Advantages and Disadvantages of Transnational Strategy

Transnational strategy is a strategy used by the companies when it is looking to expand its operation to foreign countries but it differs from multinational strategy in the sense that in case of multinational strategy apart from company having headquarters and management in parent country the important things like decision making, office culture, marketing strategy and other important things are also decided in country in which the company is headquartered which is not the case with transnational strategy where things like decision making, office culture, marketing strategy and other important things are decided in countries in which company is operating. In order to understand this concept, one should look at the advantages and disadvantages of transnational strategy.

Advantages of Transnational Strategy

Expanding of Business

The biggest advantage of transnational strategy is that it helps the company in expanding its business because once company adopts this strategy than the whole world is the market for company’s products and its reach widens from home country to the whole world and wider the market higher are the chances of company generating bumper sales resulting in higher profits for the business.

Saving of Expenses

Another advantage of transnational strategy is that since the company has decentralized the business it can employ as well as using cheap labor and raw material from the country in which it is operating and hence company will be able to save a lot of money on the production side of the business. Hence for example, if it costs $20 to $25 per hour for producing a good in a developed nation like the USA than the same thing cost $3 to $5 in developing nations of Asia and Africa region.

Implementing other countries good things

When you meet 10 people than you realize that all people are not same and each person has unique quality, in the same way in case of countries each country has some unique quality and company by adopting transnational strategy can implement good things and culture of other nations into its own country business and can reap benefits of good things or quality of other countries.

Disadvantages of Transnational Strategy

Lack of Understanding

The biggest disadvantage of transnational strategy is that company does not have the full understanding of the markets in which company is trying to operate. Hence, for example, a USA based company cannot have a complete understanding about the local markets about the countries like India and China as the consumers of these countries have a different culture, fashion, and taste when one compares it with consumers of USA. Therefore lack of understanding about the foreign markets is perhaps the biggest shortcoming when the company is adopting the transnational strategy.

Political, Legal and Operational Risk

Another demerit of transnational strategy is that company is always exposed to political, legal and operational risk which are associated with operating in different countries and if company is not big enough to have resources, time and money at its disposal for handling this risk than the whole strategy of doing business in other countries may backfire resulting in loss for the company.

Risk of Loss of Control

Another demerit of transnational strategy is that there is a risk that company may lose control over the operation of business happening in other countries as decision making is not centralized which is the case with multinational strategy. Hence in simple words, there is always a risk that company can lose marketing, operational control over other countries if it is adopting the transnational strategy.

As one can see from the above that transnational strategy has pros and cons and any company thinking of adopting this strategy should carefully analyze pros and cons and then decide whether to adopt the transnational strategy or not.

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