What is Transnational Strategy
The transnational strategy is a strategy that centralizes business functions in the best location for that function to achieve competitive advantage whether economies of scale or other advantages. The company that adopts a transnational strategy is choose to centralize each function where it makes sense around the globe, but the decision-making is take place at the local.
The company that adopts a transnational strategy typically leave their headquarter in the country of origin. But the marketing, service, and final assembly functions tend to be based in the national subsidiaries to facilitate local responsiveness. While major components may be produced in centralized manufacturing plants to realize economies of scale and then shipped to assembled in local plants to customized for local needs.
The transnational company may locate the manufacturing plant for labor-intensive products in low-wage countries like China and Mexico and locate the manufacturing plant that requires skilled labor in high-skill countries like Germany and Japan. However, these companies may leave their headquarter in the country of origin.
This allows managers in the transnational company to pursue local adaptation, global integration, and achieve economies of scale simultaneously. It is an approach that enables managers to “think globally, act locally”. Additionally, the experiences from each local subsidiary are able to share among worldwide subsidiaries to improve the company’s knowledge and potential.
For example, the automobile company produced each major component in each country that has high-skill in that component and export these components to assemble and customize based on the local needs in a country that the company wants to sell their cars.
Advantages and Disadvantages of the Transnational Strategy
The transnational strategy is a combination between the multinational strategy and the global strategy. Thus, it gives the company four main advantages in doing international business includes:
- Allow the company to achieve economies of scale to compete with cost.
- Allow the company to produce a product from the best source of manufacturing.
- The company enables to transfer of know-how among the company’s subsidiaries around the globe to improve the company’s knowledge and potential.
- Customize the product based on local preferences since the decision-making is take place at the local.
On the downside, having many subsidiaries in dozens of local requires a significant startup investment, intensive research, foreign legal concerns, regulatory concerns, and sometimes require elaborate formal mechanisms like transnational committees staffed by people from the various subsidiaries to monitor coordination among subsidiaries activities.
The transnational strategy is a strategy that centralizes business functions in the best country for that function to achieve competitive advantages.
The transnational company enables to pursue local responsiveness and global integration, simultaneously.