GLOBAL

GLOBAL STRATEGIES
STRATEGIES AND
AND THE
THE
MULTINATIONAL
MULTINATIONAL CORPORATION
CORPORATION
OUTLINE

Implications of International Competition for Industry

Analysis

Analyzing Competitive Advantage within an International

Context

Applying the Framework

(1) International location of production
(2) Foreign market entry strategies

Multinational Strategies: Globalization versus National

Differentiation

Strategy and Organization of the Multinational Corporation

LO W

International Trade

HIGH

Patterns
Patterns of
of Internationalization
Internationalization
Trading
Industries

Global
Industries

--aerospace
--military hardware
--diamond mining
--agriculture

--automobiles
--oil
--semiconductors
--consumer electronics

Domestic
Industries

Multidomestic
Industries

--railroads
--laundries/dry cleaning
--hairdressing
--milk

--retail banking
--hotels
--consulting

LOW

Foreign Direct Investment

HIGH

IMPLICATIONS
IMPLICATIONS OF
OF INTERNATIONALIZATION
INTERNATIONALIZATION
FOR
FOR INDUSTRY
INDUSTRYANALYSIS
ANALYSIS
INDUSTRY STRUCTURE

Lower entry barriers around national markets

Increased industry rivalry

--- lower seller concentration

--- greater diversity of competitors

Increased buyer power: wider choice for dealers & consumers

COMPETITION
Increased intensity of competition

PROFITABILITY
Other things remaining equal, internationalization tends to reduce an
industrys margins & rate of return on capital

COMPETITIVE
COMPETITIVEADVANTAGE
ADVANTAGEWITHIN
WITHINAN
ANINTERNATIONAL
INTERNATIONAL
CONTEXT:
CONTEXT:THE
THEBASIC
BASICFRAMEWORK
FRAMEWORK
FIRM RESOURCES
& CAPABILITIES

THE INDUSTRY ENVIRONMENT

-- Financial resources
-- Physical resources
-- Technology
-- Reputation
-- Functional capabilities
-- General management
capabilities

Key Success Factors

COMPETITIVE
ADVANTAGE
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

NATIONAL
NATIONAL INFLUENCES
INFLUENCES ON
ON
COMPETITIVENESS:
COMPETITIVENESS: THE
THE THEORY
THEORY OF
OF
COMPARATIVE
COMPARATIVE ADVANTAGE
ADVANTAGE
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.

Philippines relatively more efficient in the production of

footwear, apparel, and assembled electronic products than in
the production of chemicals and automobiles.

U.S. is relatively more efficient in the production of

semiconductors and pharmaceuticals than shoes or shirts.

When exchange rates are well-behaved, comparative

advantage becomes competitive advantage.

REVEALED
REVEALED COMPARATIVE
COMPARATIVEADVANTAGE
ADVANTAGE FOR
FOR
AACERTAIN
CERTAIN BROAD
BROAD PRODUCT
PRODUCT CATEGORIES
CATEGORIES
USA

Canada

W. Germany

Italy

Japan

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

-.68

-.07

.01

.29

.40

portation equipment
Other manufacturers

Note:

Revealed comparative advantage for each product group

is measured as: (Exports less Imports)/ Domestic production

PORTERS
PORTERS COMPETITIVE
COMPETITIVE ADVANTAGE
ADVANTAGE
OF
OF NATIONS
NATIONS
Extends and adapts traditional theory of comparative
advantage to take account of three factors:

International competitive advantage is about companies not

countriesthe role of the national environment is providing
a home base for the company.

Sustained competitive advantage depends upon dynamic

factors-- innovation and the upgrading of resources and
capabilities

The critical role of the national environment is its impact

upon the dynamics of innovation and upgrading.

PORTERS
PORTERS NATIONAL
NATIONAL DIAMOND
DIAMOND
FRAMEWORK
FRAMEWORK
FACTOR CONDITIONS

RELATING AND
SUPPORTING
INDUSTRIES

DEMAND
CONDITIONS

STRATEGY, STRUCTURE,
AND RIVALRY

1.
2.
3.
4.

FACTOR CONDITIONSHome grown resources/capabilities more important

than natural endowments.
RELATED AND SUPPORTING INDUSTRIESKey role of industry clusters
DEMAND CONDITIONSDiscerning domestic customers drive quality & innovation
STRATEGY, STRUCTURE, RIVALRY. E.g. domestic rivalry drives upgrading.

CONSISTENCY
CONSISTENCYBETWEEN
BETWEEN
STRATEGY
STRATEGY
AND
AND NATIONAL
NATIONALCONDITIONS
CONDITIONS
In globally-competitive industries, firm strategy needs to
take account of national conditions:
U.S. textile manufacturers must compete on the basis of
advanced process technologies and focus on high quality, less
price-sensitive market segments
In the semiconduictor industry, CA-based firms concentrate
mainly upon design of advanced chips, Malaysian firms
concentrate upon fabrication of high volume, less
technologically advanced items (e.g. DRAM chips)
Dispersion of value chain to exploit different national
environments (e.g. Nike conducts R&D in US, components in
Korea and Thailand, assembly in Indonesia, China, and India,
marketing in Europe and North America)

National
Nationalcultures:
cultures:power
powerdifference
difference&&
uncertainty
uncertaintyavoidance
avoidance

Japan

France

Korea

Israel

Mexico

Uncertainty
avoidance

USA

India
Denmark

Power distance

Malaysia
Philippines

National
Nationalcultures:
cultures:individualism/collectivism
individualism/collectivism

Germany
UK
USA Aust.

Individualist

Denmark
France
Italy

Japan
India
Israel

Mexico
Philippines
Korea Venezuela
Malaysia
Guatemala

Collectivist

INTERNATIONAL
INTERNATIONAL LOCATION
LOCATION OF
OF
PRODUCTION
PRODUCTION
3 considerations:

National resource conditions: What are the major

resources which the product requires? Where are these
available at low cost?

Firm-specific advantages: to what extent is the

companys competitive advantage based upon firmspecific resources and capabilities, and are these
transferable?

Tradability issues: Can the product be transported at

economic cost? If not, or if trade restrictions exist, then
production must be close to the market.

THE
THE ROLE
ROLE OF
OF LABOR
LABOR COSTS
COSTS
Hourly Compensation for Production Workers, 1999 ($)
Germany
26.93
Japan
20.89
U.S.
19.20
France
19.98
U.K.
16.56
Spain
12.11
Korea
6.75
Mexico
2.12
BUT, wages are only one element of costs:
Cost of Producing a Compact Automobile
U.S.
Parts & components
7,750
Labor
700
Shipping cost
300
Inventory
20
TOTAL
8,770

Mexico
8,000
40
1,000
40
9,180

LOCATION
LOCATION AND
AND THE
THE VALUE
VALUE CHAIN
CHAIN
Comparative advantage in textiles and apparel by stage of processing

Country

Stage
of
Processing

Index of
Revealed
Comparative
Advantage

Country

Stage
Index of
of
Revealed
Processing Comparative
Advantage

Hong Kong

1
2
3
4

-0.96
-0.81
-0.41
+0.75

Japan

1
2
3
4

-0.36
+0.48
+0.48
-0.48

Italy

1
2
3
4

-0.54
+0.18
+0.14
+0.72

U.S.A.

1
2
3
4

+0.96
+0.64
+0.22
-0.73

Note:
1 = production of fiber (natural & synthetic)
3 = production of textiles

2 = production of spun yarn

4 = production of clothing

Determining
Determiningthe
theOptimal
Optimal Location
Location
of
of Value
ValueChain
ChainActivities
Activities

The optimal location

of activity X considered
independently

WHERE TO LOCATE
ACTIVITY X?

Where is the optimal location

of X in terms of the cost and
availability of inputs?
What government incentives/ penalties
affect the location decision?

What internal
resources and capabilities does the firm
possess in particular locations?
What is the firms 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?

ALTERNATIVE
ALTERNATIVE MODES
MODES OF
OF OVERSEAS
OVERSEAS MARKET
MARKET
ENTRY
ENTRY
TRANSACTIONS

Exporting
Spot
sales

Low

Licensing

Foreign
agent /
distributor

Longterm
contract

DIRECT INVESTMENT

Licensing
patents &
other IP

Joint venture
Marketing &
Distribution
only

Wholly owned
subsidiary

Fully
integrated

Franchising

Resource commitment

Marketing&
Distribution
only

Fully
integrated

High

ALLIANCES
ALLIANCES AND
AND JOINT
JOINT VENTURES:
VENTURES:
MANAGEMENT
MANAGEMENT ISSUES
ISSUES

Benefits:
--Combining resources and capabilities of different companies
--Learning from one another
--Reducing time-to-market for innovations
--Risk sharing

Problems:
--Management differences between the two partners. Conflict
most likely where the partners are also competitors.

Benefits are seldom shared equally. Distribution of benefits

determined by:
Strategic intent of the partners- which partner has the clearer
vision of the purpose of the alliance?
Appropriability of the contribution-- which partners resources
and capabilities can more easily be captured by the other?
Absorptive capacity of the company-- which partner is the more
receptive learner?

General
GeneralMotors
MotorsAlliances
Allianceswith
withCompetitors
Competitors
SAAB
AVTOVAZ
SUZUKI

ISUZU

Ru

10%

ssi

an

own

JV

ed.

to p

C o-

c ar

pr od
uctio

p
ed. C on
w
o
%
49

ro

n
duction

GM
60%
owned

IBC Vehicles
Ltd. (U.K.)
(Makes vans in UK)

TOYOTA

50% owned

FIAT

20% owned; join

JV

50%
owned

New United Motor

Manufacturing
Inc. (NUMMI)
(Makes cars in US)

to p

rod
u

ce

t production

c ar
s in

FUJI

Ch
i na

l&
ca n
ni t i o
ch ra
te bo
d; lla
n e co
ow on
% cti
. 9 du
50 pro

40% investment

r od
uc e

50%
owned

y
).
0 - 5 h n o lo g
0
0
d (2 on tec
e
n
ow tion
20%labora onents
Col comp
and

DAEWOO

SAIC

MULTINATIONAL
MULTINATIONALSTRATEGIES:
STRATEGIES:
GLOBALIZATION
GLOBALIZATION VS.
VS. NATIONAL
NATIONAL
DIFFERENTIATION
DIFFERENTIATION
The case for a global strategy:

National preferences in declineworld becoming a single,

if segmented, market

Accessing global scale economiesin purchasing,

manufacturing, product development, marketing.

Ted
Levitt
Globaliz-ation of
Markets
Thesis

Strategic strength from global leverageability to crosssubsidize a national subsidiary with cash flows from
other national subsidiaries

Hamel &
Prahalad
Thesis

Need to access market trends and technological

developments in each of the worlds major economic
centers- N. America, Europe, East Asia.

Kenichi
Ohmaes
Triad
Power
Thesis

Globalization
Globalization&&Global
GlobalStrategy
StrategyWhat
What are
are they?
they?

GLOBALIZATION
GLOBALIZATION??

GLOBAL
GLOBALSTRATEGY
STRATEGY
----At
Atsimplest
simplestlevel:
level: Treating
Treatingthe
theworld
worldas
asaasingle
singlemarket
market

--Something
--Somethingto
todo
dowith
withincreasing
increasinginterdependence
interdependencebetween
between
countries.
countries.

E.g.
E.g.Japanese
Japanesecompanies
companiesduring
duringthe
the1970s
1970s&&1980s,
1980s,
(YKK,
(YKK,Honda)
Honda) standard
standardproducts,
products,developed
developed&&
manfactured
manfacturedwithin
withinJapan;
Japan;distributed
distributed&&marketed
marketed
worldwide
worldwide

--At
--Atmore
moresophisticated
sophisticatedlevel:
level: Strategy
Strategythat
thatrecognizes
recognizes
and
andexploits
exploitslinkages
linkagesbetween
betweencountries
countries(e.g.
(e.g.exploits
exploits
global
globalscale,
scale,national
nationalresource
resourcedifferences,
differences,strategic
strategic
competition)
competition)
World as
single mkt.

World as interrelated mkts.

global strategy

World as
separate
national mkts.
multidomestic strategy

Analyzing
Analyzing benefits/costs
benefits/costs of
of aa global
global strategy
strategy
Forces
Forcesfor
for globalization
globalization
MARKET
MARKETDRIVERS
DRIVERS
--Common
--Commoncustomer
customerneeds
needs
--Global
--Globalcustomers
customers
--Cross-border
--Cross-bordernetwork
networkeffects
effects
COST
COST DRIVERS
DRIVERS
--Global
--Globalscale
scaleeconomies
economies
--Differences
--Differencesin
innational
national
resource
availability
resource availability
--Learning
--Learning
COMPETITIVE
COMPETITIVEDRIVERS
DRIVERS
--Potential
--Potentialfor
forstrategic
strategic
competition
competition (e.g.
(e.g.crosscrosssubsidization)
subsidization)

Forces
Forcesfor
forlocalization
localization//national
national
differentiation
differentiation
MARKET
MARKETDRIVERS
DRIVERS
--Different
--Differentlanguages
languages
--Different
--Differentcustomer
customerpreferences
preferences
--Cultural
--Culturaldifferences
differences
COST
COSTDRIVERS
DRIVERS
--Transportation
--Transportationcosts
costs
--Transaction
costs
--Transaction costs
--Economic
--Economic&&political
politicalrisk
risk
--Speed
--Speedof
ofresponse
response
GOVERNMENT
GOVERNMENTDRIVERS
DRIVERS
--Barriers
--Barriersto
totrade
trade&&inward
inwardinv.
inv.
--Regulations
--Regulations

Jet engines
Autos
Benefits
of
global
integration

Consumer
electronics

Telecom
equipment

Investment
banking

Steel
Cement

Online C2C auctions

Beer

Dry
cleaning

Auto
repair

Restaurant
chains
Retail
banking
Funeral
services

Benefits of national differentiation

Positioning
Positioningindustries
industriesin
interms
termsof
of benefits
benefitsof
of
globalization
globalization and
andnational
national differentiation
differentiation
Jet engines
Autos
Benefits
of
global
integration

Consumer
electronics

Telecom
equipment

Investment
banking

Cement
Auto
repair

Retail
banking
Funeral
services
Benefits of national differentiation

THE
THEEVOLUTION
EVOLUTIONOF
OF MULTINATIONAL
MULTINATIONALSTRATEGIES
STRATEGIES
AND
ANDSTRUCTURES:
STRUCTURES: (1)
(1) 1900-1939ERA
1900-1939ERAOF
OF THE
THE
EUROPEANS
EUROPEANS

The European MNC as Decentralized Federation :

National subsidiaries self-sufficient and autonomous
Parent control through appointment of subsidiaries senior
management
Organization and management systems reflect conditions of
transport and communications at the time e.g. Unilever, Phillips,
Courtaulds, Royal Dutch/Shell.

THE
THEEVOLUTION
EVOLUTIONOF
OF MULTINATIONAL
MULTINATIONAL STRATEGIES
STRATEGIES
AND
ANDSTRUCTURES:
STRUCTURES: (2)
(2) 1945-1970U.S.
1945-1970U.S. DOMINANCE
DOMINANCE

American MNCs as Coordinated Federations :

National subsidiaries fairly autonomous
Dominant role as U.S. parent-- especially in developing new
technology and products
Parent-subsidiary relations involved flows of technology and
finance, and appointment of top management.e.g. Ford, GM,
Coca Cola, IBM

THE
THEEVOLUTION
EVOLUTIONOF
OFMULTINATIONAL
MULTINATIONAL
STRATEGIES
STRATEGIESAND
AND STRUCTURES:
STRUCTURES:
(3)
(3) 1970S
1970SAND
AND1980STHE
1980STHEJAPANESE
JAPANESE
CHALLENGE
CHALLENGE

The Japanese MNC as Centralized Hub

Pursuit of global strategy from home base
Strategy, technology development, and manufacture
concentrated at home
National subsidiaries primarily sales and distribution
companies with limited autonomy. e.g. Toyota, NEC,
Matsushita

MARKETING
MARKETINGGLOBAL
GLOBALSTRATEGIES
STRATEGIESAND
ANDSITUATIONS
SITUATIONSTO
TO
INDUSTRY
INDUSTRYCONDITIONS:
CONDITIONS:FIRM
FIRMSUCCESS
SUCCESSIN
INDIFFERENT
DIFFERENT
INDUSTRIES
INDUSTRIES

Philips
General Electric
local responsiveness

- Global industry

Ka
o
P&G
Unilever

local responsiveness

Telecommunications
NEC
global
integration

Matsushit
a

global
integration

global integration

Consumer Electronics Branded, Packaged

Consumer Goods
Equipment

Erickson

ITT

local responsiveness

- 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
successful

RECONCILING
RECONCILINGGLOBAL
GLOBALINTEGRATION
INTEGRATIONWITH
WITH
NATIONAL
NATIONALDIFFERENTIATION:
DIFFERENTIATION:THE
THE
TRANSNATIONAL
TRANSNATIONALCORPORATION
CORPORATION
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.

Each national unit and source of ideas, skills and capabilities that can
be harnessed to benefit whole corporation.
National units become world sources for particular products,
components, and activities.
Corporate center involved in orchestrating collaboration through
creating the right organizational context.