International Business Strategy
Even smaller businesses have been able to operate internationally due to the previous several decades’ rising globalization. Due to this, enterprises that operate beyond borders have been referred to by a variety of names, including multinationals, global businesses, transnational corporations, international firms, etc. This article’s objective is to fully clarify these various phrases and show how they differ from one another because they do! The Bartlett & Ghoshal Matrix is a frequently employed classification system for several types of globally functioning enterprises (1989). These companies were grouped by Bartlett and Ghoshal based on their global integration and local response. Businesses with a high degree of global integration aim to cut costs as much as possible by achieving economies of scale through a more uniform product offering globally. Businesses with a strong focus on local requirements also aim to tailor their goods and services to meet those demands. These strategy alternatives appear to be mutually incompatible, however as can be seen in some of the examples below, there are businesses who are attempting to be both globally interconnected and locally responsive. These two characteristics when combined result in four different sorts of strategies that organizations with global operations might use: multidomestic, global, transnational, and international strategies.
Multidomestic: Low Integration and High Responsiveness
Companies with a multidomestic approach attempt to extensively customize and modify their products and services to the demands and requirements of local markets across the world. Additionally, they are not under any pressure to integrate internationally. As a result, multidomestic organizations sometimes have a fairly dispersed and loosely connected structure with relatively independent subsidiaries operating throughout the globe. Nestlé is a fantastic illustration of a multidomestic business. For each market in which it competes, Nestlé has a distinct marketing and sales strategy. Additionally, it caters to regional tastes by supplying various items in various markets.
Benefits of Multi-Domestic Strategy
- It improves a company’s foothold in local markets more effectively and speedily by assisting businesses in developing a local product portfolio that can be grown in accordance with their success.
- It results in a more significant local competitive advantage since it decentralizes decision-making to streamline operations.
- It results in a reliable customizing system for the company.
- Businesses have the chance to profit from the area’s abundant natural resources, affordable labour, and local shipping networks.
- It enables companies to think creatively and fully utilize their capabilities in order to serve various areas in various ways.
- It offers the business a competitive edge over already-available, similar items.
Global: High Integration and Low Responsiveness
Multinational corporations are the reverse of global corporations. They provide a uniform product over the world and strive to maximize efficiency to reduce expenses as much as feasible. Global businesses are heavily centralized, and their branches frequently rely heavily on the HQ. Their primary responsibilities include carrying out parent business directives and serving as conduits for ideas and tactics. This design is also referred to as the hub-and-spoke design. Global corporations might include pharmaceutical firms like Pfizer.
Benefits of Global Strategy
- The greatest amount of economies of scale are utilized.
- By putting less of an emphasis on customization and individuality, it helps firms save expenses.
- Because there is only one product line, it streamlines the process of developing new products.
- The working procedure is effective and smooth because there are just minor alterations.
- It creates a focused yet strong brand across all locations.
- With a single line of goods or services, it improves the identification of the brand on a worldwide scale.
- By increasing income through increased sales of the same goods and services, it enables the business to profit from the creation of new markets.
Transnational: High Integration and High Responsiveness
Both global and multi-national company traits apply to multinational businesses. Its objective is to optimize local responsiveness while also maximizing the advantages of global integration. Even while it might appear implausible, it is really quite feasible when the entire value chain is taken into account. International businesses frequently strive to build economies of scale farther up the value chain while also being more adaptable and agile in local markets for operations like marketing and sales. A transnational firm is defined by its interconnected and interdependent global network of subsidiaries in terms of organizational structure. These subsidiaries serve as centers of excellence and play strategic roles. The corporation as a whole is able to accomplish both strategic goals thanks to effective knowledge and experience exchange across subsidiaries. Unilever is a fantastic illustration of a worldwide corporation.
Benefits of Transnational Strategy
- It aids in developing an identifiable, adaptable, and welcoming brand across international borders.
- It aids companies in establishing direct connections with other cultures in order to increase market share since it also focuses on local tastes.
- All operations are streamlined and centralized from a single head office.
- It aids companies in maximizing the benefits of economies of scale.
- It is a very customer-focused approach.
- It stresses individualized global standardization and is hence economical.
International: Low Integration and Low Responsiveness
This type was initially excluded from Bartlett and Ghoshal’s typologies. While some writers have credited the term to the matrix’s lower left corner. Therefore, localization and global integration are not always necessities for a worldwide business. The headquarters will continue to host most value chain operations. This approach is frequently referred to as an exporting approach. The firm manufactures its goods there and ships them to consumers all over the world. If there are any subsidiaries, they are acting more as regional sales channels for the items in this situation. Large wine producers from nations like France and Italy are excellent examples of global businesses.
Benefits of International Strategy
- It enables companies to evaluate the market viability of their goods and services without having to make significant financial or manpower commitments.
- Companies may use the method to reduce the number of SKUs in their product portfolios and simplify them depending on which products sell well throughout the world.
- It provides access to increased sales and net income opportunities.
- It makes it simpler for businesses to access talent throughout the world.
- Organizations have the chance to learn about many cultures and customs from across the world, fostering inclusiveness and diversity.
- Companies are exposed to foreign direct investments, and it increases market share globally.
- Additionally, it instantly assists the company in creating a consistent, well-known, and identifiable brand on a global scale.
MNE Archetypes of Administrative Heritage
Academics other than Bartlett and Ghoshal have also been attempting to categorize multinational corporations. Four MNE archetypes were identified by Verbeke (2013) after studying a significant number of multinational businesses (MNEs) and their administrative histories: the Centralized Exporter, the International Projector, the International Coordinator, and the Multi-Centered MNE. The details of each are provided below.
The centralized exporter is an organization run in the home nation that engages in foreign commerce and product sales. In this instance, the majority of manufacturing facilities are situated in the home nation, and any overseas subsidiaries mostly serve as facilitators for effective home nation production. Products are standard, and only a small amount of customer-focused work is done abroad. In Bartlett and Ghoshal’s typology, the centralized exporter is quite similar to an international or global corporation.
The international projector is the second archetype. These businesses continue a long tradition of disseminating their private knowledge—which was created in the nation of origin—to overseas subsidiaries. Since the company model and its formula for success are simply copied and pasted abroad, these subsidiaries are virtually exact replicas of the home businesses. This tactic was employed by the automaker Ford in its early 1900s years. Another excellent example of a successful business model that has been imitated all over the world is Disneyland.
As can be seen from the two aforementioned models, the international coordinator does not just rely on information and materials from its own nation. Instead, through a closely controlled yet flexible logistics role, the international coordinator controls global operations at both the upstream and downstream ends of the value chain. In order to create an effective vertical value chain across borders, they take use of geographical advantages from various nations. Therefore, it is quite feasible that the raw ingredients be purchased, processed, and assembled in different nations depending on where labour is most affordable. Apple is a prime illustration of a global organizer. Apple’s flagship product, the iPhone, is made up of parts that are sourced from several vendors all over the world and manufactured in China. On the other hand, Apple’s headquarters in California continues to be the location of choice for design and marketing.
Last but not least, the multinational MNE consists of a number of successful foreign subsidiaries. The core of this company’s approach is local responsiveness. These companies’ common financial governance and the identities and interests of the founders and owners are the only things keeping them together. The multicenter MNE should ultimately be seen as a portfolio of essentially independent and autonomous firms. The multidomestic technique developed by Bartlett and Ghoshal is most closely related to this typology. This strategy was popularized by Philips in the company’s early years.
International Business in Sum
All things considered, there are several options for businesses to conduct business abroad. Multinational enterprises or firms (MNEs or MNCs) are terms used to describe businesses that have economic activities in at least two different countries. However, whether we can label a corporation international, global, or transnational depends on how they conduct business overseas. You will be able to develop your own strategy alternatives for going global more effectively if you are aware of these several sorts of multinationals. You might wish to read more about the OLI paradigm if you’re interested in learning more about choices for entering overseas markets.
Also Read: GE McKinsey Matrix: A Multifactorial Portfolio Analysis in Corporate Strategy