Types of international strategy u7 p73

Many national markets are segments within a broader global market.

MNCs carry out global strategies, produce standard products with minor variations and market them around the world, sourcing assets and activities on an optimal cost basis and adapting where necessary to local cultures and tastes.

Their organisation can be anywhere from a centralised structure to a decentralised network of companies. The opportunity for a variety of different international strategies exists.

There are two basic types of international industry structure and strategy: 'multinational' industries and 'global' industries.

Multinational industries: significant differences exist between country markets. Each national market is standalone and requires a standalone multinational strategy that treats competition in each country or region as separate. Porter (1986) calls these multidomestics
Global industries: those which have significant similarities across all country markets. That makes possible integrated global strategies across countries and regions.

examples: p&g p74, philips p74+

Trying to follow a multinational strategy in a global industry will result in significant cost disadvantage to globally-organised competitors. Likewise, following a global strategy in a multinational industry is likely to be disadvantageous as individual country markets are too different to be treated in a homogeneous way.

There are four approaches to being international: multinational, global, international and transnational. You may pass through different stages during your own international development. You may also pursue different strategies in different countries in which you operate. The differences may weaken the company by creating an inflated cost structure, unnecessary duplication, confused image and poor bargaining power, as happened at Nestlé and Philips. It may be that the duplication of dedicated overhead and varied positioning is the reason for success.

The important thing is that different strategies are viable in different context, for different products in different markets.

The 4 most frequently adopted approaches are:

As already mentioned,
1. Multinationals (multidomestic) - treat each country market as independent and best serviced by local subsidiary
2. Global - emphasise worldwide strategies to benefit from operational scale. Heavily centralised.

Plus
3. International - copy from the centre to transfer and share knowledge around the various business units to allow the whole organisation to benefit from experience gained in any one part
4. Transnationals - generate and transfer knowledge and expertise both locally and centrally - the ability to learn from any part of the organisation

See table 4.1 p78

The development from one international organisational form to another is path dependent. The forms can be transitional, but need not be. They may represent the optimal organisational form for the context, at least for a period.

Multinational, multidomestic, and multilocal are all different words for the same thing.

Often, sales and marketing functions are performed locally, even in a Global industry. Ghoshal's "organising framework" (1987) presents the benefits of global strategies in terms of effectiveness in managing efficiency, risk and innovation. These are achieved through the ability to exploit comparative advantage, economies of scale and economies of scope.

While porter's diamond helps explain how national conditions can affect the international competitiveness of firms, Ghoshal's organising framework gives specific guidance on the relevance of global strategy for individual organisations. He helps us to think about and answer "What is the point of having a global strategy?"

This framework can be used prescriptively. In other words if you cannot identify any of these nine elements to justify a potential global strategy, then you should not be thinking about developing a global strategy at all.

Branding could be an example of achieving economies of scope, and as an MNC you will select key brands to standardise and send a consistent worldwide message, and promote one brand, one packaging etc. Simplified brand portfolios help realised scale and scope economies. eg Access->Mastercard, Marathon->Snickers, Bounty->Plenty, Jif->Cif etc.

The transnational is a result of the continuing search for international organisation structures to match the complexity of evolving international strategies. It could be considered as a state of mind or an attitude, rather than just a structure.

It is a state of mind within a flexible structure which is adaptable and which sees efficiency across international boundaries as something that can be achieved through learning and sharing that learning. It requires managers to be global and multinational at the same time.Standardisation rately means the same product in all markets, but rather local adaptations around a standardised core. The question is how to tailor the global marketing concept to fit each business (Quelch and Hoff 1986, p67). This has become known as glocalisation. Example - KFC & nappies, p85.

It is possible to provide variety at low cost through mass customisation via automation. Global strategies should not focus only on the benefits of standardisation as skill at adaptation is becoming more important. Global firms sell almost no standardised products. They all have some degree of adjustment suited to the local consumer, whether it is how it is packaged or the foltage at which it operates. These trends for glocalisation and mass customisation require complex and flexible organisations to make them work across borders. That is what the transnational can do.

Bartlett and Ghoshal (1989) define the transnational as an integrated network. They say that "simple global" organisations have a centralised hub where key roles and influence are located. Communications go from the centre out to the peripheries - top down. Multinationals have the peripheries where the roles and influences are and the centre is just for co-ordination, communications go in from the peripheries to the centre, a multidomestic, multilocal, multinational or now a "decentralised federation".

In the transnational type, communications are bidirectional and multilateral, there is no one central area of influence or co-ordination. This is the emegence of the N-form - "beyond the M form" - |Bartlett and Ghoshal 1993. One way of understanding the structure of a transnational organisation is as an effective international learning organisation.

Example - Siemens, p88

Nonaka (1990) says that MNCs that can manage globalisation are doing it as part of a self-renewing process. This involves continuous information creation, requiring internal cross-border integration and establishment multiple corporate headquarters.

International service delivery is about providing a standard quality service to the customer. In service, it is often the customer who internationalises first, with the service company following to meet the needs of important clients. Examples are Interpublic and WPP.

Branding of services has become an important international guarantee of reputation, quality and consistency around the world.  Service industries and multinational service firms have distinct characteristics that add risk and delivery problems to the design and implementation of global strategies for services.

These include those of intangibility (of the service itself) and simultaneity (simultaneous production and consumption of a service). This makes management of the quality of the experience for the customer or client critical.

Normally the way to do this is through standardisation. International strategy literature has given relatively little attention to service industries.

Service firms have historically located close to the customer due to simultaneity. For example, fast food chains. However they do not always need to, eg software outsourcing in india.

Much modern international strategy literature suggests that global stgrategy is declining in influence, or has possibly never actually been global and that regional strategy is becoming more significant. Arising from the formation of regional trading blocs, regionalisation may be viewed as a stepping stone to full globalisation. It may also be viewed as an entirely different construction of resources, trading partners and patterns. It is therefore possible to make a case for globalisation as the obsolete concept with regionalisation emerging as the dominant form!

The triad of Europe-North America-Asia is dominant. Only 1 of the top 49 retail MNCs is global with at least 20% of sales in each region of the triad (Rugman 2003). The world's largest retailers are mainly strongly segmented regional (not global) players.

It is also possible to argue that regional strategies are replacing national ones, at least in some key parts in the value chain.

Hart and Christensen(2002) argued that the poor of the world are inadequately served by MNCs. They suggested that international strategies should focus on customers in emerging markets and transition economies, rather than developed countries. This would be to focus on the "base of the pyramid" (There are approx 4bn people in the world who are at the bottom of the economic pyramid but aspire to join the market economy).