Transnational Strategy

The asymmetric demands of maximizing efficiencies through cost leadership and effectiveness via differentiation make it difficult to pursue both simultaneously. Still, some companies successfully adopt an integrated cost leadership/differentiation business-level strategy. The corporate-level analogue, the transnational strategy, takes this idea globally.

The transnational strategy targets the efficiency of global integration, the effectiveness of local responsiveness, and the systematic diffusion of innovations.

The MNEs operating in the sort of industries we see in the upper-right quadrant of the IR Grid, notably, airlines or e-commerce, must simultaneously integrate globally in order to reduce costs as well as adapt to national circumstances to appease local stakeholders. Resolution requires managers standardize some activities while differentiating others. Choosing to optimize both objectives, rather than maximize one, reduces efficiency and caps effectiveness. Offsetting high costs, given the ever-present liability of foreignness, requires that an MNE develop firm-specific capabilities and competencies that create difficult-to-copy points of competitive advantage. Hence, the transnational strategy champions interactive "global learning," leveraging local insights developed in meeting "particularizing tendencies" to upgrade resources and improve capabilities and then diffusing them worldwide to respond to "universalizing tendencies."108 Systematically diffusing local insights earned via adaptation in one locale to others enables the transnational strategy to optimize location economics and scale efficiencies.

The transnational strategy does not centralize authority in headquarters or decentralize it to local units. Instead, its advocates communication and collaboration between idea generators and idea adopters, no matter where each resides. Implementing the transnational strategy requires a sophisticated value chain that simultaneously supports integration, responsiveness, and learning. Managers configure value activities, ideally satisfying minimum efficiency standards, on a country-to-country basis given prevailing cultural, political, legal, and economic conditions. Location choices are neither biased toward concentration nor dispersal. Rather, they balance the universalizing tendencies that endorse global integration with the particularizing tendencies that push local responsiveness, effectively shifting the MNE toward a 'glocal' orientation.109 Successfully implementing the transnational strategy opens tremendous opportunities to optimize productivity, create value, and sustain competitiveness 'glocally.' Hence, for MNEs in the upper-right quadrant of the IR Grid, this strategy is obligatory. For those facing similar trends in technology, competition, and globalization, it's crucial.

Advantages

Some see the transnational strategy, in contrast to the international, localization, or global strategy, better suited to optimally respond to the emerging requirements of the global business environment. Charging strategic planners to gain location economies and experience effects without sacrificing the flexibility to customize processes and products pushes for an innovative integration of vision, mission, resources, capabilities, and competencies. The transnational strategy recognizes the payoff of multidirectional knowledge exchange between units to develop this mix. Essentially, as we saw in the opening profile of Zara, strategic planning presumes that neither headquarters nor local subsidiaries know best, but collectively they develop 'glocal' innovations that help each reconcile the dual imperative. Validating the vitality of learning throughout the MNE's global network helps managers make sense of optimizing headquarters' resources and local subsidiaries' capabilities given particularizing and universalizing tendencies.

The transnational strategy reconciles global integration and local responsiveness in ways that leverage the MNE's core competency throughout worldwide operations.

Limitations

The transnational strategy is tough to direct, difficult to configure, and prone to shortfalls. Reconciling integration and responsiveness pressures, further complicated by the necessity to generate knowledge locally but diffuse it worldwide, can overwhelm the best-intentioned MNEs. Simultaneously developing integration and differentiation advantages requires converting resources and capabilities into competencies that support a broad cross-section of value activities. Developing a network mindset among employees, installing the requisite communication network, and navigating the ambiguity of multi-criteria decision makes strategic planning challenging. The complexity of the transnational strategy means the MNE may fall short of sufficiently integrating global activities and/or differentiating local operations?essentially, getting caught in the dreaded middle zone where costs run too high and responsiveness runs too low.

The transnational strategy is difficult to implement in practice, given the challenges of complicated agendas, high costs, and cognitive limits.

Transnational Strategy

Characteristics of the Strategy Types Used by MNEs

1 Orientation- Simultaneously manages the tensions of global integration and local differentiation in ways that leverage specialized knowledge and promote worldwide learning.

2 Value Chain Configuration- Concentrated to tap location economies. Dispersed, subject to minimum efficiency standards, to meet local preferences.

3 Decision-Making Outlook- Simultaneous goals of integration and responsiveness calls for sharing decision-making between headquarters or subsidiaries.

4 Key Advantage- Supports efficiency, compels effectiveness, and leverages learning that drives innovations through units worldwide.

5 Key Disadvantage- Elaborate decision-making mechanisms integrate dispersed operations. Difficult to configure, tough to coordinate, and prone to performance shortfalls.

6 IR Grid Positioning- High pressure for global integration. High pressure for national responsiveness.

Examples, GE, Tata, Zara, IBM, SAP.

Integration Responsiveness grid

Energy Consumer Corporate Civil Aircraft Electronics Banking HIGH Semiconductors Telecommunications Standardization and Bulk Chemicals IT Services centralization are Financial International imperative across E-Commerce Services Banking international operations Management Software Logistics & Paint & Consulting Transportation Pigments Automobiles Industry Pressure for Global Integration Advertising Apparel LOW Health Care Legal Standardization and Goods or services that the Services centralization are useful opportunistic company sells to but not necessary across foreign customers. Accounting international operations Food & Beverages Retail Banking LOW HIGH Adaptation and decentralization are Adaptation and decentralization are unnecessary to sell generic products to needed to sell customized products similar markets to differing markets