SEU_MGT510_Module10_PPT_Ch11.ppt

CONTEMPORARY STRATEGY ANALYSIS

tenth edition

Robert M. Grant

John Wiley & Sons Ltd., 2019

Chapter 11

Global Strategies and the Multinational Corporation

Implications of International Competition for Industry Analysis
Analyzing Competitive Advantage within an International Context
Internationalization Decisions: Locating Production
Internationalization Decisions: Entering a Foreign Market
Multinational Strategies: Global Integration versus National Differentiation
Implementing International Strategy: Organizing the Multinational Corporation

Global Strategies and

the Multinational Corporation

OUTLINE

International Trade

Foreign Direct Investment

LO W

LOW

HIGH

Patterns of Internationalization

TRADING

INDUSTRIES

shipbuilding
military hardware
diamond mining
agriculture

GLOBAL

INDUSTRIES

automobiles
oil
semiconductors
alcoholic beverages

MULTIDOMESTIC

INDUSTRIES

frozen foods
retail banking
hotels
wireless telephony

SHELTERED

INDUSTRIES

taxi services
laundries/dry cleaning
hairdressing
fresh milk

IMPLICATIONS OF INTERNATIONAL COMPETITION 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

PROFITABILITY

Other things remaining equal, internationalization tends to reduce an industry’s margins and return on capital

What Internationalization Means

for Industry Analysis

COMPETITION

Increased intensity of competition

IMPLICATIONS OF INTERNATIONAL COMPETITION FOR INDUSTRY ANALYSIS

How internationalization affects

the basic strategy framework

THE FIRM

• Resources &

Capabilities

THE

INDUSTRY

ENVIRONMENT

STRATEGY

INTERNATIONALIZATION

Wider market, more

diverse customer preferences

More competitors
Lower entry barriers
Increased buyer power

National resource availability

(theory of competitive advantage)

Impact of national context on

resource development

(Porter’s national diamond)

COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT

A country has a comparative advantage in those products that make intensive use of 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.

National Influences on Competitiveness:

The Theory of Comparative Advantage

COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT

Note: Revealed comparative advantage is measured as: Country X’s share of world exports in

product category A / Country X’s share of world exports in all products.

Revealed Comparative Advantage for

Selected Product Categories

COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT

	US	UK	Japan	Switz.	Germany	Australia	China	India
Cereals	1.91	0.13	0.00	0.00	0.44	4.78	0.03	5.33
Beverages	0.72	3.30	0.09	1.38	0.75	1.28	0.10	0.06
Mineral fuels	0.55	0.68	0.14	0.04	0.17	1.49	0.09	1.23
Pharmaceuticals	0.94	2.19	0.15	9.14	1.90	0.00	0.10	1.34
Vehicles	1.15	1.27	2.79	0.14	2.25	0.16	0.36	0.56
Aerospace	4.32	1.96	0.33	0.50	1.78	0.30	0.05	0.71
Electrical & elec-tronic equipment	0.91	0.49	1.29	0.51	0.84	0.10	2.18	0.29
Optical, medical & scientific equipment	1.76	1.16	1.83	2.25	1.53	0.35	1.12	0.23
Clocks & watches	0.30	0.58	0.60	40.13	0.64	0.16	0.99	0.04
Apparel (knitted)	0.15	0.45	0.02	0.03	0.50	0.06	3.52	1.72

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.

Porter’s Competitive Advantage of Nations

COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT

FACTOR CONDITIONS

RELATING AND

SUPPORTING

INDUSTRIES

DEMAND

CONDITIONS

STRATEGY, STRUCTURE,

AND RIVALRY

FACTOR CONDITIONS—“Home grown” resources/capabilities more important

than natural endowments.

2. RELATED AND SUPPORTING INDUSTRIES—Key role of “industry clusters”

3. DEMAND CONDITIONS—Discerning domestic customers drive quality & innovation

4. STRATEGY, STRUCTURE, RIVALRY. E.g. domestic rivalry drives upgrading.

Porter’s National Diamond Framework

COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT

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)

Consistency between Strategy and National Resource Conditions

COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT

Location decisions must 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.

Where to Locate Production?

INTERNATIONALIZATION DECISIONS: LOCATING PRODUCTION

Hourly Labor Cost in Manufacturing (US$)

INTERNATIONALIZATION DECISIONS: LOCATING PRODUCTION

	1975	2000	2012
Switzerland	6.09	21.24	57.79
Australia	5.62	14.47	47.68
Germany	6.31	24.42	45.79
France	4.52	15.70	39.81
US	6.36	19.76	35.67
Japan	3.00	22.27	35.34
Italy	4.67	14.01	34.18
UK	3.37	16.45	31.23
Spain	2.53	10.78	26.83
Korea	0.32	8.19	20.72
Taiwan	0.40	5.85	9.46
Mexico	1.47	2.08	6.36
Philippines	0.62	1.30	2.10

Location and the Value Chain:

Textiles & Clothing

Indices of Revealed Comparative Advantage

INTERNATIONALIZATION DECISIONS: LOCATING PRODUCTION

	Raw cotton	Spun cotton yarn	Knittedfabric	Knitted apparel
USA	+0.68	+0.85	+0.03	−0.89
Germany	−1.00	−0.18	+0.30	−0.18
Korea	−1.00	−0.28	+0.94	−0.34
China	−0.99.	−0.54	+0.70	+0.97
Bangladesh	−0.98	−0.95	−0.96	+0.98
Note: A country’s revealed comparative advantage in particular product is measured as (exports – imports)/ (exports + imports).

Where Does the iPhone Come From?

INTERNATIONALIZATION DECISIONS: LOCATING PRODUCTION

Item	Supplier	Location
Design and operating system	Apple	USA
Flash memory	Samsung Electronics	S. Korea
DRAM memory	Samsung ElectronicsMicron Technologies	S. Korea USA
Application processor	Murata	Japan/Taiwan
Baseband	Infineon;Skyworks; Triquint	TaiwanUSA
Power management	Dialog Semiconductor	Taiwan
Audio	Texas Instruments	USA
Touchscreen control	Cirrus Logic	USA
Accel. and gyroscope	ST Microelectronics	Italy
E-compass	AKM Semiconductor	Japan
Assembly	Foxconn	China

Where

does

the

iPhoneX

come

from?

www.contemporarystrategyanalysis.com

Item	Supplier	Location
Design; operating system	Apple	US
Flash memory	Toshiba	Japan
DRAM memory	TSMCSK Hynix	TaiwanS. Korea
Chip sets and processors	AppleQualcomm	USUS
Baseband	Qualcomm	US
Cameras	SonyGenius Electronic Optical	JapanTaiwan
Mixed signal chips	NXP	Netherlands
Power management	Dialog Semiconductor	Germany/UK
Batteries	Sunwoda Electronics	China
Audio	Cirrus Logic	US
Touchscreen control	Nissha	Japan
Sensors	STMicroelectronicsBosch	ItalyGermany
E-compass	Alps Electric	Japan
Assembly	Foxconn	China

Escape slides: Air Cruisers (USA)

Horizontal Stabiliser:

Alenia Aeronautica (Italy)

Centre fuselage:

Alenia Aeronautica (Italy)

Final assembly: Boeing

Commercial Airplanes (USA)

Vertical Stabiliser: Boeing

Commercial Airplanes (USA)

Landing gear: Messier-Dowti (France)

Electric brakes: Messier-Bugatti (France)

Tires: Bridgestone Tires (Japan)

Doors & windows:

Zodiac Aerospace (USA)

PPG Aerospace (USA)

Software: Dassault Systemes (France)

Navigation: Honeywell (USA)

Pilot control system: Rockwell Colins (USA)

Wiring: Safran (France)

Centre wing box:

Fuji Heavy Industries (Japan)

Engines: GE Engines (USA), Rolls Royce (UK)

Wing box: Mitsubishi Heavy Industries (Japan)

Wing ice protection: GKN Aerospace (UK)

Engine nacelles: Goodrich (USA)

Aux. power unit: Hamilton

Sundstrand (USA)

Flight deck seats:

Ipeco (UK)

Lavatories:

Jamco (Japan)

Cargo doors: Saab (Sweden)

Forward fuselage:

Kawasaki Heavy Industries (Japan)

Spirit Aerosystems (USA)

Raked wing tips: Korean Airlines

Aerospace division (Korea)

Passenger doors:

Latécoère Aéroservices (France)

Prepreg composites:

Toray (Japan)

Rear fuselage:

Boeing South Carolina (USA)

Globally-dispersed production: Boeing 787 Dreamliner

INTERNATIONALIZATION DECISIONS: LOCATING PRODUCTION

www.contemporarystrategyanalysis.com

The optimal location

of activity X considered

independently

WHERE TO LOCATE

ACTIVITY X?

The importance of links

between activity X and

other activities of the firm

Where is the optimal location of X in terms of the cost and availability of inputs?

What government incentives/ penalties affect the decision?

What internal resources and

capabilities does the firm possess in particular locations?

What is the firm’s business strategy

(e.g. cost vs. differentiation)?

How great are the coordination

benefits from co-locating activities?

Determining the Optimal Location

of Value Chain Activities

INTERNATIONALIZATION DECISIONS: LOCATING PRODUCTION

Resource commitment

TRANSACTIONS

DIRECT INVESTMENT

Spot

sales

Exporting

Foreign

agent / distributor

Licensing

Franchising

Joint venture

Marketing & Distribution only

Long-term contract

Licensing patents & other IP

Fully

integrated

Wholly owned

subsidiary

Marketing & Distribution only

Fully

integrated

Low

High

Modes of Overseas Market Entry

INTERNATIONALIZATION DECISIONS: ENTERING A FOREIGN MARKET

Ghemewat’s CAGE Framework

MULTINATIONAL STRATEGIES

Cultural distance	Administrative and Political Distance	Geographical distance	Economic differences
Distancebetweentwocountriesincreaseswith	• Differentlanguages,ethnicities,religions, socialnorms• Lack of connectingethnic /social networks	• Absence of shared political or monetary association• Political hostility• Weak legal and financial institutions	• Lack of commonborder, or transportationor communicationlinks• Physicalremoteness	• Different consumerincomes• Differences in resources• Differentinformation orknowledge
Industries most affected by source of distance	Industries with high linguistic content (TV, publishing) or cultural content (food, wine, music)	Industries viewed by government as strategically important (e.g. energy, defence, telecom)	Products with low value-to-weight (cement), or fragile (glass) or perishable(milk), or where communicationvital (financial services)	Products with income elastic demand (luxuries). Labor intensive products (clothing)

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 more sophisticated level: Strategy that recognizes and exploits linkages between countries (e.g. exploits global scale, national resource differences, strategic competition)

World as separate national markets

global strategy

multidomestic strategy

Globalization & Global Strategy:

What Are They?

World as a single market

World as inter-

related markets

MULTINATIONAL STRATEGIES

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

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

Analyzing Benefits/Costs of a Global Strategy

MULTINATIONAL STRATEGIES

Benefits of national differentiation

Benefits

global

integration

Cement

Telecom

equipment

Jet engines

Consumer

electronics

Autos

Funeral

services

Retail

banking

Investment

banking

Auto

repair

Global Integration v. National Differentiation

MULTINATIONAL STRATEGIES

Development of the Multinational Corporation (according to Bartlett & Ghoshal)

1900-39: European

MNCs as Decentralized

Federations

National subsidiaries self-sufficient & autonomous
HQ control through appointing subsidiaries senior management

1945-1970: American MNCs as Coordinated Federations

Dominant role of U.S. parent in developing technology and products
Foreign subsidiaries autonomous in operations and marketing

1970s and 1980s The Japanese MNC as Centralized Hub

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

IMPLEMENTING INTERNATIONAL STRATEGY: ORGANIZING THE MULTINATIONAL 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.

Tight complex controls and coordination and a shared strategic decision process.

Heavy flows of technology, finances, people, and materials between interdependent units.

Reconciling Global Integration with National Differentiation: The Transnational Corporation

IMPLEMENTING INTERNATIONAL STRATEGY: ORGANIZING THE MULTINATIONAL CORPORATION

Ghemawat’s AAA Triangle

ADAPTATION

Proxy: Advertising-

to-sales ratio relative to rivals

ADAPTATION

Proxy: Labor cost to sales

ratio relative to rivals

AGGREGATION

Proxy: R&D-to-sales ratio relative to rivals

www.contemporarystrategyanalysis.com

IMPLEMENTING INTERNATIONAL STRATEGY: ORGANIZING THE MULTINATIONAL CORPORATION

SEU_MGT510_Module10_PPT_Ch11.ppt

SEU_MGT510_Module10_PPT_Ch11.ppt

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