Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 16 - 17 out of 17 pages.
A firm that has operations in more than one country is known as a multinational corporation (MNC). The largest MNCs are major players within the international arena. Walmart’s annual worldwide sales, for example, are larger than the dollar value of the entire economies of Austria, Norway, and Saudi Arabia. Although Walmart tends to be viewed as an American retailer, the firm earns 35% of its revenues outside the United States. Walmart owns significant numbers of stores in Mexico, Central America, Brazil, Japan, the United Kingdom, Canada, Chile, Botswana, and Argentina. Walmart also participates in joint ventures in China and India. Even more modestly sized MNCs are still very powerful. If Kia were a country, its current sales level of approximately $21 billion would place it in the top 100 among the more than 180 nations in the world.
Multinationals such as Kia and Walmart must choose an international strategy to guide their efforts in various countries. There are four main international strategies available:
- International
- Multi-domestic
- Global
- Transnational
(Figure 9.2). Each strategy involves a different approach to trying to be sensitive to (1) costs and efficiencies on one hand and trying to be responsive to (2) variation in customer preferences and market conditions across nations. Responding or not responding to these two pressures of cost and local cultural conditions determines which of the four types of international strategies will be pursued.
International Strategy
Firms pursuing an international strategy are neither concerned about costs nor adapting to the local cultural conditions. They attempt to sell their products internationally with little to no change. When Harley Davidson sells motorcycles abroad, they do not need to lower their prices or adapt the bike to local motorcycle standards. People in other countries buy a Harley particularly because it is different from the local motorcycles. Buyers want the American look and the sound and power of a Harley, and will pay for that differentiation. Belgium chocolate exporters do not lower their price when exporting to the American market to compete with Hershey’s, nor do they adapt their product to American tastes. They use an international strategy. Starbucks and Rolex watches are other examples of firms pursuing the international strategy.
Multi-Domestic Strategy
A firm using a multi-domestic strategy does not focus on cost or efficiency but emphasizes responsiveness to local requirements within each of its markets. Rather than trying to force all of its American-made shows on viewers around the globe, Netflix customizes the programming that is shown on its channels within dozens of countries, including New Zealand, Portugal, Pakistan, and India. Similarly, food company H. J. Heinz adapts its products to match local preferences. Because some Indians will not eat garlic and onion, for example, Heinz offers them a version of its signature ketchup that does not include these two ingredients. Outback Steakhouse uses the multi-domestic strategy in the multiple countries where it operates, adapting to local eating preferences but not lowering prices significantly.
Global Strategy
A firm using a global strategy sacrifices responsiveness to local requirements within each of its markets in favor of emphasizing lower costs and better efficiency. This strategy is the complete opposite of a multi-domestic strategy. Some minor modifications to products and services may be made in various markets, but a global strategy stresses the need to gain low costs and economies of scale by offering essentially the same products or services in each market.
Microsoft, for example, offers the same software programs around the world but adjusts the programs to match local languages. Similarly, consumer goods maker Procter & Gamble attempts to gain efficiency by creating global brands whenever possible. Global strategies also can be very effective for firms whose product or service is largely hidden from the customer’s view, such as silicon chip maker Intel. Lenovo also uses this strategy. For such firms, variance in local preferences is not very important, but pricing is.
Transnational Strategy
A firm using a transnational strategy seeks a middle ground between a multi-domestic strategy and a global strategy. Such a firm tries to balance the desire for lower costs and efficiency with the need to adjust to local preferences within various countries. For example, large fast-food chains such as McDonald’s and Kentucky Fried Chicken (KFC) rely on the same brand names and the same core menu items around the world. These firms make some concessions to local tastes too. In France, for example, wine can be purchased at McDonald’s. This approach makes sense for McDonald’s because wine is a central element of French diets. In Saudi Arabia, McDonalds serves a McArabia Chicken sandwich, and its breakfast menu features no pork products like ham, bacon, or sausage.
Global Strategies [02:45]
The video for this lesson discusses global strategy options.
You can view this video here: //youtu.be/83rBbT5Qq_E.
- Multinational corporations choose from among four basic international strategies: (1) international (2) multi-domestic, (3) global, and (4) transnational. These strategies vary depending on two pressures; 1) on emphasizing low cost and efficiency and 2) responding to the local culture and needs.
Image Credits
Figure 9.9: Kindred Grey (2020). “Cost pressure v. Local responsiveness pressure.” CC BY-SA 4.0. Retrieved from: //commons.wikimedia.org/wiki/File:Cost_pressure_v._Local_responsiveness_pressure.png.
Figure 9.10: AtelierJoly. “Curried Beans.” CC BY-SA 3.0. Cropped. Retrieved from //commons.wikimedia.org/wiki/File:Curry_Beanz.jpg.
Video Credits
pb venkat. (2015, May 14). Global strategies [Video]. YouTube. //youtu.be/83rBbT5Qq_E.
A firm that has operations in more than one country
Due to increasing globalisation the past decades, even smaller companies have been able to cross national borders and do business abroad. Consequently, many terms have been given to companies operating in multiple countries: multinationals, global businesses, transnational companies, international firms et cetera. The aim of this article is to clearly define these different terms and see how they differ from each other, because they do differ! An often used framework to distinguish multiple forms of internationally operating businesses is the Bartlett & Ghoshal Matrix (1989). Bartlett and Ghoshal clustered these businesses based on two criteria: global integration and local responsiveness. Businesses that are highly globally integrated have the objective to reduce costs as much as possible by creating economies of scale through a more standarized product offering worldwide. Business that are highly locally responsive have as extra objective to adapt products and services to specific local needs. It seems that these strategic options are mutually exclusive, but there are companies trying to be both globally integrated and locally responsive as can be seen in some examples below. Together these two factors generate four types of strategies that internationally operating businesses can pursue: Multidomestic, Global, Transnational and International strategies.
Figure 1: Bartlett and Ghoshal’s Typology of Multinational Companies:
Global, Transnational, International and Multidomestic Strategy
Multidomestic: Low Integration and High Responsiveness
Global: High Integration and Low Responsiveness
Transnational: High Integration and High Responsiveness
International: Low Integration and Low Responsiveness
Bartlett and Ghoshal originally didn’t include this type in their typologies. Other authors on the other hand have attributed the name to the lower left corner of the matrix. An international company therefore has little need for local adaption and global integration. The majority of the value chain activities will be maintained at the headquarter. This strategy is also often referred to as an exporting strategy. Products are produced in the company’s home country and send to customers all over the world. Subsidiaries, if any, are functioning in this case more like local channels through which the products are being sold to the end-consumer. Large wine producers from countries such as France and Italy are great examples of international companies.
Figure 2: Organizational structures of the Bartlett and Ghoshal’s MNC Typology:
Global, Transnational, International and Multidomestic Strategy
Table 1: Characteristics of MNC Types (Multidomestic, Global, Transnational) – Bartlett and Ghoshal
MNE Archetypes of Administrative Heritage
Bartlett and Ghoshal are not the only academics who have been trying to classify internationally operating companies. Verbeke (2013) has looked at a large number of multinational enterprises (MNE’s) and their administrative heritage, and distinguished four archetypes of MNE’s: Centralized Exporter, International Projector, International Coordinator and the Multi-centred MNE. Each will be elaborated on below.
Centralized Exporter
The centralized exporter is a home-country managed firm that trades and sells products internationally. In this case, most production facilities are located in the home country and foreign subsidiaries, if any, are functioning largely as facilitators for efficient home country production. Products are standarized and only minor customer-oriented activities are done abroad. The centralized exporter is very close to an international or global company in Bartlett and Ghoshal’s typology.
International Projector
The second archetype is the international projector. These kind of companies build upon a tradition of transferring its proprietary knowledge, which was developed in the home country, to foreign subsidiaries across the globe. These subsidiaries are essentially clones of the home operations, since the business model and its success recipe are simply copied and pasted abroad. The automotive company Ford is known for this strategy in its early days in the 1900s. Disneyland is another great example of a successful business model that has been copied all over the world.
International Coordinator
Multicentred MNE
Figure 3: MNE Archetypes of Administrative Heritage (Verbeke, 2013):
Centralized Exporter, International Projector, International Coordinator and Multi-centred MNE
International Business In Sum
Taken this all together, there are many ways in which companies can do business abroad. When a firm has economic operations located in at least two countries, they are often referred to as multinational enterprises or companies (MNE’s or MNC’s). But the way in which they do business abroad determines whether we can call it an international, global or transnational company for instance. By being aware of these different types of multinationals, you will be better able to structure your own strategic options when going global. In case you want to know more about foreign market entry options, you might want to read more about the OLI paradigm.
Further Reading:
- Bartlett, C.A. & Ghoshal, S. (1989). Managing Across Borders. The Transnational Solution. Boston: Harvard Business School Press.
- Harzing, A.W. (2000). An Empirical Analysis and Extension of the Bartlett and Ghoshal Typology of Multinational Companies. Journal of International Business Studies.
- Verbeke, A. (2013). International Business Strategy. Cambridge University Press.