Uncover the mechanics of a transnational strategy and its potential advantages in enhancing efficiency and minimizing expenses for businesses during their global expansion journey.
A transnational strategy is a means of global expansion that allows companies to strike a balance between high responsiveness to local preferences and increased efficiency with cost savings. This guide will familiarize you with the fundamentals of transnational strategy, contrast it with other global expansion strategies, share examples of successful transnational strategies, and delve into best practices for execution.
What is a transnational strategy?
A company utilizing a transnational strategy adapts to local preferences to some extent while also concentrating on increased efficiency and cost reduction by incorporating elements from both global and multi-domestic strategies. Consequently, transnational companies are highly responsive to local needs and can achieve economies of scale through standardization across their operations.
By closely monitoring market trends and customer demands, these companies can ascertain when the return on investment from customization justifies any partial differentiation. Since customization adds costs and complexity, organizations must consistently balance catering to local preferences and reducing expenses. A well-implemented transnational strategy can yield high profits.
Transnational strategy is one of four global expansion strategies, alongside multi-domestic, global, and international strategies. Each strategy presents unique benefits and differences in approach to penetrating international markets.
No single strategy is ideal for every business—factors such as business objectives, industry, size, and others determine which plan will most benefit a specific company. Organizations contemplating global expansion should thoroughly assess each strategy's potential benefits and limitations within the context of their capabilities and goals.
Distinguishing Transnational Strategy from Other Global Expansion Strategies
Transnational strategies differ from global expansion strategies concerning local responsiveness, customization, global integration, and standardization. Since no company can maximize all four areas simultaneously, organizations prioritize their emphasis through specific strategies.
Pressures in Global Expansion Strategies
All four global expansion strategies exhibit key differences and are characterized by two pressures—global integration and local responsiveness.
Global Integration and Standardization
Standardized products and services are primarily uniform, featuring little to no customization for every market. Other functions like marketing may also be standardized across different markets.
Companies operating across national boundaries may produce standardized products to lower per-unit costs and boost efficiency.
Local Responsiveness and Customization
Companies that customize products and operations to suit different markets can develop tailored offerings and adopt a strategy that caters to local requirements and desires. Such organizations focus on attracting customers who appreciate adjustments to a particular context.
Global integration and local responsiveness can operate along a spectrum. The varying degrees of global integration and local responsiveness establish the basis for distinct global expansion strategies.
Global Expansion Strategies Overview
In addition to the transnational strategy, there are three other global expansion strategies:
A multi-domestic strategy customizes products and services for each distinct country's market, aiming to enhance the competitiveness of the organization's offerings. This strategy is highly responsive to local preferences but needs to be more globally integrated.
Since global integration is low and responsiveness is high, applying a multi-domestic strategy can be more costly than a strategy with low responsiveness, such as an international strategy.
A global strategy emphasizes cost-effectiveness and efficiency in providing products and services worldwide. Companies using a global strategy supply the same or very similar products in every market, striving to be cost leaders in their respective markets.
High global integration and low responsiveness characterize a global strategy. This strategy is generally best for product categories where customization is not crucial, but the price is critical for customers.
An international strategy does not significantly alter the pricing or features of a new target market.
What are the advantages of a transnational strategy?
A transnational strategy aims to capture the best of both worlds by combining the responsiveness advantage of a multi-domestic strategy with the cost and efficiency advantage of a global strategy. Customization allows transnational organizations to conserve some resources they would otherwise need to invest if they opted for a multi-domestic strategy. At the same time, these organizations can concentrate on building their brands within overseas markets.
While multi-domestic companies create separate products and services for each market, global strategy companies relinquish local responsiveness for more significant cost savings—transnational strategy is distinct from either approach, enabling companies to be locally competitive and efficient. Some supply chain efficiencies common to global strategy can be realized in transnational strategy while maintaining local responsiveness.
Five Notable Transnational Strategy Examples
Thriving transnational companies frequently span from mid-sized to large organizations functioning in diverse industries and settings. Companies contemplating adopting a transnational strategy should possess the financial resources and strategic management expertise to penetrate global markets successfully.
Some well-known companies, such as Walmart, Google, Unilever, KFC, and Costco, provide excellent examples of transnational strategies.
Pursuing cost leadership on a global scale, Walmart keeps prices low for consumers in every market by capitalizing on supply chain efficiencies. Concurrently, Walmart customers can discover products and store-level adaptations to local preferences grounded in thorough analysis and continual updates to the locally available products. Despite operating various store brands across different countries, some of which were acquired, Walmart's stores can benefit from strong purchasing power and global supply chains as a unified organization.
Google demonstrates a transnational strategy by working locally to improve responsiveness and using local offices to serve niche markets overseas. The company is also known for heavily prioritizing efficiency. Google provides a unique emphasis and focuses on emerging markets, ensuring customers receive the quality they need.
Consumer products company Unilever uses independent, self-sufficient subsidiaries and localized production worldwide to provide local markets with customized goods. With around 500 different units, local companies can largely guide their own strategies and manage their operations with local needs in mind.
While cost is also important at Unilever, consumer products such as Lipton Tea should be high quality and accessible, driving purchasing and brand engagement from customers.
KFC, a prominent purchaser of chicken, achieves substantial supply chain savings while providing local menus that highly cater to customer preferences. Recognized for their fried chicken and Southern US-style side dishes like mashed potatoes, corn, and french fries, KFC outlets offer recipes tailored to local palates across the globe. For instance, patrons in Thailand can enjoy green curry chicken at KFC, while in Indonesia, a bento box meal is available.
Global retail giant Costco values localization as much as the sales volume generated through being a cost leader. A transnational strategy provides Costco with the perfect balance and has represented a smart approach to continued growth into a global brand.
In each country, Costco offers different products reflecting local tastes and preferences. Costco's food court has unique menus – with items such as poutine available in Canada and seafood pizza at Taiwan stores.
Unleashing the Possibilities of Global Growth
Determining your organization's most suitable global expansion strategy enables you to penetrate new international markets and broaden your customer base. Multinational companies can seize the opportunity to attain new objectives and build more robust brand identities.
By adopting a transnational strategy, your business can flourish overseas, positioning your company to compete based on local preferences and price leadership. These reasons make this strategy an ideal choice for your organization.