi domestic Strategy: These benefits do come with costs. The multi­ domestic strategy leads to duplication of management, design, production, and marketing activities. Each local subsidiary builds value chain operations to meet local demands. Hence the multi domestic strategy is often economically impossible in industries that have intense cost pressures.

Too, decentralizing control of value activities to local managers can create powerful subsidiaries that behave as autonomous units.

Other Posts :

Define & Explain Global Business Strategy.

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