In the modern, global world of business it is increasingly important for firms to have a worldwide presence. This can be achieved with either a global strategy or a multidomestic strategy. Although both strategies are international, they have distinct differences. International managers should understand these two international strategies and how they can be used.
Global Business Strategy
A firm employing a global business strategy operates in several markets around the world, but offers the same product or service with only minor changes in the local market. These businesses are typically very centralised, with the research and development and decision making taking place in the home country. Coca-Cola uses a global business strategy. It offers the same product worldwide and the firm's decision making is centred in the United States.
Multidomestic Business Strategy
Firms employing a multidomestic business strategy operate worldwide, but in a very different manner than global firms. Multidomestic firms are highly decentralised, with strategies and decisions being made large in the local market. For example, a firm using a multidomestic strategy may develop different products in different markets and it will usually leave the marketing in specific countries up to the local offices. Local offices tend to have a great deal of autonomy and freedom.
The advantage of a global strategy is that it allows for greater efficiency. Because everything is centralised with a global strategy, there is no duplication of duties. Furthermore, it is possible to produce goods in one location and to export them worldwide. The advantage of a multidomestic strategy is that it allows a firm to be flexible to local needs and responsive to local demand. This can allow a firm to better serve its customers.
Firms using global strategy may find themselves at disadvantage because they do not understand local needs. For products like clothing and food, that are sensitive to cultural differences, it can be detrimental for firm to not adapt to local needs. Firms using a multidomestic strategy may have difficulties competing with global businesses that have lower operating costs. This is particularly true in the commodities business, where prices are more important than local adaptation.