What Is a Multi-Domestic Strategy? (Benefits & Elements)
Updated September 30, 2022
When businesses record success domestically, they may begin expanding to other localities and gaining a global presence. While there are many strategies for dealing with foreign markets, the multi-domestic approach remains one of the most popular and effective. Understanding multi-domestic strategies can help you contribute to a company's expansion efforts. In this article, we explore what a multi-domestic strategy involves, outline its benefits, identify its disadvantages, and define common elements.
What is a multi-domestic strategy?
A multi-domestic strategy is a business approach whereby companies alter their sales, marketing, and product development strategies to suit the peculiarities of a foreign market. It's one of the foremost strategies for international expansion. The multi-domestic approach works on the premise that each location has different cultures and realities which may affect consumer behaviour. By aligning itself with the prevalent culture in a market, businesses may find it easier to gain acceptance. This is unlike a global strategy that involves adopting the same approach in all markets, regardless of their location.
A multi-domestic approach may involve significant changes to a company's branding, marketing strategies, and even products. In some cases, companies create an entirely new brand that delivers the same product to the tastes of the specific market. Leadership is usually significantly decentralized under this approach. While a central body may make major decisions like closing an outlet, local management staff are usually responsible for coordinating business activities. As a result, it's common to see a brand adopting completely different strategies in different locations.
Benefits of the multi-domestic approach
Here are some benefits of businesses using the multi-domestic approach:
Saves some cost
A multi-domestic business strategy allows companies to create their products to fit local tastes. Often, this involves incorporating local products to create a more familiar feeling for users. For example, a fast-food restaurant that typically sells burgers may opt to sell rice or another pastry at a different location. As these alternatives are usually local products, they're easier and cheaper to source for the companies. Companies can also avoid importing products that aren't available in a particular location. Other essentials like labour and fuel may be cheaper in the new location, allowing companies to save costs.
Informs marketing efforts
People have different perspectives due to their different cultures and realities. As a result, the same marketing campaign may have different effects in different locations. For example, a saying which people consider funny or endearing one continent may be offensive in another. Similarly, marketing strategies like offering gifts, may be more effective in certain locations than others. A multi-domestic approach allows companies to alter their marketing efforts to fit the peculiarities of each region. This greatly improves their chances of connecting with the market and gaining consumer loyalty.
Improves customer satisfaction
A multi-domestic approach involves exhaustive research into the needs of a specific market. Businesses then leverage that information to create a more wholesome user experience. For example, a fast-food company may start serving a popular local food option that wasn't part of their menu. This approach allows businesses to cater directly to customers' needs rather than assuming. As a result, the business can guarantee greater customer satisfaction.
Creates a good brand image
A multi-domestic approach involves spending time and resources to understand the peculiarities of a market. Companies can create more relevant products and an overall better user experience for customers with that information. This helps improve the company's brand image as a business that consistently delivers. Respecting a market's peculiarities and culture is a sign of respect, which can endear customers and users. These factors can help build, protect, and sustain a positive brand image.
Ensures greater sustainability
A multi-domestic approach allows greater sustainability of a franchise. If a company opts for a global approach, a problem with its strategy can affect the whole franchise. Contrastingly, as businesses use different strategies in each market under a multi-domestic approach, a failure in one location doesn't mean failure in another. A multi-domestic approach also makes it easier to manage multiple branches. You can easily close branches that aren't profitable without disrupting activities in other branches.
Gives a competitive advantage
A multi-domestic approach gives businesses vital information about consumer behavioural patterns, local culture, and competitor strategies. As a result, they can compete more effectively with local products. Similarly, such businesses have a competitive advantage over other foreign companies adopting a global approach. By communicating with the market in terms they understand, companies are more likely to enjoy customer loyalty.
Disadvantages of multi-domestic approach
Here are some disadvantages of using the multi-domestic approach:
While a multi-domestic approach may help save cost in some aspects, it can be cost-intensive to set up. Researching new markets, developing strategies, and implementing them can be expensive. For example, it may be necessary for businesses to recruit and train local staff, invest in new product packages, or develop new marketing campaigns. Companies can avoid these costs by partnering with local marketing agencies, vendors, and recruitment firms. That way, the company can avoid the cost of research or unknowingly incurring legal liability.
Reduces economies of scale
Economies of scale involve a company saving costs significantly by increasing the magnitude of production. Ordinarily, global expansion means that companies produce the same thing on a larger scale and can leverage economies of scale to increase their profit margin. This doesn't apply to a multi-domestic approach, as it may be necessary for businesses to diversify their products. As a result, the business may not benefit from economies of scale and record greater profits.
Difficult to manage
A multi-domestic approach usually involves semi-autonomous branches with different strategies and work processes. Supervising these subsidiaries can be tasking, especially if they are many. To reduce this issue, companies can invest in reliable communication channels. Additionally, it's essential each company has a system to ensure transparency and accountability.
Elements of a multi-domestic approach
Here are some of the elements of a multi-domestic approach:
Localization refers to the process of altering your brand to suit the peculiarities of a different market. It's an immersive process involving all aspects of its brand, products, and services. Here are some common areas of localization:
Language is one of the major differentiators between cultures. As a result, it's crucial brands adopt the prevalent language when entering a new market so users can engage them easily. This includes altering product packages, mobile applications, websites, and marketing campaigns. It also involves understanding cultures surrounding non-verbal communication and the implication of certain words, and phrases.
The preferred payment method is one of the significant differences between locations and can affect a business's operations. For example, while many individuals in Europe prefer cashless transactions, many countries in Africa and Asia still run cash-based economies largely. It's important that businesses running digital payment systems have the means to process the relevant local currency.
Imagery uses symbols, images, and other visual elements to communicate a message. Symbolism is a big part of cultures, and certain images may mean different ideas in different cultures. As a result, it's important businesses learn the meanings of certain images, colours, and symbols in the prevalent culture. That way, they can communicate with the market more effectively.
Companies that offer products or services via digital platforms also require localization when designing their interface. For example, some countries prefer certain colours or styles of text. Similarly, certain cultures read or write differently, like reading from right to left. To enable customers to use and enjoy their products, it's vital businesses adapt their user interface to suit these needs.
The appropriate method of packaging products may differ according to the location. For example, some countries regard plastic bags as unsanitary or unhealthy for the environment. It's equally important businesses consider their branding to ensure they're not violating any legal or cultural rules.
One of the major aspects of a multi-domestic approach is conducting sufficient research into the market beforehand. To avoid incurring costs, it's essential businesses know what to expect in a new market. This includes customer behaviour patterns, competitors, and the location's political, legal, and economic atmosphere.
Partnerships with local companies
A major way to avoid costs and errors is to partner with already established local companies. These companies can help handle aspects of establishing a new company like recruitment, legal work, marketing, and even finance. Leveraging the insight and resources of these companies can help save time and resources.
To appeal to a market, it's important you're familiar with their culture and behavioural patterns. While research can provide insight, it's usually more effective to have local staff who understand the culture. This makes it easier for users to engage your brand, as they can communicate with your representatives easily.
Expanding into a market can be cost-intensive and leaves limited scope for failure. As such, it's important companies improve their chances by preparing the market even before their arrival. Doing so can give them a competitive edge and help them quickly identify and resolve issues.
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