To accompany contemprory strategy analysis concepts techiniques application chapter14slides

Global
Global Strategies
Strategies and
and the
the
Multinational
Multinational Corporation
Corporation
OUTLIN
E
•
•
•

•
•

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

The
The Internationalization
Internationalization Process
Process
International
Industries
--aerospace
--military hardware
--diamond mining
--agriculture

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

LOW

Global
Industries
--automobiles
--oil
--semiconductors
--consumer electronics

Multinational/
Multidomestic
Industries
--investment banking
--hotels
--consulting

Foreign Direct Investment

HIGH


The
The Automobile
Automobile Goes
Goes Global:
Global:
The
The GM
GM Pontiac
Pontiac Le
Le Mans
Mans
Design:

Germany (by Opel)

Brakes:

France, U.S.

Sheetsteel:

Japan

Stamping of body parts:

S. Korea

Tires:

S. Korea

Engines:

1.6 liter

S. Korea

Windshield:

S. Korea

2.0 liter

Australia

Battery:

S. Korea

Fuel injection:

U.S.

Wiring harness: S. Korea

Fuel pump:

U.S.

Radio:

Singapore

Transmission:

Canada & U.S.

Assembly:

S. Korea

Rear axle:

U.S.

Marketing &

Steering:

U.S.

distribution:

S. Korea

N. America


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
industry’s margins & rate of return on capital


Competitive
CompetitiveAdvantage
Advantage within
withinan
anInternational
International
Context:
Context:The
The Basic
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
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

-.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


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
SUPPORTING
INDUSTRIES

DEMAND
CONDITIONS

STRATEGY, STRUCTURE,
AND RIVALRY

1.
2.
3.

4.

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)

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 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
OptimalLocation
Location
of
ofValue
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 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: Exporting: Exporting: Licensing Franchising
Spot
Long-term with foreign technology
transcontract
distributor/
actions
agent
trademarks
only
ted
only

and

Joint

venture

Marketing & Fully
distribution integral& sales

Wholly owned
subsidiary
Marketing
Fully
integrated

Key issues:
•Is the firm’s competitive advantages based upon firm-specific or
country-specific resources and capabilities?
•Is the product tradable and what are the barriers to/ costs of trade?
Does the firm possess the full range of resources and capabilities
needed to serve the overseas market?
•Can the firm directly appropriate the returns to its resources?
•What transaction costs are involved?


Alliances
Alliances and
and Joint
Joint Ventures:
Ventures: Management
Management
Issues
Issues
•

•
•

Benefits:
--Access to the resources and capabilities of another company
--Learning from one another
--Reducing time-to-market for innovations
--Risk sharing
Problems:
--Disagreements & conflict between the partners. Disputes
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?


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
Allianceswith
with Competitors
Competitors

SAAB

5
ow 0%
ne
d

FIAT
50%
ned
SUZUKI Supplies
on
owned
w
n
o
o
i
smal
rat and
l cars
20%
o
b
y
la
10%ow
Col hnolog nts
ne
tec mpone

d
GM
co
20%
49%owned
o wn
ed; j
FUJI
arts
/p
s
k
oint
c
ISUZU
60%
u
r
t
/
s
r
a
prod
small c
uctio
owned
Supplies
n
Su

IBC
Vehicles
pp
40% investment
lie
Limited (U.K.)
ss
m
Makes vans in UK
al
lc
ar
s
50%owned New United Motor
TOYOTA
Manufacturing
DAEWOO
Inc. (NUMMI)
Makes cars in US


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

forglobalization
globalization
MARKET
MARKETDRIVERS
DRIVERS

--Similarity
--Similarityof
ofneeds
needs
--Appeal
--Appealof
offoreign-ness
foreign-ness
--Network
--Networkeffects
effects
COST
COSTDRIVERS
DRIVERS

Forces
Forcesfor
forlocalization
localization//national
national
differentiation
differentiation
MARKET
MARKETDRIVERS

DRIVERS
--Different
--Differentcustomer
customerpreferences
preferences
--Cultural
--Culturaldifferences
differences

--Scale
--Scale
--Learning
--Learning
--National
--Nationaldifferences
differencesin
in
resource
resourcecosts
costs

COST
COSTDRIVERS
DRIVERS
--Transportation
--Transportationcosts
costs
--Transaction
--Transactioncosts
costs

--Economic
--Economic&&political
politicalrisk
risk(+
(+or
or-?)
-?)
--Speed
of
response
--Speed of response

COMPETITIVE
COMPETITIVEDRIVERS
DRIVERS
--Strategic
--Strategiccompetition
competition(X
(X
subsidization)
subsidization)

GOVERNMENT
GOVERNMENTDRIVERS
DRIVERS
--Barriers
--Barriersto
totrade
trade&&inward
inwardinv.

inv.
--Regulations
--Regulations


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,
if segmented, market

•

Accessing global scale economies—in purchasing,
manufacturing, product development, marketing.

•

Strategic strength from global leverage—ability to crosssubsidize a national subsidiary with cash flows from
other national subsidiaries

•

Need to access market trends and technological
developments in each of the world’s major economic
centers- N. America, Europe, East Asia.

Ted
Levitt
“Globaliz-ation of
Markets”
Thesis

Hamel &
Prahalad
Thesis
Kenichi
Ohmae’s
“Triad
Power”
Thesis


The
TheEvolution
Evolution of
of Multinational
MultinationalStrategies
Strategiesand
and
Structures:
Structures: (1)

(1) 1900-1939—Era
1900-1939—Eraof
ofthe
theEuropeans
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
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
and 1980s—The
1980s—TheJapanese
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


Matching
Matching Global
Global Strategies
Strategies and
and Structures
Structures
to
to Industry
Industry Conditions
Conditions
Degree of globalization depends upon the benefits of global
integration versus the benefits of national differentiation.
Key issues:

--How important are global scale economies?
--How different are customer requirements
between countries?
• Jet engines

Benefits
of
global
integration

•Consumer
electronics

• Telecommunications

equipment

• Packaged

• Cement

grocery products
Benefits of national differentiation


Marketing
MarketingGlobal
GlobalStrategies
Strategiesand
and Situations
Situationsto
to Industry
Industry
Conditions:
Conditions:Firm
FirmSuccess
Successin
inDifferent
DifferentIndustries
Industries

Philips
General Electric

local responsiveness

- Global industry

- Matsushita the most
successful
- Philips the survivor
- GE sold out

Ka
o
P&G
Unilever

local responsiveness

- Substantial national
differentiation, few global
scale economies
- Kao has limited success
outside Japan
- Unilever and P&G most
successful

Telecommunications
Equipment
NEC
global
integration

Matsushit
a

Branded, Packaged
Consumer Goods
global
integration

global integration

Consumer Electronics

Erickson

ITT

local responsiveness

- Requires both global
integration and national
differentiation.
- NEC only partially
successful
- ITT sold out
- Ericsson most
successful