International Business Strategy: Trade, Transnational Firms & ING

Zero Trade Barriers and the Imperative of International Expansion

Under the conditions described — zero transportation costs, no trade barriers, and nontrivial differences between nations with regard to factor conditions — commerce would become essentially frictionless. In such a world, the only limiting factor would be the internal efficiencies of firms competing against one another. The ability of firms to align with the nontrivial aspects of national markets would become, in conjunction with operational efficiency, the greatest potential differentiator between competitors. What would emerge is the competitive strength of companies capable of reaching exceptional levels of internal efficiency while simultaneously engaging in precise, needs-based targeting within a highly competitive global marketplace.

This scenario is allegorically comparable to the Internet and its impact on global commerce. The Internet has continued to serve as a catalyst for business models possessing exactly these characteristics — models that must nonetheless align with the specific differences between nations at the cultural and value-based levels. In such a frictionless environment, international expansion would not merely be advantageous; it would be essential for survival.

Organizational Challenges of a Transnational Strategy

The implementation of a transnational strategy introduces several significant organizational challenges. First, there is the major variation in cultural attitudes, beliefs, and values that must be accounted for in any planning activity. The use of the Cultural Dimensions Model (Hofstede, 1983) provides insightful analysis of the potential organizational problems associated with transnational implementation. Differences between cultures can become fertile ground for misunderstandings and sustained conflict over time.

Second, there is wide variation in how time and urgency are perceived across cultures. The pace at which the Indian economy operates is significantly different from that of the German economy, and both vary considerably from the U.S. and Canada (Macduff, 2006). These differences translate into entirely distinct approaches to managing and motivating workers. Third, as a result of these first two factors — and the broader dynamics of how employees perceive and respond to leadership from other cultures — transnational strategies are often the most time-consuming organizational models to operate effectively.

ING's Acquisition Strategy in the U.S. Market

ING's decision to enter the U.S. financial services market through acquisitions rather than greenfield ventures offered several distinct advantages. Most notably, it allowed ING to launch its highly differentiated strategies far more quickly than a greenfield approach would have permitted. This path also alleviated significant risks inherent in greenfield development and enabled ING to immediately capture the existing customer bases of the companies it acquired. The reduction of market-entry risk was therefore a substantial benefit of this approach.

The drawbacks, however, center on the challenge of integrating acquired firms into ING's existing operations — both at the process level and in terms of organizational roles. There is also the considerable challenge of forging a unified corporate culture from the varying organizational cultures of the acquired companies. Overall, this acquisition strategy makes sense, particularly within the financial services industry, which is characterized by rapid change, high risk, and a constantly evolving product mix. In such an environment, speed of entry and risk mitigation outweigh the potential benefits of building from the ground up.