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Global Strategies and the Multinational Corporation

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Hourly Compensation for Auto Workers, 1996 ($) Germany 26.50. Japan 19.90 ... U.S. Mexico Parts & components 7,750 8,000 Labor 700 40 Shipping cost 300 1,000 ... – PowerPoint PPT presentation

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Title: Global Strategies and the Multinational Corporation


1
Global Strategies and the Multinational
Corporation
OUTLINE
  • Implications of International Competition for
    Industry Analysis
  • Analyzing Competitive Advantage within an
    International Context
  • --Comparative advantage
  • --Porters Competitive Advantage of Nations
  • --Consistency between strategy and national
    conditions
  • --Location of production
  • Overseas Market Entry
  • Alliances and Joint Ventures
  • Multinational Strategies Globalization versus
    National Differentiation
  • Strategy and Organization of the Multinational
    Corporation

2
The Internationalization of Industries
The Process of Internationalization
International Global Industries
Industries --aerospace --automobiles
--military hardware --oil --diamond mining
--semiconductors --agriculture --consumer
electronics Domestic Multinational/
Industries Multidomestic --railroads
Industries --laundries/dry cleaning
--retail banking --hairdressing --hotels
-milk --consulting
HIGH
International Trade
LO W
LOW
HIGH
Foreign Direct Investment
3
The 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
4
Implications 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

5
Analyzing Competitive Advantage within an
International Context The Basic Framework
THE INDUSTRY ENVIRONMENT Key Success Factors
FIRM RESOURCES CAPABILITIES -- Financial
resources -- Physical resources -- Technology --
Reputation -- Functional capabilities -- General
management capabilities
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
6
National Influences on Competitiveness The
Theory of Comparative Advantage
  • A country is relatively efficient in the
    production of those products which make intensive
    use of resources which 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 emerges as competitive
    advantage.

7
Revealed 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

8
Porters Competitive Advantage of Nations
  • Extends and modifies traditional theory of
    comparative advantage to take account of the
    following factors
  • Competitive advantage is about companies --- the
    importance of the national environment is
    providing a home base for the company.
  • Sustained competitive advantage depends upon
    dynamic factors-- innovation and the upgrading of
    firms resources and capabilities
  • The critical role of the national environment is
    its influence upon the dynamics of innovation and
    upgrading.

9
Porters National Diamond Framework
  • 1. FACTOR CONDITIONS. Home grown resources and
    capabilities more important than natural
    endowments.
  • 2. RELATED AND SUPPORTING INDUSTRIES.
    Competitive advantage occurs in industry
    clusters (e.g. semiconductors-computers-software
    in the U.S.).
  • 3. DEMAND CONDITIONS. Discerning domestic
    customers drive quality and innovation (e.g.
    Japanese camera industry)
  • 4. STRATEGY, STRUCTURE, RIVALRY. E.g. domestic
    rivalry drives innovation and upgrading.

FACTOR CONDITIONS
RELATING AND SUPPORTING INDUSTRIES
DEMAND CONDITIONS
STRATEGY, STRUCTURE, AND RIVALRY
10
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
  • Malaysian semiconductor manufacturers can be
    competitive in high volume, less technologically
    advanced items (e.g. memory chips)
  • Dispersion of value chain to exploit different
    national environments (e.g. Nike RD in U.S.,
    components in Korea and Taiwan, assembly in
    China, Thailand and India, marketing in Europe
    and North America)

11
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
    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.

12
The Role of Labor Costs
  • Hourly Compensation for Auto Workers, 1996 ()
  • Germany 26.50
  • Japan 19.90
  • U.S. 17.40 France 16.90 U.K. 13
    .29
  • Spain 11.92
  • Korea 6.75 Mexico 3.85
  • BUT, wages are only one element of costs
  • Cost of Producing a Compact Automobile, 1992
  • 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

13
Location and the Value Chain
Comparative advantage in textiles and apparel by
stage of processing
Country Stage of Index of Revealed
Country Stage of Index of Revealed
Processing Comp. Advant.
Processing Comp. Advant.
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
14
International Location of Industrial Activities
within the Value Chain
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 benefits of linkages through
proximity?
15
Overseas Market Entry Alternative Modes
  • 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
    integral-
  • only ted only
    ted
  • 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?

16
Alliances and Joint Ventures Management Issues
  • Benefits ability to combine different resources
    and capabilities of separate partners, ability to
    learn from one another.
  • Problems management differences between the two
    partners. Conflict potential greatest where the
    partners are also competitors.
  • Collaborating with competitors benefits seldom
    shared equally. Determinants of distribution of
    benefits
  • 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?

17
Alliances and Joint VenturesU.S. Japanese
Auto Producers
Supplies finished small cars
GM
SUZUKI
3.5 investment
37.5 investment
ISUZU
Supplies finished small cars, small and medium
trucks, and parts
IBC Vehicles Limited (U.K.)
40 investment
60 investment
Makes vans in UK
New United Motor Manufacturing Inc. (NUMMI)
50 investment
50 investment
TOYOTA
Makes small cars in US
18
Alliances and Joint VenturesU.S. Japanese
Auto Producers, Cont.
Multipurpose vehicle joint development and
production
NISSAN
FORD
AUTO ALLIANCE International Inc.
50 investment
50 investment
MAZDA
Supplies parts to US Ford supplies cars and
parts to Ford in Asia and Pacific
24 investment exports Ford vehicles production
and consignment sales in US for Mazda
Diamond-Star Motors Corporation
92.5 invest.
Supplies cars
MITSUBISHI MOTORS
CHRYSLER
Supplies small cars, commercial vehicles, and
engines
15 invest.
Sale of Chry- sler vehicles
100 inv.
CHRYSLER JAPAN Sales Limited
U.S. HONDA
HONDA
Makes cars in US
19
Multinational Strategies Globalization versus
National differentiation
  • The case for a global strategy
  • National preferences in decline-- possible to
    view the
  • world becoming a single, if segmented, market.
  • Access to global scale economies--cost savings in
    purchasing, manufacturing, product development
    and marketing.
  • Strategic strength from global positioning-- but
  • locating in multiple national markets, by
    locating in multiple national markets, the
    global competitor can cross-subsidize
    to attack nationally focused rivals.
  • Need to access market trends and technological
  • developments in each of the worlds major
    economic
  • centers- N. America, Europe, EastAsia.


Ted Levitt Global- -ization Thesis
Hamel Prahalad Thesis
Kenichi Ohmaes Triad Power Thesis
20
Strategy and Organization of the MNCThe
Evolution of Multinational Strategies and
Structures (1) Pre 2nd WW 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.

21
Strategy and Organization of the MNC The
Evolution of Multinational Strategies and
Structures (2) Post 2nd WW U.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

22
Strategy and Organization of the MNC 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

23
Matching Global Strategies and Structures to
Industry Conditions
  • Degree of globalization depends upon the benefits
    of global
  • integration versus the benefits of national
    differentiation.
  • Key issue --How important are global scale
    economies?
  • --How different are customer
    requirements between countries?
  • Jet engines

Benefits of global integration
  • Consumer
  • electronics
  • Telecommunications
  • equipment
  • Packaged
  • grocery products
  • Cement

Benefits of national differentiation

24
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 PG most - ITT sold out
    successful - Ericsson most
    successful

Matsushita
NEC
Kao
Erickson
Philips
global integration
global integration
global integration
PG
Unilever
General Electric
ITT
local responsiveness local
responsiveness local responsiveness
25
Reconciling 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.
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