1. Chapter 8: Strategies and the multinational corporation
Team 5: Luis Hernandez, Robert Smith, Gloria Solorzano

2. Introduction and Objectives
Be aware of the impact of internationalization on industry structure and competition
Be able to analyze the implications of a firm’s national environment for its competitive advantage.
Be able to formulate strategies for exploiting overseas business opportunities, including overseas market entry strategies and overseas production strategies
Appreciate how international strategies can be shaped to achieve an optimal balance between global integration and national differentiation.
Be able to design organizational structures and management systems appropriate to the pursuit of international strategies.

3. Opening Case: IKEA’s International Strategy
Established in Sweden. The company joined international markets by first opening stores in Scandinavian countries and moved quickly farther afield to other countries.
Formula for International Expansion - Identify markets with the potential for high sales volumes and then purchase cheap land on the outskirts of a big city to establish a base.
A team of experienced swedish managers relocated to the country and supervised the new stores until the business was deemed mature and could be handed to local managers.
The need to adapt some of its products to local demands and management. (Japanese homes, Americans and European style vases, Germany swedish management)

4. Patterns of Internationalization
Internationalization - occurs through trade: the sale and shipment of goods, and direct investment: Building or acquiring productive assets.
Four Types of Patterns
Sheltered Industries - Served exclusively by indigenous firms. Sheltered from both imports and inward direct investment by regulation. This category has gotten smaller over time. (Railroads, laugries/ dry cleaning, hairdressing, milk) (Trade - low, DI - low)
Trading Industries - Occurs primarily through exports and Imports. (Aerospace, Military Hardware, diamond mining, agriculture) (Trade - high, DI - low)
Multidomestic Industries - Are Internationalized through direct investment (Packaged groceries, investment banking, hotels, consulting) (Trade - low, DI - high)
Global Industries - Those in which both trade and direct investment are important. Includes most large-scale manufacturing industries. (Cars, Oil, Semiconductors, Consumer Electronics) (Trade - high, DI - high)

5. Pepsi CO. Multidomestic Industry
Could be a Global Industry in the future

6. Implications for competition
Competition from potential entrants - Tariff reductions, falling real costs of transportation, foreign-exchange convertibility, and convergence of customer preferences have all made it much easier for producers in one country to supply customers in another country.
Rivalry among existing firms - Internationalization increases internal rivalry primarily because it increases the number of firms competing within national markets.
Increasing the bargaining power of buyers - The option of sourcing from overseas greatly enhances the power of industrial buyers. Allows distributors to engage in International arbitrage.

7. Analyzing Competitive Advantage in an International Context
Internationalization has shifted the basis of competition
Competitive Advantage: when a firm matches its internal strengths in resources and capabilities to the key success factors of the industry
In International Industries: Includes the natural environment + the availability of resources within the countries where it does business

8. National Influences on Competitiveness: Comparative Advantage
Comparative Advantage: states that a country has a comparative advantage in those products that make intensive use of those resources available in abundance within that country
Bangladesh
Unskilled Labor
USA
Technological Resources
Comparative Advantage translates into Competitive Advantage

9. Porter’s National Diamond
Identifies four key factors which determine a country’s competitive advantage within a particular sector

10. Limitations of Diamond Model
Some argue that Porter’s Diamond Model ignore some important factors
Fails to consider the attributes of the home country’s largest trading partners
It is not applicable to most of the world’s smallest nations
Ignores the role of multinational corporations influencing the competitive success of nations
Others believe that the model is so general that it lacks value
They argue that trying to explain all aspects of trade and competition ends up explaining nothing b/c it is insufficiently precise

11. The International House of Production
Two types of strategic decisions in international business
Where to locate production activities
How to enter a foreign market
Increasingly, decisions concerning where to produce are being separated from decisions over where to sell
Choosing where to locate production
National resource availability
Firm-specific competitive advantages
Tradability
Political considerations
Location and Value Chain
Different countries offer advantages at different stages of the value chain
Key feature of internationalization has been the international division of value chains as firms seek to locate to countries whose resource availability and cost best match each stage of the value chain

12. How Should Firm’s Enter New Markets?
Firms enter new markets in pursuit of profitability
Requires they establish a competitive advantage
A firm’s potential for establishing a competitive advantage has important implications for the means by which it enters a foreign market
Market entry by means of transaction
Market entry by means of direct investment
Firms must take these five key questions into account
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 for establishing a CA in the overseas market?
Can the firm directly appropriate the returns to its resources?
What transaction costs are involved?

13. International Alliances and Joint Ventures
Strategic Alliances: collaborative agreements between firms
Has become an increasingly popular way to enter foreign markets
There are many forms
The reason for this?
Desire by local companies to access technology, brands, and product development of the multinationals
Governments in emerging market countries often oblige foreign companies to take a local partner in order to encourage the flow of technology and management capabilities to the host country
Sharing resources and technology between partners, alliances not only economize on investment but also allow access to more highly developed resources and capabilities than the firm could create for itself

14. Global Integration vs. National Differentiation
Global Integration: views the world as a single market
National Differentiation: products and services are specified nationally

15. 5 Major Sources of Operating Internationally
Cost Benefit of Scale and Replication: know your product, expand the product
Serving Global Customers: reach customers worldwide
Exploiting National Resources
Learning Benefits
Competing Strategically : Using profits from other markets involves “Predatory Pricing” cutting prices to a level that drives competitors out of business

16. Pepsi Operating Internationally
PepsiCo is currently in North America, Latin America, Europe, Africa and Asia
PepsiCo not only produces their traditional and beloved drinks and snacks, but also adapts its markets for their consumers worldwide
PepsiCo has also provided thousands of jobs worldwide by operating plants internationally

17. The Need for National Differentiation
National differences in customer preferences continue to have great influence in most markets
Products for the “global customer” tend to be unappealing to most consumers
Cost of National Differentiation can be surprisingly low if common basic designs and common major components are used
Best solution: flexible manufacturing systems
Adapting for different customers

18. Ghemawat’s CAGE framework
Used for assessing a countries’ differences

19. Reconciling Global Integration with National Differentiation
-Industries where scale economies are huge and customer preferences are the same call for global strategy
- Industries that have national differentiation do not benefit from global integration
All about finding your customer pool

20. Reconciling Global Integration with National Differentiation
One of the greatest challenges that multinational corporations face
“Global localization”- standardizing product features and company activities where scale economies are substantial and differentiating them where national preferences are strongest but not overly expensive
Disaggregating the company by product and function

21. The Evolution of Multinational Strategies and structures
Over the past 100 years differents international firms have had to adapt to change
Three eras in development of multinational corporations
Early 20th century: Era of the European multinational, european companies such as Shell and ICI were pioneers of the multinational expansion. Created federations each nationally subsidiary undertook a full range of functions
Post- World War II- The American Multinational, US economic dominance, GM, Ford, US resources and capabilities were the competitive advantage in worldwide markets
The 1970’s and 1980’s: The Japanese Challenge- Japanese Multinational corporations, Honda, Toyota, pursued global strategies from centralized domestic bases. Globally standardized products in Large scale for low cost and quality advantage.

22. The Transnational Corporation: Changing Organization Structure
The principal structural changes of recent decades have been shift from organizations from national subsidiary and regional groupings to worldwide provisions
For most multinational corporations, country and region are retained but mostly for customer compliance
Headquartering in specific regions to approach customer type

23. Reconciling Localization and Global Integration: The Transnational
Transnational Organization-distinguishes characteristics that ensure the organization becomes an integrated network of distributed and interdependent resources and capabilities
Each national unit is a source of ideas, skills and capabilities that benefit the organization as a whole
National units access global scale economies by designating them the company’s world source for a particular product, component or activity
The centre must establish a new highly complex managing role that coordinates relationships among units in a flexible way
Balancing global integration and national differentiation requires a company to adapt to different requirements, products, functions and countries

24. Organizing R&D and New Product Development
Innovation is stimulated by diversity and autonomy, while its exploitation and diffusion require critical mass and coordination
Assigning national subsidiaries global mandates allows them to take advantage of local resources and develop distinct capabilities
Local unit possess unique capabilities and can be designated “centre of excellence”
Once a strategy has been assigned a suitable organization structure must be in place
Designing strategies and organizational structures can be reconcile critical trade-offs

25. Questions?