What are some disadvantages of a transnational strategy?
While expanding one's market and not being dependent on the business cycles of a single country or region sounds like a winning business strategy, there are several potential pitfalls facing companies that attempt to expand across national borders.
First, there is the problem that you lack expertise outside your own country. That means that you will need to retrain your current staff, add new staff, or perhaps partner with a local company. All of these require significant investments, and yet you may still be at a disadvantage with respect to established competitors in the region to which you are attempting to move.
Next, in operating transnationally, you open yourself to legal and political risks. For example, the new country that you are trying to enter may have standard practices that are illegal in your home country or vice versa. You also may encounter political risks.
Another major issue is that you will be operating under multiple different tax and accounting regimes, something that adds cost and complexity to your business.
Finally, if you operate across multiple currencies, you need to deal with currency risk.
A transnational strategy refers to a scenario when an organization decides to expand beyond its national soil and operate on foreign soil. Here the various subsidiaries of the company are controlled through a central office/headquarters. While it certainly offers some advantages (the tag of "multi-national" and access to additional market or production facilities), it also exposes the organization to some risks:
- cultural challenges (need to incorporate differences of opinion, beliefs, values, tastes and preferences)
- political challenges (the possible censorship of a regime, political interference, etc.)
- economic challenges (capital investment in another country, changes in economic policy that may affect the company, etc.)
- infrastructural challenges (capital investment, challenges of transportation, basic infrastructure, limited resources including skilled workforce, etc.)
Examples of the disadvantages of operating on foreign soil are Google's pullout from China due to censorship, India's ban of Coca-Cola (in the 1970s), etc.
A transnational strategy is when an organization or company decides to operate beyond their national borders, in essence becoming international or multi-national. Such a strategy has tremendous advantages but can also come with a lot of potential difficulties. Some issues that an organization may face while pursuing a transnational strategy include:
- Over-extension of resources
- Political turmoil
- Threat to home market position
- Duplication of effort
- Financial risk
Before an organization pursues a transnational strategy they should first ensure that such a move is absolutely int their best interest and that it provides a reasonable return on investment.