What is a transnational business strategy?

Overview

You may think that a company that operates globally is just called a global company.

However, there are actually four different types of globalized businesses:

1. Global
2. International
3. Transnational
4. Multi-domestic

Each of these strategies entails different business priorities for the company.

• Multi-domestic – For multi-domestic corporations, responsiveness to local markets and the needs, demands, preferences, and such of consumers within that region is the highest priority. As such, multi-domestic companies sacrifice global integration and efficiency forhigher local responsiveness.
• Global – Companies with a global strategy, on the other hand, prioritize global integration above all else. Local responsiveness is much less of a priority, so these companies’ products, services, marketing, and operations will not differ among different regions. Instead, the company will have only one product or service offering, one branding andmarketing strategy, and one operational strategy worldwide.
• Transnational – As you can see, transnational business strategies rank high in both global integration and local responsiveness. They are essentially the best of both worlds – like global companies, transnational corporations have one efficient, global strategy integrated across all markets. However, they also reflect multi-domestic companies by maintaining responsiveness to local and regional markets.

Here, we’ll explain how transnational companies incorporate both of these elements into their business strategies, what are some recognizable examples of transnational companies, and what are the advantages and disadvantages of this strategy.

The main characteristics of a transnational business strategy

• High global integration
• High local responsiveness

High global integration

Transnational companies have a centralized management team and head office that coordinates all of its international operations. Unlike multi-domestic companies, which have nearly totally independent subsidiaries in each region, all of a transnational company’s regional divisions are dependent on the central global office.

While some transnational business strategies will allow for more autonomy for local divisions than others, the generally defining characteristic of a transnational corporation is high integration across all of the company’s operations worldwide.

Most of the company’s strategies are standardized across all regions in order to maintain efficiency and lower costs as much as possible. For the most part, each of the regional branches of the company will follow a central business and marketing strategy and will operate within parameters set by the head management team.

High local responsiveness

However, while transnational companies strive for global integration and efficiency, they will still observe the local markets in which they operate and respond accordingly.

For instance, the company will have one global product or service offering but may also have a few additional products and services that are unique to the local market. Or, products and services that aren’t in demand or aren’t relevant in the local market may not be available in that region.

In addition, a transnational business strategy will have a global branding and marketing strategy but will tailor its campaigns, messaging, and communication depending on the region that the marketing airs in. Transnational companies understand the importance of being sensitive toward local culture, language, lifestyles, etc. and, as such, will ensure that their marketing content aligns with the local culture and language of that region.

While multi-domestic companies will allow their regional managers full autonomy in the creation of marketing content, transnational corporations are more likely to allow local branches to translate the company’s global message into the local language, bearing cultural norms and consumer preferences in mind.

Transnational companies essentially balance global standardization and efficiency with the ability to tailor products, services, and marketing to local markets. It has been said that transnational businesses “think globally and act locally.”

Examples of transnational business strategies

A popular example of a transnational corporation is McDonald’s. McDonald’s is a giant fast-food chain with the same core menu items worldwide, as well as the same brand name, identity, and marketing.

However, the company does tweak its product offering for its regional markets; for example, McDonald’s offers wine in France, rice burgers in the Philippines, and vegetarian burgers in India. These products are all unique to these markets and reflect the diets and preferences of local consumers.

To give a contrasting example, a global corporation will offer the exact same products worldwide, with no regional variances. For instance, corporations that sell products such as laptops or smartphones will likely have zero local variances in their product offering, as these products have a global appeal that does not rely on cultural preferences or local lifestyles.

Another example of a transnational business strategy is Unilever, which offers different brands in different regions but has a single corporate strategy and identity. Though the company has a variety of brands in multiple categories, such as food and beverage and home and personal care, all of its brands share a common mission of achieving sustainable business practices and creatingpositive social impact.

The advantages of transnational

• Higher efficiency – lower costs
• Greater market penetration

The primary advantage of a transnational business strategy is that it is less costly than a multi-domestic strategy, as it prioritizes global standardization and efficiency. Transnational businesses centralize as many resources as possible, therefore cutting costs.

However, transnational companies still maintain the benefits of a multi-domestic strategy by adapting to the local market in which it operates. This allows for greater penetration in local markets, where global and international companies may have a harder time resonating with consumers in the region.

The disadvantages of transnational

• Difficult to centralize global offices
• Risk of alienating local consumers

One of the downsides of transnational business strategies is that managing an entire global presence from one central office is difficult and takes a considerable amount of careful oversight. A lack of oversight could mean losing control of the company’s operations in certain countries.

It is not easy for one team to manage numerous branches around the world; thus, transnational corporations need to have highly qualified and experienced personnel in their management team to develop strategies for successfully managing the company’s global presence.

Another disadvantage is that, without the proper staffing and resources in each local branch, transnational companies risk potentially failing to understand the local culture and language of the regions in which it operates, which could lead to possible blunders and alienation of the local market.

Conclusion

A transnational business strategy may combine two positive elements of a global business – high integration and high responsiveness – but that doesn’t necessarily mean it’s the right fit for every business. You should weigh the potential risks along with the advantages before deciding which global strategy is right for you.