Integration vs. Responsiveness
Prahalad and Doz on Mapping the Characteristics of a Business
(1987)
“Labelling businesses as „global‟ or „multidomestic‟ may hide broad variations in the
underlying managerial tasks” (1987:13)
Prahalad and Doz contended that there are 3 building blocks according to which the
characteristics of a business can be mapped: (i) global integration of activities, (ii) global
strategic coordination, and (iii) local responsiveness.
Global integration of activities: refers to the centralised management of
geographically dispersed activities on an ongoing basis. The rationale for this is cost
reduction and investment optimisation. The implication is to build large scale
production plants in cheap labour countries to realise scale economies.
Global strategic coordination: refers to the centralised management of resource
commitments across boundaries. The rationale for this is ensuring competitive and
strategic coherence to resource commitments made by both HQ and SFs. The goal of
strategic coordination is to recognise, build and defend long term competitive
advantages. Unlike integration, coordination is selective and non-routine.
Local responsiveness: SFs take autonomous decisions to commit resources in serving
local demand. When there are no scale economies or proprietary technology local
responsiveness is more likely.
These 3 blocks do interact with one another and by studying the economic, technological and
competitive characteristics of a business we can identify the pressures placed on global
integration and local responsiveness (each faces different economic, tech and competitive
conditions which push them towards either global or local direction, however it is also
possible for a firm to have to accommodate both pressures simultaneously). Strategic
coordination is harder to focus on, argued Prahalad and Doz.
THE INTEGRATION-RESPONSIVENESS GRID (IR GRID)
The rationale for studying the IR grid is to identify the pressures that make
integration/coordination critical and also those that make responsiveness critical. According
to Prahalad and Doz, there are 7 pressures for global strategic coordination and 5 pressures
for local responsiveness:
Pressures for Strategic coordination:
o Multinational customers: MNC customers have the ability to compare prices,
demand the same level of service and product support and have centralised vendor
certification, etc. in other words they have more bargaining power that forces
firms to strategically coordinate to serve their demand.
1
, Integration vs. Responsiveness
o Multinational competitors: if competitors are multinational, in order for firms to
stay competitive, they must quickly respond to any strategic movement made by
competitors. How so: they need to gather intelligence and also need to be flexible
and at the same time coordinated so that strategic changes/movements can be
quickly implemented.
o Investment intensity: investment in R&D, manufacturing, etc. will have to be
recouped. Firms with heavy investments will need to find a way to make large
initial investments profitable.
Pressures for Global integration:
o Technology intensity: of the business line. If a firm is technology intensive, there
may be a need to protect proprietary technology leading to centralised production
in a few locations. Centralising production allows for higher control, which result
in global integration.
o Cost reduction: can either be achieved through sourcing production to cheaper
locations or to set up large-scale production sites to realise scale economies. Both
will result in global integration.
o Access to raw materials and energy: in order to have access to these factors, firms
may be forced to locate in a specific area. Similar to when technology makes
production concentrated in certain areas, this will pressure firms to integrate
globally.
o Universal needs: If the product enjoys homogenous demand and there‟s little
pressure to adapt it across markets, there is room for global integration.
Pressures for Local responsiveness:
o Different in customer needs: either nation or region-specific.
o Different in 4Ps: price, promotion, place and product differences will push for
Mainly
local responsiveness. Distribution channels in particular differ across countries.
consumer
o Availability of substitutes & need to adapt: if there is significant competition
-oriented
coming from local firms and there is a need to adapt the product so as to stay
industries
competitive, the firm need to be locally responsive.
o Market structure: A fragmented market coupled with localised competitors‟
dominance means there is no inherent advantages to size and scale, thus firms
need to be locally responsive.
o Host government demand: host government can influence demand factor and
since policies are unlikely to be identical, firms will need to be responsive.
After assessing a firm on these 12 criteria, it can be mapped onto the IR Grid. Prahalad and
Doz did acknowledge that few businesses are totally global, similarly few are totally local.
The purpose of mapping the IR grid is to assess the relative importance of both demands (for
integration and responsiveness) that firms face at a given point in time. The IR grid is
therefore a dynamic one as it can change over time. According to Prahalad and Doz, the
difficulty does not lie in managing one extreme but rather in managing a multifocal business
2
, Integration vs. Responsiveness
for it is unwise to make a one-time trade-off in favour of either demand: they need to be
managed simultaneously.
High Local Global coordination
Global businesses
responsi Low High
Global veness
International Global
integration
Multifocal Low divisions product
pressure business companies
Locally responsive International Transnational
High subsidiaries corporations
Low businesses
(multifocal)
Low Local responsiveness pressure High
Organisational structure – 4 fold typology
Prahalad and Doz then went on to suggest that to manage a multifocal business, firm need to
have multiple points of view, meaning they must encourage the formation of energetic and
useful ba to generate and share knowledge. This ba should transcend the boundaries of HQ to
cover subsidiaries which will then chip in knowledge and expertise (Nonaka).
By identifying themselves within the IR grid, managers can focus resources on leveraging
their competencies FX a locally responsive business should focus on planning its 4Ps to cater
to market needs, whereas a globally integrated business should focus on where and how to
optimise production (Palmisano)
Technology intensity Porter’s Factor
condition Different customer needs
Cost reduction
Host government D
Access to raw materials
Global integration
Availability of subst.
Universal demand Local responsiveness and adaptation
MNC customers Strategic coordination Market structure:
share of local players
MNC competitors
Different 4Ps
Porter’s Demand
Investment intensity condition
Porter’s Rivalry
One drawback of Prahalad and Doz‟s analysis is that it indeed assumes firms act alone. It
does not allow firms to (or at least does not suggest that firms should -) engage in a cluster or
a collaborative research project. Considering that firms in the same industry which are
geographically proximate may share the same pressures, it is likely that they can adopt a
3
Prahalad and Doz on Mapping the Characteristics of a Business
(1987)
“Labelling businesses as „global‟ or „multidomestic‟ may hide broad variations in the
underlying managerial tasks” (1987:13)
Prahalad and Doz contended that there are 3 building blocks according to which the
characteristics of a business can be mapped: (i) global integration of activities, (ii) global
strategic coordination, and (iii) local responsiveness.
Global integration of activities: refers to the centralised management of
geographically dispersed activities on an ongoing basis. The rationale for this is cost
reduction and investment optimisation. The implication is to build large scale
production plants in cheap labour countries to realise scale economies.
Global strategic coordination: refers to the centralised management of resource
commitments across boundaries. The rationale for this is ensuring competitive and
strategic coherence to resource commitments made by both HQ and SFs. The goal of
strategic coordination is to recognise, build and defend long term competitive
advantages. Unlike integration, coordination is selective and non-routine.
Local responsiveness: SFs take autonomous decisions to commit resources in serving
local demand. When there are no scale economies or proprietary technology local
responsiveness is more likely.
These 3 blocks do interact with one another and by studying the economic, technological and
competitive characteristics of a business we can identify the pressures placed on global
integration and local responsiveness (each faces different economic, tech and competitive
conditions which push them towards either global or local direction, however it is also
possible for a firm to have to accommodate both pressures simultaneously). Strategic
coordination is harder to focus on, argued Prahalad and Doz.
THE INTEGRATION-RESPONSIVENESS GRID (IR GRID)
The rationale for studying the IR grid is to identify the pressures that make
integration/coordination critical and also those that make responsiveness critical. According
to Prahalad and Doz, there are 7 pressures for global strategic coordination and 5 pressures
for local responsiveness:
Pressures for Strategic coordination:
o Multinational customers: MNC customers have the ability to compare prices,
demand the same level of service and product support and have centralised vendor
certification, etc. in other words they have more bargaining power that forces
firms to strategically coordinate to serve their demand.
1
, Integration vs. Responsiveness
o Multinational competitors: if competitors are multinational, in order for firms to
stay competitive, they must quickly respond to any strategic movement made by
competitors. How so: they need to gather intelligence and also need to be flexible
and at the same time coordinated so that strategic changes/movements can be
quickly implemented.
o Investment intensity: investment in R&D, manufacturing, etc. will have to be
recouped. Firms with heavy investments will need to find a way to make large
initial investments profitable.
Pressures for Global integration:
o Technology intensity: of the business line. If a firm is technology intensive, there
may be a need to protect proprietary technology leading to centralised production
in a few locations. Centralising production allows for higher control, which result
in global integration.
o Cost reduction: can either be achieved through sourcing production to cheaper
locations or to set up large-scale production sites to realise scale economies. Both
will result in global integration.
o Access to raw materials and energy: in order to have access to these factors, firms
may be forced to locate in a specific area. Similar to when technology makes
production concentrated in certain areas, this will pressure firms to integrate
globally.
o Universal needs: If the product enjoys homogenous demand and there‟s little
pressure to adapt it across markets, there is room for global integration.
Pressures for Local responsiveness:
o Different in customer needs: either nation or region-specific.
o Different in 4Ps: price, promotion, place and product differences will push for
Mainly
local responsiveness. Distribution channels in particular differ across countries.
consumer
o Availability of substitutes & need to adapt: if there is significant competition
-oriented
coming from local firms and there is a need to adapt the product so as to stay
industries
competitive, the firm need to be locally responsive.
o Market structure: A fragmented market coupled with localised competitors‟
dominance means there is no inherent advantages to size and scale, thus firms
need to be locally responsive.
o Host government demand: host government can influence demand factor and
since policies are unlikely to be identical, firms will need to be responsive.
After assessing a firm on these 12 criteria, it can be mapped onto the IR Grid. Prahalad and
Doz did acknowledge that few businesses are totally global, similarly few are totally local.
The purpose of mapping the IR grid is to assess the relative importance of both demands (for
integration and responsiveness) that firms face at a given point in time. The IR grid is
therefore a dynamic one as it can change over time. According to Prahalad and Doz, the
difficulty does not lie in managing one extreme but rather in managing a multifocal business
2
, Integration vs. Responsiveness
for it is unwise to make a one-time trade-off in favour of either demand: they need to be
managed simultaneously.
High Local Global coordination
Global businesses
responsi Low High
Global veness
International Global
integration
Multifocal Low divisions product
pressure business companies
Locally responsive International Transnational
High subsidiaries corporations
Low businesses
(multifocal)
Low Local responsiveness pressure High
Organisational structure – 4 fold typology
Prahalad and Doz then went on to suggest that to manage a multifocal business, firm need to
have multiple points of view, meaning they must encourage the formation of energetic and
useful ba to generate and share knowledge. This ba should transcend the boundaries of HQ to
cover subsidiaries which will then chip in knowledge and expertise (Nonaka).
By identifying themselves within the IR grid, managers can focus resources on leveraging
their competencies FX a locally responsive business should focus on planning its 4Ps to cater
to market needs, whereas a globally integrated business should focus on where and how to
optimise production (Palmisano)
Technology intensity Porter’s Factor
condition Different customer needs
Cost reduction
Host government D
Access to raw materials
Global integration
Availability of subst.
Universal demand Local responsiveness and adaptation
MNC customers Strategic coordination Market structure:
share of local players
MNC competitors
Different 4Ps
Porter’s Demand
Investment intensity condition
Porter’s Rivalry
One drawback of Prahalad and Doz‟s analysis is that it indeed assumes firms act alone. It
does not allow firms to (or at least does not suggest that firms should -) engage in a cluster or
a collaborative research project. Considering that firms in the same industry which are
geographically proximate may share the same pressures, it is likely that they can adopt a
3
