Explain basic and generic strategies multinationals use in competing locally and internationally. How can generic strategies strengthen competitive advantage in multinational business?
Multinational companies operate in environments that they are not familiar with including: legal, technological, cultural, social, economic and political aspects. These companies face stiff competition due to entry of other companies which dictate the need to formulate competitive strategies to ensure high performance. Ormanidhi and Stringa (2008) define competitive strategies as wide range of strategies employed by organizations to remain ahead of competitors, beat competition and cope with competition. According to Porter (1998) generic competitive strategies states that companies uses focus, differentiation or leadership strategies which assists them to attain a competitive advantage against their competitors.
One of the ways a company can pursue its competitive strategies in attempts to maintain or improve their performance is by engaging in independent strategies in a particular industry or market. A multinational company can apply either product differentiation or cost leadership. In cost leadership the firm should attempt to attain advantages by selling their products at a lower price in comparison to the competitors. Also, multinational companies may employ product differentiation strategies where they increase the perceived value of their product. These strategies strengthen the competitive advantage as they increase the dominance of a company over its competitors. The generic strategies assist the multinationals seize strategic initiatives and maintain a competitive edge in the market (Porter, 1998).
Ormanidhi, O., & Stringa, O. (2008). Porter’s model of generic competitive strategies. Business Economics, 43(3), 55-64.
Porter, M. E., & Kramer, M. R. (1998). Philanthropy’s new agenda: Creating value. The free press.
Entry-mode strategies indicate success or failure of a multinational corporation. A good entry-mode strategy can increase the opportunity for success and reduce barriers. Explain and provide examples of the different types of foreign country entry-mode strategies.
Czinkota and Ronkainen (2007) splits market entry modes in to either equity or non-equity modes in respect to the level of commitment provided by each mode. Equity modes can be termed as the modes which ensures a close relationship between a company and the customer. In contrast non-equity modes are strategies employed by companies to expand on their products into new markets without investing in some items in the market like facilities. Some of the factors influencing entry modes include internationalization advantages of integrating transactions in the organization, locality benefits of the market, and ownership advantages of the organization (Daniels, Radebaugh, 2001).
Czinkota and Ronkainen (2007) explain that majority of companies applies four forms of entry strategies: franchising, licensing, direct exporting and importing, and indirect exporting and importing. Nonetheless, deciding on which market entry to employ is influenced by varying factors like the number of customers, market distribution pattern, foreign investment target, product characteristics, and the company resources. For example, small organizations may opt to export products through foreign representatives. To identify the best entry mode, it is important to evaluate the advantages and disadvantages of each entry mode. Through this, the multinational company will have a competitive advantage over their competitors.
Czinkota Michael R, Ronkainen. Ilkka A, Moffett Michael H: International Business, fourth edition, The Dryden Press 2007, p. 408-427
Daniels, John D., H., Radebaugh, Lee, Sullivan Daniel: International Business- Environment and Operations, ninth edition, Prentice Hall 2001
Some MNCs operate a single business. However, many MNCs have more than one type of business strategy. What are the basics of multinational diversification? How do they choose their mix of different businesses? Explain both related and unrelated diversification.
In multinational companies, diversification is a critical aspect where the company collects businesses in one umbrella (Mudambi and Mudambi, 2002). Such businesses may either be related or unrelated and depends on the company’s position in the industry as well as financial position. One of the steps of diversification is mature and declining business where they opt to diversify. For example, a company can venture in a new business with more potential which increases their potential, or they can acquire businesses or add divisions in developing or new markets. Economies of scale is another form of diversification where a company particularly in manufacturing, rather than relying on sales of businesses in the umbrella, they might indulge in cost savings subsidiaries
Market shares may result to a series of related businesses to grab market share in the whole industry. For example, Microsoft who are specialists in computers and technology expanded their operations to related operations where they included web content, search engine, hardware, and video games. Another form is through returning surplus cash to shareholders as dividends which in the long-run benefits their investors. Therefore, diversification is a form of reinvesting where a business can either enter a new market or industry or rather expand in its operations.
Mudambi, R., & Mudambi, S. M. (2002). Diversification and market entry choices in the context of foreign direct investment. International Business Review, 11(1), 35-55.
MNCs face a fundamental strategic dilemma when competing internationally. Explain the complexities of the global-local dilemma facing multinational organizations. Compare and contrast local-responsiveness solution and global integration solution. Do not forget to mention multidomestic strategy, transnational strategy, international strategy, and regional strategy in your answer.
Multinational companies face pressures in their attempts to respond to the varying needs found in the market in every locality. They also face pressures in form of efficiencies which encourages the application of global integration. Some of the obstacles facing MCNs include cultural, political/legal, financial and geographical. Some of the likely cultural barriers comprise of differing behaviours, values, and language issues as it greatly affects the organization structure as well as ways businesses implements their operations. The basic strategic orientation is based on the choices an international company follows.
These MCNs strategies according to Bondy and Starkey (2014) fall in four categories: regional, international, transnational and multidomestic. Bondy and Starkey (2014) explain that a transnational strategy allows an MCN to attain economic efficiencies and seek benefits inform of locality. The multidomestic strategy on the other hand assists international companies to produce products and services which are attractive to consumers as they easily satisfy their cultural expectations and needs. International strategy on the other hand is when international corporations sell their products by employing marketing techniques that are globally applicable. This compromises the global/local dilemma as the adoption of local culture is minimal. Lastly, regional strategy is when international corporations manages their raw materials where it locally benefits from regional networks. This strategy compromises the attempts of balancing other strategies.
Bondy, K., & Starkey, K. (2014). The dilemmas of internationalization: Corporate social responsibility in the multinational corporation. British Journal of Management, 25(1), 4-22.
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