To accompany contemprory strategy analysis concepts techiniques application chapter14slides

Global Strategies and the Multinational CorporationGlobal Strategies and the Multinational Corporation • Implications of International Competition for Industry Analysis • Analyzing Comp

Global Strategies and the Multinational Corporation

Global Strategies and the Multinational Corporation

• 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

OUTLIN

E

The Internationalization Process

International Global

Industries Industries

aerospace automobiles

military hardware oil

diamond mining semiconductors

agriculture consumer electronics

The Automobile Goes Global:

The GM Pontiac Le Mans

The Automobile Goes Global:

The GM Pontiac Le Mans

• 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 ADVANTAGE

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

Competitive Advantage within an International

Context: The Basic Framework

Competitive Advantage within an International

Context: The Basic Framework

National Influences on Competitiveness: The Theory of

Comparative Advantage

National Influences on Competitiveness: The Theory of

Comparative 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 Comparative Advantage for

a Certain Broad Product Categories

Revealed Comparative Advantage for

a Certain Broad Product Categories

USA Canada W Germany Italy Japan

Note: Revealed comparative advantage for each product group

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

Porter’s Competitive Advantage

of Nations

Porter’s Competitive Advantage

of 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

FACTOR CONDITIONS

DEMAND CONDITIONS

RELATING AND SUPPORTING INDUSTRIES

STRATEGY, STRUCTURE,

AND RIVALRY

Porter’s National Diamond Framework

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

than natural endowments.

2 RELATED AND SUPPORTING INDUSTRIES—Key role of “industry clusters”

3 DEMAND CONDITIONS—Discerning domestic customers drive quality & innovation

4 STRATEGY, STRUCTURE, RIVALRY E.g domestic rivalry drives upgrading.

Consistency Between Strategy

and National Conditions

Consistency Between Strategy

and National 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 Location of 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 Role of Labor Costs

Hourly Compensation for Production Workers, 1999 ($)

Cost of Producing a Compact Automobile

U.S Mexico Parts & components 7,750 8,000

Location and the Value Chain

Comparative advantage in textiles and apparel by stage of processing

Advantage Advantage

Note:

1 = production of fiber (natural & synthetic) 2 = production of spun yarn

The optimal location

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)?

How great are the coordination benefits from co-locating activities?

Determining the Optimal Location

of Value Chain Activities

Determining the Optimal Location

of Value Chain Activities

TRANSACTIONS DIRECT INVESTMENT

Exporting: Exporting: Exporting: Licensing Franchising Joint Wholly owned

Spot Long-term with foreign technology venture subsidiary

trans- contract distributor/ and Marketing & Fully Marketing Fully

actions agent trademarks distribution integral- & sales integrated

only ted only

Alternative Modes of Overseas Market Entry

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 and Joint Ventures: Management

Issues

Alliances and Joint Ventures: Management

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 and Joint Ventures:

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?

ISUZU

TOYOTA

IBC VehiclesLimited (U.K.)

GM

New United MotorManufacturingInc (NUMMI)

Supplies s

mall cars10%owne

d

49%ownedSupplies small cars/

ma

ll cars

General Motors’ Alliances with Competitors

General Motors’ Alliances with Competitors

COST DRIVERS Transportation costs Transaction costs Economic & political risk (+ or -?) Speed of response

GOVERNMENT DRIVERS Barriers to trade & inward inv.

Regulations

Forces for localization / national

differentiation

MARKET DRIVERS Different customer preferences Cultural differences

COST DRIVERS Transportation costs Transaction costs Economic & political risk (+ or -?) Speed of response

GOVERNMENT DRIVERS Barriers to trade & inward inv.

Regulations

Multinational Strategies:

Globalization vs National Differentiation

Multinational Strategies:

Globalization vs National Differentiation

• 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

subsidize 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.

Hamel & Prahalad Thesis

Kenichi Ohmae’s

“Triad Power” Thesis

Ted Levitt

-ation of Markets” Thesis

“Globaliz-The case for a global strategy:

The Evolution of Multinational Strategies and Structures: (1) 1900-1939—Era of the Europeans

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

The Evolution of Multinational Strategies

and Structures: (2) 1945-1970—U.S 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 Evolution of Multinational Strategies and Structures:

(3) 1970s and 1980s—The Japanese Challenge

The Evolution of Multinational Strategies and Structures:

(3) 1970s and 1980s—The Japanese 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 Global Strategies and Structures

Key issues: How important are global scale economies?

How different are customer requirements

• Jet engines

•Consumer

electronics

Marketing Global Strategies and Situations to Industry

Conditions: Firm Success in Different Industries

Marketing Global Strategies and Situations to Industry

Conditions: Firm Success in Different Industries

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

Philips General Electric

Ka o P&G Unilever

NEC Erickson

ITT

Tight complex controls

and coordination and a

shared strategic

decision process.

Heavy flows of technology, finances, people, and materials

between interdependent units.

Figure 14.8 The Transnational Corporation

Reconciling Global Integration with National Differentiation: The Transnational Corporation

Reconciling Global Integration with National

Differentiation: The Transnational Corporation

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.

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

services

4 The need for internal differentiation

By product/business By function

By country

5 Formal & informal organization