Mar 30, 2012

The multinational disambiguation


There are these terms, multinational, transnational, international and global that are used mostly interchangeably while talking about organizations that have their presence in multiple nations. I have seen such interchangeable usage even in policy documents.
It helps to understand the demarcation between these terms, now that many of our Indian firms are going international in a big way. It doesn't sound good when we use 'multinational' as an umbrella term for all.
To form a schema, let's assume we have two axes, the horizontal one being the pressure to localize (develop products to cater to national tastes) and the vertical axis being pressure to standardize (to take advantage of economies of scale), then we can define the terms as follows.

International/Exporting organization: The organization that has low pressure to localize and low pressure to standardize is the international organization. It's a firm that grew locally, became big and started exporting in order to utilize it's extra production. As it sees demand for its products, it simply ships them abroad and pockets the margin. It might have some dedicated agents selling its products abroad or might be giving it to local distributors there. Most of the big Chinese manufacturers are of this nature. They export abroad but have virtually no international expansion plans despite being a major supplier of goods.

Multi-domestic or Multi-national organization: The organization that has high pressure to localize its products and low pressure to standardize at a global scale, is the multi domestic organization. Unilever is a good example. It has multiple units in different countries, where it has localized products, that cater to local requirements. It has local strategies, local competitors and for all practical purposes, all these country levers act like an independent organization at local levels.

Global organization: Apple. Dell. They think about one product, or a group of products, that are of same specifications and are sold as a standard product across the world. They have low pressure to localize and have high pressure to standardize in order to keep the costs low. They go all out to optimize the value chain in order to do so. They might have manufacturing bases at different places but have one strong central administration that sets the strategy.

Trans national organizationThese are the most challenging ones from strategy making point of view. They have high pressure to cater to local tastes as well as high pressure to standardize in order to utilize economies of scale. They go around the world, optimizing the value chain for their products, sourcing from the cheapest possible suppliers, working on maintaining the quality and meet all the requirements while optimizing to keep costs low. The best examples here are the automobile giants such as GM, Toyota and so on. They are present in many countries, trying to leverage global economies of scale and catering to local and global markets. The international production networks are driven primarily by such organizations. Tatas and Mahindras might be trans-national in true sense in the future.

It is wrong to strictly compartmentalize the organizations like we did above. Most of the organizations are in flux, migrating from one to the other forms, based on the strategic goals. However, it helps to keep this distinction in mind in order to form a schema about what we mean when we use these terms.