3.9 42 Bartlett and Ghoshal – Transnational Strategy
Types of international business strategies
One of the four types of global business strategies is the transnational strategy. The other types include international, which has low global integration and high local responsiveness, multidomestic, which has low global integration and high local responsiveness, and global, which has high global integration and low local responsiveness. A company’s goals, type of business, and level of effort it wants to expend in foreign markets all influence the strategy it employs.
For instance, not every business would benefit from setting up local offices abroad, but they could still market their goods there. If a company doesn’t anticipate doing enough business in a particular nation to justify opening an office there but still wants to sell to customers there, they may decide to do so by using other channels, such as an online store, local retailers, or other options. These businesses would probably opt for a global or international approach to international business.
What is a transnational strategy in business?
An international business plan with a transnational strategy satisfies two main requirements. The company must meet both of these requirements, which are high local responsiveness and high global integration. This indicates that a transnational business is one that typically maintains branches or offices in each nation they serve, but that also incorporates these local branches into the organization’s larger global objectives and plans. Instead of assuming that every country’s population is interested in the same thing, multinational corporations take into account the cultures of the nations they operate in and how to best appeal to those people specifically.
Some multinational companies might provide a very similar experience regardless of the country they operate in, such as a restaurant or retailer with a uniform appearance. However, these companies frequently adapt the experience depending on each branch’s location, perhaps by removing elements that might offend local culture or by including choices that are customary in that culture. For instance, a restaurant’s menu might be largely the same everywhere, but in France, wine is served.
With a slightly different strategy, other multinational corporations, the local options are even more tailored to the local culture. Instead of consistently selling the same products, a company that sells a product might offer different products in different countries, for instance. Even though the company may always operate in the same sector, such as hair care products, the individual products may differ based on the company’s research into those regions.
Benefits of a transnational strategy
Companies that use a transnational strategy can reap a variety of benefits, though it may take some work to do so. The following are a few of the main advantages of a company using a transnational strategy:
Greater business opportunity
A business that employs a transnational strategy establishes branches and sells goods or services to a completely untapped market. For companies that use this business opportunity well, it has the potential to lead to significant growth. The risks of staying in one country may be lower than those of expanding to many others, but the benefits could be substantial, particularly in terms of brand recognition and cash flow. This is especially true if the company’s rivals don’t compete globally.
Better market penetration
A transnational strategy can help businesses that want to expand internationally more successfully enter a local market and quickly build a clientele. The fact that local workers should be more able to interact with others in their culture than outsiders might is a major factor in this. Additionally, a local team is likely to be more successful than an outside team if they are deciding on the goods or services and the marketing strategy. Companies that aren’t as active in the communities where their products are sold may get less favorable feedback.
Lower cost
For a number of reasons, a business can eventually save money by having local offices or locations. Hiring local workers to complete the task is less expensive than importing workers or adding more workers to the company’s primary location because local workers may expect lower salaries or wages than those in the business’s home country. Companies that produce goods or keep stock in local warehouses and manufacturing facilities may find that doing so lowers the cost of importing those goods into the nation, especially when customs fees are involved.
More efficient
A transnational company may discover that having local locations not only results in financial savings but also increases efficiency. For instance, a company may have local employees design new products for that country that will appeal to the local market, manufacture them locally, and then need to be shipped a shorter distance. This is preferable to new products for that country being designed overseas, manufactured overseas, and then shipped to the local area for distribution. This makes the procedure more effective and probably lowers costs.
Better cultural understanding
When compared to other international business strategies, transnational companies frequently have an advantage in that they can be more responsive to the needs of the local culture because they focus on local customers and employees. There are probably many local employees who were born into that culture and have a wealth of cultural knowledge that would otherwise require years of research for someone else, even if some employees have been brought in from other countries.
Challenges of a transnational strategy
Using a transnational strategy presents two main difficulties, namely:
Potential of alienating local customers
A business with a global strategy must be careful to avoid alienating its local clients. Most cultures have complicated rules and customs that can be challenging for outsiders to comprehend. International businesses run the risk of alienating their local customers by failing to comprehend the complexities of the markets they’re entering or by refusing to pay attention to their local employees.
Transnational businesses should employ local workers at all levels of the organization, from entry-level to executive, to prevent this situation. Then, these businesses should be open to hearing what these workers have to say about conducting business in their nation. Businesses can avoid alienating their local customers by making costly mistakes if they pay attention to their local employees and try to understand the local culture.
Difficulty centralizing all locations
Another major issue with transnational operations is that it can be challenging to centralize all these disparate locations around the world. This is a crucial component of the strategy because transnational strategies are not just about local offices but also the global integration of those locations. International businesses may discover that local branches aren’t upholding company standards or that a lack of oversight is harming the brand. However, when a sizable team is involved or the nearby offices are very far away, it may be challenging to rectify this.
Transnational businesses typically require an experienced, capable management team to address this issue and ensure that the brand is managed consistently worldwide. These managers may be based at the corporate office but frequently visit regional offices, or they may work in regional offices and submit reports to the corporate office. These managers and executives need to be fully aware of the company’s global strategies and how the local offices should implement them.
FAQ
What is transnational strategy example?
Transnational companies are those with centralized operations based in one nation but additional assets and operations abroad. The degree of global integration and local responsiveness for a specific brand is determined by a transnational strategy.
What are the 4 types of international strategies?
Transnational Strategy Such a company strives to strike a balance between the need to be efficient and the requirement to take into account local preferences in various countries. Large fast-food chains, like McDonald’s and KFC, rely on the same logos and basic menu items all over the world.
