Group 1Ethan BrownErin HillmanLaura MorenoGarrett Sticklen

GLOBAL STRATEGIES AND THE

MULTINATIONAL CORPORATION

PATTERNS OF INTERNATIONALIZATION

Internationalization occurs through trade and direct investment. Trade – the sale and shipment of goods and services from

one country to another Direct Investment – building or acquiring productive assets

in another country

IDENTIFY DIFFERENT TYPES OF INDUSTRIES

Sheltered Industries Served exclusively by

indigenous firms Sheltered from both imports

and inward direct investment by regulation, trade barriers, or because of the localized nature of the goods and services they offer.

Primarily fragmented service industries, some small-scale manufacturing, and industries producing products that are non-tradeable because they are perishable or diffi cult to move.

Trading Industries imports and exports If a product is

transportable, not nationally differentiated and subject to substantial scale economies, exporting from a single location is the most effi cient means to exploit overseas markets.

Products whose inputs are available only in a few locations

IDENTIFY DIFFERENT TYPES OF INDUSTRIES

Multi-domestic Industriesdirect investmentThis is because either: Trade is not feasible Products are

nationally differentiated.

Global IndustriesTrade and Direct Investment are important

Most large-scale manufacturing industries

PATTERNS OF INDUSTRY INTERNATIONALIZATION

Trading Industries• Aerospace • Military

hardware • Diamond mining • Agriculture

Global Industries• Cars• Oil• Semiconductors• Consumer

Electronics

Sheltered Industries• Railroads• Laundries/ Dry

cleaning• Hairdressing• Milk

Multidomestic Industries• Packaged

Groceries• Investment

Banking• Hotels• ConsultingLo

w T

rade

H

igh

Low Direct Investment High

ANALYZING COMPETITIVE ADVANTAGE IN AN INTERNATIONAL CONTEXT

Competitive Advantage (Domestic) Achieved when a firm matches its internal strengths in

resources and capabilities to the key success factors of the industry.

Competitive Advantage (Global) In international industries, competitive advantage also

depends on its national environment. In particular, the availability of resources within the

countries where it conducts business.

COMPARATIVE ADVANTAGE

“A country has a comparative advantage in products that make intensive use of those resources available in abundance within that country” (372).

U.S. holds a comparative advantage over Mexico in technology intensive products. Computers, pharmaceuticals, etc.

COMPARATIVE COMPETITIVE ADVANTAGE

Comparative advantage can lead into competitive advantage if it is exploited properly. What does my company do better in and how can we build

off it to gain a competitive advantage?

DETERMINING HOW BIG THE COMPARATIVE ADVANTAGE IS

Depends on two factors:

The resources needed to commercialize knowledge Capital markets, legal systems, communication resources

The central role of knowledge Technology, management capabilities, human skills

PORTER’S NATIONAL DIAMOND

Identifies four key factors that determine a country’s competitive advantage within a particular sector.

Factor Conditions

Demand Conditions

Strategy, Structure,

and Rivalry

Related and Supporting Industries

PORTER’S NATIONAL DIAMOND

Factor Conditions Today, comparative advantage focuses on the role of

highly specialized resources, many of which are home-grown rather than endowed.

Related and Supporting Industries National competitive strengths tend to be associated with clusters of industries

For each industry, closely related industries are great sources of critical resources and capabilities.

PORTER’S NATIONAL DIAMOND

Demand Conditions “Demand conditions in domestic markets are the primary

driver of innovation and quality improvement” (374).

Strategy, Structure and Rivalry Domestic competitive performance is typically related to

the strategies and structures of firms in the industry. Porter emphasizes the role of intense domestic competition

in driving innovation, effi ciency, and the increasing of competitive advantage.

CONSISTENCY BETWEEN STRATEGY AND NATIONAL CONDITIONS

To have a global competitive advantage requires harmony between business strategy and the pattern of the country’s comparative advantage.

U.S. audio equipment companies, such as Bose, focus on basic research for their products. Chinese audio equipment companies, focus more on

producing for western brands, at cheaper costs.

LIMITATION OF THE DIAMOND MODEL

Criticism of the diamond model comes from primarily two diff erent perspectives.

Perspective 1 Model is lacking key factors. It isn’t applicable to most of the world’s smaller nations and

ignores the role of multinational corporations in influencing success of nations.

Perspective 2 Model is so general that it lacks value. By trying to explain all aspects of trade and competition,

the model ends up explaining nothing because it is insuffi ciently precise to generate testable predictions.

INTERNATIONAL LOCATION

Resource AvailabilityCompetitive AdvantageTradabilityPolitical

ENTERING THE FOREIGN MARKET

Competitive advantageTradeableRange of resourcesRevenue directionTransaction costs

STRATEGIC ALLIANCE

MULTINATIONAL STRATEGIES: GLOBAL INTEGRATION VS.

NATIONAL DIFFERENTIATION

International scope may itself be a source of competitive advantage over geographically focused competitors

Whether, and under what conditions, fi rms that operate on an international basis are able to gain a competitive advantage over nationally focused fi rms.

BENEFITS OF A GLOBAL INDUSTRY

Supplying the world market allows access to scale economies in product development, manufacturing, and marketing.

“Everywhere everything gets more and more like everything else as the world’s preference structure is relentlessly homogenized.” -Levitt

The key barriers to exploiting these scale economies, locally differentiated customer preferences, are fast disappearing in the face of uniformity imposed by technology, communication, and travel.

THE BENEFITS OF A GLOBAL STRATEGY

Cost Benefi ts of Scale and Replication Must operate on a global scale to spread their huge

investments in developing new products Replication of knowledge-based assets- including

organizational capabilities Serving Global Customers Exploiting National Resources – Arbitrage Benefi ts

Be aware of not only market opportunities, but also resource opportunities

Learning Benefi ts

You need to not only access and transfer localized knowledge but also integrate the knowledge you gain from different locations and create new knowledge through interacting with different national environments.

Competing Strategically Cost-subsidization predatory pricing

THE NEED FOR NATIONAL DIFFERENTIATION

Products designed to meet the needs of the “global customer” tend to be unappealing to most customers.

Cultural Distance

Administrative and Political Distance

Geographical Distance

Economic Differences

Distance between two countries increases with:

• Different languages, Ethnicities, Religions, Social Norms

• Lack of Connective ethnic or social network

• Absence of shared political or monetary association

• Political Hostility

• Weak legal financial institutions

• Lack of Common Border, Water Way Access, Adequate Transportation or communication links

• Physical Remoteness

• Different consumer incomes

• Different costs and quality of natural, financial, and human resources

• Different information or knowledge

RECONCILING GLOBAL INTEGRATION WITH NATIONAL

DIFFERENTIATIONReconciling global effi ciency with appealing to

customer preferences in each country also means looking at the globalization/national diff erentiation trade-off for individual products and individual function.

One of the greatest challenges facing the senior managers of multinational corporations is the aligning organizational structures and management systems and their fi t with the strategies being pursued.

STRATEGY AND ORGANIZATION WITHIN THE MULTINATIONAL

CORPORATION

During diff erent periods international fi rms have adopted diff erent strategies and diff erent structural confi gurations.

Multinational corporations are captives of their history: their strategy-structure confi gurations today refl ect choices they made at the time of their international expansion.

Radical changes in strategy and structure are diffi cult: once an international distribution of functions, operations and decision-making authority has been determined, reorganization is slow, diffi cult and costly.

Bartlett and Ghoshal identify three eras in the development of the multinational corporations.

THE EVOLUTION OF MULTINATIONAL STRATEGIES AND STRUCTURES

EARLY 20TH CENTURY: THE EUROPEANS

Decentralized Federations

POST-WORLD WAR II: THE AMERICANS

Coordinated Federations

THE 1970S AND 1980S: THE JAPANESE

Centralized Hubs

Changing Organization Structure

New Approaches To Reconciling Localization And Global Integration

Organizing R&D And New Product Development

RECONFIGURING THE MNC: THE TRANSNATIONAL CORPORATION

The principal structural changes of recent decades have been a shift from organization around national subsidiaries and regional groupings to the creation of worldwide product divisions.

For most MNCs, country and regional organizations are retained, but primarily for the purposes of national compliance and customer relationships.

CHANGING ORGANIZATION STRUCTURE

Escalating costs of research and new product development have made global strategies with global product platforms essential.

At the same time, meeting consumer needs in each national market and responding swiftly to changing local circumstances requires greater decentralization.

And accelerating technological change further exacerbates these contradictory forces.

NEW APPROACHES TO RECONCILING LOCALIZATION AND GLOBAL

INTEGRATION

The distinguishing characteristic of the transnational is that it becomes an integrated network of distributed and interdependent resources and capabilities.

This is a concept and direction rather than a distinct organizational archetype.

It involves convergence of the diff erent strategy configurations of MNCs.

TRANSNATIONAL ORGANIZATION

The greatest challenges facing top managers of MNCs are organizing, fostering and exploiting innovation and new product development.

Innovation is stimulated by diversity and autonomy, while its exploitation and diff usion require critical mass and coordination.

ORGANIZING R&D AND NEW PRODUCT DEVELOPMENT

In an international environment, a fi rm’s potential for competitive advantage is determined not just by its own resources and capabilities but also by the conditions of the national environment in which it operates.

The fact that so many companies that have been outstandingly successful in their home market have failed so miserably in their overseas expansion demonstrates the complexity of international management.

SUMMARY