In the global business arena, Multinational Corporations (MNCs) employ diverse strategies to expand and thrive. These strategies play a pivotal role in defining the success and reach of MNCs across the world. In this comprehensive exploration, we’ll delve into various business strategies employed by MNCs, real-world examples, and the techniques they use to manage markets effectively.
Expansion through Concentration
Multinational corporations often embark on expansion journeys by strategically concentrating their efforts. These strategies involve penetrating markets deeply, developing existing markets, and creating innovative products for familiar markets. Let’s dive into the details:
Market Penetration
Market penetration is a strategy where MNCs focus intensely on existing markets with their current products. This approach aims to sell more products to the same market, increase usage by existing customers, and gain a larger market share. It often involves redefining mature markets by outperforming competitors.
Real-world Example: Apple, the global tech giant, boasts a remarkable market penetration rate of 19.2%. In second place is Samsung at 18.4%, followed by Huawei at 10.2%. These companies continuously strive to dominate existing markets and push competitors aside, showcasing the effectiveness of market penetration.
Market Development
Market development is about selling the same products to new markets. MNCs employing this strategy seek to attract new users to their existing products. It requires adapting products and marketing strategies to suit the preferences and demands of these new markets.
Real-world Example: Coca-Cola, a renowned global brand, employed market development by diversifying its product range. It introduced new products like Diet Coke and Coca-Cola Zero to cater to different consumer preferences, expanding its reach into new market segments.
Product Development
Product development involves selling new products to existing markets. This strategy requires MNCs to introduce innovative products into markets they already serve. It’s about staying ahead of the curve and meeting evolving consumer needs.
Real-world Example: Some of the most successful companies globally, including Google, Amazon, Netflix, Zoom, and Booking.com, continually achieve a competitive edge through relentless product development. They prioritize innovation and regularly introduce new products or features to captivate their existing customer base.
Expansion through Integration
MNCs also expand by integrating their operations, which can take two primary forms: vertical integration and horizontal integration.
Vertical Integration
Vertical integration occurs when an organization starts producing new products that serve its own needs. It can be divided into two categories: backward and forward integration. Backward integration involves moving closer to the source of raw materials, while forward integration brings the organization nearer to the ultimate customer.
Real-world Example: Netflix’s transformation from licensing shows and movies from major studios to producing original content illustrates vertical integration’s power. By creating its content, Netflix gained more control over its offerings and reduced dependency on external studios.
Horizontal Integration
Horizontal integration is the strategy of acquiring or merging with companies that produce or offer similar products or services at the same stage of production or distribution.
Real-world Example: One of the most prominent instances of horizontal integration was Facebook’s acquisition of Instagram in 2012 for a reported $1 billion. This strategic move allowed Facebook to enhance its user engagement by integrating a popular photo-sharing platform into its ecosystem.
Expansion through Diversification
MNCs diversify their portfolios by expanding into different markets related or unrelated to their core business. Diversification can be categorized into concentric and conglomerate diversification.
Concentric Diversification
Marketing-Related Concentric Diversification
This form of diversification occurs when a company offers similar products with the help of unrelated technology.
Real-world Example: Imagine a company in the sewing machine business diversifying into kitchenware and household appliances, all sold through a chain of retail stores. This expansion is an example of marketing-related concentric diversification.
Technology-Related Concentric Diversification
Technology-related concentric diversification involves offering new products or services using related technology.
Marketing-Technology Related Concentric Diversification
This type of diversification combines marketing and technology to offer similar products.
Conglomerate Diversification
Conglomerate diversification happens when an organization ventures into businesses unrelated to its existing operations.
Real-world Example: Suppose a company initially specialized in cement production but later expanded into sectors like home décor, electronics, and the education industry. Such diversification takes the company into unrelated businesses, turning it into a conglomerate.
Expansion through Cooperation
Cooperation is another avenue for MNCs to expand their reach and capabilities. MNCs engage in various cooperation strategies, including mergers, takeovers, joint ventures, and strategic alliances.
Mergers Strategies
Mergers involve the combination of two or more organizations, typically resulting in one entity acquiring the assets and liabilities of the other(s).
Real-world Example: A notable instance of a horizontal merger is the merger between Vodafone India and Idea Cellular Limited. Both companies operated in the same industry and merged to create a more robust market presence.
Takeover Strategies
Takeovers can be either friendly or hostile, depending on the existing management’s or professionals’ response.
Real-world Example: Facebook’s friendly takeover of WhatsApp for $19 billion exemplifies how a multinational corporation can acquire a popular messaging platform to enhance its services.
Joint Venture Strategies
Joint ventures involve temporary partnerships between two or more companies to achieve specific goals.
Real-world Example: BMW’s collaboration with Brilliance Auto Group led to the creation of BMW Brilliance. This joint venture allowed BMW to manufacture cars in China and expand its market presence.
Strategic Alliances
Strategic alliances occur when firms combine their resources, capabilities, and core competencies to pursue mutual interests.
Real-world Example: Spotify and Uber formed a strategic alliance that allows Uber users to connect to Spotify and stream music during rides. This partnership enhances both companies’ appeal by providing a unique service to customers.
Techniques Employed by MNCs to Manage Markets
Effectively managing global markets requires MNCs to choose the right approach. Here are five common techniques:
Standardize
Standardization involves making products, marketing, and distribution channels as uniform as possible across different markets.
Real-world Example: McDonald’s is a prime example of standardization. They offer consistent menu items worldwide while adjusting for minor variations in language and local regulations.
Localization
Localization adapts products and strategies to fit local customs, laws, and practices.
Real-world Example: Companies operating in diverse markets, like Disney, customize their content to cater to each region’s cultural sensitivities and preferences.
Regionalization
Regionalization strikes a balance between standardization and localization. It involves developing standardized products and promotional approaches on a regional basis.
Centralization
Centralization uses a single headquarters for all marketing and distribution requirements. When necessary, employees are dispatched globally to support marketing efforts.
Subsidiary Approach
Multinational firms establish subsidiaries by region or nation. These partially independent entities handle production, distribution, and marketing within their geographic areas.
As we navigate the intricate world of MNCs, these strategies and examples showcase their adaptability and resilience on the global stage. By embracing innovation and local relevance, MNCs continue shaping industries and driving global economic growth.
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