International Business Strategy
Due to increasing globalisation the past decades, even smaller companies have been able to cross national borders and do business abroad. Consequently, many terms have been given to companies operating in multiple countries: multinationals, global businesses, transnational companies, international firms et cetera. The aim of this article is to clearly define these different terms and see how they differ from each other, because they do differ! An often used framework to distinguish multiple forms of internationally operating businesses is the Bartlett & Ghoshal Matrix (1989). Bartlett and Ghoshal clustered these businesses based on two criteria: global integration and local responsiveness. Businesses that are highly globally integrated have the objective to reduce costs as much as possible by creating economies of scale through a more standarized product offering worldwide. Business that are highly locally responsive have as extra objective to adapt products and services to specific local needs. It seems that these strategic options are mutually exclusive, but there are companies trying to be both globally integrated and locally responsive as can be seen in some examples below. Together these two factors generate four types of strategies that internationally operating businesses can pursue: Multidomestic, Global, Transnational and International strategies.
Figure 1: Bartlett and Ghoshal’s Typology of Multinational Companies:
Global, Transnational, International and Multidomestic Strategy
Multidomestic: Low Integration and High Responsiveness
Companies with a multidomestic strategy have as aim to meet the needs and requirements of the local markets worldwide by customizing and tailoring their products and services extensively. In addition, they have little pressure for global integration. Consequently, multidomestic firms often have a very decentralized and loosely coupled structure where subsidiaries worldwide are operating relatively autonomously and independent from the headquarter. A great example of a multidomestic company is Nestlé. Nestlé uses a unique marketing and sales approach for each of the markets in which it operates. Furthermore, it adapts its products to local tastes by offering different products in different markets.
Global: High Integration and Low Responsiveness
Global companies are the opposite of multidomestic companies. They offer a standarized product worldwide and have the goal to maximize efficiencies in order to recude costs as much as possible. Global companies are highly centralized and subsidiaries are often very dependent on the HQ. Their main role is to implement the parent company’s decisions and to act as pipelines of products and strategies. This model is also known as the hub-and-spoke model. Pharmaceutical companies such as Pfizer can be considered global companies.
Transnational: High Integration and High Responsiveness
The transnational company has characteristics of both the global and multidomestic firm. Its aim is to maximize local responsiveness but also to gain benefits from global integration. Even though this seems impossible, it is actually perfectly doable when taking the whole value chain into considerations. Transnational companies often try to create economies of scale more upstream in the value chain and be more flexible and locally adaptive in downstream activities such as marketing and sales. In terms of organizational design, a transnational company is characterised by an integrated and interdependent network of subsidiaries all over the world. These subsidiaries have strategic roles and act as centres of excellence. Due to efficient knowledge and expertise exchange between subsidiaries, the company in general is able to meet both strategic objectives. A great example of a transnational company is Unilever.
International: Low Integration and Low Responsiveness
Bartlett and Ghoshal originally didn’t include this type in their typologies. Other authors on the other hand have attributed the name to the lower left corner of the matrix. An international company therefore has little need for local adaption and global integration. The majority of the value chain activities will be maintained at the headquarter. This strategy is also often referred to as an exporting strategy. Products are produced in the company’s home country and send to customers all over the world. Subsidiaries, if any, are functioning in this case more like local channels through which the products are being sold to the end-consumer. Large wine producers from countries such as France and Italy are great examples of international companies.
Figure 2: Organizational structures of the Bartlett and Ghoshal’s MNC Typology:
Global, Transnational, International and Multidomestic Strategy
Table 1: Characteristics of MNC Types (Multidomestic, Global, Transnational) – Bartlett and Ghoshal
MNE Archetypes of Administrative Heritage
Bartlett and Ghoshal are not the only academics who have been trying to classify internationally operating companies. Verbeke (2013) has looked at a large number of multinational enterprises (MNE’s) and their administrative heritage, and distinguished four archetypes of MNE’s: Centralized Exporter, International Projector, International Coordinator and the Multi-centred MNE. Each will be elaborated on below.
The centralized exporter is a home-country managed firm that trades and sells products internationally. In this case, most production facilities are located in the home country and foreign subsidiaries, if any, are functioning largely as facilitators for efficient home country production. Products are standarized and only minor customer-oriented activities are done abroad. The centralized exporter is very close to an international or global company in Bartlett and Ghoshal’s typology.
The second archetype is the international projector. These kind of companies build upon a tradition of transferring its proprietary knowledge, which was developed in the home country, to foreign subsidiaries across the globe. These subsidiaries are essentially clones of the home operations, since the business model and its success recipe are simply copied and pasted abroad. The automotive company Ford is known for this strategy in its early days in the 1900s. Disneyland is another great example of a successful business model that has been copied all over the world.
The international coordinator does not only rely on knowledge and resources from its home country as could be seen in the two archetypes above. Instead the international coordinator manages international operations both upstream and downstream the value chain through a tightly-controlled but still flexible logistics function. They tap into location advantages from multiple countries in order to form an efficient vertical value chain across borders. It is therefore perfectly possible that the raw materials are bought and manufactured in multiple countries and that the product is being assembled elsewhere where labor is cheapest. A good example of an international coordinator is Apple. The components of Apple’s flagship product, the iPhone, are bought from multiple suppliers all over the world and are finally assembled in China. Design and marketing on the other hand are still largely done in California where Apple is headquartered.
Finally, the multicentred MNE consist of a set of entrepreneurial subsidiaries abroad. Local responsiveness is the foundation of this company’s strategy. The only thing that holds these firms together are the shared financial governance and the identity and interests of the founding fathers and owners of the company. Ultimately the multicentred MNE should be viewed as a portfolio of largely autonomous and independent businesses. Bartlett and Ghoshal’s multidomestic strategy is most closely associated with this archetype. Philips is known for using this approach in the early years of its existance.
Figure 3: MNE Archetypes of Administrative Heritage (Verbeke, 2013):
Centralized Exporter, International Projector, International Coordinator and Multi-centred MNE
International Business In Sum
Taken this all together, there are many ways in which companies can do business abroad. When a firm has economic operations located in at least two countries, they are often referred to as multinational enterprises or companies (MNE’s or MNC’s). But the way in which they do business abroad determines whether we can call it an international, global or transnational company for instance. By being aware of these different types of multinationals, you will be better able to structure your own strategic options when going global. In case you want to know more about foreign market entry options, you might want to read more about the OLI paradigm.
- Bartlett, C.A. & Ghoshal, S. (1989). Managing Across Borders. The Transnational Solution. Boston: Harvard Business School Press.
- Harzing, A.W. (2000). An Empirical Analysis and Extension of the Bartlett and Ghoshal Typology of Multinational Companies. Journal of International Business Studies.
- Verbeke, A. (2013). International Business Strategy. Cambridge University Press.
4 thoughts on “International Business Strategy”
GOOD ENOUGH FOR YOUNG BUSINESS MEN AS ME
Well done and informative. This helped me understand the terms better. Thanks.
Amazing article, brought clarity to all sub types, along with examples. Thank you for this.
The content was very informative and understandable. The examples used made it practical. Nice piece!