*
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
Copyright © 2019 John Wiley & Sons, Inc.
OUTLINE
1
International Trade
Foreign Direct Investment
LO W
LOW
HIGH
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
Copyright © 2019 John Wiley & Sons, Inc.
IMPLICATIONS OF INTERNATIONAL COMPETITION FOR INDUSTRY ANALYSIS
1
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
Copyright © 2019 John Wiley & Sons, Inc.
COMPETITION
- Increased intensity of competition
IMPLICATIONS OF INTERNATIONAL COMPETITION FOR INDUSTRY ANALYSIS
5
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
Copyright © 2019 John Wiley & Sons, Inc.
*
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
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT
7
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
Copyright © 2019 John Wiley & Sons, Inc.
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 |
8
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
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT
9
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
Copyright © 2019 John Wiley & Sons, Inc.
COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT
10
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
Copyright © 2019 John Wiley & Sons, Inc.
COMPETITIVE ADVANTAGE WITHIN AN INTERNATIONAL CONTEXT
11
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?
Copyright © 2019 John Wiley & Sons, Inc.
INTERNATIONALIZATION DECISIONS: LOCATING PRODUCTION
12
Hourly Labor Cost in Manufacturing (US$)
Copyright © 2019 John Wiley & Sons, Inc.
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 |
13
Location and the Value Chain:
Textiles & Clothing
Copyright © 2019 John Wiley & Sons, Inc.
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). |
14
Where Does the iPhone Come From?
Copyright © 2019 John Wiley & Sons, Inc.
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?
© 2019 Robert M. Grant,
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
© 2019 Robert M. Grant,
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
© 2019 Robert M. Grant,www.contemporarystrategyanalysis.com
INTERNATIONALIZATION DECISIONS: LOCATING PRODUCTION
15
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
Copyright © 2019 John Wiley & Sons, Inc.
INTERNATIONALIZATION DECISIONS: ENTERING A FOREIGN MARKET
16
Ghemewat’s CAGE Framework
© 2019 Robert M. Grant www.contemporarystrategyanalysis.com
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?
© 2016 Robert M. Grant, www.contemporarystrategyanalysis.com
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
Copyright © 2019 John Wiley & Sons, Inc.
MULTINATIONAL STRATEGIES
Benefits of national differentiation
Benefits
of
global
integration
Cement
Telecom
equipment
Jet engines
Consumer
electronics
Autos
Funeral
services
Retail
banking
Investment
banking
Auto
repair
Global Integration v. National Differentiation
Copyright © 2019 John Wiley & Sons, Inc.
MULTINATIONAL STRATEGIES
24
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
Copyright © 2019 John Wiley & Sons, Inc.
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
Copyright © 2019 John Wiley & Sons, Inc.
IMPLEMENTING INTERNATIONAL STRATEGY: ORGANIZING THE MULTINATIONAL CORPORATION
26
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
© 2019 Robert M. Grant,
www.contemporarystrategyanalysis.com
IMPLEMENTING INTERNATIONAL STRATEGY: ORGANIZING THE MULTINATIONAL CORPORATION
*
