- Identify the four basic strategies that MNCs use and the situations in which they are used
A multinational company adopts an international strategy as per the global integration and local market responsiveness levels (Richard Hodgetts, 2006). There are four fundamental strategies used by the MNCs. First, the international strategy is adopted by an MNC who needs to compete by both practices, i.e. cost reduction and meeting local demands, but at a low level (Diaconu, 2012). This strategy comes into play when the local markets demand the company’s product, as per their local taste and preferences, at the competitive prices. For example, McDonalds’ uses international strategy as it offers its burgers meeting the local taste at the local rates. For example, in Pakistan and India McDonalds’ offers spicy burgers at the local competitive rates because the local fast food market is highly saturated in these two countries.
Second, the multi-domestic strategy is adopted when the company needs to differentiate its product in the local market to meet the demands and expectations of the local customers (Diaconu, 2012). The needs and wants do vary from one country to another. Thus, MNCs need to respond the respective demands of the customers to let their product compete in the competitive local markets, without taking cost reduction into consideration because cost increases with the changes in production.
Third is the global strategy. This strategy focuses on offering homogenous products to each operating market. It is widely used by the companies attaining economies of scale in producing and offering the same product in all local markets (Richard Hodgetts, 2006). MNCs adopt this strategy when they compete on price in the local market and have a low level of national responsiveness. This is the most cost-efficient strategy. Fourth, the transnational strategy is pursued by a company when it competes on price as well as offers highly customized products to the local markets as per their demands and needs (Kapustina & Korovina, 2014). It is the toughest strategy to adopt. For example, Toyota uses transnational strategy because it cannot offer a left-hand car in the subcontinent due to local demands. However, it needs to keep its cost low to attain economies of scale.