Review of Transational Strategies for International Business

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8th Feb 2020 International Business Reference this

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Transnational Strategy – A Critical Review

 

Global or Multidomestic: A Challenge for MNEs

Over the years, several companies have decided to carry out their business activities in overseas markets and hence, have expanded as international or global businesses in efforts to be known as multinational enterprises (MNEs) and enjoy the perks of being a global business. In order to come up with strategies for entering and sustaining in international markets, companies invest a lot of time, effort and money and yet many do not succeed in their international business planning and/or execution (Kearney, 1995). We can come across several big names that have been unable to prove themselves successful in the international market such as Walmart, Starbucks initial launch in Australia and Amazon in China (Kelly, 2005). These examples depict that managing international operations is a challenging task for any business and therefore, not every business has the capability or the resources for it and some just do not have enough knowledge. There is literature available on business environments in the global economy where companies can benefit from global branding and economies of scale as the concept of “global customer” becomes stronger and stronger (Kearney, 1995).

The Transnational Solution

Many suggest that companies should let go of their traditional approach and look at the business as a global phenomenon (Williamson, 2016). However, on the other hand, others argue that for companies that wish to stay relevant and competitive in the international markets, adapting to the local culture, needs, traditions, norms and other requirements is essential. This will help the company come closer to the local market. Bartlett and Goshal suggest that the solution is to adopt a mid-way strategy that fulfils the requirements of the local market and helps take advantage of the global efficiencies (Norcia, Bartlett and Ghoshal, 1991). They propose a ‘transnational strategy’ (Norcia, 1991). A transnational strategy aims at resolving the issue as to how multinational enterprises can improve and balance their responsiveness to local markets while also maintaining global efficiencies. It further suggests that competitiveness of a multinational enterprise can be enhanced by optimizing interactions between national subsidiaries (Norcia, Bartlett and Ghoshal, 1991).

Transnational Strategy: Benefits and Challenges for MNEs

Jensen and Szulanski suggested in 2004, that a homogenous strategy might be beneficial for a company going global as the business will gain from economies of scale and international brand recognition (Jensen and Szulanski, 2004). However, if businesses are to be truly successful outside their country of origin they must not overlook the benefits that local adaptation will bring. Verbekereasoned this in his book that there should be tactics and action plans that define as to what extent transnational strategy should be implemented in the business (Verbeke, 2009). In its true form, a transnational strategy will be global in nature but will also deeply involve integration of local requirements and adaptations according to the country the MNE intends to enter (Verbeke, 2009). Many companies do not achieve a transnational strategy in its real form (Lovelock, 1999). They either become too multidomestic and too global without enough integration. It is a challenge for multinational enterprises to decide on the level of localization and standardization and how to create an effective and efficient balance between the two (Lovelock, 1999).

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Other literature and researches have also discussed the crucial significance for MNEs of having an extensive knowledge and understanding of the target local market. Without the local knowledge, businesses can fail therefore, careful investment in gaining the local knowledge and understanding is essential for compiling a strategic business plan and its implementation (Liesch and Knight, 2016). As mentioned earlier, factors such as cultures, lifestyles, consumer behaviour and attitudes, norms, shopping patterns and others play a vital role in identifying how much adaptation will be required of an MNE to successfully establish and run their business in the local market (Adekola & Sergi, 2007). Even though there is not enough research done regarding transnational strategy’s integration in such businesses yet generally most of the researches and literature states that transnational strategy is flourishing rapidly as more and more multinational enterprises shift their focus from extreme standardization and extreme localization to a mid-way transnational way (Verbeke, 2013).

 

Transnational Strategy: The Implementation

How to implement a truly transnational strategy and to what extent it should be exercised is still an abstract concept. For instance, the decision-making process in a globalization strategy concept is centralized and standardized which increases the challenge for truly global enterprises to respond to the dynamically changing local demands in a quick and efficient manner (Ghoshal and Bartlett, 1990). Nevertheless, even though centralized decisions are also essential and at many a time necessary for a multinational enterprise especially for instances where the global knowledge and international scale experience needs to be incorporated in the business (Hansen, Mors and Løvås, 2005) yet this is also a fact that for better strategy implementation the national subsidiaries should be regarded as units that contain local skills, capabilities, and resources that can be benefitted from the global approach and are capable of decentralized decision-making (London and Hart, 2004). For these decisions, the national subsidies should not be considered as the end destination for a strategy execution. Therefore, the hybrid of centralized and decentralized decisions in transnational strategy offers a better solution. Furthermore, this reflects the need for MNEs to clearly identify the needs of local market segments, in order to capitalize on those needs, in an efficient and effective manner while also implementing the global branding and knowledge in order to execute business strategies to develop an integrated network of capabilities, resources and skills which is not only distributed but is also interdependent (Porter, 1986). Additionally, Kornberger gives the argument that the need for a flexible integrative process has become imperative for MNEs striving to implement a transnational strategy in its true form (Stewart, 2017). This means that the centrally taken decisions must be divided into assigned and delegated activities among the national subsidiaries which can then cooperate knowledge and experiences among the entire network to come up with the best possible solutions (Roth, 1988). This goes back to the earlier argument that in order to achieve a successful transnational strategy firms must balance the level of localization and level of globalization (Parsuramka, 2010).

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To understand whether a business is transnational in nature, we can analyse several factors as proposed in the literature especially by Wrigley, Coe and Currah. For instance, for a company to be considered as transnational, we need to analyse how many branches it has in the international markets and what are the sizes of those branches (Wrigley, Coe and Currah, 2005), for example Nestle is a worldwide phenomenon and also a company that has achieved its transnational goal. The business receives large amount of revenues and profits from its overseas subsidiaries. Hence, the level of financial success the transnational strategy brings to the firm is also important to analyse (Dunning 2013). Furthermore, the quality of networking between and through the international subsidiaries and headquarters will be considered essential to analyse the success of a multinational enterprises’ transnational strategy implementation (Wrigley, Coe and Currah, 2005).

Conclusion

In my view, a transnational strategy offers a good solution to multinational enterprises for entering and sustaining in international markets. Even though there is a rise in the concept of global consumer yet the fact that every country is different in numerous ways can not be ignored. Transnational strategy provides a good integration to cater to the global consumer by leveraging on global economies of scale and global efficiencies and by adapting to the local needs (London and Hart, 2004). Product lifestyle stages may also be a crucial factor to consider among many other in the international context. However, the hierarchical structures for multinational enterprises would require adjustments in order to make the coordination between the subsidiaries and the headquarters more integrated and to enhance knowledge sharing structures between and throughout the nationwide subsidiaries and headquarters as well. This reflects the necessity of interdependency of subsidiaries not only at a strategic level but also at an operational level (Harzing, 2009).

Furthermore, transnational theory will be effective if MNEs manage to balance the level of standardization and the level of customization. Managers and strategists need to carefully analyse the components of the business that need to be customized while maintaining a standard global approach. This can be achieved if the company promotes a culture of transparency and knowledge sharing (Hansen, Mors and Løvås, 2005). One of the most successful companies that has achieved a truly transnational strategic approach over the years is Unilever. This multinational enterprise claims that when it started its operations, its aim was not to become transnational however, with time, knowledge and experience the company is now a worldwide transnational phenomenon. Unilever is a true example of “think global, act local”. The company achieves transnationality by incorporating an “informal type of worldwide corporation between strategic and self-sufficient units”. This, however, does not mean that the company does not follow a formal hierarchical structure, a corporate strategy or other centralized policies. This merely reflects to the knowledge sharing and adaptability connected between the national subsidiaries and the headquarters. According to the analysis earlier, Unilever proves to tick all the boxes of a multinational enterprise that is benefiting and will sustain in the global economy with its transnational strategy approach (Maljers, 1992).

The key to establish a balance between standardization and customization and integrate the strategies accordingly is knowledge transfer and efficiency of value chain. In order to achieve this strategic and operational goal for transnational strategy MNEs require tech-savvy solutions as well (Festing, Eidems and Royer, 2007). Furthermore, I base my opinion on the available literature that MNEs will come across several cultural challenges when implementing a transnational strategy. These differences will not always be from the customer market i.e. external culture but also have elements of internal culture which will be formed by the local employees. Therefore, it is necessary for a multinational enterprise to understand this difference and be inclusive of these differences while structuring the strategy. The difference in religions, beliefs, opinions, preferences, and tastes etc cannot be ignored (Festing, Eidems and Royer, 2007). This can be achieved by investing carefully in market research. When done successfully, the MNE will benefit from the diversity of ideas, creativity, and knowledge that will help in the integration of the localization and standardization concept. With appropriate market research, MNEs will have better opportunity to incorporate local knowledge and blend it with global efficiencies. As White suggested, a good transnational strategy can be implemented well if the company is able to maintain its global consistency while addressing the local challenges according to the local knowledge (White, 2005).

To sum up, implementing transnational strategy for any multinational enterprise is a challenging task because maintaining global efficiencies while gaining impressive of local responsiveness is a challenge in itself. However, if the company intends to achieve a successful global strategy it cannot ignore the importance of the implementation of such strategy because of the certain limitations according to different localities. The businesses need to carefully examine the extent of standardization and adaptation that is necessary because only then the integration between the national subsidiaries and the headquarters will be effective (Porter, 1986). Multinational enterprises that have understood this importance continuously invest in getting to know the differences and similarities that the local market shares with the global market and that the local market distinguishes itself with the global market. Moreover, the understanding of how to create a balance is the crucial. This understanding and knowledge will lead to the implementation of a successful transnational strategy in its true form.

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