MNC STRATEGIES

Basic Strategies
Profit = Revenue Cost
To increase revenue, firms can adopt a differentiation
strategy.
In the case of an MNC, it can differentiate by adapting its
product to the location conditions in different countries.
Such an MNC is said to be locally responsive.
Example: IKEA in the US and Procter & Gamble in Japan
To decrease cost, firms can adopt a low-cost strategy.
In the case of an MNC, it can reduce cost by:
i. Exploit economies of scale through volume production
and product standardization.
It can centralize production in a few locations to supply
the whole world instead of having production facilities
in many locations, each supplying a limited area.
Example: Matsushita and Toyota
It can produce a small number of global products
instead of producing many varieties of the same
product.
Example: Toyota and Coca-Cola
ii. Exploit location economies by locating a value-creation
activity in the optimal location for that activity.
Example: Software programming in India

MNCs adopt different strategies according to two types of

environmental pressure that they face.
Pressure for cost reduction
Production technology exhibits economies of scale
Ratio of value of weight is high and transportation
cost is low
Commodity type product which allows little
production differentiation, such as bulk chemicals
(like fertilizer), petroleum, sugar, and semiconductor
chips.
Pressure for local responsiveness
Differences in consumer tastes and preferences
Oil of Olay
Differences in infrastructure and traditional practices
TV and DVD standards
Host government demands
Pharmaceutical firms

high
low

Cost pressure

Depending on which type of pressure an MNC faces, it can

adopt different combinations of the two basic strategies.
Pressure for local responsiveness
low
high
Low cost strategy
Low cost strategy +
(Global strategy)
differentiation
strategy
(Transnational
strategy)
International strategy
Differentiation
strategy
(Multidomestic
strategy)

More on international strategy

Innovator and monopoly
Transfer core competence to foreign markets
Tend to centralize R & D at home
Tend to establish manufacturing and marketing in each
major country
Limited local customization