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

2. © 2013 Robert M. Grant

3. 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

4. Patterns of Internalization
© 2013 Robert M. Grant

5. 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

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

7. 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

8. Revealed Comparative Advantage for Selected Product CategoriesUS 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. Globally-Dispersed Production: Boeing 787 Dreamliner
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17. Determining the Optical Location of Value Chain Activities
© 2013 Robert M. Grant

18. Applying the Framework (2) Alternative Modes of Overseas Market Entry
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19. Ghemewat’s CAGE Framework for Assessing Country Differences
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20. 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

21. 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

22. Global Integration vs. National Differentiation
© 2013 Robert M. Grant

23. Development of Multinational Corporation (according to Bartlett & Goshen)
: European
MNCs as Decentralized
Federations
: 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

24. 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