Companies do business internationally in different ways.
Sophocles, the famed Greek playwright, once said, "Chance never helps those who do not help themselves." Many businesses see the opportunity to expand internationally as lucrative. However, a company has different options to develop abroad. It can choose to become a multi-domestic company, which focuses on specific countries, or a global company, which provides a standard product all over the world.
Going Global
The term "globalization" refers to the business strategy in which a company launches the same product in several different countries simultaneously. That means that whether you live in Argentina or Russia, your package of cornflakes will be the same. Through globalization, a company in the US can take advantage of technologies and industries developed abroad to access untapped markets overseas.
Multi-domestic Strategy
A multi-domestic strategy, conversely, involves offering non-standardized products in different countries. That means that instead of selling the exact same cornflakes in Russia and Argentina, the company makes changes to the product to tailor it to the tastes of individual markets. For instance, the company might choose to offer cornflakes coated in dulce de leche in Argentina, while presenting cornflakes with dried berries on Russian shelves.
Rationale
Companies make the choice to become multi-domestic or global based on a few factors. One such factor involves the concept called "economies of scale." This term refers to the reduction of costs due to the increase in production facilities. Sometimes, the cost does not decrease no matter how much the production facilities expand, so it becomes cheaper to develop separate factories in different countries. In addition, some industries require differentiated products for specific countries.
Competition
In the business world, competition means that a rivalry exists on an open market, in which every seller vies for profit and market share. A multi-domestic company faces competition from competitors in the countries in which it sells its goods. In contrast, a global company competes on an international level. Its rivals operate on the same playing field.
Strategic Planning
Companies plan differently, depending on whether they adopt a multi-domestic or global strategy. Multi-domestic corporations should manage their subsidiaries as distinct and separate entities, meaning decisions must be based on the local business environment and its issues. Global companies, on the other hand, need to plan on an international scale. Its subsidiaries do not act independently, and they all follow the same strategy.
