Strategy, in its most basic form, consists of the actions
managers take in pursuit of company objectives.
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 international strategies: multi-domestic, meganational,
or transnational. These all help the company achieve profitable growth in a global market.
So how are these strategies different? A company that pursues a multi-domestic 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. 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 U.S. 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 help 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, and 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 product that meets 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, Activia and Rastishka, Actimel,
and Danakor. The company also purchased Unimilk, a Russian dairy company and is now the country's
largest dairy producer. The company even hosts educational programs for Russian dairy farmers.
Danone takes a similar multi-domestic strategy in each of its global markets to ensure that it is
meeting the local needs of customers. Taking the opposite stance from the multi-domestic 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.
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 the left to the right side,
depending on each country's local traffic laws. Of course, many companies need to be
both locally responsive and globally integrated. The transnational strategy is a hybrid strategy by
which a company aims to be simultaneously global and local. However, because it's often impossible
to both adapt and standardize products at the same time, companies adopting the transnational
strategy must make trade-offs. For example, they must implement organizational structures that are
complex to encourage ideas to come from the local operations and then to integrate them into global standards.
Like the multi-domestic 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 a meganational strategy and bottom-up
from foreign subsidiary to headquarters as in a multi-domestic strategy. This strategy fosters
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.
Starbucks for instance aims to create a global brand but simultaneously adapt offerings to local market tastes.
For instance, while the company seeks to standardize the ambience of the stores across global markets,
the products offered in the stores changed 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 multi-domestic 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.