In a progressively competitive business setting, companies inescapably shift towards identifying and maximizing their fundamental and characteristic competencies to stay competitive.  To do this, companies must participate in strategic management (Odiyo, Chepkilot & Ochieng, 2013).   “A transnational strategy is when a business is simultaneously attempting to achieve low costs through location, economies of scale, and learning effects; differentiate their products or services across a variety of geographic markets accounting for local differences; and attempt to foster a flow of skills between subsidiaries in the organization’s network” (Hill, 2019, p.384).  

Transnational strategies are important because research has shown that 17 of the 100 companies that hold the most foreign assets keep more than 90% of their assets across borders and roughly $5 trillion are stored by transnational companies in cash (Kang & Hwang, 2018).  For example, General Electric possesses the most assets abroad of all global non-financial firms with 70% of their total assets being foreign assets (Kang & Hwang, 2018).

Although a transnational strategy has some advantages such as expansion, and potential savings through cheap labor and raw material, there are also some challenges to implementing a transnational strategy.  These challenges include a lack of understanding the markets the company is attempting to infiltrate (Parikh, 2018); costs in differentiating the product to those different geographical markets (Hill, 2019); legal, political, and operational risks if a company does not have the resources to help manage these risks and; the decentralization that comes with a transnational business might lead to a loss of control over operations (Parikh, 2018). 

Firms must have an effective strategy for overcoming these challenges. First, transnational organizations must identify the essential areas where investing or allocating their precious resources will capitalize on the attractive opportunities within the market and concentrate on establishing strong networks with key stakeholders. Second, firms “should manage the knowledge flows and provide strategic direction in cooperative venture for the long-term successful future and ensure that every department has an effective coordination with other departments to bring about the organizational change” (Kang & Hwang, 2018, p.119). Lastly, managers must evaluate the company’s strengths and weaknesses and assess different external environmental forces (Kang & Hwang, 2018).

References

Hill, C. W. (2019). International Business: Competing in the global marketplace. New York, NY: McGraw Hill Education.

Kang, E., & Hwang, H. J. (2018). Strategic Management Plan for Transnational Organizations. The Journal of Asian Finance, Economics and Business (JAFEB), 5(2), 119-128.

Odiyo, W.O., Chepkilot, R.K., & Ochieng, I. (2013). Challenges to Implementation of Business Strategies: Implications on Business Sustainability of Transnational Tea Firms in Kenya.

Parikh, V. (2018, January 14). Advantages and Disadvantages of Transnational Strategy. Retrieved from https://www.letslearnfinance.com/advantages-disadvantages-transnational-strategy.html