The journey to building a stable business is very unpredictable. However, business owners should not throw away caution and go about it with no plan in mind. It is advisable to have a roadmap in mind but remain agile and adjust to changes along the way until you get to the destination. A proper business plan would have been enough to get to where you want to be in an ideal world, a lot is not in your control, and the best way is to adapt as you move.
One crucial thing business owners should set is a business model that outlines their target market. Do you plan to focus on a local area or plan to sell across borders? While the latter seems more profitable and lucrative, many businesses have found little joy operating in multiple countries and wished they would have focused their operations in small areas. On the other hand, numerous local companies are reaping great rewards thanks to how they specialize and dedicate their resources to their loyal customers.
In this piece, we will break down what transnational business strategy is and help you understand if it is a direction you might want to pursue with your business or not. Read on;
What is Transnational Business Strategy?
This is a plan where a business conducts its activities across international borders. Here, the company invests in overseas operations, assets and connects them across all the countries it operates in. This strategy is often confused with multinational, global, and international business strategies. To help you understand it better, let us look at how all these differ.
An international strategy is focused on imports and exports. The operating business remains in the original country of operation and does not set up branches in other countries. It only plans to supply customers abroad with the goods depending on demand and logistics networks. Proper firms to perfect this strategy are the wineries in Italy that strive to sell their product globally, without setting foot in any of these countries.
A multidomestic strategy is where the company focuses on local market needs, preferences, demands, and responsiveness, among others. In a nutshell, the company adjusts its operations, products, and services to fit the local market’s needs while still holding multiple branches. These companies often forfeit global efficiency to suit the needs of their local customers. An example is Nestle which employs a tailored marketing and sales approach to every market it operates in.
A global strategy is where a company strives to cover as many nations as possible. Here, local responsiveness is not a huge concern as they sell the same products and services across all the markets they operate in. Good examples of global companies are pharmaceutical giants like Pfizer that sell products across the globe without differentiating them based on local needs.
A transnational strategy focuses on ranking high in both local responsiveness and global penetration. It borrows the best of a multidomestic approach and a global strategy to help expand sales, lower production costs, and leverage economies of scale. Their headquarters and production units are decentralized in the countries or regions they operate, while still paying homage to the main one. The sizes of the different headquarters vary depending on the markets they cover and policies laid out by the leading firm. For this strategy to work well, the model should strike a balance between retaining the policies and technologies of the mother branch while still allowing the subsidiaries to create policies and operations needed to make them sustainable in foreign markets.
A perfect example is Unilever which has a broad market across the globe. The subsidiaries are specialized in different roles dictated by the mother firm but still have room to adjust to local needs. Their product portfolio is extensive, allowing subsidiaries to offer what the locals prefer, but still under the main Unilever brand.
How to Apply Transnational Business Strategy
For a business to successfully set up this strategy, it must take care of a few key factors;
Managers across the different subsidiaries should understand what to do to adjust to local needs while still retaining the mother company’s promise. This is key since the subsidiaries will most likely hire managers from the local market, and there is always a chance of cross-cultural differences across the different branches. All managers should have a global view of the brand and step away from the bias of working in a specific branch. However, they should also stay true to the local market since their products and services will be consumed there.
2. Organizational Structure
The structure should be flexible to allow the complex and diverse operations to thrive. It is easy to force branches to stick to the traditional model used by the mother company, but this might restrict them from getting the best out of the markets they operate in. Most transnational firms centralize corporate functions and decentralize operating units, often divided by geographical locations and functions.
3. Quality Control
This is one of the hardest things to get right in a transnational business strategy. To stay true to the main brand, the different subsidiaries need to get the right quality of service or goods to other markets. An excellent example of a company that gets it right is KFC, which retains the same chicken quality across its subsidiaries across multiple countries. There is a significant risk of misunderstanding by the leaders in branches, and monitoring can be costly. The quality of what the customers receive locally has a ripple effect on the leading brand, and all the leaders should be aligned to what is expected of them. Lack of quality is a risk, and without the balance between centralized and decentralized control, a transnational business can quickly lose control over quality.
4. Acquisition and Outsourcing
With such vast operations, a transnational company cannot do everything on its own. It has to enter into contracts with multiple players across the global markets to expand its reach and improve operations. This is mainly seen with non-core functions that can be outsourced to low-cost providers. It cannot operate as an island and must enter into strategic acquisitions and partnerships with players. Some of these partnerships can work for or against the company, and it is prudent to understand which ones are necessary to attain the bigger objective.
5. Marketing and Sales
A transnational business model relies on large markets to succeed, and you have to get this right. The main challenge lies with the different cultural and emotional touchpoints in the markets and how to trigger them while remaining true to the mother brand.
Risks of a Transnational Strategy
Setting up this strategy is not easy, as seen from the players that have tried and failed. Some of the potential risks include;
Running a local business successfully is complex on its own; what about a transnational one? You must get many things right with a transnational strategy. It is also cost-intensive, and very few businesses can raise the amount of capital needed to sustain operations in multiple countries, especially if your brand is still growing. Keeping a unified company culture is a big challenge, and the inconsistencies can easily find their way into customer experience, which can spoil everything.
2. Wide Globalism
The world is becoming a global village, and some of the aspects that held the transnational business strategy are slowly becoming null and void. Diversity is being embraced as it is reckoned as the force behind innovation and collaboration. In such an environment, a transnational company would be disconnected from the local realities of the diverse countries. It can do this by isolating the local and innovators to embrace the global and diverse ones that could make the local market disconnected from the whole unit.
The Good and Bad of Transnational Business Strategy
Advantages of Transnational Strategy
- A well-executed model can help reduce costs. The diverse branches contribute to research, make capital investments and encourage innovations that can significantly improve company profits.
- Possibility of retaining control over goods and services, regardless of the multiple stakeholders involved in advertising and distribution chain.
- Buffer against failure, thanks to a diversified global footprint.
- Safety from financial and political risk due to the spread of assets and operations in different countries.
Disadvantages of Transnational Strategy
- Local cultural and social barriers are hard to crack and can differ drastically, making it hard for the model to have the desired impact across the markets.
- Need to hire top-level leaders with multinational experience, most of who are rare to find and will require huge wages to convince them to move from their existing positions
- Some local governments support local players and might put barriers to entry into their markets.
Common Examples of Models used by Transnational Companies
The transnational business model is not cast in stone, and you need to understand your strengths and weaknesses before taking this direction. The truth is that not every company is suited to this strategy. Stay true to your current business scenario and make decisions off on this.
Competitive advantage is a huge component of any successful transnational company since the business will face competition locally and abroad. This way, it is advisable to have a powerful core, as it will help sustain operations in the other countries, especially in the early days, where you do not expect them to be sustainable. Examples are top companies in the United States such as Intel, Microsoft, and Walmart that are powerful in the US, and it is hard to compete against them. Intel has over 60,000 staff members in the United States compared to just about 30,000, spread across 32 other countries. As a result, the core holds everything together, and no single subsidiary can have a significant impact enough to rattle it.
In the subsidiaries, they retain a multicultural workforce as they have the money to get the best talent, compared to the local players. The mix of ex-pats and locals in their subsidiaries is a significant advantage. They can quickly transfer a well-trained worker to a subsidiary where their abilities are needed most.
Top examples of companies employing a transnational strategy include;
Frequently Asked Questions?
Question: What are the main characteristics of transnational strategy?
Answer: The two main standout components of this strategy are global efficiencies and local responsiveness. Here, the firm strikes a delicate balance between retaining its identity internationally while still adjusting to the local needs to offer them the best-suited goods and services to solve their problems.
Question: What is a diversification strategy?
Answer: This is one where an organization widens its scope and offers different products and services across various niches. It is a popular growth strategy companies use to grow, increase market share and buffer it against the risk of relying too much on one product or service.
Question: Can I employ the transnational business strategy in my startup?
Answer: Transnational strategy can be used by anyone- if you have what it takes. Setting it up is no mean feat, and you should have a strong core and a lot of financial resources. Before you jump to set up operations globally while still retaining local responsiveness, assess your current status and decide whether it is the right move. If your business is not stable enough to withstand the risks of going transnational, take time to build it to the right level before you explore this opportunity.
Most of the global companies we know today have employed this strategy, and it can be credited to their growth across the globe. It is a tricky strategy to use, as seen from the nature of players who have tried and got it right. If you think it is a good fit for your business, explore the best way to approach it as you strengthen the main business, as it will have to support the subsidiaries for some time. The global giants employing this strategy did not get it right the first time, and you can learn from their case studies how they tackled it and derive best practices from their lessons.