Cost Reductions VS Local Responsiveness: The Integrtion-Responsiveness Framework

17 important questions on Cost Reductions VS Local Responsiveness: The Integrtion-Responsiveness Framework

What are the 2 Opposing forces faced by MNEs?

1) Cost Reduction
2) Local Responsiveness

Strategic Foundation MNEs: How is Cost Reduction applied by MNEs?

- Economies of Scale
- Managing Global Supply Chains (= access lowest cost-input factors)

What is a Globalisation Hypothesis?

An Assumption that Consumers Needs and Preferences throughout the world are converging and Becoming increasingly Homogenous.
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What is Local Responsiveness?

The need to tailor(adjust) product/service offerings to fit local consumer preferences and host-country requirements.

! Entails higher cost (=sometimes outweighs cost advantages)

Why is Local Responsiveness so costly?

It requires that key business functions are duplicated in each host country which leads to higher costs

What is The Integration-Responsiveness Framework?

A framework that juxtaposes( confronteert) the opposing pressures for cost reductions and local responsiveness to derive 4 strategic positions to gain and sustain a competitive advantage when competing globally.

The Integration-Responsiveness Framework: What are the 4 Strategic Positions?

- International Strategy
- Multi-domestic Strategy
- Global-Standardization Strategy
- Transnational Strategy

4 Strategic Positions: What is the International Strategy?

A strategy that involves leveraging (benutten) home-based core competencies by selling the same products and services in both domestic and foreign markets.

! Company sells the same products in both domestic and foreign markets !
! FIRST STEP when conducting a business abroad !

When is the International Strategy used by MNEs?

Used by MNEs with relatively large domestic markets and strong reputations and brand names.

USED DURING GLOBALIZATION 1.0

4 Strategic Positions: What is the Multi-Domestic Strategy?

A strategy pursued by MNEs that attempts to maximize local responsiveness with the intent that local consumers will perceive them to be domestic companies.

When is the Multi-Domestic Strategy used by MNEs?

When MNEs enter host countries with large and/or idiosyncratic (Specific) domestic markets.

USED DURING GLOBALIZATION 2.0

What is a downside of the Multi-Domestic Strategy?

- Costly
- Inefficient (requires the duplication of key business functions across multiple countries)
- Risk of IP appropriation increases

4 Strategic Positions: What is the Global-Standardization Strategy?

A strategy attempting to have economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost.

When is the Global - Standardization Strategy used by MNEs?

Used by MNEs that manufacture commodity products.

Examples: computer hardware, services (business process outsourcing)

4 Strategic Positions: What is the Transnational Strategy?

A strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardizaton strategy (lowest cost position attainable)

When is the Transnational Strategy used by MNEs?

Used by MNEs that pursue a blue ocean strategy at the business level by attempting to reconcile product/service differentiations at low cost.

What is the Global Matrix Structure?

It combines economies of scale along specific product divisions with economies of learning attainable in specific geographic regions.

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