One of the most important decisions that managers are in need to do is choosing the right strategy for their firm. In order to make such decisions they need to weight not only the current situation of their firm, but also their immediate and long-term future. Decision making always holds a significant risk of failure to archive the goals which the company set for itself due to the high failure in predicting future events. Thus the manager needs to take into consideration his current possible options, analyze them and choose the one which is most-likely going to help him achieve his goals. I am going to explain the specifications of each strategy after I also compare the global integration and local responsiveness.
Global Integration vs Local Responsiveness
Between each transnational company the main difference we can find is their strategy of their choice, which is based on various factors needed to be taken into consideration. Global integration pressures are the forces that make MNCs exploit worldwide resources and integrate their activities on a global basis to realize economies of scale and achieve cost reduction. Bartlett and Ghoshal (1998) say the motivation of Global Integration for the need of efficiency. Developing the advanced technologies allow companies to expand manufacture globally and economically grow by making standardized products. Moreover, we can safely say that the tastes of consumers worldwide are nearly homogeneous.
On the other hand with local responsiveness corporations need to make base their decisions on local context (Roth and Morrison, 1990). Bartlett and Ghoshal (1998) say that the differences in consumer tastes in different countries are drivers for local responsiveness. The typical characteristics of the product system in host countries, the administrative costs of coordinating manufacture on a global basis, the improvements in technologies enable companies to disperse manufacture to smaller local plants with low cost, the trade and legislative barriers set by local Governments. Similarly, Hill (2001) discusses that the main pressures for local responsiveness are the differences in consumer tastes and preferences; differences in infrastructure and traditional practices; in distribution channels; and host government demands. Such pressures for local responsiveness urge multinational firms to adjust their products and services to better meet the demand of indigenous people.
What is an International business? The fusion of these two terms came to life for the first time thanks to a study from Texas A&M University, whose authors are defining international business as a cross-border business dealing activity and their interaction with international business environment (let that be either economical, social or political one). They acknowledge growing scale of international connection and mobility throughout all human activities.The solid foundations of ground are laid by the level of cooperation for the one of the biggest phenomena of the last decades - globalization. By globalization we mean a process where an internal connections between countries in economic, politic and social levels are taking place. The globalization has in proceeded so successfully that it is safe to say that it made the world in many cases a homogeneous place. And this is exactly what some are warning us against to do. Sitkin and Bowen are pointing out the need of differentiating between the terms global and international. “Global” is connected with the idea of united world a emphasizes the common attributes of the parties, whereas “international” shows the lack of commonness and is coping with problems emerging while businesses are trying to deal cross-boarder wise. The main obstacles businesses need to fight with are protectionist policies (tax, duty) and xenophobic - the fear of something based on them being foreign or unknown. To this point we were talking about terms of international business in general. If we approach them more closely, for any business operating simultaneously in more than just one country we have a terminologically correct expression - Multinational Enterprise. Although it does not yet have its very own definition, the closest we can get is the one used by OECD: “A multinational corporation or worldwide enterprise is a corporate organization that owns or controls production of goods or services in one or more countries other than their home country. It can also be referred to as an international corporation, a transnational corporation, or a stateless corporation. There are subtle but real differences between these three labels, as well as those labels of multinational corporation and a worldwide enterprise.” Strategies 1 - Global strategy One of the many advantages of global strategy is that the firms following it see opportunities to emphasize their standardized products and services worldwide. Companies can use the same product across countries with little response to local needs. This way they are able to reduce costs and centralize their production into selected locations. The more countries of the world where the goods can be sold means the greater number of countries that can contribute to such costs. The bigger scale of operation the bigger the brand recognition is. Disney can be a good example for that. However, communication across countries will be considerably higher, so will be the controlling and monitoring the working process. Overall the costs of coordinating the management team is going to grow. Trading across border means our exported items will come across taxation and other restrictions. It is suitable for a big company buying components, producing and exporting their products in bulks with no need to adapt them to different countries. For example Apple used the same posters for their iPods worldwide with the same effect. A company can phase its release of products, introducing older products into newer markets and saving the launch of a product's most recent version for well-developed markets.For example, a laptop company could sell its older-model laptops, particularly unsold, leftover stock, to a less-developed market after it launches a new laptop model. The older model may be outdated by American or European consumer standards of operating speed and random access memory, but the strategy is a way to get rid of old stock as long as it is on par with competition in the less-developed market. However, their approach of one size fits all is not working in every market. Some can differ from each other in a great way based on the taste and preference of the local customers. This way not only the profit, but losses can big considerably big as well. Moreover, companies are in risk of
2 - Transnational strategy
Professor George Stonehouse from Newcastle Business School and his colleagues defined that “A transnational business conducts operations in several countries with varying degrees of coordination and integration of strategy and operations” Thus the transnational strategy is combining global reach, coordination of operations and leveraging unique advantages of local markets to drive sales with market share and profit growth. He further defines the strategy as iterations of organizational learning and performance improvements, since it is involving operationing in different world market, creating organizational structures with response and is establishing activities with added value which are exploiting the similarities between nations and also differences. In order to be a transnational organization, being a firm of gigantic is not needed. With even a small presence in some strategic countries there is an opportunity to reach new customers with more efficient opportunities of production and new way of doing business. Nevertheless, they are selling the same product in multiple countries across the globe, the main difference being the strategy. The research by Andrew Bernard of Dartmouth College's Tuck School of Business and Bradford Jensen of the Institute for International Economics found that between 1987 and 1997 American factories owned by multinationals not only less likely to close down but last longer than local firms thanks to TNC's richer, larger size and have greater production which assist them achieve greater economic of scale and much more efficient in access cheaper finance. New firms are providing opportunities for employment in their country of choice. Big clothing firms like adidas and Nike entered into low wage countries creating many more jobs for cheap wages. In order to cope with local problems, transnational companiess may need to bring the latest and best technologies into the new country. If a transnational company is interested in setting a business in a concrete place they can further develop the infrastructure around it, which may increase income of people in local country, increase economic growth and government revenue as well.
Transnational companies are not only helping with production but also worldwide distribution. The best example being the oil industry. A great example is Coca-Cola. The beverage recipe is kept secret and has not changed in many years. The product is sold in over 200 countries worldwide, and this beverage company retains exactly the same beverage formulation in each country. The bottle's label may reflect the local language, but the logo and contents remain the same.
Transnational strategy also includes contingency planning. Natural disasters, such as the March 2011 earthquake in Japan, can cause severe disruptions in the supply chain. In a May 2011 interview with Harvard Business School Working Knowledge writer Dennis Fisher, Harvard professor Willy C. Shih suggests that manufacturers and suppliers often lack contingency plans and find themselves scrambling for alternatives when disaster strikes. Diversification of supply sources and having alternative distributors are some of the contingency planning options. However, management should consider whether customers would be willing to pay for the cost of establishing and maintaining these backup supply and distribution arrangements. In order to be successful, a firm pursuing transnational strategy needs to choose the destination of their next business wisely. Depending on the business they operate in the place of choice could be crucial. When we are talking about a value chain, they need to find the place with the best infrastructure around, since their logistics and operations are centralized, because thus they are maximizing the economic results. Other case could be services like sales, marketing, where they need to be the closest to their customers the possible and respond to any changes and further requirements in the market as soon as possible.
3 - Multi-domestic strategy
The term is describing a set of strategies which the company is using in more then one country they are operating at the time.This strategy is for firms focusing on the tastes of various customers. A company following the multi-domestic strategy is aiming to fit their products to the taste of the countries they are operating in. Technological features are designed for the concrete country, the food is made to meet the local preferences, religion or even political views. The reason of choosing this strategy is, that the firm expects their products will be viewed more favorably by the market as something foreign and unusual. Since they are decentralized, it is allowing the management to operate more freely in their domestic market and use different practices than another. Independence is often times also needed both in resources and strategies in order to adjust to the conditions of the local country. In their time of expanding the firm will go through different stages of cultural evolvement so it is advised to operate from down to top as the workers will be discovering the most effective way to operate. Barriers can be potentially be legal, political and cultural, which is mostly the biggest one. The local manager is thus to avoid ethnocentrism (belief that your culture is superior to the others). A great example to illustrate the multi-domestic approach in their strategy is McDonald's. Before opening a store abroad they thoroughly research local customs, habits, preferences and foods. In India for example, it would not be advisable to sell burgers with beef meet as the Indians hold cow as holy creatures, so in conclusion you are not even able to buy burger with beef meat. On the other hand, in the Muslin countries they have accommodated the local preferences by omitting pork and using chicken and lamb instead. Since French people are known for their love of wine, France is for example the only country which offers wine in their menu. Not just the countries mentioned above have, however, the privilege of having a menu tailor, local specialities are also offered in other countries from time to time in others as well. 4 - International strategy
We can look at international management as a scientific field, which deals with managing a business in international context. More concretely it deals with topics like entering a foreign market, functioning and strategies of international businesses and branches or cultural differences. However, the number of companies who have absolutely no need of adapting their products/goods to the local markets while the pressure of lowering their prices, is very small. In his seminal work on Strategy and Structure, Alfred Chandler (1962) was the very first who recognized the importance of consistency and congruence between an organization's strategy and structure. International businesses are basing their strategy on the core competencies of their parent company with not only their adaptation but also extending those competencies. To subsidiaries in foreign country those can be the skills and know-how. In this case we are talking about low global integration. Since they don't need to adapt their strategies and tailor them around the preferences of the host country/local market, their cost of manufacturing are significantly lower compared to, let's say, multi-domestic firm. In this case it is a low local responsiveness.
Multinationation enterprises must choose their strategy while entering a new market wisely. I have described the four principal strategies and depending on their circumstances and purpose. Each of them has not only advantages, but disadvantages as well. While they can focus on reducing costs by scale economies (global) or gain an advantage in the competitive environment with adaptationg their strategy to the specifics of their country of interest (multi domestic). Since these four strategies share some common traits it is inevitable for them to overlap in some points. The key for success in multi-national environments is the same as for a company residing in a single country. Returning customers, perpetualy expanding and innovating the business.
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