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What is a global vs. multidomestic industry?
Professor Michael Porter argued that industries are either multi-domestic or global. In global industries, competitors compete in all markets and offer homogeneos products. In multi-domestic industries, firms compete in each national/separable market independently of other markets.
More specifically a global industry can be defined as:
1) An industry in which firms must compete in all world markets of that product in order to survive
2) An industry in which firmís gain economies of scale or economies of scope across markets
Companies such as GE, Apple, Sony and Gillette pursue a global strategy by competing in all markets, providing the same product for each market, strong centralised control, identifying customer needs and wants across international borders, and locating value adding activities where they can achieve the the lowest cost.
A global strategy is effective when differences between customers in countries are small and competition is global.
A multi-domestic strategy involves producing products/services tailored to individual countries. Following this strategy innovation comes from local R&D; managers decentralise decision making; and encourage local sourcing. This strategy may result in higher production costs because of tailored products and duplication of effort across countries.
Four drivers determine which strategy is best for a specific company.
1) Market drivers like degree of homogeneity of customer needs, global distribution networks, opportunities for shared marketing.
2) Cost drivers like potential for economies of scale, transportation cost, and product development costs.
3) Government/political drivers like trade policies, compatible technical standards and common marketing regulations, ownership rules.
4) Competitive drivers. The more that competitors and customers are following a global market strategy the greater the tendency for a ll firms in industry to follow a differentiated globalization strategy.
Why are some industries multidomestic?
1) Customized products are needed in some countries
2) National competitors are common
3) Countries have unique distribution channels
4) There are no or few economies of scale
5) Local/national firms have some inherent advantages in the host country over global competitors
Why are some industries global?
1) Homogenized product needs across markets
2) Customers are global firms
3) High R&D expenditures require more than one market to recover development costs
4) There are many economies of scale in production, international logistics, or marketing
5) The firm has global product differentiation, proprietary product technology, and production mobility.
The following are examples of industries where many competitors have a global market strategy and are considered global industries: Aircraft, Energy, Entertainment, Media, and Communications, Financial Services, Information Technology, Clothing/shoes, Ship building and Fast Food.
Multidomestic industries include cutlery and hand tools, railroads, structural metal products, personal care, bedding and furniture.
According to Makhija, Kim, and Williamson in a multidomestic industry virtually all company value-added activities are located in a single country. Until recently, a perfect example of this was the funeral industry which operated within nations. The simple global industry has some or limited external linkages, but the focus remains on the domestic market. Integrated global activities occur when value-added activities of firms are significantly driven by the need for global scale. Finally, industries that are highest on globalization are ones where companies integrate most or all value-added activities with similar industries in other countries.
ReferencesMakhija, Mona, Kwangsoo Kim, and Sandra D. Williamson, "Measuring globalization of industries using a national industry approach: Empirical evidence across five countries and over time. Journal of International Business Studies, 1997, 4th quarter, pp. 679Ė710.
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