Organizations competing on an international basis face choices in terms of resource allocation, the balance of authority between the central office and business units, and the degree to which products and services are customized in order to accommodate tastes and preferences of local markets. When employing a transnational strategy, the goal is to combine elements of global and multidomestic strategies. Each of these will now be briefly discussed.
A global strategy involves a high degree of concentration of resources and capabilities in the central office and centralization of authority in order to exploit potential scale and learning economies. Customization at the local level is thus necessarily low. The multidomestic strategy, on the other hand, represents the opposite view of international strategy. Resources are dispersed throughout the various countries where the firm does business, decision-making authority is pushed down to the local level, and each business unit is allowed to customize product and market offerings to specific needs. The corporation as a whole foregoes the benefits that could be derived from centralization and coordination of diverse activities.
A transnational strategy allows for the attainment of benefits inherent in both global and multidomestic strategies. The overseas components are integrated into the overall corporate structure across several dimensions, and each of the components is empowered to become a source of specialized innovation. It is a management approach in which an organization integrates its global business activities through close cooperation and interdependence among its headquarters, operations, and international subsidiaries, and its use of appropriate global information technologies (Zwass, 1998).
The key philosophy of a transnational organization is adaptation to all environmental situations and achieving flexibility by capitalizing on knowledge flows (which take the form of decisions and value-added information) and two-way communication throughout the organization. The principal characteristic of a transnational strategy is the differentiated contributions by all its units to integrated worldwide operations. As one of its other characteristics, a joint innovation by headquarters and by some of the overseas units leads to the development of relatively standardized and yet flexible products and services that can capture several local markets. Decision making and knowledge generation are distributed among the units of a transnational organization.
Structure follows strategy (Chandler, 1962), implying that a transnational strategy must have an appropriate structure in order to implement the strategy. Just as the transnational strategy is a combination or hybrid strategy between global and multidomestic strategies, the organizational structure of firms pursuing transnational strategies is a structure that draws on characteristics of the worldwide geographic structure and the worldwide product divisional structure. The combination of mechanisms needed is somewhat contradictory, because the structure need be centralized and decentralized, integrated and nonintegrated, and formalized and nonformalized. But firms that can successfully implement this strategy and structure often perform better than firms pursuing only multidomestic or global strategies.
Transnational companies often enter into strategic alliances with their customers, suppliers, and other business partners to save time and capital. As long-term partnerships, these alliances may bring to the firm specialized competencies, relatively stable and sophisticated market outlets that help in honing its products and services, or stable and flexible supply sources. This may result in a virtual corporation, consisting of several independent firms that collaborate to bring products or services to the market.
A transnational model represents a compromise between local autonomy and centralized decision making. The organization seeks a balance between the pressures for global integration and the pressures for local responsiveness. It achieves this balance by pursuing a distributed strategy which is a hybrid of the centralized and decentralized strategies. Under the transnational model, a multinational corporation's assets and capabilities are dispersed according to the most beneficial location for a specific activity. Simultaneously, overseas operations are interdependent, and knowledge is developed jointly and shared worldwide.
Transnational firms have higher degrees of coordination with low control dispersed throughout the organization. The five implementation tactics (Vitalari and Wetherbe, 1996) used for implementing the transnational model are:
In a study of SBUs in large U.S.-based multinational firms, Wasilewski (2002) reported positive associations between transnational marketing strategies and performance. Improvements apparently resulted both from efficiencies gained from global integration and flexibility inherent in national responsiveness.
King and Sethi (1999) define a comprehensive taxonomy of transnational strategy with five important dimensions of transnational strategy: the configuration of value-chain activities, which refers to the geographic dispersal of a firm's value-chain components; the coordination of value-chain activities; centralization; strategic alliances; and market integration, which refers to the extent to which the parent corporation views the international market as a single competitive arena.
Asea Brown Boveri (ABB) is an example of a successful transnational management model implementation. ABB, with home bases in Sweden and Switzerland, exemplifies the trend towards cross-national mergers that lead firms to consider multiple headquarters in the future. It is managed as a flexible network of units, and one of management's main functions is the facilitation of information/knowledge flows between units. ABB's subsidiaries have full responsibility for product categories on a worldwide basis. Operating transnationally brings the benefits of access to new markets and the opportunity to utilize and develop resources wherever they may be located.
Nestlè CEO Peter Brabeck recently questioned the idea of a so-called global consumer. The firm appears to be successfully implementing a transnational strategy by making centralization decisions based partly on whether value-chain activities are upstream or downstream. According to Brabeck: "The closer we come to the consumer, in branding, pricing, communication, and product adaptation, the more we decentralize. The more we are dealing with production, logistics, and supply-chain management, the more centralized decision making becomes. After all, we want to leverage Nestlè's size, not be hampered by it" (Wetlaufer, 2001).
Revised by Bruce Walters
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