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Multidomestic strategy in business
"Small businesses selling in foreign markets are 20% more productive, have 20% greater job growth, and are 9% more likely to stay financially solvent, in comparison to companies that sell only in the domestic market."
― Dan Brutto, President, United Parcel Service International
It is a universal fact that a business thrives on its customers. If a business is not able to attract customers and sell its products, it will not be able to generate sales, and consequently, will obtain no revenue. If the business is established solely in one locale and does not focus on expanding, then marketing and selling become easier. However, for any business, with interests all across the globe, it is essential to achieve local responsiveness. This is achieved by means of multidomestic strategy.

Multidomestic strategy is a methodology by which a company tries to achieve local response by making suitable changes in its products. This can be done by customizing the product to suit customer preferences as well as a change in marketing, which will require sufficient research, to say the least. The paragraphs below discuss more about multidomestic strategy.

The Concept
  • To understand this concept in a better way, let us consider a simple example. Let us assume that a woman starts her own tailoring business. Initially, she works only with pure cotton. Over a period of time, she is bundled with requests to stitch silk garments. Further, she starts working with chiffon and leather. Thus, she expands her domain and diversified her products to suit the tastes of her customers.
  • Similarly, when a company wants its customers in a specific locale or market to buy its products, it has to devise strategies and come up with innovative plans to capture the customer's attention. This is what is termed as multidomestic strategy.
  • Some of the important reasons why a business is compelled to achieve local responsiveness for their product include cultural differences, existing competition, distribution channels, business laws, diversity in requirements, etc.
  • A company has to consider the above factors and then formulate marketing tactics to entice the public.
  • Prior to marketing, the company has to make suitable product changes, while being faithful to the product's individual element.

Characteristics

Decentralized Management
  • Since the company branches exist all over the world, there is individual autonomy.
  • While the basic company policies are followed, every branch has its own rules and regulations, which differ from one country to another.
  • Thus, the company allows the existence of a decentralized management. Such companies are more capable, less rigid, more flexible, and thus, more open to change.
  • Although the company branches exist globally, they remain obligated to the parent company, but operating in different nations gives them the independence they desire.

Less Competition
  • It is a great advantage to the company if it operates in a place where its product is unique and bereft of competition.
  • But, no competition or competitive advantage demands heavy research―the company has to thoroughly understand the customer preferences and choose the market very carefully.

Cross-Cultural Environment
  • Since a company desires to work globally, the work culture at different locations is cosmopolitan.
  • There is exchange of ideas, strategies, and the business incorporates something new everyday.
  • A multidomestic strategy allows the company to explore the global market.

Benefits
  • One of primary benefits of a multidomestic strategy is the global brand awareness. The company sells all its products under the same name, and people will rely on the brand name to buy the products.
  • As the characteristics point out, the branches remain independent and autonomous, while following common business policies.
  • The company operates faster and much more efficiently, since it deals with competitors of a different kind.
  • Local managers have greater authority and better knowledge of the local business, which helps them take the right decisions at the right time.
  • Multidomestic strategy facilitates increased import-export activities, international marketing tactics, and newer business innovations.

Drawbacks
  • While adapting to the local culture may be beneficial in many ways, excessively customizing the products may prove to be one of the drawbacks of multidomestic strategy, since the product will lose its originality.
  • The company will not be able to benefit from the economies of scale. This may increase the overall costs for the company.
  • While autonomy is admirable, it may cause internal strife, especially when one branch may be given higher priority over the other. This may even lead to business politics.
  • A decentralized management works well as long as it is well-handled by the local managers. When they start causing a ruckus, things may turn rather ugly for the company, in general.
  • A multidomestic strategy does not work for companies when they target a global business with lower operating cost.
  • Sometimes, the firm may not be able to tailor its products as per the local needs, for fear that the product may lose its original charm.
  • If overdone, creating a local brand may prevent the recognition of the global brand of the same product.

Multidomestic Strategy Vs. Global Strategy

Multidomestic Strategy
Global Strategy
It is decentralized.
It is centralized.
Products are customized according to local needs.
Products are standardized.
It does not emphasize on economies of scale.
It concentrates on economies of scale.
It generally helps gain a huge market share in local markets.
It is not likely to gain a huge local market share.
It is more expensive, possibly due to extensive research.
It is comparatively less expensive.
Industries include food, personal care, furniture, cutlery, railroads, etc.
Industries include media and communications, entertainment, engineering, aircraft, etc.

Companies Using Multidomestic Strategy

Yum!

The world's largest fast food restaurant company Yum! own brands like KFC, Taco Bell, and Pizza hut. It has a global presence in more than 125 countries, and it customizes its products accordingly. KFC adapts local responsiveness to suit customer preferences in the Asian markets by providing tempura crispy sticks in Japan, spicier chicken in China, and local rice preparation in Thailand and India.

McDonald's

This is one of the most famous examples of a company employing multidomestic strategy. The world's largest hamburger fast food restaurants has made changes to its burgers and menus to suit local choices―it serves kosher meat in Israel, no-beef or veggie burgers in India, prawn burgers in Singapore.

Nestle - Maggi

Nestle Maggi has innumerable products tailored to meet customer preferences. The brand offers different products in India, Malaysia, and Singapore, keeping in mind the local tastes.

General Motors

The American multinational manufactures vehicles and vehicle parts all over the world, and has involved local manufacturers and R&D to adapt and tailor its vehicles extensively to meet the local market preferences. These international manufacturing units operate as independent entities.

A multidomestic strategy is amongst the many international business strategies used for expanding business and establishing a brand globally. A lot of thought, money, and effort must be invested for this strategy to be successful.