Week 5 Assignment.docx - Evaluate how cost reduction...

Evaluate how cost reduction pressures and responsiveness pressures determine the entry
strategy decision of a multinational corporation. Maximum 600 words.
There are numerous factors that decide the entry strategy decision of an MNC expanding,
arguably the two biggest factors are cost reduction pressures and responsive pressures.
Cost reduction pressure requires the firm to lower the cost of value creation and it has different
effects on the entry strategy, due to this a firm might base its productive activities at the most
favourable low cost locations i.e where labour is cheap, less transportation is required, and
where raw material is available at a comparatively cheaper rate. An MNC which will have a
favourable market in country X, still may set up in country Y having less favourable markets, in
order to cut down costs of production, and maximise profits. A firm may offer a standardised
product to the global market place to ride down the experience curve, meaning using the
average cost pricing method to cut down expenses by estimate of future average costs.
The pressure to reduce costs can be high in industries producing commodities where price is a
competitive weapon. Eg. Petroleum, Steel, Sugar etc.