An empirical study of the desirability and challenges of implementing transnational marketing strategies.

ABSTRACT

The integration-responsiveness (I-R) framework was employed to study the relationship among the alternate international marketing strategies (multidomestic, multifocal, global, transnational). Specifically, the study investigated whether firms which employ marketing strategies that are closer to the transnational model perceive their marketing performance to be higher than those of firms that employ other international marketing strategy types. Data were obtained from a survey of SBUs in large U.S.-based MNEs and then analyzed to evaluate the performance of the SBU's marketing under the alternate international marketing strategies. Results indicate a significant, positive relationship between the extent to which the SBU international marketing strategy approaches that of the transnational type, and the perceived marketing performance of the SBU. The findings suggest that greater improvements in MNE SBU marketing performance are obtained as the efficiencies from global integration and the flexibilities from national responsiveness are pursued without a tradeoff of one for the other. However, the findings also suggest that there may be limitations to the desirability and attainment of transnational strategies from increasing national responsiveness and/or global integration.

INTRODUCTION

Globalization has generated increased demands on multinational enterprises (MNEs) to formulate and implement international strategies that respond to pressures for both external flexibility and internal efficiency (Yip, 1989, 1995). Which international strategy is actually pursued will depend upon the characteristics (e.g., opportunities, constraints) of the external environment, the firm's internal capabilities, and the tradeoffs associated with responding to the pressures for external flexibility, via national responsiveness, and internal efficiency, via global integration. However, prior research has advocated the pursuit of transnational strategies based on the arguments that these strategies reflect overcoming the tradeoffs and, thus, provide for the simultaneous attainment of both external flexibility and internal efficiency. MNEs that pursue transnational strategies are, therefore, argued to obtain greater performance results than those MNEs that do not pursue such strategies (Bartlett and Ghoshal, 1991). However, empirical research to support such results is generally lacking. Building upon and extending the ideas from prior research, this study employs the integration-responsiveness (I-R) framework (Doz, 1980) in an exploratory attempt to further the understanding of these relationships and tradeoffs. The paper reviews the relevant literature on international strategies and the (I-R) framework, with key underlying assumptions identified. A hypothesis is developed, a methodology to test the hypothesis presented, and test results for international marketing strategies reported. Finally, the results are discussed.

PRIOR RESEARCH

Globalization

Made possible by innovations in transportation, communications, and information technology (Macharzina, 1999), globalization is a pervasive and important phenomenon for MNEs that involves the geographic and temporal spread of multitudes of factors, including products, services, people, capital, and operations, throughout a world marked by increasingly porous national boundaries (Boudreau, Loch, Robey, and Straud, 1998; Braga, 1996; Kanter and Dretler, 1998). This spread has led to the acceleration of interdependence within and among MNEs, nation-states, and their stakeholders in economic, political and socio-cultural arenas and across many boundaries (e.g., nations, cultures, economies, technologies, and so forth). Because a fundamental characteristic of interdependence is the existence of relationships in both the MNEs external and internal environments (Gladwin and Wasilewski, 1986), acceleration of interdependence often translates into an acceleration of relationships, prompting MNEs to give heightened attention to the development and management of both the internal and external relationships in the global arena (Bartlett and Ghoshal, 1991; Boudreau, et. al., 1998). In the face of increasing globalization, competitive and prosperous MNEs are likely to be those that more understand and more successfully manage interdependence and relationships in both their external and internal environments. Globalization, through the heightened global interdependence and management of relationships, thus generates increasing demands on the MNE to formulate and implement international strategies which respond to both the external and the internal environmental pressures.

International Strategies

In developing international strategies, managers in MNEs need to be responsive to the demands imposed by local environmental forces (which differ, for example, in terms of political and economic features, customers and competitors) and to attempt to achieve congruence between subunits and their local environments through managerial and operational approaches tailored to local conditions. However, managers in MNEs also need to be responsive to the wider global forces and to also attempt to achieve internal congruence and benefits for the MNE as a whole through standardization and efficiency in operations (Leontiades, 1985; Lorange, Scott Morton and Ghoshal, 1986; Yip, 1995). The former approach reflects the necessity of being flexible, of adjusting policies, practices, operations, and products to satisfy differing local demands that stem from the different external environmental conditions facing the MNE's international subsidiaries; in this way lost opportunities through non adaptation are reduced. The latter approach reflects an attempt by managers in the MNE to standardize operations and products, to integrate international subsidiaries into one entity, to attain the economic advantages that accrue from internal efficiencies through economies of scale; in this way, lost economies from non standardization are reduced. In essence, the former promotes external flexibility at the expense of internal efficiency, whereas the latter promotes internal efficiency at the expense of external flexibility (Wortzel, 1991). The focus selected thus reflects the benefit-cost tradeoff selected between these two countervailing forces (Johansson, 1997).

Historically, these dual approaches have been labeled, respectively, by Fayerweather (1978) as fragmentation versus unification, by Robock and Simmonds (1989) as differentiation versus standardization, and by Doz (1980) (see also Doz, Bartlett and Prahalad, 1981; Doz and Prahalad, 1984; Prahalad and Doz, 1981, 1987) as national responsiveness versus global integration.

I-R Framework

A principal means for studying international strategy has been through the integration-responsiveness (I-R) framework (Prahalad and Doz, 1987; Roth and Morrison, 1990). As shown in Figure 1, the framework is represented as a 2-dimensional grid with the degree to which national responsiveness being pursued is placed on the horizontal axis and the degree to which global integration is pursued being placed on the vertical axis; each axis ranges from low to high, reflecting the managers' perceptions of the international strategy pursued by the firm (Ghoshal and Nohria, 1993).

Alternate international strategies may be differentiated by the extent to which managers pursue the dual approaches. Thus, the I-R grid becomes a convenient means of mapping the alternate international strategies. As indicated in Figure 1, prior research has generally identified four alternate international strategies on the I-R grid (Bartlett and Ghoshal, 1987a; Hitt, Ireland, and Hoskisson, 1997). Because this typology has been generally confirmed by prior empirical studies (Harzing, 2000), it was employed in this investigation.

In a multidomestic strategy, the focus on external flexibility through national responsiveness dominates (high degree of national responsiveness plus low degree of global integration), with strategic decisions decentralized to each country to enable adaptation of products, services, and/or products to local demands (Ghoshal, 1987). In a global strategy, the focus for internal efficiency through global integration dominates (low degree of national responsiveness plus high degree of global integration), with strategic decisions centralized to offer standardized products, services, and/or operations across national markets (Ghoshal, 1987). A multifocal strategy attempts to attain both national responsiveness and global integration by seeking a tradeoff between the conflicting demands (e.g., decision making decentralization versus centralization, adaptation versus standardization, and external flexibility versus internal efficiency) of the two approaches; thus, a multifocal strategy is an intermediate strategy, between the multidomestic and global strategies, possessing moderate levels of national responsiveness and global integration (Prahalad and Doz, 1987). (A multifocal strategy may also be viewed as a response to regional, as contrasted with national and global demands (Morrison, Ricks, and Roth, 1991).) A transnational strategy seeks to achieve high levels of both national responsiveness and global integration simultaneously by overcoming the tradeoff between the conflicting demands of the two pressures (Bartlett and Ghoshal, 1991).