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
Global: High Integration and Low Responsiveness
Transnational: High Integration and High Responsiveness
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.
Centralized Exporter
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.
International Projector
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.
International Coordinator
Multicentred MNE
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.
Further Reading:
- 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.