Global Strategies and the Multinational Corporation. OUTLINE. Implications of International Competition for Industry Analysis Analyzing Competitive Advantage within an International Context Applying the Framework (1) International l ocation of production
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(1) International location of production
(2) Foreignmarket entry strategies
--military hardware --oil
--diamond mining --semiconductors
--agriculture --consumer electronics
--laundries/dry cleaning --retail banking
Foreign Direct Investment
--- greater diversity of competitors
-- Financial resources
-- Physical resources
-- Functional capabilities
-- General management
THE INDUSTRY ENVIRONMENT
Key Success Factors
THE NATIONAL ENVIRONMENT
-- National resources and capabilities (raw materials;
national culture; human resources; transportation,
communication, legal infrastructure
-- Domestic market conditions
-- Government policies
-- Exchange rates
-- Related and supporting industries
A country has a relative efficiency advantage in those products that make intensive use of resources that are relatively abundant within the country. E.g.
footwear, apparel, and assembled electronic products than inthe production of chemicals and automobiles.
semiconductors and pharmaceuticals than shoes or shirts.
When exchange rates are well-behaved, comparative
advantage becomes competitive advantage.
USA Canada W. Germany ItalyJapan
Food, drink & tobacco .31 .28 -.36 -.29 -.85
Raw materials .43 .51 -.55 -.30 -.88
Oil & refined products -.64 .34 -.72 -.74 -.99
Chemicals .42 -.16 .20 -.06 -.58
Machinery and trans- .12 -.19 .34 .22 .80
Other manufacturers -.68 -.07 .01 .29 .40
Note: Revealed comparative advantage for each product group
is measured as: (Exports less Imports)/ Domestic production
Extends and adapts traditional theory of comparative advantage to take account of three factors:
In globally-competitive industries, firm strategy needs to take account of national conditions:
Hourly Compensation for Production Workers, 1999 ($)
U.S. 19.20 France 19.98 U.K. 16.56
Korea 6.75 Mexico 2.12
BUT, wages are only one element of costs:
Cost of Producing a Compact Automobile
U.S. Mexico Parts & components 7,750 8,000 Labor 700 40 Shipping cost 300 1,000 Inventory 20 40 TOTAL 8,770 9,180
Comparative advantage in textiles and apparel by stage of processing
Country Stage Index of Country Stage Index of
of Revealed of Revealed
Processing Comparative ProcessingComparative
Hong Kong 1 -0.96 2 -0.81 3 -0.41 4 +0.75
Italy 1 -0.54 2 +0.18 3 +0.14 4 +0.72
Japan 1 -0.36 2 +0.48 3 +0.48 4 -0.48
U.S.A. 1 +0.96 2 +0.64 3 +0.22 4 -0.73
1 = production of fiber (natural & synthetic) 2 = production of spun yarn
3 = production of textiles 4 = production of clothing
Determining the Optimal Location avoidance”
of Value Chain Activities
Where is the optimal location
of X in terms of the cost and
availability of inputs?
The optimal location
of activity X considered
What government incentives/ penalties
affect the location decision?
resources and capabilities does the firm
possess in particular locations?
WHERE TO LOCATE
What is the firm’s business strategy
(e.g. cost vs. differentiation advantage)?
The importance of links
between activity X and
other activities of the firm
How great are the coordination
benefits from co-locating activities?
Marketing & Distribution only
agent / distributor
Licensing patents & other IP
Marketing& Distribution only
--Combining resources and capabilities of different companies
--Learning from one another
--Reducing time-to-market for innovations
--Management differences between the two partners. Conflict
most likely where the partners are also competitors.
General Motors avoidance”’ Alliances with Competitors
20% owned (2000-5). Collaboration on technology and components
Russian JV to produce cars
10% owned. Co-production
20% owned; joint production
JV to produce cars in China
(Makes vans in UK)
50.9% owned; technical &
New United Motor
(Makes cars in US)
The case for a global strategy:
if segmented, market
manufacturing, product development, marketing.
subsidize a national subsidiary with cash flows from
other national subsidiaries
developments in each of the world’s major economic
centers- N. America, Europe, East Asia.
separate national mkts.
World as inter-
Forces for globalization
--Common customer needs
--Cross-border network effects
--Global scale economies
--Differences in national resource availability
--Potential for strategic competition (e.g. cross- subsidization)
Forces for localization / national differentiation
--Different customer preferences
--Economic & political risk
--Speed of response
--Barriers to trade & inward inv.
Jet engines avoidance”
Online C2C auctions
Benefits of national differentiation
Positioning industries in terms of benefits of globalization and national differentiation
Benefits of national differentiation
The European MNC as Decentralized Federation :
American MNC’s as Coordinated Federations :
The Japanese MNC as Centralized Hub
Consumer Electronics Branded, Packaged Telecommunications
Consumer Goods Equipment
- Global industry - Substantial national - Requires both global
- Matsushita the most differentiation, few global integration and national
successful scale economies differentiation.
-Philips the survivor - Kao has limited success - NEC only partially
- GE sold out outside Japan successful - Unilever and P&G most - ITT sold out successful - Ericsson most
local responsiveness local responsiveness local responsiveness
Tight complex controls and coordination and a shared strategic decision process.
Heavy flows of technology, finances, people, and materials between interdependent units.
The Transnational: an integrated network of distributed interdependent resources and capabilities.
Designing Differentiation: The Transnational Corporationthe MNC: Key Learning
--Where is coordination most important?
--How global is the industry? How global is the firm’s strategy?
--Maintain single line accountability
--Other dimensions of coordination can be “dotted line” relations
--Exploiting scale economies in centralized provision of services