When expanding into international markets, companies usually execute one of three business strategies: multidomestic, global or transnational. Some pundits include the international strategy as a fourth strategy, which is no more than a company's domestic strategy applied to international markets.
The two primary international business strategies are multidomestic and global. The transnational strategy is a hybrid strategy that incorporates elements of these two core strategies. The multidomestic strategy is sometimes called the multinational strategy.
To Adapt or Not to Adapt
When expanding into international markets, companies must decide how much they will adapt their company's organizational structure, product or service offerings and business practices to the political, economic, socio-cultural and technological landscape of the local market.
Companies expanding into international markets using the multidomestic strategy completely immerse their local market business units into the countries where they operate to the extent they appear no different from host country competitors. Companies using the global strategy do the exact opposite: They sell the same products or services in all markets where they operate with minor modifications, if any, to their products or services.
International profit opportunities using the multidomestic strategy are based on achieving economies of scope, whereas the global strategy is about achieving profitability through economies of scale. Microsoft is a company that achieves economies of scope with teams of engineers, technicians and marketers having experience and skills that can be applied to a broad range of software products.
Henry Ford was able to achieve economies of scale and reduce the price of the Model T Ford from $850 in 1908 to less than $300 in 1925 by mass-producing the Model T, which offered “any color you wanted as long as it was black.”
The multidomestic strategy is about delegating management and decision-making authority to local host-country business units. Local business unit managers have authority and responsibility to make strategic decisions and market country-specific products or services optimized to satisfy host-country consumer preferences.
The downside to the multidomestic strategy is companies multiply their exposure to political, economic and other risks by the number of countries where they operate.
Yum! Brands, parent company of KFC, Pizza Hut and other fast-food brands, is a multidomestic corporation. Yum! generally uses the same brand names for its stores around the planet, but it adjusts its menu choices to local-market eating habits. Tempura is on KFC's menu in Japan, because the Japanese love tempura.
Centralized, top-down management control and decision-making authority are key components of the global strategy. Companies may make some minor adjustments to product or service offerings to accommodate local-market peculiarities, but the products or services are basically the same. Moreover, global companies generally execute the same marketing and communication strategies wherever they operate.
The global strategy does not have as many local-market risks as the multidomestic strategy. However, companies sacrifice agility in responding to local competitors. This limitation compromises the ability to increase market shares in local markets.
Companies operating in industries requiring huge capital investments that need economies of scale for profitability tend to use the global strategy. These would include manufacturers of high-tech computer and electronic equipment. For example, Cisco Systems
Implications for Small Business Operators
That multidomestic and global strategies are at the opposite ends of the strategic spectrum does not imply an either/or proposition. Small-business operators can expand into global markets by incorporating features of both.
A business can standardize many elements of its marketing campaign, such as its logo and use of the Internet, for digital marketing campaigns. Conversely, it can tailor its products to local-market preferences by outsourcing manufacturing to local-market contract manufacturers.