The difficulties in using a cost leadership strategy in emerging markets

Abstract

Purpose – Strategic contingency theory maintains that a successful strategy should fit the features of the environment in which it is implemented, suggesting that different strategies are required in different world markets. In contrast, Porter posited three generic strategies, and asserted that to be effective firms should consistently use only one of the three. This paper aims to address this apparent disagreement by discussing the transfer, by developed-country multinational companies (MNCs), of a cost-leadership strategy to emerging markets. Design/methodology/approach – Presenting theoretical arguments, based on deductive reasoning and examples reported in business publications, the authors focus on why firms from developed countries may find a cost-leadership strategy ineffective in emerging markets. This focus on both emerging markets as a group and on the ease of the transfer of the cost-leadership strategy fills a gap in the international management literature. Findings – It is argued that implementation of a cost-leadership strategy by developed-country MNCs is rarely effective in emerging markets, and that MNCs may benefit from using different strategies in different markets. Originality/value – The paper provides at least a partial explanation as to why developed-country firms may struggle when they apply a generic competitive strategy across countries. The contribution of this paper is two-fold. First, it explores the question of emerging market strategies by focusing on developed-country MNCs that use a cost-leadership strategy in these markets. Second, the paper contributes an important critique of the claims made by some business strategy theorists that MNCs need to use a single generic strategy globally in order to achieve high performance. © 2008, Emerald Group Publishing Limited