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
 Patterns
Patterns of
of Internationalization
Internationalization
HIGH

Trading Global
Industries Industries
--aerospace --automobiles
--military hardware --oil
International Trade

--diamond mining --semiconductors

--agriculture --consumer electronics

Domestic Multidomestic
Industries Industries
--railroads
--laundries/dry cleaning --retail banking
--hairdressing --hotels
LO W

--milk --consulting

LOW Foreign Direct Investment HIGH

 Implications
Implications ofof Internationalization
Internationalization
for
for Industry
Industry Analysis
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
industry’s margins & rate of return on capital
 Competitive
Competitive Advantage
Advantagewithin
within an
an International
International
Context:
Context:The
The Basic
Basic Framework
Framework

FIRM RESOURCES
& CAPABILITIES THE INDUSTRY ENVIRONMENT
-- Financial resources
Key Success Factors
-- Physical resources
-- Technology
-- Reputation
-- Functional capabilities
COMPETITIVE
-- General management
capabilities 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
Comparative Advantage
Advantage for
for
aa Certain
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
portation equipment
Other manufacturers -.68 -.07 .01 .29 .40

Note: Revealed comparative advantage for each product group

is measured as: (Exports less Imports)/ Domestic production
 Porter’s
Porter’s 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 countries—the 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.
 Porter’s
Porter’s National
National Diamond
Diamond Framework
Framework

FACTOR CONDITIONS

RELATING AND
DEMAND SUPPORTING
CONDITIONS INDUSTRIES

STRATEGY, STRUCTURE,
AND RIVALRY

. FACTOR CONDITIONS—“Home grown” resources/capabilities more important

than natural endowments.
. RELATED AND SUPPORTING INDUSTRIES—Key role of “industry clusters”
. DEMAND CONDITIONS—Discerning domestic customers drive quality & innovation
. STRATEGY, STRUCTURE, RIVALRY. E.g. domestic rivalry drives upgrading.
 Consistency
Consistency Between
Between Strategy
Strategy
and
and National
National Conditions
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
Korea France
Israel

Uncertainty Mexico
avoidance

USA

India Malaysia
Philippines
Denmark

Power distance
 National
Nationalcultures:
cultures:individualism/collectivism
individualism/collectivism

Japan Mexico
Germany India Philippines
UK Denmark Israel Korea Venezuela
USA Aust. France Malaysia Guatemala
Italy

Individualist 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

company’s competitive advantage based upon firm-
specific 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. Mexico
Parts & components 7,750 8,000
Labor 700 40
Shipping cost 300 1,000
Inventory 20 40
TOTAL 8,770 9,180
 Location
Location and
and the
the Value
Value Chain
Chain

Comparative advantage in textiles and apparel by stage of processing

Country Stage Index of Country Stage Index of

of Revealed of Revealed
Processing Comparative Processing Comparative
Advantage Advantage

Hong Kong 1 -0.96 Japan 1 -0.36

2 -0.81 2 +0.48
3 -0.41 3 +0.48
4 +0.75 4 -0.48
Italy 1 -0.54 U.S.A. 1 +0.96
2 +0.18 2 +0.64
3 +0.14 3 +0.22
4 +0.72 4 -0.73

Note:
1 = production of fiber (natural & synthetic) 2 = production of spun yarn
3 = production of textiles 4 = production of clothing
 Determining
Determiningthe
theOptimal
Optimal Location
Location
of
ofValue
ValueChain
ChainActivities
Activities
Where is the optimal location
of X in terms of the cost and
The optimal location availability of inputs?
of activity X considered
independently What government incentives/ penalties
affect the location decision?

What internal
WHERE TO LOCATE resources and capabilities does the firm
ACTIVITY X? possess in particular locations?

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?
 Alternative
Alternative Modes
Modes of
of Overseas
Overseas Market
Market Entry
Entry

TRANSACTIONS DIRECT INVESTMENT

Exporting Licensing Joint venture Wholly owned

subsidiary
Marketing & Fully
Spot Foreign Distribution integrated
sales agent / only
distributor

Long- Licensing Franchising Marketing& Fully

term patents & Distribution integrated
contract other IP only

Low Resource commitment 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 partner’s 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’
Motors’ Alliances
Alliances with
with Competitors
Competitors
SAAB
0 0 -5). ology
AVTOVAZ d (20 techn FIAT
Ru e
wn tion on
ssi o
an
JV
50% 20%labora onents
to p
r od
owned Col comp
SUZUKI uc e and
10% c ar
ow n s
ed.
C o-
pr od 20% owned; join
uctio
n GM t production
FUJI
JV
to p
ro duction 60% rod
Co-p
ISUZU 49% ow ned. owned u ce
c ar
s in
Ch

50 pro
40% investment IBC Vehicles i na

. 9 du
Ltd. (U.K.)

% cti
50%
SAIC

ow on
owned

n e co
(Makes vans in UK)

d; lla
te bo
ch r a
New United Motor

ni tio
ca n
TOYOTA Manufacturing

l&
50% owned Inc. (NUMMI)
(Makes cars in US) DAEWOO
 Multinational
Multinational Strategies:
Strategies:
Globalization
Globalization vs.
vs. National
National Differentiation
Differentiation
The case for a global strategy:

• National preferences in decline—world becoming a single, Ted

if segmented, market Levitt
“Globaliz-
-ation of
• Accessing global scale economies—in purchasing, Markets”
Thesis
manufacturing, product development, marketing.

• Strategic strength from global leverage—ability to cross- Hamel &

Prahalad
subsidize a national subsidiary with cash flows from Thesis
other national subsidiaries
Kenichi
Ohmae’s
• Need to access market trends and technological “Triad
developments in each of the world’s major economic Power”
centers- N. America, Europe, East Asia. Thesis
 Globalization
Globalization&&Global
GlobalStrategy
Strategy—What
—Whatare
arethey?
they?

•• GLOBALIZATION
GLOBALIZATION??
--Something
--Somethingto
todo
dowith
withincreasing
increasinginterdependence
interdependencebetween
between
countries.
countries.

•• GLOBAL
GLOBALSTRATEGY
STRATEGY
----At
Atsimplest
simplestlevel:
level: Treating
Treatingthe
theworld
worldas
asaasingle
singlemarket
market
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 World as inter- World as
single mkt. related mkts. separate
national mkts.

global strategy multidomestic strategy

Analyzing
Analyzing benefits/costs
benefits/costs of
of aa global
global strategy
strategy

Forces
Forcesfor
for globalization
globalization Forces
Forcesfor
forlocalization
localization//national
national
MARKET differentiation
differentiation
MARKETDRIVERS
DRIVERS
--Common
--Commoncustomer
customerneeds MARKET
needs MARKETDRIVERS
DRIVERS
--Global
--Globalcustomers
customers --Different
--Cross-border --Differentlanguages
languages
--Cross-bordernetwork
networkeffects
effects --Different
--Differentcustomer
customerpreferences
preferences
COST --Cultural
--Culturaldifferences
differences
COST DRIVERS
DRIVERS
--Global COST
COSTDRIVERS
--Globalscale
scaleeconomies
economies DRIVERS
--Differences --Transportation
--Transportationcosts
--Differencesin
innational
national costs
resource availability --Transaction costs
--Transaction costs
resource availability
--Learning --Economic
--Economic&&political
politicalrisk
risk
--Learning
--Speed
--Speedof
ofresponse
response
COMPETITIVE GOVERNMENT
GOVERNMENTDRIVERS
COMPETITIVEDRIVERS
DRIVERS DRIVERS
--Potential --Barriers
--Barriersto
totrade
trade&&inward
inwardinv.
--Potentialfor
forstrategic
strategic inv.
competition --Regulations
competition (e.g.
(e.g.cross-
cross- --Regulations
subsidization)
subsidization)
 Jet engines

Autos
Benefits
Consumer
of
electronics Telecom
global
integration equipment

Steel Investment
banking
Cement Online C2C auctions Restaurant
Retail chains
Beer banking
Dry Auto Funeral
cleaning repair services

Benefits of national differentiation

 Positioning
Positioningindustries
industries in
in terms
termsofof benefits
benefitsof
of
globalization
globalization and
andnational
national differentiation
differentiation

Jet engines

Autos
Benefits
Consumer
of
electronics Telecom
global
integration equipment

Investment
banking

Retail
Cement banking
Auto Funeral
repair services

Benefits of national differentiation

 The
TheEvolution
Evolution of
of Multinational
Multinational Strategies
Strategies and
and
Structures:
Structures: (1)
(1)1900-1939—Era
1900-1939—Era of 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
The Evolution
Evolution of
of Multinational
Multinational Strategies
Strategies
and
and Structures:
Structures:(2)
(2)1945-1970—U.S.
1945-1970—U.S. Dominance
Dominance

American MNC’s 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
Evolution of
of Multinational
Multinational
Strategies
Strategiesand
and Structures:
Structures:
(3)
(3) 1970s
1970sand
and1980s—The
1980s—The Japanese
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
Marketing Global
Global Strategies
Strategiesand
andSituations
Situations to
to Industry
Industry
Conditions:
Conditions:Firm
Firm Success
Success in
inDifferent
Different Industries
Industries

Consumer Electronics Branded, Packaged Telecommunications

Consumer Goods Equipment
Matsushit NEC
global integration

a Ka
o

integration

integration
Erickson
global

global
Philips P&G
General Electric Unilever
ITT

local responsiveness local responsiveness local responsiveness

- 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
successful
 Reconciling
ReconcilingGlobal
Global Integration
Integration with
withNational
National
Differentiation:
Differentiation:The
The Transnational
Transnational Corporation
Corporation

Tight complex Heavy flows of

controls and technology,
coordination and a finances, people,
shared strategic and materials
decision process. 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.
 Designing the
Designing the MNC:
MNC: Key
Key Learning
Learning
1. On what basis to organize—products, geography, functions?
--Where is coordination most important?
--How global is the industry? How global is the firm’s
strategy?
1. If one dimension is dominant, how to coordination along the
other dimensions?
--Maintain single line accountability
--Other dimensions of coordination can be “dotted line”
relations
1. What’s the role of HQ?
--Control function
--Coordination function
--Exploiting scale economies in centralized provision of
services
1. The need for internal differentiation
--By product/business
--By function
--By country
1. Formal & informal organization