Title: Global Strategies and the Multinational Corporation
1Global 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 location of production
- (2) Foreign market entry strategies
- Multinational Strategies Globalization versus
National Differentiation - Strategy and Organization of the Multinational
Corporation
2Patterns of Internationalization
Trading Global Industries Industries
--aerospace --automobiles --military
hardware --oil --diamond mining
--semiconductors --agriculture
--consumer electronics Domestic
Multidomestic Industries Industries
--railroads --laundries/dry
cleaning --retail banking --hairdressing
--hotels --milk --consulting
HIGH
International Trade
LO W
Foreign Direct Investment
LOW
HIGH
3The Automobile Goes Global The GM Pontiac Le
Mans
Design Germany (by Opel) Brakes France,
U.S. Sheetsteel Japan S. Korea 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. Mark
eting Steering U.S. distribution N.
America
4Implications of Internationalizationfor Industry
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
5Competitive Advantage within an International
Context The Basic Framework
FIRM RESOURCES CAPABILITIES -- Financial
resources -- Physical resources -- Technology --
Reputation -- Functional capabilities -- General
management capabilities
THE INDUSTRY ENVIRONMENT 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
6National 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.
7Revealed Comparative Advantage fora Certain
Broad Product 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
8Porters 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 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.
9Porters National Diamond Framework
FACTOR CONDITIONS
RELATING AND SUPPORTING INDUSTRIES
DEMAND CONDITIONS
STRATEGY, STRUCTURE, AND RIVALRY
- FACTOR CONDITIONSHome grown resources/capabilit
ies more important - than natural endowments.
- 2. RELATED AND SUPPORTING INDUSTRIESKey role of
industry clusters - 3. DEMAND CONDITIONSDiscerning domestic
customers drive quality innovation - 4. STRATEGY, STRUCTURE, RIVALRY. E.g. domestic
rivalry drives upgrading.
10Consistency 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 RD in
US, components in Korea and Thailand, assembly in
Indonesia, China, and India, marketing in Europe
and North America)
11International 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
companys 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.
12The Role of Labor 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
13National cultures power difference
uncertainty avoidance
Japan
France
Korea
Israel
Uncertainty avoidance
Mexico
USA
Malaysia Philippines
India
Denmark
Power distance
14Location and the Value 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 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
Note 1 production of fiber (natural
synthetic) 2 production of spun yarn 3
production of textiles 4 production of
clothing
15National cultures individualism/collectivism
Japan
Mexico
India
Germany
Philippines
Israel
Denmark
Venezuela
Korea
UK
France
USA
Aust.
Malaysia
Guatemala
Italy
Individualist
Collectivist
16Determining the Optimal Location 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 independently
What government incentives/ penalties affect the
location decision?
What internal resources and capabilities does the
firm possess in particular locations?
WHERE TO LOCATE ACTIVITY X?
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?
17Alternative Modes of Overseas Market Entry
- 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
- Key issues
- Is the firms 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?
18Alternative Modes of Overseas Market Entry
TRANSACTIONS
DIRECT INVESTMENT
Exporting
Licensing
Joint venture
Wholly owned subsidiary
Marketing Distribution only
Fully integrated
Spot sales
Foreign agent / distributor
Franchising
Long-term contract
Licensing patents other IP
Marketing Distribution only
Fully integrated
Resource commitment
Low
High
19Alliances and Joint Ventures Management 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?
20General Motors Alliances with Competitors
SAAB
FIAT
20 owned (2000-5). Collaboration on technology
and components
AVTOVAZ
50 owned
SUZUKI
Russian JV to produce cars
10 owned. Co-production
GM
20 owned joint production
FUJI
60 owned
49owned. Co-production
ISUZU
JV to produce cars in China
IBC Vehicles Ltd. (U.K.)
40 investment
50 owned
SAIC
(Makes vans in UK)
50.9 owned technical production collaboration
New United Motor Manufacturing Inc. (NUMMI)
TOYOTA
50 owned
DAEWOO
(Makes cars in US)
21Multinational Strategies Globalization vs.
National 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. - Strategic strength from global leverageability
to cross- - subsidize a national subsidiary with cash flows
from - other national subsidiaries
- Need to access market trends and technological
- developments in each of the worlds major
economic - centers- N. America, Europe, East Asia.
Ted Levitt Globaliz- -ation of Markets Thesis
Hamel Prahalad Thesis
Kenichi Ohmaes Triad Power Thesis
22Globalization Global Strategy What are they?
- GLOBALIZATION ?
- --Something to do with increasing
interdependence between countries.
- GLOBAL STRATEGY
- --At simplest level Treating the world as a
single market - E.g. Japanese companies during the 1970s
1980s, - (YKK, Honda) standard products, developed
- manfactured within Japan distributed
marketed - worldwide
- --At more sophisticated level Strategy that
recognizes - and exploits linkages between countries (e.g.
exploits - global scale, national resource differences,
strategic - competition)
World as separate national mkts.
World as single mkt.
World as inter- related mkts.
global strategy
multidomestic strategy
23Analyzing benefits/costs of a global strategy
Forces for globalization MARKET
DRIVERS --Similarity of needs --Appeal of
foreign-ness --Network effects COST
DRIVERS --Scale --Learning --National
differences in resource costs COMPETITIVE
DRIVERS --Strategic competition (X subsidization)
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
24Positioning industries in terms of benefits of
globalization and national differentiation
Jet engines
Autos
Benefits of global integration
Consumer electronics
Telecom equipment
Investment banking
Retail banking
Cement
Auto repair
Funeral services
Benefits of national differentiation
25The Evolution of Multinational Strategies and
Structures (1) 1900-1939Era 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.
26The Evolution of Multinational Strategies and
Structures (2) 1945-1970U.S. 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
27The Evolution of Multinational Strategies and
Structures (3) 1970s and 1980sThe 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
28Matching Global Strategies and Structures to
Industry 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?
- Telecommunications
- equipment
Benefits of global integration
- Packaged
- grocery products
Benefits of national differentiation
29Marketing 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 PG most - ITT sold out
successful - Ericsson most - successful
Matsushita
NEC
Kao
Erickson
global integration
Philips
global integration
global integration
PG
Unilever
General Electric
ITT
local responsiveness local responsiveness loca
l responsiveness
30Reconciling Global Integration with National
Differentiation The Transnational 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.
31Designing the MNC Key Learning
- On what basis to organizeproducts, geography,
functions? - --Where is coordination most important?
- --How global is the industry? How global is the
firms strategy? - 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 - Whats the role of HQ?
- --Control function
- --Coordination function
- --Exploiting scale economies in centralized
provision of services - The need for internal differentiation
- --By product/business
- --By function
- --By country
- Formal informal organization