In a globalised world it makes strategic sense for companies to expand their operations across national boundaries. They get access to new markets and key resources such as specialized skills, mineral resources and new sources of information. However the opportunities that comes by their worldwide presence –up need to be converted into competitive advantage. And for this MNCs need to launch the right strategies, build organizational capabilities and manage operations in a diverse, complex and volatile competitive international arena.
International strategy scholars have observed that all MNCs do not follow similar strategies. For ease of understanding the model below explains the pre-dominant strategies followed by different MNCs.
The European MNCs followed the Multinational strategies
o Focuses primarily on one of the different means – national differences – to achieve most of its strategic objectives.
o Focus is on revenue side, by differentiating their products & services in response to customer needs, industry characteristics & Govt. regulations.
o Subsidiaries depend on local-for-local innovations, a process to identify local needs and use its own resources to respond to those needs
o Good for high local responsiveness & where cost-reduction pressures are low. Products are consumable items where taste and flavor are culture related.
o The weakness in this strategy is that due to the ‘stand-alone’ philosophy there is little cross-fertilization of learning and innovation.
The US MNCs followed the International strategies
o MNCs headquartered in large technologically advanced countries adopted this strategic approach to exploit home-country innovations.
o Centralize those resources that are key to developing innovations; decentralize others to allow its innovations to be adapted to less advanced countries.
o Go where locals don’t have your skills. Power systems, Airplanes, specialized machinery and other Hi-tech equipment.
o Manufacturing and marketing in each location.
o Makes sense where low skills and low competition exist.
The Japanese MNCs followed the Global strategies.
o Utilizes product standardization. Products like watches, music systems, PCs and cameras are global products. Assuming that the consumer looks for functionality, quality and low cost only.
o Best use of experience curve and high efficiencies.
o This is the low cost strategy that depends primarily on developing global efficiency.
o Not good where local responsiveness demand is high.
Transnational strategies are not country specific
o Core competencies can develop in anywhere of the firms worldwide operations.
o Flow of skills & product offerings occur throughout the firm. (Global learning)
o Makes sense where there is pressure for both cost reduction & local responsiveness
o Focuses on management of costs & revenues simultaneously with efficiency and innovation both important.
o Tough to implement due to complex communication networks and intricate organizational issues. Poses leadership challenges for successful management.
The main reasons for the four different approaches were due to the influence of their origin. The legacy of the country culture and their value systems had a definite impact on the organizational processes and practices.
The European MNCs expansion overseas occurred in the 1920s and 1930s whereas the American MNC ventured overseas in the 1940s & 50s. The Japanese MNC crossed their national borders in the 1960s & 70s. The transnational concept came into being in the 80s onwards.
The European MNCs dominant strategy was the multinational strategy of giving full autonomy to each country subsidiaries were dictated by the lack of travel & communications and inadequate awareness of the country cultures in that era – so it was best to adopt the ‘Do in Rome as the Romans do’ approach while keeping control of the ROI.
The American and developed nation companies followed the international strategies by leveraging their high technologies and innovations to provide the sophisticated products, equipment, machineries, power plants etc to countries through their subsidiaries. HQ retained the strategy decision making authorities and the subsidiaries role was of conduits at the end of the pipe-lines with little autonomy.
The Japanese companies in the 60’s & 70s adopted the global strategies had less exposure to the global business environment. As such they exploited their rich cultural attributes and superior control systems – kaizen, lean production systems, kyosei (harmony) and so on to build core competencies at the home base. With the strong support of the Govt. agencies like MITI (Ministry of External Trade & Information) & JETRO (Japan External Trade Organizations) they marketed their products overseas.
The transnational strategies (80s onwards) were driven by globalization. At this stage most of the MNCs above discovered the imperative of multi-dimensional perspectives to deal with a complex and fast changing global environment and the Thomas Friedman’s concept that the world is flat. In this era knowledge, diversity and a global mindset became the key sources of competitive advantage. MNCs could achieve this only by uncoupling the shackles of their home country parochial attitudes. A number of them have made significant progress.
Thus most of the MNCs indicated in the ‘Strategies for expanding abroad’ model are moving from their start points towards the transnational strategies corner.
This article is inspired by the learning from the popular book Transnational Management by Bartlett, Ghoshal (Late) and Birkinshaw.
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