Multidomestic Structure Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Multidomestic structure is a multinational firm’s organizational structure that reflects the philosophy that the world is comprised of many unique markets—usually defined at the national level. By this multidomestic philosophy, for example, many food companies acquire and/or establish business units in as many countries in which they do business, granting these units autonomy to choose products, suppliers, and marketing strategies to suit their local contexts.

To understand multidomestic structure, we first explore the multidomestic concept (or philosophy) and then see how it can be applied to industries, firms, and organizational structures. The core issue is whether one sees the world as one more-or-less monolithic market with similar tastes and preferences or whether one sees the world as made up of many more-or-less unique markets, each with its distinct tastes and preferences. The former may be called a “global” and the latter a “multidomestic” philosophy. Parenthetically, the position between these two extremes is called regionalism, whereby one sees the world as being made up of a small number of regions—for example, Asia, Europe, the Americas, and Africa/Middle-East.

Authors like George Yip (who prefers the term multilocal) and Michael Porter show how some industries, by their natures, lend themselves to more multidomestic (as opposed to global) strategies; for example, if competition is independent from country to country as is the case in retail banking, caustic chemicals, and retail groceries. Many competitors in these industries tend to be local, as the benefits of integrating into a global business are necessarily limited. According to Klaus Agthe, the multidomestic business organization may thus actually be a group of “national” subsidiary companies whose ultimate headquarters is structurally separate from each and equally supportive of all of them.

Multidomestic structures are thus the patterns of intraorganizational reporting relationships that enable the multinational firm to manage its operations so that subsidiary (or affiliate) organizations have suitable levels of autonomy to implement a multidomestic strategy. Implementation of this subsidiary autonomy is a key concept. Stuart Paterson and David Brock suggest that autonomy is necessary as a way to improve local responsiveness, and is a prerequisite and a desirable result of subsidiary development. Subsequently, they discern an increasing emphasis on autonomy in research related to multinationals and their subsidiaries.

Multidomestic structures fit well within global area or geographic structures. For example, the Nestlé Group has three global geographic zones (Europe, Americas, and Asia/Oceania/Africa) for most of its food business (with the exceptions of Nestlé Waters and Nestlé Nutrition, which are managed on a global basis). Then each of the geographic zones is divided into individual countries or country groups. For example, the Americas zone contains Latin America and the Caribbean (groups), and the United States and Canada. This structure allows each country (or homogeneous group of countries) to adapt to local tastes and regulations that are relevant to their food and beverage offerings.

Similarly, global product divisions are commonly structured into area and/or country divisions. For example, Nippon Steel Chemical Group has 15 companies structured into three global product divisions, namely Chemicals, Electronic Materials, and Coke & Coal Tar Chemicals. However the Chemicals division has branches in Osaka, Seoul, Taipei, and Shanghai in order to provide country-level customization and support for their products. Further, even the most global firm may have some multidomestic features to their structure. For example, Intel and Microsoft, both of whom are known for their globally integrated processes and standardized offerings, have hundreds of local offices around the world to take care of customer needs and to fine-tune their marketing efforts from location to location.

We thus see that the multidomestic concept is more relative than taxonomical. Just as there is no pure global strategy or structure, so, too, are multidomestic strategies and structures deployed by firms only to limited degrees. As implied by C. A. Bartlett and S. Ghoshal, effective firms in dynamic markets need to find the appropriate balance between the global and multidomestic aspects of their operations. This is how they define the challenge of effective transnational management.

Bibliography:

Klaus E. Agthe, “Managing the Mixed Marriage—Multinational Corporations,” Business Horizons (January–February 1990);
A. Bartlett and S. Ghoshal, Managing Across Borders: The Transnational Solution (Harvard Business School Press, 1989);
Julian Birkinshaw, Entrepreneurship in the Global Firm (Sage, 2000);
David M. Brock, “Autonomy of Individuals and Organizations: Towards a Strategy Research Agenda,” International Journal of Business and Economics (v.2/1, 2003);
Stuart Paterson and David M. Brock, “The Development of Subsidiary Management Research: Review and Theoretical Analysis,” International Business Review (v.11/2, 2002);
Michael Porter, Competition in Global Industries (Harvard Business School Press, 1986);
K. Prahalad and Gary Hamel, “The Core Competence of the Corporation,” Harvard Business Review (May–June 1990);
George Yip, Total Global Strategy II (Prentice Hall, 2003);
Stephen Young and Ana Teresa Tavares, “Centralization and Autonomy: Back to the Future,” International Business Review (v.13/2, 2004)

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