Ch 8 Global Strategies and the Multinational Corporation

Ch. 8 Global Strategies and the Multinational Corporation Allen Hicks Alex Raney Christian Grandorf Anthony Brown Braden Walker

Competitive Advantage In international industries, competitive advantage depends not just on a firm’s internal resources and capabilities, but also its national environment—in particular, the availability of resources within the countries in where it does business.

International Competitive Advantage The Industry Environment Key Success Factors Firm Resources and Capabilities Financial Resources Technology Reputation Functional Capabilities General management capabilities

International Competitive Advantage The National Environment Domestic market resources Government policies Exchange rate Related and supporting industries National resources and capabilities Raw materials, communication, transportation, etc.

National Influences on Competitiveness Comparative advantage states that a country has a comparative advantage in those products that make intensive use of those resources available in abundance within that country. Bangladesh with unskilled labor, US with technological resources. If exchange rates are well behaved, comparative advantage becomes competitive advantage

Porter’s National Diamond Framework Strategy, Structure, and Rivalry Competitive performance drives strategies and structures of firms in those industries. Demand Conditions Domestic markets provide the primary driver of innovation and quality and improvement. Related and Supporting Industries Cluster of industries Factor Conditions Resource constraints may encourage the development of substitute capabilities.

Consistency between strategy and national conditions Establishing competitive advantage in global industries requires congruence between business strategy and the pattern of the country’s comparative advantage. Bose uses US strength in basic research for international competiveness.

Limitations of the Diamond Model is very general and fails to consider the attributes of home country’s trading partners Lacks value and isn't applicable to smaller nations and ignores role of multinational corporations in nation’s success. They suggest a “double diamond” framework that incorporates both a national and global diamond.

International Location of Production Two considerations: Where to locate production activities How to enter a foreign market Decisions concerning where to produce are being separated from decisions over where to sell.

Choosing the Location Four main considerations: 1. National resource availability: firms should manufacture in countries where resource suppliers are favorable.

Choosing the Location 2. Firm-specific competitive advantages: for firms whose competitive advantage is based on internal resources and capabilities, the best location depends on where those resources and capabilities are situated and how mobile they are. 3. Tradability: If it’s hard to transport a product and the more it’s subject to trade barriers or government restrictions, the more it will need to be produced in a local market.

Choosing the Location 4. Political Considerations: Government incentives, penalties, and restrictions affect location decisions.

Location and the Value Chain The production of most goods and services comprises a vertical chain of activities. A key feature of recent internationalization has been the international division of value chains as firms seek to locate to countries whose resource availability and cost best match each stage of the value chain. Not all decisions are made off cost alone, most Western and Japanese companies look for the potential for overall operational efficiency.

Location and the Value Chain

How should a firm enter foreign markets? Firms enter foreign markets in search of profitability Profitability depends on the attractiveness of a market and whether or not they can establish a competitive advantage. Comparative advantage depends on means of market entry Transactions vs. direct investment

The Five Key Factors Is the firm’s competitive advantage based on firm specific or country specific resources? Is the product tradable and what are the barriers to trade? Does the firm possess the full range of resources and capabilities for establishing a competitive advantage? Can the firm directly appropriate the returns to its resources? What transaction costs are involved?

International Alliances and Joint Ventures A strategic alliance between two firms Gives each company in the alliance access to each other’s resources Economizes the international investment

Famous Joint Ventures Telefonica Moviles/TIM/T-Mobile/Orange Fiat/Chrysler Fuji/Xerox Renault/Nissan

The Benefits of a Global Strategy Cost benefits of scale and replication Serving global customers Exploiting national resources Learning benefits Competing strategically

The Need for National Differentiation “Global Customer” Pankaj Ghemawat – 4 key components Cultural, Administrative and Political, Geographical, economic distances

Reconciling Global Integration with National Differentiation Achieving ‘global localization’ involves standardizing product features and company activities where scale economies are substantial and differentiating where national preferences are strongest and where achieving them is not over-costly. Reconciling global efficiency with appealing to customer preferences in each country also means looking at the globalization/national differentiation trade-off for individual products and individual function.

Strategy and Organization within the Multinational Corporation Evolution of multinational strategies and structures MNC’s are captives of their history: their strategy- structure configurations today reflect choices they made at the time of their international expansion

Reconfiguring the MNC: the Transnational Corporation

Organizing R&D and New Product Development Probably the greatest challenges facing the top managers of MNCs are organizing, fostering, and exploiting innovation and new product development. Assigning national subsidiaries global mandates allows them to take advantage of local resources and developing distinctive capabilities while exploiting globally the results of their initiatives.

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