Transnational Strategy Explained
As an insurance business consultant, I’ve helped dozens of businesses to reach the next level, and one of the best ways of doing so is often to expand overseas using a transnational strategy.
It might sound intimidating, but going global is easier than ever, thanks to the enormous technological and scientific advances of the past few decades.
Adopting a transnational strategy has so many benefits that I’ve seen first-hand over the years, but I’ll level with you: it also comes with serious challenges. Companies must understand and serve local customers while ensuring the same principles are integrated successfully across other, often very different, markets worldwide.
The theory behind transnational business strategy is well known today. It has been put forward most convincingly by Christopher Bartlett and Sumantra Ghoshal, who explained various approaches to managing businesses with international operations. If you’re thinking about adopting a new overseas business strategy, I’d highly recommend reading their work.
To better understand how businesses can operate successfully on a global scale, this article will focus on transnational business strategy and how it fits into Bartlett and Ghoshal’s Matrix.
The Bottom Line Up Front
Transnational strategy is one of the four business strategies explored in Bartlett and Ghoshal’s Matrix, which looks at how businesses can operate internationally.
Using a transnational approach, companies conduct business across borders in multiple countries. Doing so offers high potential cost gains but also increases pressure to respond to changing local market conditions.
I’ve seen plenty of companies reap the rewards from implementing this kind of strategy, and all of them have had two things in common: a robust plan and plenty of ambition.
What is Transnational Strategy?
Transnational strategy is distinct from global, international, and multinational strategies, though it shares some of the same features and modes of operations. It is a plan whereby a company decides to operate across international borders.
In doing so, this company must rank highly in both global integration and local responsiveness, as Bartlett and Ghoshal’s Matrix demonstrates. What does that mean? Well, let me help you understand a little better by talking about a corporation I’m sure you’re familiar with.
One of the best examples of a successfully implemented transnational business strategy is that of McDonald’s. There are many differences between the menu at a McDonald’s restaurant in Singapore and, for example, in California, yet their food, branding, restaurant style, and atmosphere seem essentially the same.
You’ve probably noticed the way every McDonald’s restaurant you’ve been in feels the same, right? Exactly!
Why is Transnational Strategy Important?
Transnational strategy is essential for multinational corporations because it allows them to leverage the benefits of standardization for products and operations without sacrificing local responsiveness. We all hate trade-offs (I know I do), and getting rid of them has significant economic benefits.
Operating using a transnational strategy means companies can enter new markets effectively and with greater efficiency. Doing so provides a wealth of business opportunities. The sky is the limit!
What is the Purpose of a Transnational Strategy?
The purpose of a successful transnational strategy is to provide customized products/services within a country or region while also maintaining a high level of standardization, which allows the company to implement the strategy to benefit from economies of scale.
Understanding the Bartlett and Ghoshal Matrix
The Bartlett and Ghoshal Matrix came about in 1989, covering multi-domestic, international, global, and transnational business strategies. The two critical factors taken into consideration within this matrix are:
- Potential cost gains from being integrated globally (such as production, marketing, or research economies of scale).
- Pressures to respond to local market conditions.
Based on Bartlett and Ghoshal’s 1989 Matrix, businesses that are integrated globally must work to reduce costs by creating economies of scale.
However, companies that opt for a transnational strategy must also focus on meeting the needs of local markets, which can vary from country to country and are subject to constant change. In my experience, the most challenging aspect of a transnational business strategy is the need for balance.
Transnational Strategy vs Other International Strategies
One of the best ways to understand transnational strategy is to learn how it differs from the other major theories of international business operations:
- Multi-domestic strategy
- International strategy
- Global strategy
Companies using a multi-domestic strategy focus on the needs of local markets, ensuring they are highly responsive to the preferences and demands within a given region. These companies may also invest in overseas operations; however, their primary focus is on meeting the needs of regional customers.
An example of a company that has successfully implemented this kind of strategy is Nestle, which has a specific sales and marketing approach for each market in which it operates.
The imports and exports market is the primary focus of companies implementing an international strategy. They remain in their country of operation without establishing additional branches overseas, exporting products based on demand from other countries.
Moet & Chandon, a French champagne company, offers an excellent example of an international business strategy; its primary aim is for its products to reach as many customers worldwide as possible. I’d say it’s been pretty successful since it is one of the most popular champagne brands in the world!
Companies that use a global strategy always prioritize global integration; their goal is to reach as many countries as possible. Local responsiveness is less of a priority than it is in a transnational strategy, so services and products don’t tend to be differentiated for different markets.
The pharmaceutical company Pfizer operates using a global strategy; its subsidiaries rely on the parent company for marketing strategies and management structures, and its products are the same worldwide.
Key Aspects of Transnational Strategy
Expanding a business across continents is easier than ever, thanks to e-commerce. However, to grow sustainably, you need systems and processes that can be repeated in other countries to create a global brand – this is where a transnational strategy comes in.
Below is an in-depth look at the key aspects of transnational strategy. I’ve also included nuggets of advice I’ve cultivated over the years about how your company can achieve them.
High Global Integration
The best way to achieve high global integration is to have a head or central office in one country from which local subsidiaries in international markets are coordinated; you need one location that is the center point of all business operations.
- More efficient business processes that save time
- A global scale that allows you to understand your industry from a broad vantage point
- Lower costs thanks to centralization and streamlined operations
- Consolidated management allows for easier decision making
- Global integration breeds innovation
- Increased cross-border investment
- Managing global teams
- Understanding when to differentiate products or services for different markets
- Determining how much autonomy to give subsidiaries
- Navigating foreign law and regulations
- Creating a successful global pricing strategy
- Cultural differences and communication challenges
High Local Responsiveness
Combining economies of scale with high local responsiveness allows a business to provide customer-centricity, which is vital for differentiating its brand. Transnational strategies are successful because they also understand the importance of prioritizing individual customers rather than only focusing on selling in overseas markets.
It is possible to create high local responsiveness in various ways, for example, by hiring field marketers or country managers, localizing sales strategies, or changing product packaging. The most important thing is to create a connection with customers – after all, as consumers, we all want to feel seen.
- Better brand awareness
- Deeper market penetration
- Competitive advantage in local markets
- Locally-driven decisions that ultimately improve customer sentiment and create positive brand connotations
- Capitalizing on benefits in foreign markets, such as shipping lanes or proximity to natural resources
- Ensuring the company brand remains broadly consistent despite potential cultural differences
- Creating a management structure that works alongside the global management of the company
- Understanding how to differentiate based on the local environment
- Maintaining strong communication with the head office
Core Activities of a Transnational Strategy
Below are the seven main steps involved in establishing a successful transnational strategy.
The first step is researching markets where you want to expand, which should involve the following considerations:
- Are there any foreign policies that may affect your business’s ability to operate within a market or may require you to alter the products sold within that country?
- How will you deliver services/products, and what infrastructure is available?
- Are there cultural differences that may require you to adapt your marketing strategies or product packaging?
- Is the pricing of your product or service realistic for this market?
- Is there sufficient demand for your product or service in this market?
You can use many sources for market research, and the more you include, the more comprehensive your understanding of the market you wish to enter. Here are some examples:
- Foreign government data
- Information from NGOs
- Overseas business research from other companies
- Face-to-face research
- A text message survey
- Attitude scales
- Online surveys
2. Understand the language and culture
You may have touched on this in your initial market research, but understanding the cultural differences and language barriers in a new market is crucial for a successful transnational strategy.
You definitely want to avoid offending the culture of your customers or misunderstanding their needs – it’s hard to come back from a mistake like that.
It’s essential to consider the following communication barriers and how they can be overcome:
- Language – speaking a different language is the most significant barrier, especially since that language may contain several dialects.
- Tone – some countries may respond better to a more formal tone (such as Japan), while others appreciate a friendly, conversational tone (such as the UK).
- Means – people in certain countries may respond best to a phone call, while others appreciate emails. Always think about how you communicate.
- Diversity – customers respond better to companies when they believe their culture and beliefs are being treated respectfully.
The previous knowledge should be considered when hiring staff and developing marketing campaigns and product packaging. Often, the most challenging part of this process is adapting existing business materials to suit a new culture.
3. Understand the local economy
For each location you want your business to operate in, you need a complete understanding of that country’s economy and how it might impact your business operations. This means considering the following:
- The overall wealth of the country and where it is concentrated
- The most prosperous places within the country for businesses similar to yours
- How much do products or services similar to yours typically sell for in the country, and how will you price yours in relation?
- What resources and logistics are available within the country, and how much do they typically cost?
- What is the average pay like for employees in businesses similar to yours?
You can find this information by accessing data from the government, other businesses and expert independent sources.
4. Learn about the target market
Understanding to whom you will sell your products or services is vital. The expansion will fail if a business fails to do this when it goes global. Buyers have specific characteristics and traits that may be relevant to a particular product or may make them more susceptible to a distinctive style of marketing campaign.
Knowledge is always power in business, but it becomes even more critical in foreign overseas markets. The more time a company invests in learning about its target customers, the more financial reward it will likely reap.
I like to think of it this way: if you don’t understand the people you’re selling to, how are you going to convince them to buy your products?
The following information is widely regarded to be the most helpful in understanding a given market:
- How old are the customers?
- How much disposable income do they have?
- Are they usually men, women, children, or a combination?
- Where do they usually shop?
- Where do they live?
- What problems do they have that could be fulfilled?
- What was their education like?
In a transnational strategy, some answers to these questions may always be the same, while others may change. For example, the amount of disposable income a target demographic has constantly varies from country to country; the more they possess, the higher the price point for a product should be.
5. Analyze the trade-off between local responsiveness and global integration
This trade-off varies depending on the type of product or service involved. Some products may have a universal appeal that is hardly affected by cultural differences, indicating local responsiveness can be partially sacrificed for global integration. Ultimately, this step is about standardization vs customization.
A successful transnational strategy will always encompass balance. It doesn’t ask whether products should be sold to customers in their native language but how to do so with a mix of customized and standardized content.
Hence, the experience of buying the said product is always satisfying and enjoyable. Happy customers are always – always – the key to success.
6. Determine an Approach to Translation
When expanding into new countries, translation is a must, and the service a business requires depends on whether it is prioritizing local responsiveness or global integration. Sometimes, it may be possible to use a simple document translation service to translate existing business and marketing materials.
However, most of the time, these documents need to be altered to suit the cultural nuances of a new business location. In this case, it’s best to hire a team of translators who can advise which aspects can stay and which elements need modifying, if not entirely recreating.
7. Go to Market
Once the above information has been collated and new strategies developed, it’s time to go to market.
Case Study of a Successful Transnational Strategy: Airbnb
Airbnb has been localized in over 60 languages and is accessible in more than 200 countries; it is one of the most successful companies in the hospitality industry, thanks to its use of a transnational strategy. I don’t know about you, but when I’m planning a trip, it’s one of the first websites I check.
Localization takes many forms, and in addition to supporting hundreds of languages, Airbnb also supports different login methods in other countries depending on what is most appropriate. For example, in China, it allows users to log in via WeChat or Weibo accounts, which has proven popular.
Currency also plays a part in Airbnb’s transnational strategy. The company knew that, during the 2016 Olympics in Brazil, there would be high demand for rental properties in the area.
However, it only accepted US dollars as payment in Brazil at the time, accounting for just 22% of the country’s payment volume.
After realizing this, Airbnb added national credit cards that could charge in Brazilian currency and many others, allowing over 30 million guests to book in 32 different currencies. An impressive improvement, right?
When Airbnb enters a new market, it uses features, curated content, and services based on its in-depth understanding of local cultures and communities.
As soon as a customer searches the name of a country or city, Airbnb customizes that user’s experience with relevant events, rentals, and experiences in that area. Consequently, it can offer a highly personalized experience while maintaining a global consistency.
Frequently Asked Questions About Transnational Strategy
Question: What are Economies of Scale?
Answer: Economies of scale refer to the proportionate cost savings granted by increased production within a business. This increased production level is accompanied by greater efficiency, which ultimately leads to cost advantages.
The ability of a business to leverage economies of scale depends on the size of the company; larger organizations typically have higher production levels and more cost savings.
Question: What is an Example of a Transnational Strategy?
Answer: Coca-cola is one of the best-known companies that use a transnational strategy. Its products are available in more than 200 countries, showing how successful it has been in deploying the techniques discussed in this article.
Each local market has slightly different messaging, but there are core elements that always remain the same, reinforcing global brand recognition. The best example of this is the name of the drink itself; in some countries, you may order a “coke”, in others a “cola” or “coka”.
Question: When would you use a transnational strategy?
Answer: You’d use a transnational strategy if you wanted your company to operate internationally and enter new markets quickly. One of the main reasons for this is that local employees usually know how to interact with people from their country and culture better than an outsider.
Adopting a transnational strategy is one of the best ways to take a company globally. It allows speed and efficiency while moving into new markets. It is one of the only strategies that balance local responsiveness and international integration, as set out in Bartlett and Ghoshal’s matrix.
However, it’s essential to recognize that a transnational strategy isn’t the only international business strategy. There are also global, international, and multi-domestic strategies within this category that are worth considering.
When clients come to me with questions about how they can grow their businesses, I always find out what their goals are and their vision for the future before recommending how to move forward. Each has its pros and cons, so it’s vital to assess which is most appropriate for your business goals before you implement it.
- STEEPLE Analysis Explained
- OLA Model Explained
- Service Value Chain Explained
- Hubspot Flywheel Analysis
- How Does Chime Make Money? - March 20, 2023
- Insurance Value Chain Explained - January 31, 2023
- Transnational Strategy Explained - January 31, 2023