How do you win in a global market? This video shows how to position your company in a global market, depending upon your objectives.
What is International Strategy?
Strategy, in its most basic form, consists of the actions managers take in pursuit of company objectives for profitable growth. Any company’s managers need to be explicit about the strategy they are following and how it relates to industry competitors. This type of positioning helps employees know how to focus their day-to-day efforts.
The purpose of following an international strategy is to manage the differences that arise when operating across multiple geographic and cultural borders. Global managers are likely to adopt one of three distinct types of international strategy—multidomestic, meganational, or transnational—to help the company achieve profitable growth in a global market.
How are these types of international strategy different?
Multidomestic strategy definition
A company that pursues a multidomestic strategy customizes products, services, and operations so it can respond to customers and employees in each of the countries where it operates. In effect, the company becomes a group of locally focused subsidiaries that act independently, like domestic companies, deciding how the product is designed, made, distributed, and marketed in their local markets.
Examples of multidomestic strategy
Danone (Parent company of Dannon Yogurt)
Groupe Danone started in Barcelona,Spain in 1919. The company introduced yogurt to Europe. Ten years later, in 1929, the company opened its first retail outlet in Paris, selling yogurt as a dessert. In 1942, the company expanded to the US. In 1970, the company expanded its products beyond yogurt with the purchase of Evian, a beverage and baby formula company. Over the next 20 years the company purchased a number of food companies in Europe and expanded to over 140 countries. The mission of the company is to “bring health through food to as many people as possible.”
Today, this mission guides 100,000 Danoners motivated by the belief that nutrition can and must contribute to bringing health to consumers of all ages, in all countries, of all cultures.
However, the company doesn't focus on selling the same thing to each of the markets. Rather, the company believes in creating products that meet the tastes of each country. For instance, as the company entered Russia in 1992, it built a factory and introduced yogurt brands specifically designed for the Russian market.
These include: Danissimo (1997), Activia and Rastishka (2001), Actimel (2002), and Danakor (2007). Danone also purchased Unimilk, a Russian dairy, and is now the country’s largest dairy producer. Danone even hosts educational programs for Russian Dairy farmers—all of these efforts in Russia alone.
Danone takes a similar multidomestic strategy in each of its global markets to ensure that it is meeting the local needs of customers.
Meganational strategy definition
Taking the opposite stance from the multidomestic strategy, a meganational strategy focuses on reaping cost reductions from economies of scale and other efficiencies of global integration. Managers at headquarters create products for a world market, manufacture them on a global scale in a few highly efficient plants, and market them through a few key distribution channels.
This strategy requires that companies exploit location economies: the cost advantage of performing each stage in the value chain at the lowest cost for that activity. For instance, aluminum production might occur in the United States where electricity costs are low, manufacturing in Indonesia where labor costs are low, and IT support in India where service-labor costs are low. In this way, a meganational strategy is really about seeing the world as one huge national market.
Examples of companies that use a meganational strategy
Toyota, Volkswagen, GM and Ford all engage in a meganational strategy. These firms source auto components from locations around the world, bring them together in global factories and then export the finished products all over the world. Few modifications are made to meet local customer needs, other than changing the steering wheel from left to right-side depending on each country’s local traffic laws.
Transnational strategy definition
Of course, many companies need to be both locally responsive and globally integrated: this is how transnational strategy evolved. Transnational strategy is a hybrid strategy by which a company aims to be simultaneously global and local. However, because it is often impossible to both adapt and standardize products at the same time, companies adopting the transnational strategy must make tradeoffs.
For example, companies must implement organizational structures that are complex, to encourage ideas to come up from local operations and then to integrate them into global standards. Like the multidomestic approach, the transnational strategy allows subsidiaries the discretion and autonomy to adapt and customize locally. However, that discretion is bounded by global integration and coordination from headquarters. Unlike the case in a meganational strategy that achieves integration through decisions made mostly by headquarters, integration in a transnational organization comes about when the different subsidiaries coordinating and exchanging information make more informed decisions.
Transnational strategies mix top-down (from headquarters to subsidiaries, as in meganational) and bottom-up (from foreign subsidiary to headquarters, as in multidomestic),coordination from all over the organization, in an effort to take what is best in each global market and utilize this around the globe regardless of where ideas originate.
Example of a transnational company: Starbucks
Starbucks, for instance, aims to create a global brand but simultaneously adapt its offerings to local market tastes. For instance, while the company seeks to standardize the ambiance of the stores across global markets, the products offered in the stores changes based on local preferences. In China, customers can get a green tea latte with a red bean scone.
Deciding whether your company should pursue a transnational strategy over a meganational or multidomestic strategy rests primarily on your objectives and on your perceived needs to standardize operations or adapt them across borders. Regardless, all three strategies will help you to more effectively manage the differences that arise across borders.
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