Transnational Strategy Essay Example for Free

Transnational Strategy Essay This paper is about transnational strategy used by transnational companies in developing their business. The strategy will be shown on the specific example of globalizing an Australian wine company BRL Hardy. But first it worth determining transnational strategy as it is. During recent years much have changed in the world business economy, and most big companies started orienting towards globalization of their business. And host countries in their turn were first suspicious to such organizations and made a lot of restrictions for providing their business on the territory of the host country. There are ‘positive contributions that TNCs (transnational corporations) make to host states and encourages this trend, as well as the tensions that have existed between TNCs and host states and endeavors to provide legal responses that take into account the legitimate interests of these two main actors.’ (Ebow Bondzi-Simpson 1990, p. xiii). The main demand was to be responsive to local market and political needs of the country. ‘As a result of these developments, many worldwide companies recognized that the demands to be responsive to local market and political needs and the pressures to develop global-scale competitive efficiency were simultaneous, if sometimes conflicting. Under these conditions, the either/or attitude reflected in both the multinational and the global strategic mentalities were increasingly inappropriate. The emerging requirement was for companies to become more responsive to local needs while retaining their global efficiency—an emerging approach to worldwide management that we call the transnational strategic mentality.’(Bartlett 2004, p. 12). As for the way of management in such companies their key activities and resources are dispersed and specialized to reach competence and flexibility at the same time. Moreover, these dispersed resources are included into an interdependent network of worldwide operations. So, as we see ‘key activities and resources are neither centralized in the parent company, nor decentralized so that each subsidiary can carry out its own tasks on a local-for-local basis.’ (Bartlett 2004, p. 12). The main aim of all companies working on transnational level is to achieve the global leadership in the sphere of its business. And one of the qualities of such leadership is openness to new ideas that is most clearly and forcibly. Globalisation has given most organisations an international dimension. Concerning transnational network it is determined to be three-dimensional: supports a hybrid strategy of both product and market development across national borders; firm seeks both global efficiency and local responsiveness; excellent communications help managers to share vision and support learning. (Harrison 2003, p. 315). Governments of many countries support the idea of transnational companies and develop the appropriate documents, which sometimes appear to be a bit controversial. ‘The European Commission’s 1993 White Paper on Growth, Competitiveness and Employment, together with the 1994 White Paper on Social Policy (and the subsequent Medium Term Action Programme) have assigned a greater role and responsibility to the social partners at European level: this may generate more intensive transnational cooperation—but possibly also greater conflict.’ (Lecher 1998 p. xiii). So, let us speak about the example mentioned above to explain the strategy used in the company. First, we compare and contrast the influence of changes in internal management perspectives and the international business environment upon the strategic development of BRL Hardy in the 1990s. Applying to the history we may say that vines were first introduced into Australia in 1788 by Captain Arthur Phillip, who was the leader of the group of convicts and settlers, comprised the first fleet of migrants to inhabit the new British colony. During next two centuries wine became very popular and by 1996 there were two greatest companies involved in this business. First one was Southcorp and ‘the number two company was BRL Hardy Ltd. (BRLH), selling under the Hardy, Houghton, Leasingham, and other labels.’ (Bartlett 2004, p. 679). Earlier Hardy and BRL were different companies. But due to recession-driven market slowdown at home and problems in three of the European acquisitions in Hardy as well as struggle and search for ways to expand and upgrade its business in BRL led for the merge of these two companies in June 1992. Certain changes in the international business environment influenced the strategy development of the BRLH Company: A rationalization and consolidation among wine wholesalers and retailers. Exploiting modern viticulture and more scientific winemaking practices to produce more consistent high-quality wine by wine suppliers from New World. The first priority for the company after merging was the financial situation and domestic market as ‘both companies performed poorly the previous year†¦and the Australian market accounted for the vast bulk of their profit†¦Ã¢â‚¬â„¢ (Bartlett 2004, p. 681). The emerged strategy was that the company would protect its share of the bulk cask business but concentrate on branded bottle sales for growth. This required a commitment to quality. To implement this strategy there was the need to change the company’s culture and management style, in other words to create a more decentralized approach, but to hold management accountable. ‘The results were impressive with both domestic bottle market share and profitability increasing significantly in the first two tears of BRLH’s operation.’ (Bartlett 2004, 682). As to the international experience, the company understood that ‘globalization of competition is triggered both by the emergence of Triad industrialized markets with relatively homogeneous demands, comprising the United States, the European Community, and Japan.’ (Ohmae 1985). Thus the key export markets were the United Kingdom, the United States, Germany, and Japan. To expand on its U.K. sale Hardy believed it should stop relying on importers, distributors, and agents. This led management to the decision of buying European wineries to give Hardy’s wines greater access to Europe. But unfortunately, such decision and the appeared problems had negative impact on the company and led it to the merge as was mentioned above. New management began to realize the situation and work out possible strategies to improve the company’s presentation on the foreign market. For that moment ‘a U.K. business selling a small volume of Hardy wines and just breaking even, a rapidly eroding BRL bulk business in Sweden, a weak Hardy-U.S. presence supported by a single representative, and a virtually nonexistent presence in Asia or the rest of Europe.’ (Bartlett 2004, p. 682). Realizing such situation the strategy was based on the strong quality brand image with the company’s marketing slogan ‘Quality Wines for the World’. As the implementation of such a strategy a group marketing and export manager Stephen Davies initiated a programme to rationalize the line and reposition a few key brands in a stepstair hierarchy from simple entry level products to fine wines for connoisseurs. In U.K. the company recently acquired two distributors, but their financial situation was disastrous. So the managing director Carson reported such a situation to the Australian management and proposed a series of cost-cutting steps, installed strong systems, controls, and policies that put him firmly in charge of key decisions. As the result in 1992 the company promised to be profitable on the European market again. Despite improving results in the same year the company was facing several key problems: the need to build quickly on the 178,000 cases of Hardy-brand products that has represented less than a quarter of his total volume in 1991; the need to restore the financial health of its French winemaker, Domaine de la Baume; the need to protect an unstable imported Chilean product that had come as a Whiclar and Gordon agency. Though the headquarters understood the significance of the appeared problems the relationship was an uneasy one as they supported delegation only to those who ‘earned their stripes’. The next difficulty was weather the BRL management understood international marketing. To expand the sales in Europe Carson clearly understood the need to relabel, reposition, and relaunch the brands as current image had eroded in the U.K., but the Australian office did not want to hear of it. In the long run they agreed to such an offer and in 1993 they relabled and relaunched Nottage Hill and repositioned Stamps. In this case the initial negative attitude towards relabling the product brought only delay in expanding sales in the Europe. Fortunately, the changes were made and the company quadrupled the volume of Hardy’s brand from 1992 by 1994. By the mid-1990s the headquarters began to imagine the company not just as a ‘quality exporter’ but as an ‘international wine company’. Though the international environment hardly believed in the possibility of wine to become global brand, the company management believed that ‘changes in wine-making, the opening of global markets, and the changing consumer profile would all support their objective to become a truly international wine company built on a global branding capability.’ (Bartlett 2004, 687). This was the right choice though difficult because it is clearly stated ‘in response to global competition, successful companies are evolving from a product policy of offering customized products to that of offering globally standardized ones.’ (Kotabe 1992). In this case the company strategy was built on decentralization and wish to listen to and to support overseas ideas and proposals, but the role of headquarters should be as brand owners. And it is clear that ‘global companies conduct research wherever necessary, develop products in several countries, promote key executives regardless of nationality, and even have shareholders on three continents.’ (Eom 1994 p. 1). 2.In 1995-1998 managing director Christopher Carson developed certain strategy to build and sustain BRL Hardy’s competitive advantage in the UK wine market as in 1995 he was appointed chief executive of BRL Hardy Europe. We shall try to identify his approach and discuss its likely advantages and disadvantages. Carson had focused most of his attention on building sales of the Hardy brand wines but remained acutely aware of the importance of the other non-Australian product lines. It is obvious that quality of grapes as an agricultural product depends upon weather, disease and other factors. Carson proposed that one way to minimize that risk was the sourcing from multiple regions. Moreover, major retailers wanted to simplify wine buying dealing with a few key suppliers providing a broad line of quality products. For all these reasons Carson began to concentrate much of his attention on two non-Australian wine sources: Jose Canopa y CIA Limitada (Chile, Mapocho brand) and Casa Vinicola Calatrasi (Siciliy, D’istinto brand). These two projects were based on partnership relations and were a kind of transnational relations. ‘Transnational relations are understood as regular interactions across national borders in which either the administration itself or the actors with whom the administration maintains contacts act without a specific and clear national mandate when participating in negotiations and decision-making processes.’ (Jacobsson 2003). In both projects Carson offered the grape growers to send the winemaking specialist to enhance the value of their harvest through more productive vineyard techniques and new winemaking methods. Moreover branding could give the producers security of demand and eventually better prices for their fruit. The approach he used to develop his strategy was customer-focused,   a shareholder value approach as he saw the company as the private property of it s owners, linked to the concept of competitive advantage offering high-quality wines produced with the help of new technologies of winemaking. The advantageous goal of these projects was to offset projected Australian red wine shortages with alternative sources and to develop a brand responding to the average wine consumer interested in wine but not necessarily very knowledgeable about it. The new product was to give easy-to read labels with a pronounceable brand name. D’istinto line ‘can help us build BRLH Europe in size, impact, and reputation,’ said Carson. ‘We need to become known as a first-class branding company – a company able to leverage great distribution and strong marketing into recognized consumer brands.’ (Bartlett 2004, p. 690). As for disadvantages of Carson’s strategy, the Mapocho project was disappointing. The first samples were bad and the reason was controversial from both sides: ‘The Chileans thought the problem was due to the winemaker sent from BRL Hardy being unfamiliar with Chilean wine, while he insisted they had not provided him with quality fruit.’ (Bartlett 2004, p. 690). Canepa managers claimed the costs went up, and wanted to change the supply price, and then the new venture lost opportunity to get early access to the pick of the 1997 grape harvest. All this led to low sales contrary to expected (15,000 cases against 80,000 planned). As to the D’istinto, initialy it was planned to fill the price points that had been vacated as Stamps and Nottage Hill had become more expensive. But for the moment of discussion the Sicilian line clearly overlapped with Hardy’s core offerings. Nevertheless, D’istinto sales rose from 16,000 to 500,000 by year four and could have global potential. But despite such success and relatively small investment in the branding, packaging and launch expenses, the real financial risk could come later in the form of contract commitments and excess inventory because of continued difficulty with Mapocho sales. As a result the chosen strategy led to the brand fighting. The next step within the company was the strategic decision to promote Banrock Station as a global brand. As the Stamps and Nottage Hill brands became more expensive, Carson believed there was an opening for a new low-end Australian brand to fill the vacant price position, representing more than 80% of sales volume. The person in charge for this question was Paul Browne. He felt the market was ready for a brand which would appeal to a younger consumer gradually coming to buy Stamps and Nottage Hill later. ‘The brand he came up with was Kelly’s Revenge.’ (Bartlett 2004, p. 692). Meanwhile, in Australia, BRLH was developing a major new product targeted at a similar price point. The name of the new brand positioned as an environmentally responsible product and launched in Australia in 1996 came from the place named Banrock Station (a 1,800-hectare cattle grazing property partially converting by the company to viticulture) and acquired by the company in 1995. ‘Good Earth, Fine Wine’ was the motto of the brand. ‘The nomination process for the Banrock Station Wetland Complex was initiated by the sites owner, BRL Hardy Wine Company. Extensive consultation on the nomination was undertaken and coordinated by the South Australian Department for Environment and Heritage.’ (Wetlands Australia 2003). After the increasing success in Australia, convinced in its potential as a global brand, headquarters management decided to promote Banrock Station as a global brand in the countries of this company’s presence. In Canada and the U.S. there were no significant difficulties of implementing such a decision, but in Europe the management team expressed serious doubts as they already finished the Kelly’s Revenge project. In this particular question headquarters and European management appeared to be arguing parties. As Australians blocked Kelly’s Revenge and Europeans tried to block Banrock Station because they were projects worked out in these two organizations to satisfy the customer. But, Banrock Station was more successive in the market and Kelly’s Revenge was examined by the customers’ reaction, as the result ‘when we took it to ASDA, the UK grocery chain, they were not enthralled. ’(Bartlett 2004, p. 694). So this was the opportunity to give Banrock Station a try in European market. If determining this process deliberate or emergent we should say that to much more extent it was deliberate because the trial to launch D’istinto on a low price level was a failure and Banrock Station brand appeared to be much more successive on this level because of its devoutness to nature. Initially the program aimed ‘to restore the natural elements such as soil, water, natural vegetation and animals as they existed at Banrock Station over 200 years ago.’ (Banrock Station – Environmental). For this purpose the company bought the property in South Australia’s Riverland district. The deliberateness of the promoting process underlines one more fact that ‘during the planning and development phase, visitors’ universally positive reaction to BRLH’s ongoing conservation efforts – planting only 400 hectares while returning the remaining land to its native state including the restoration of natural wetlands – convinced management that the property had brand potential.’ (Bartlett 2004, p. 693). Emerging in all the process may be only the fact of acquiring the property. ‘Banrock Station now also supports wetlands restoration projects in other countries where it sells its wines including New Zealand, Sweden, Finland, the Netherlands, Canada, the United States and the United Kingdom.’ (Landcare Australia 2001). For example in Canada ‘for every bottle sold, a donation is made to the Banrock Station Wetlands Foundation Canada to support wetland conservation projects.’ (Banrock Station Shiraz). The region under BRLH care in this project developed and increased its potential. ‘During 1998 Richard Stafford architects developed this project for the BRL Hardy Corporation as a combined wine tasting, visitor destination and information centre, to be known as the Wine Wetland Centre.’ (Banrock Station). ‘Banrock Station is an exemplary example of an innovative cellar door that truly reflects the brand.’ (Richard Stafford). The BRLH Company made a lot of successive affords to expand its production on the world market, though there were some faults and mishaps as it always happens when managers start doing greater business. The most significant is that the company should see its mistakes and try to overcome them with less looses for the company profit. And it is clear that ‘in the future, a companys ability to develop a transnational organizational capability will be the key factor that separates the winners from the mere survivors in the international competitive environment.’ (Rugman 1992, p. 1). The question of transnational companies was of great concern to many countries even in 1980s. ‘Discussions on the role of transnational corporations (TNCs) in the current international economic situation and on the modern phenomenon of transborder data flows highlighted the work of the Commission on Transnational Corporations at its tenth regular session, held from 17 to 27 April in New York.’ (UN Chronicle 1984, p.1). The idea of transnational companies became very significant in the twentieth century as ‘in the last quarter of the twentieth century the international flows of goods and capital increasingly broke down the notion of sovereign nation-states.’ (Pries 2001 p. 5).    References. ‘Banrock Station’ Available on http://www.emilis.sa.on.net/projects/emil_63.htm (Accessed August, 9 2005). ‘Banrock Station – Environmental rehabilitation of wetlands’. Available on http://www.austrade.gov.au/corporate/layout/0,,0_-1_-2_-3_PWB110405321-4_-5_-6_-7_DOCUMENT,00.html. (Accessed August, 9 2005). ‘Banrock Station Shiraz’ Available on http://www.churchillcellars.com/banrock_shiraz.shtml   (Accessed August, 9 2005). 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