Chapter 12 Global Strategies & the Multinational Corporation Prof. Luciano Thomé e Castro

© 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Global Strategies & the Multinational Corporation OUTLINE Implications of International Competition for Industry Analysis Analyzing Competitive Advantage within an International Context Applying the Framework International location of production Foreign market entry strategies Multinational Strategies: Globalization versus National Differentiation Strategy and Organization of the Multinational Corporation © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Patterns of Internalization © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Implications of Internationalization for Industry Analysis INDUSTRY STRUCTURE Lower entry barriers into national markets Increased industry rivalry Lower seller concentration Greater diversity of competitors Increased buyer power Buyers have more potential suppliers to choose from COMPETITION Increased intensity of competition PROFITABILITY Other things remaining equal, internationalization tends to reduce an industry’s margins and rate of return on capital © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Competitive Advantage within an International Context: The Basic Framework © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

National Influences on Competitiveness: The Theory of Comparative Advantage A country has a relative efficiency advantage in those products that use resources that are abundant within that 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 translates into competitive advantage © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Revealed Comparative Advantage for Selected Product Categories US UK Japan Switzerland Canada Australia Taiwan Cereals +0.83 -0.24 -0.99 +0.80 +0.97 -0.78 Mineral fuels -0.82 -0.11 -0.93 -0.50 +0.41 +0.26 -0.54 Pharmaceuticals -0.25 +0.19 -0.51 +0.34 -0.32 -0.34 Vehicles -0.41 +0.81 -0.68 +0.04 -0.69 +0.31 Aerospace +0.58 -0.14 -0.44 -0.13 -0.70 Electrical & electronic equipment -0.26 +0.08 -0.02 -0.30 -0.74 +0.25 Optical, photo, medical and scientific equipment +0.09 +0.21 +0.37 -0.36 -0.46 +0.20 Apparel (woven) -0.92 -0.61 -0.96 -0.40 -0.59 -0.29 Finance and insurance -0.10 +0.56 +0.69 -0.08 +0.05 -0.85 © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

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 national environment provides 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 © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Porter’s National Diamond Framework 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 and innovation STRATEGY, STRUCTURE AND RIVALRY – e.g. domestic rivalry drives upgrading © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Consistency Between Strategy and National Resource 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 semiconductor industry, US firms concentrate mainly upon design of advanced chips, Chinese 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) © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Applying the Framework (1) International Location of Production Location decisions need to take account of three sets of factors: 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 © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Labour Costs by Country Production Workers in Manufacturing, US$ per Hour Country 1975 2000 2010 Switzerland 6.09 21.24 53.20 Germany 6.31 24.42 Australia 5.62 14.47 40.60 France 4.52 15.70 40.55 USA 6.36 19.76 34.74 Italy 4.67 14.01 33.41 Japan 3.00 22.27 31.99 UK 3.37 16.45 29.44 Spain 2.53 10.78 26.60 Korea 0.32 8.19 16.62 Taiwan 0.40 5.85 8.36 Mexico 1.47 2.08 6.23 Philippines 0.62 1.30 1.90 © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Location and the Value Chain: Textiles and Clothing Indices of revealed comparative advantage Fiber Production Spun Yarn Textiles Apparel Hong Kong -0.96 -0.81 -0.41 +0.75 Italy -0.54 +0.18 +0.14 +0.72 Japan -0.36 +0.48 +0.78 -0.48 USA +0.96 +0.64 +0.22 -0.73 © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Where Does the iPhone Come From? Item Supplier Location Design and operating system Apple USA Flash memory Samsung Electronics S. Korea DRAM memory Samsung Electronics; Micron Technologies Application processor Murata Japan/Taiwan Baseband Infineon; Skyworks; Triquint Taiwan Power management Dialog Semiconductor Audio Texas Instruments Touchscreen control Cirrus Logic Accel. and gyroscope ST Microelectronics Italy E-compass AKM Semiconductor Japan Assembly Foxconn China © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Globally-Dispersed Production: Boeing 787 Dreamliner © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Determining the Optical Location of Value Chain Activities © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Applying the Framework (2) Alternative Modes of Overseas Market Entry © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Ghemewat’s CAGE Framework for Assessing Country Differences © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Globalisation and Global Strategy: What Are They? Globalization Increasing interdependence and homogeneity among countries Global Strategy At simplest level: Treating the world as a single market: standard products, distributed & marketed worldwide (e.g. YKK and Honda during 1970s and 1980s) At a more sophisticated level: Strategy that recognizes and exploits linkages between countries (e.g. exploits global scale, national resource differences, strategic competition) Global strategy Multi-domestic strategy World as a single market World as inter- related markets World as separate national markets © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Analysing Benefits/Costs of a Global Strategy Forces for globalization Cost benefits of scale and replication Serving global customers Exploiting arbitrage benefits from national resources—e.g. natural resources, low labor costs, knowledge Learning in multiple national environments Competing strategically — Cross-subsidization Forces for national differentiation Transportation and communication costs arising from geographical distance and remoteness Differences in customer needs and behavioral norms arising from cultural factors (including institutional, governmental, regulatory and political differences Market and infrastructure differences arising from differences in level of economic development © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Global Integration vs. National Differentiation © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Development of Multinational Corporation (according to Bartlett & Goshen) 1900-39: European MNCs as Decentralized Federations 1945-1970: American MNCs as Coordinated Federations 1970s and 1980s The Japanese MNC as Centralized Hub National subsidiaries self-sufficient & autonomous HQ control through appointing subsidiaries senior management Dominant role of U.S. parent in developing technology and products Foreign subsidiaries autonomous in operations and marketing Global strategy pursued from home base Strategy, R&D and production home based Foreign subsidiaries conduct sales and distribution Note: Density of shading indicates extent of decision making authority © 2013 Robert M. Grant www.contemporarystrategyanalysis.com

Reconciling Global Integration with National Differentiation: The Transnational Corporation The Transnational: an integrated network of distributed, interdependent resources and capabilities. Each national unit a source of ideas and capabilities that can benefit the whole corporation. Each national unit becomes world source for a specific product, component, or activity. Corporate center orchestrates collaboration through creating the right organizational context. © 2013 Robert M. Grant www.contemporarystrategyanalysis.com