Global Strategies and the Multinational Corporation Chapter 9 Global Strategies and the Multinational Corporation

LEARNING OBJECTIVES By the time you have completed this topic you will be able to: discern patterns of internationalization; analyze the implications of a firm’s national environment for its competitive advantage; formulate strategies for exploiting overseas business opportunities, including market entry strategies and production strategies; design organizational structures and management systems appropriate to the pursuit of international strategies. Wiley Canada

STRUCTURE OF THE SESSION patterns of internationalization analyzing competitive advantage in an international context applying the framework: international location of production how should a firm enter foreign markets? multinational strategies: global integration vs. national differentiation strategy and organization within the multinational corporation Wiley Canada

PATTERNS OF INTERNATIONALIZATION Wiley Canada

COMPETITIVE ADVANTAGE IN AN INTERNATIONAL CONTEXT Wiley Canada

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 abundant within that country. For example: Bangladesh has a comparative advantage in products that that make intensive use of unskilled labour: clothing, handicrafts, leather and assembly of consumer electronic products. U.S. has a comparative advantage in technology intensive products such as microprocessors, computer software, pharmaceuticals, medical diagnostic equipment, and consulting services. When exchange rates are well-behaved, comparative advantage translates into competitive advantage. Wiley Canada 7

PORTER’S NATIONAL DIAMOND FRAMEWORK Wiley Canada

APPLYING THE FRAMEWORK: INTERNATIONAL LOCATION OF PRODUCTION Four major factors: National resource availability: 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. Political Considerations: Government incentives, penalties, and restrictions impact location decisions. Wiley Canada 12

DETERMINING THE OPTIMAL LOCATION OF VALUE CHAIN ACTIVITIES Wiley Canada 9

ALTERNATIVE MODES OF OVERSEAS MARKET ENTRY Wiley Canada 10

CHOOSING THE MODES OF OVERSEAS MARKET ENTRY Key Strategic Questions: Is the firm’s competitive advantage based on firm-specific or country- specific resources? Is the product tradable and what are the barriers to trade? Does the firm possess the full range of resources and capabilities needed to establish a competitive advantage in the overseas market? Can the firm directly appropriate the returns to its resources? What transaction costs are involved? Wiley Canada 11

INTERNATIONAL ALLIANCES AND JOINT VENTURES Strategic alliances are collaborative arrangements between firms. International alliances are strategic alliances involving partners from different countries. International joint ventures are where partners from different counties form a new, jointly-owned company. The main motivation for international alliances and joint ventures is the desire by multinational companies to access the market knowledge and distribution capabilities of local companies and the desire of the local partner to access the technology, brands, and product development of the multinational. Wiley Canada

THE BENEFITS OF A GLOBAL STRATEGY Cost benefits of scale and replication: Accessing global scale economies in purchasing, manufacturing, product development, marketing. Replicating knowledge assets. Serving global customers: Multinational companies may prefer suppliers that can serve their global needs. Exploiting national resources—Arbitrage benefits: The international firm can access better or cheaper natural, human, and technological resources. Learning benefits: Accessing and integrating knowledge from multiple locations. Competing strategically: Exploiting global strength to win local wars. Wiley Canada

CAGE FRAMEWORK FOR ASSESSING COUNTRY DIFFERENCES Cultural distance Administrative and Political Distance Geographical distance Economic differences Distance between two countries increases with. Different languages, ethnicities, religions, social norms Lack of connect- ing ethnic/social networks Absence of shared political or monetary association Political hostility Weak legal and financial institutions Lack of common border, or transportation or communication links Physical remoteness Different con-sumer incomes Differences in resources Information or knowledge Industries most affected by source of distance Industries with high linguistic content (TV, publishing) and cultural content (food, wine, music) Industries viewed by government as strategically important (e.g. energy, defence, telecom) Products with low value-to-weight (cement), fragile (glass), perishable (milk) or where communication vital (financial services) Products with income elastic demand (luxuries). Labour intensive products (clothing) Add illustrative example of value chain applied to a car firm Wiley Canada 14

BENEFITS OF GLOBAL INTEGRATION VERSUS NATIONAL DIFFERENTIATION Wiley Canada 15

THE DEVELOPMENT OF THE MULTINATIONAL CORPORATION Alternative parent–subsidiaries relations Add illustrative example of value chain applied to a car firm Note: The density of shading indicates the concentration of decision making. Source: C. A. Bartlett and S. Ghoshal, Managing Across Borders: The Transnational Solution (Boston: Harvard Business School Press, 1998). Reproduced by permission of Harvard Business Review. Wiley Canada 16

THE TRANSNATIONAL CORPORATION Wiley Canada 17

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