Harris KhanA multi-domestic strategy is a strategy by which companies try to achieve maximum local responsiveness by customizing both their product offering and marketing strategy to match different national conditions.
What is Multidomestic Strategy?
The first megaretailer, Sears, opened its first overseas store in 1886, but it took nearly a hundred years for the strategy to be coined. In his book Competitive Advantage on the Shop Floor, Leon Gort nov defined what the “multi-domestic” strategy is: “Basically the multi-domestic strategy works like this: the same products are produced in each country, and the same marketing, sales and distribution channels are used throughout each country. The company locates production, materials procurement, and sales outlets close to sources of customer demand. Textile Mill Products group of companies is a leader in the use of the multi-domestic strategy.”
Adoption of the multiple domestic-market strategy often requires substantial investment in production capacity or in customization of the product for different markets, which leaves less money for advertising and promotion. This strategy can be justified in large countries, where the market and the potential customers are not well developed, as well as in situations of double protectionism. Such countries often lack modern infrastructure, logistics and transport systems. In order to overcome these problems, a company must invest capital in infrastructure development so as to be able to operate in the territory.
Thus, the decision to use of the multi-domestic strategy depends on the nature the product. BMW has had notable success in using this strategy. The company offers the same models of cars in each country, but they differ in specifications.
According to the study by R. Gartner, conducted in the textile industry, in order to avoid the pitfalls of the multi-domestic strategy, it is necessary to take into account that:
The need for local adaptation arises from the company’s need to do business locally to adequately provide for the needs of customers, to serve the local market, to take into account the peculiarities of a local market, as well as the desire to strengthen the position of the company in the foreign market. Local companies have an advantage over global ones in that they know the market and are able to better provide for local client needs.
The relative importance of one or another customer group in the decision about the ways of providing local adaptation may differ. For example, you may not need a strategy designed to achieving adaptation in the U.S. market, since such a large percentage of sales is derived from this market. The structure and the nature of the local market also influence the strategy of the company in each country.
A company may even be forced to maintain a multi-domestic product portfolio to appeal to a larger number of customers. For example, there are different motorcycles suitable for people of different heights, and therefore, motorcycles differ in their comfort, power, and design. Therefore, a motorcycle company will have to maintain separate product lines for people of different heights.
Another option for the evaluation of the need for the multi-domestic strategy is to determine whether each market requires different versions of the product, or is the company capable of adjusting the product for each market. In this case, the company will have to customize the product.
According to Leon Gort, in order to successfully implement the multi-domestic strategy, you need to do the following:
Moreover, the company must always be vigilant against potential sources of problems that may arise. National differences may create barriers that will limit the company’s ability to use the strategy. For example, the implementation of the multi-domestic strategy for a German particleboard and plywood company resulted in a disruption of logistic and managerial processes.
As an example of a successful implementation of the strategy, one can take such company as Wal-Mart. It expanded rapidly by opening new stores in new regions, and then customizing its service to the particular local area. For instance, in Wisconsin they started selling deer-hunting and fishing gear because that was what their clients needed.
There are a number of obstacles:
If a company which implements the multi-domestic strategy wants to increase its performance, it must address two questions:
If the answer to both questions is “yes,” then there are good chances of successful performance enhancement by using the MDS.
In general, companies can maximize profits by using the strategy if the following conditions are obtained:
The company must correctly estimate the effectiveness of the use of a multi-domestic strategy in each region, and the level of development of the local market. Here, the key to success is knowing what markets a company has entered, how to enter them, and how to quickly exit them, if necessary.
Strategies for the multi-domestic markets must be based on market insights. This allows the company to understand the preferences of each of its segment.
The company must also be flexible and can apply flexible response to different situations, considering the regional differences in environmental factors, and the specifics of each market.
A multi-domestic strategy is an alternative to the global strategy and represents a set of strategies that a company implements to meet the unique needs of different national markets. Some products are custom tailored to meet international customers’ preferences. This strategy is useful when a company has a limited budget to do business in many countries.
The goal of a multi-domestic strategy is to meet customers’ local needs by tailoring products and the marketing mix to meet differing regional preferences. A company adopting a multidomestic strategy usually produces the same products in each country, offers the same marketing, sales, and distribution channels in each country, and locates key facilities close to the sources of demand. In a world where companies often try to increase their global competitiveness by reducing their manufacturing costs, the multidomestic strategy is more expensive than the global strategy. However, this approach may be more effective in creating competitive advantages. For example, the multidomestic approach is often used by niche manufacturers who focus on serving the needs of specific local markets.
In the United States, the strategy is frequently used by firms owned by families who want to stay close to their roots. They retain local ownership, and can therefore respond more quickly when the needs of their local markets change.
The multidomestic approach is not suitable for every business since it may not produce cost savings. It is also difficult to implement. Describing the characteristics of a multi-domestic approach, Hazel Arnett-Bill notes “The problem is that it is top-down and rather non-democratic by nature and requires disciplined management to see it through.”
However, Joe Nocera notes that this is not always the case. The purchase of the Chicago Cubs by the Ricketts family is an example of a successful multidomestic strategy. The family bought the franchise for less than $900 million, and then launched a massive marketing and advertising campaign. After improving both the cost and quality of the Cubs’ players and management, the team’s value in 2015 had increased to $2.2 billion.
