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.
Suggestions and questions welcome! Thank you!
HAPPY DAY 🙂
How sweet of you! And you seem to be interested in the field of Management! That’s great.
as i entered bahrain i saw dabur and himalaya in the international airport with their distinct logos and excellent packaging
similarly titan,videocon,bpl shine all through the night on the boulevards
seems indian multinationals have arrived
prof ram natrajan
Interesting observations Prof.
@ Yes Barrack Obama did advice the younger folk to stress on mathematics and Science. Yet I am sure this could be a cyclical phase which may correct itself in future.
@ And yes the bill boards of Titan and Videocon etc do herald the era of a globalized world. As such the term ‘The world is flat’ were highlighted by Nandan Nilekani and Thomas Friedman.
I am happy to note that you have focused on the strategic options pursued by MNCs in your very interesting piece. I would like to extend the discussion a bit and specifically explore the brand development aspect of the marketing strategy framework.
One common attribute of all successful MNCs enjoying dominant market shares across various countries/regions, is their ability to build and sustain powerful brands which resonate with their target segments across national boundaries. Whether it is Colgate or Chanel, Ferrari or FedEx, Microsoft or Mercedes-Benz, Harvard or Heineken, Toyota or Chiquita, Oscar awards or Oprah Winfrey… strong brands transcend borders. Naturally, a strong – sometimes obsessive – dedication to brand-building is palpable among MNCs irrespective of their sphere of work or country of origin.
The way they go about this mission may vary based on several factors such as product category, target segment, brand architecture/hierarchy and the company’s cultural ethos (ethnocentric, polycentric, regiocentric or geocentric). Global marketers are historically faced with the dilemma of how ‘global’ should global branding be. The question boils down to whether, in what situations, and to what extent advertising across national and regional borders should be “standardized”, or alternatively, “localized”, that is, made specific to each market (Duncan & Ramaprasad, 1995).
As globalization touches lives all over the world, consumer taste and lifestyle are converging and commonalities are emerging. In the 80’s authors like Levitt had talked of a “new commercial reality” based on the “emergence of global markets for standardized consumer products on a previously unimagined scale”. This notion led many MNCs to opt for “the creation of a stronger global international identity through consistent positioning and image across markets over time and cost reduction through economies of scale in advertising production, sharing of experience and effective use of advertising budget” (Tai, 1997).
Although today – a quarter of a century later – this hypothesis may not have fully materialized across all spheres of commercial activity, yet it is undeniably taking shape, helped to a large extent by satellite television, the internet and social media.
The signs are clear. For example, Saudi Arabia has emerged as a major market for luxury brands like Chanel, Dior or Gucci (high disposable income, fashion-conscious and very brand-aware consumers), yet these brands cannot run the same marketing communication campaigns in the Kingdom as in the US or Europe.
While MNCs push international ads with Caucasian models/celebrities to cash-in on the so-called ‘aspirational’ value in markets like Hong Kong or Dubai, they often ‘localize’ the implementation of their ad concepts for markets like China or India.
However, one must be careful to distinguish between branding strategy and implementation tactics. For brand managers consistency of brand message and homogenization of exposure may be the Holy Grail, but many of them do appreciate that some flexibility is required to address the heterogeneity in cross-cultural communication.
I think the product category is a very important factor here. For example, Microsoft, Apple or BMW can – and do — use global brand campaigns as they target demographically and psycho-graphically harmonized segments across nationalities. On the other end of the spectrum are brand like Horlicks, Surf, Nestle or Cadbury (primarily FMCG brands), who often opt for highly localized brand exposure, sometimes even tweaking the primary positioning to suit cultural diversities.
In fact, ‘standardization – localization’ is not a binary decision in most cases. It is a linear continuum, many brands choose to be in the middle, varying the degree of localization but keeping the fundamentals intact.
The MasterCard “Priceless” campaign is a great example. The basic message, “There are some things money can’t buy, for everything else there’s MasterCard” was beautifully interpreted in many creative ways to resonate with specific demographic groups. In contrast, Visa Card ‘World Currency’ theme encompassed multiple nationalities in a single integrative creative format that could work anywhere.
The Energizer bunny or the Evian Roller babies may cross boundaries effortlessly without tinkering, but the Aflac duck needed a slightly different quack in Japan. Yes,the Aflac duck has a less grumpy personality in Japan and even smiles in some of the Japanese ads. It sings along to songs in Karaoke country and happily stamps its feet to music in a more reassuring avatar.
The white-beard Colonel Saunders – KFC’s familiar brand symbol – now appears in 800 KFC outlets in over 170 Chinese cities wearing Chinese costume!
P&G and Unilever use ‘Glocalization’ for their Dove and Lux ads. The ‘real women’ of Dove change in different countries as do the ‘stars’ of Lux – from Hollywood’s Elizabeth Taylor, Marilyn Monroe, Anne Hathaway, Catherine Zeta-Jones and Rachel Weisz to Bollywood’s Hema Malini, Sridevi, Madhuri and Karishma to Priyanka, Katrina and Asin, to name a few.
Similarly, Nike chooses brand ambassadors ranging from Tiger Woods to Ronaldo, Federer or Baichung Bhutia to appeal to people in different markets. But this is not a strategic shift or brand dilution in any way; it is purely a tactical decision within its overarching celebrity-endorsement communication format.
Perhaps McDonald has found the right blend in the global-local mix. One of the strongest and best-recognized brands around the world, it displays phenomenal consistency and harmony; yet allows ample flexibility in each market. From teriyaki burgers in Japan to alu tikki and Maharaja burgers in India, seesh tawook in Arabia to beer in Europe… McDonald caters to local taste but strongly adheres to its brand values and image. And, while “I’m lovin it” is firmly positioned in their marketing communication around the world, the ubiquitous mascot Roland McDonald is seldom used in their advertising. Perhaps the brand believes the character will not be understood or loved equally in all markets.
This piece cannot be ended without mentioning HSBC’s memorable “The world’s local bank” campaign which brought out the rich mosaic of cultural diversity around the world and positioned the bank as a distinctive global corporation that understands, appreciates and celebrates the interesting nuances in humankind.
I believe that global companies – and especially their local managers, distributors or franchisees – must never underestimate the asset-value of their international status. They are what they are because of their cross-cultural presence and appeal. Consumer who really matter essentially value their global experience and stature. With stringent segmentation, sustained brand reinforcement, strategic marketing and customer relationship building, they can optimize their potential strengths across different markets. Although tactical elements may be tailored to suit local markets as necessary, any erosion of the core brand identity/positioning in an eagerness ‘to do in Rome as the Romans do’ only makes them vulnerable in the long run. Indeed, they stand to lose much more than they gain.
Dear Dilip Sir,
Thank you so much for sharing the strategies, I am glad that I could brush up on the Strategic Management I studied in college.
Honestly, it was only after I studied in depth about the above strategies during my MBA did I realize that there is a huge difference between calling a company global and international, which most of us easily use interchangeably.
I believe that in today’s dynamic and ever changing times, the companies are moving towards the transnational strategy quadrant to effectively tap the opportunities like rich cultures, economies of scale and scope and other rich resources available all round the world in order to leverage global learning. But at the same time I also do think that the overall operational capacity, organizational structure and goals of the company influences the selection of strategy to some extent.
I was going through the BNET journals and came across this one article by Andrew Hines which also talks about strategies based on the scope and degree of interaction with their operations outside of their ‘home’ country.
• International companies are importers and exporters, they have no investment outside of their home country.
• Multinational companies have investment in other countries, but do not have coordinated product offerings in each country. More focused on adapting their products and service to each individual local market.
• Global companies have invested and are present in many countries. They market their products through the use of the same coordinated image/brand in all markets. Generally one corporate office that is responsible for global strategy. Emphasis on volume, cost management and efficiency.
• Transnational companies are much more complex organizations. They have invested in foreign operations, have a central corporate facility but give decision-making, R&D and marketing powers to each individual foreign market.
A warm welcome to you! Ruchi,
I am pleased to read your take on the basic international strategy model. Your understanding of the four basic strategies is perfect. I am glad that you found this post useful to brush-up your earlier learning in Tasmac.
This is a powerful model and very versatile as it can be used in other disciplines too such as strategic HR, global versus local branding/ marketing and the likes.
BTW I await keenly for you to launch you blog to share your experience and thoughts! And do please count me in as a follower. Have fun too!
The cultural environment is one of the critical components of the international business environment and one of the most difficult to understand. This is because the cultural environment is essentially unseen; it has been described as a shared, commonly held body of general beliefs and values that determine what is right for one group, according to Kluckhohn and Strodtbeck. National culture is described as the body of general beliefs and values that are shared by a nation. Beliefs and values are generally seen as formed by factors such as history, language, religion, geographic location, government, and education; thus firms begin a cultural analysis by seeking to understand these factors.
The competitive environment can also change from country to country. This is partly because of the economic, political, and cultural environments; these environmental factors help determine the type and degree of competition that exists in a given country. Competition can come from unexpected quarters. It can be from public or private sector, from large or small organizations, be domestic or global, and stem from traditional or new competitors. For the domestic firm the most likely sources of competition may be well understood. The same is not the case when one moves to compete in a new environment. For example, in the 1990s in the United States most businesses were privately owned and competition was among private sector companies, while in the People’s Republic of China (PRC) businesses were owned by the state. Thus, a U.S. company in the PRC could find itself competing with organizations owned by state entities such as the PRC army. This could change the nature of competition dramatically.
Firms need to understand what beliefs and values they may find in countries where they do business, and a number of models of cultural values have been proposed by scholars. The most well-known is that developed by Hofstede in1980. This model proposes four dimensions of cultural values including individualism, uncertainty avoidance, power distance and masculinity. Individualism is the degree to which a nation values and encourages individual action and decision making.
Uncertainty avoidance is the degree to which a nation is willing to accept and deal with uncertainty. Power distance is the degree to which a nation accepts and sanctions differences in power. And masculinity is the degree to which a nation accepts traditional male values or traditional female values. This model of cultural values has been used extensively because it provides data for a wide array of countries. Many academics and managers found this model helpful in exploring management approaches that would be appropriate in different cultures. For example, in a nation that is high on individualism one expects individual goals, individual tasks, and individual reward systems to be effective, whereas the reverse would be the case in a nation that is low on individualism. While this model is popular, there have been many attempts to develop more complex and inclusive models of culture.
In effect high firm performance (in terms of such things as sales, profits, market share, etc.) depends, in large part, on the firm choosing a global strategy that is appropriate for its unique set of circumstances. That is to say, adopting an international strategy, whether standardization or adaptation, is contingent upon the ability of a firm to choose the strategy that matches other critical variables. Specifically, the firm’s international generic strategy and management orientation must be consistent with its marketing strategy and its external environment. To accomplish this objective, a conceptual contingency framework is developed to specify the relationships between these variables so as to lead the firm to high levels of performance. It is important to note that the conceptual framework presented here has been drawn from the literature in organization theory, business strategy and international marketing.
Thanks & Regards,
I must say your comments on Prof. Geert Hofstede, Emeritus Professor, Maastricht University findings cover the issues related to International cultural differences quite comprehensively. In this context I reproduce the learned professors well known quote “Culture is more often a source of conflict than of synergy. Cultural differences are a nuisance at best and often a disaster”.
Therefore companies whose predominant strategic objective is ‘national responsiveness’ will need to consider all the four dimensions carefully. Fortunately in today’s times the forces of globalization are unifying the diverse national cultures in making the world flat.
Navin my compliments and thanks for relating cultural aspects to the model presented by me in this post.
With kind regards and my good wishes!