Transnational Organization

Organizations competing on an international basis face choices in terms of resource allocation, the balance of authority between the central office and business units, and the degree to which products and services are customized in order to accommodate tastes and preferences of local markets. When employing a transnational strategy, the goal is to combine elements of global and multi-domestic strategies.

A global strategy involves a high degree of concentration of resources and capabilities in the central office and centralization of authority in order to exploit potential scale and learning economies. Customization at the local level is thus necessarily low. The multidomestic strategy, on the other hand, represents the opposite view of international strategy. Resources are dispersed throughout the various countries where the firm does business, decision-making authority is pushed down to the local level, and each business unit is allowed to customize product and market offerings to specific needs. The corporation as a whole foregoes the benefits that could be derived from centralization and coordination of diverse activities. While the transnational paradigm can offer advantages, having a presence in foreign countries can present issues in terms of human and workers' rights, especially in China and India. In 2008, the United Nations presented “Indigenous Peoples and Human Rights Impacts of Transnational Corporations”—a speech delivered in Geneva that addressed the potential human rights abuses that arise as a result of transnational entities wishing to take advantage of workers in third-world regions.

A transnational strategy allows for the attainment of benefits inherent in both global and multidomestic strategies. The overseas components are integrated into the overall corporate structure across several dimensions, and each of the components is empowered to become a source of specialized innovation. It is a management approach in which an organization integrates its global business activities through close cooperation and interdependence

among its headquarters, operations, and international subsidiaries, and its use of appropriate global information technologies (Zwass, 1998). This is especially important as globalizing becomes the norm, and as firms begin to compete for the same resources on both the regional and global scales.

The key philosophy of a transnational organization is adaptation to all environmental situations and achieving flexibility by capitalizing on knowledge flows (which take the form of decisions and value-added information) and two-way communication throughout the organization. The principal characteristic of a transnational strategy is the differentiated contributions by all its units to integrated worldwide operations. As one of its other characteristics, a joint innovation by a company's headquarters and by some of its overseas units leads to the development of relatively standardized yet flexible products and services that can capture several local markets. Having a product or service that is recognizable anywhere and universal enough to capture multiple demographics in multiple regions will enable a firm to successfully develop on the global set.

Structure follows strategy, implying that a transnational strategy must have an appropriate structure in order to implement the strategy. Just as the transnational strategy is a combination or hybrid strategy between global and multidomestic strategies, the organizational structure of firms pursuing transnational strategies is a structure that draws on characteristics of the worldwide geographic structure and the worldwide product divisional structure. The combination of mechanisms needed is somewhat contradictory, because the structure must be centralized and decentralized, integrated and nonintegrated, and formalized and informalized. But firms that can successfully implement this strategy and structure often perform better than firms pursuing only multidomestic or global strategies.

Transnational companies often enter into strategic alliances with their customers, suppliers, and other business partners to save time and capital. As long-term partnerships, these alliances may bring specialized competencies to the firm, relatively stable and sophisticated market outlets that hone its products and services, and stable and flexible supply sources. This may result in a virtual corporation, consisting of several independent firms that collaborate to bring products or services to market from various points on the globe.

A transnational model represents a compromise between local autonomy and centralized decision making. The organization seeks a balance between the pressures to integrate globally and response from a local audience. Balance is achieved by pursuing a distributed strategy—a hybrid of the centralized and decentralized strategies. Under the transnational model, a multinational corporation's assets and capabilities are dispersed according to the most beneficial location for a specific objective. Simultaneously, overseas operations are interdependent, and knowledge is developed jointly and shared worldwide. It is important to understand that a transnational firm brings goods and services to locales where the culture may not always be parallel with the culture from which the goods and services originate—sensitivity in this respect is of the utmost importance. Global leaders in transnational business are established on this understanding.

Transnational firms have higher degrees of coordination with low control dispersed throughout the organization. According to Vitalari and Wetherbe, the five implementation tactics used for implementing the trans-national model are:

• Mass customization: synergies through global research and development (e.g., American Express, Time Warner, Frito-Lay, MCI)
• Global sourcing and logistics (e.g., Benetton, Citicorp)
• Global intelligence and information resources (e.g., Andersen Consulting, McKinsey Consulting)
• Global customer service (e.g., American Express)
• Global alliances (e.g., British Airways and US Air; KLM and Northwest)

STUDIES

In a 2002 study of SBUs in large U.S.-based multinational firms, Wasilewski reported positive associations between transnational marketing strategies and performance. Improvements apparently resulted both from efficiencies gained from global integration and flexibility inherent in national responsiveness. In 2008, Sherise Epstein reported in “Globalization: Transnational Corporations and Economies and Culture” that transnational corporations (including McDonald's and WalMart) bring their corporate culture to parts of the world where it may—or may not—necessarily belong or behoove the native population. Subsequently, this may cause potential issues between those who appreciate the new cultural structure and those who do not.

King and Sethi define a comprehensive taxonomy of transnational strategy with five important dimensions of transnational strategy: the configuration of value-chain activities, which refers to the geographic dispersal of a firm's value-chain components; the coordination of value-chain activities; centralization; strategic alliances; and market integration, which refers to the extent to which the parent corporation views the international market as a single competitive arena.

Asea Brown Boveri (ABB) is an example of a successful transnational management model implementation. ABB, with home bases in Sweden and Switzerland, exemplifies the trend towards cross-national mergers that lead firms to consider multiple headquarters in the future. It is managed as a flexible network of units, and one of management's main functions is the facilitation of information/knowledge flow between units. ABB's subsidiaries have full responsibility for product categories on a worldwide basis. Operating transnationally brings the benefits of access to new markets and the opportunity to utilize and develop resources wherever they may be located.

Nestlé CEO Peter Brabeck recently questioned the idea of a so-called global consumer. The firm appears to be successfully implementing a transnational strategy by making centralization decisions based partly on whether value-chain activities are upstream or downstream. When interviewed in 2001 by Suzy Wetlaufer, Brabeck stated, “The closer we come to the consumer, in branding, pricing, communication, and product adaptation, the more we decentralize. The more we are dealing with production, logistics, and supply-chain management, the more centralized decision making becomes. After all, we want to leverage Nestlés size, not be hampered by it.”

SEE ALSO International Business; International Management; Organizational Structure

BIBLIOGRAPHY

Bartlett, C.A., and S. Ghoshal. Managing Across Borders. The Transnational Solution. Boston: Harvard Business School Press, 1998.

———. “Managing Innovation in the Transnational Corporation.” Managing the Global Firm. edited by C.A. Bartlett, Y. Doz, and G. Hedlund. London: Routledge, 1990.

Carillo, J. “Transnational Strategies and Regional Development: The Case of GM and Delphi in Mexico.” Industry and Innovation 11 (2004): 127–153.

Child, J., and Y. Yan. “National and Transnational Effects inInternational Business: Indications from Sino-Foreign Joint Ventures.” Management International Review 41, no. 1 (2001): 53–75.

Engle, A.D., and M.E. Mendenhall. “Transnational Roles, Transnational Rewards: Global Integration in Compensation.” Employee Relations 26 (2004): 613–625.

“Globalization: Transnational Corporations and Economies and Culture.” Available from: http://sherise.wordpress.com/2008/07/19/essay-globalization-transnational-corporations-economies-and-culture/.

Hitt, M.A., R.D. Ireland, and R.E. Hoskisson Strategic Management: Competitiveness and Globalization: Concepts and Cases. 6th ed., Mason, OH: South-Western Publishing, 2005.

“Indigenous Peoples and Human Rights Impacts of Transnational Corporations, United Nations Human Rights Council, 8th session, June 2–18 2008, Geneva.” Available from: http://www.treatycouncil.org/section_21141711211121111322111221.htm.

Jones, M. “Globalization and Organizational Restructuring: A Strategic Perspective.” Thunderbird International Business Review 44 (2002): 325–351.

King, William R., and Vikram Sethi. “An Empirical Assessment of the Organization of Transnational Information Systems.” Journal of Management Information Systems, Spring 1999, 7–28.

Moran, Robert T., Sarah Moran and Philip R. Harris. “Managing Cultural Differences, Seventh Edition: Global Leadership Strategies for the 21st Century.” Massachusetts: Elsevier Inc., 2007.

Sauvant, Karl P.“The Rise of Transnational Corporations from Emerging Markets: Threat or Opportunity.” Massachusetts: Edward Elgar Publishing Limited, 2008.

Vitalari, Nicholas P., and James C. Wetherbe. “Emerging Best Practices in Global Systems Development.” In Global Information Technology and Systems Development. edited byP.C. Palvia, S.C. Palvia, and E.M. Roche. Nashau, NH: Ivy League Publishing, Ltd., 1996.

Wasilewski, N. “An Empirical Study of the Desirability and Challenges of Implementing Transnational Marketing Strategies.” Advances in Competitiveness Research 10, no. 1 (2002): 123–149.

Wetlaufer, Suzy. “The Business Case Against Revolution: An Interview with Nestle's Peter Brabeck.” Harvard Business Review 79, no. 2 (2001): 112–121.

Zwass, Vladimir. Foundations of Information Systems. New York: Irwin/McGraw-Hill, 1998.