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Lecture 6

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Lecture 6 IB: Multinational Enterprise´s Global Strategy
15th November 2017
Lecture 6: Multinational Enterprise´s Global Strategy.
Outline
- A MNE’s strategy & the Impact of Global Competitive Environment
- The CSA-FSA framework
- National Competitive Advantage (Porter’s diamond model)
- Integration/National Responsiveness Matrix
o Cost pressures
o Pressures for local responsiveness
- Implications of Integration/National Responsiveness matrix for MNEs strategies
Introduction
- Globalization of production and markets
o Increased as companies took advantage of lower barriers to
international trade and investment
o National markets started merging into one global marketplace
o Many business activities/industries are becoming global in scope
- Implications
o Increased competition from foreign competitors in domestic markets
driving profitability down
o Critical to maximize efficiency, quality, customer responsiveness, and
innovative ability
The CSA/FSA framework for global strategies
- International strategies are built upon the interactions of the two sets of
factors:
o Country-specific advantages (CSAs):
 Natural resource endowments, the labour force, institutional
factors etc.
o Firm-specific advantages (FSAs):
 Unique resources and capabilities proprietary to the
organisation
 It may built upon product or process technology, marketing and
distribution skills
National Competitive Advantage
Lecture 6 IB: Multinational Enterprise´s Global Strategy
15th November 2017
Critique of Porter’s model
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The model was based on statistical analysis of aggregate data on export shares
for ten relatively affluent countries.
o Porter’s model cannot be applied, without modification, to countries of
the world that do not have the economic strength or affluence of those
used for his analysis.
Although chance is a critical influencing factor in international business
strategy, it is extremely difficult to predict and guard against.
The Porter model does not adequately address the role of MNEs
o Stresses the importance of home specific advantages. In the study of
international business, Porter’s model must be applied in terms of
company-specific considerations and not in terms of national
advantages.
o MNEs worldwide largely rely on international linkages tapping into
foreign nations’ diamonds through inward and outward FDI as sources
of competitiveness
The CSA/FSA framework for global strategies
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International strategies are built upon the interactions of the two sets of
factors:
Country-specific advantages (CSAs):
o Natural resource endowments, the labour force, institutional factors
etc.
Firm-specific advantages (FSAs):
o Unique resources and capabilities proprietary to the organisation
o It may built upon product or process technology, marketing and
distribution skills
Firm-specific advantages
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Resources:
o Technological resources
o Human resources
Capabilities:
o Capability in innovation (strive for technology development)
o Integrating manufacturing and service of engines
o Strategic partnership
o Acquisitive growth strategy
Lecture 6 IB: Multinational Enterprise´s Global Strategy
15th November 2017
Rolls-Royce case study
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Country Specific Advantages & External factors
o the quantity and skills of the personnel
o the nation’s stock of knowledge resources, including scientific and
technical knowledge
o the amount and cost of capital resources that are available to finance
industry
Role of chance: WWI and WWII influenced the long term development of the
company
o It started constructing aero engines, initially under a licence from
Renault, but soon based on Royce’s own engine designs
US defence policy
o Licensing jet-engine technology to US (GE and Pratt & Wittney under
dual licensing requirements) -> emergence of strong competitors,
pioneering turbo-fan engine generation
Role of UK government
The competitive advantage matrix
CSA-FSA matrix in the context of business strategy pursued by Rolls-Royce
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Which quadrant would you position RR?
The Economist Jan 10th 2009 “Britain’s lonely high-flier”, pp. 62-64.
Over the past couple of decades Rolls-Royce has transformed itself from a lossmaking British firm into the world’s second-biggest maker of large jet engines
o Discussion in the context of a topical issue: whether Britain needs to reindustrialise.
o There is no need to make fetish of manufacturing, even when finance is
in such bad odour. The success of Rolls-Royce suggests that the world
will not be neatly divided into firms (or countries) that make things and
those that sell services. Flying high depends on being able to do both.
Lecture 6 IB: Multinational Enterprise´s Global Strategy
15th November 2017
OLI framework & FSA-CSA matrix: reconciliation
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Ownership factors (O): FSAs
Location factors (L): CSAs
Internalization factors (I): FSAs
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O and I, in practice, are integrated features of FSA management within the
MNE that cannot be decoupled in strategic decision making.
Economic integration versus national responsiveness
Global integration-responsiveness dichotomy and realization of MNEs’ strategies
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Strategies of MNCs
o FDI motives
 Market-seeking vs. efficiency-seeking (aimed at establishing an
export platform); strategic FDI
o Value chain configuration
 Dispersed vs. concentrated
o Intra-MNC coordination
 Greater autonomy vs. close affiliate coordination
Motivations & strategies
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Firms respond to pressures by utilizing their competitive advantage or through
more efficient organisation of the assets across a geographical space. The
choice of location is defined by the following motives:
Asset-exploiting strategies
o Seek out new markets -> market-seeking
o Source better quality or cheaper factors of production -> resourceseeking
o Raise efficiency (cost reduction)
Asset-augmenting strategy
o firms may not possess FSA, so expand abroad to acquire ‘strategic’
assets: technology, brands, distribution networks, R&D facilities etc.
Lecture 6 IB: Multinational Enterprise´s Global Strategy
15th November 2017
Value chain configuration & Intra-MNC coordination
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The manner in which the various value chain activities of an MNC are localised
constitutes an important manifestation of its realised strategy.
o Dispersed vs. Concentrated global value chain configuration
Dispersed value chain configuration
o MNE locates each value chain activity in a scattered manner, where
value chain activities are replicated from country to country.
o In some countries, only a few activities, such as marketing and sales, are
carried out, whereas the corporation may replicate the full range of
activities of the value chain in others, thereby forming ‘‘minireplica.’’
Example of a dispersed value chain configuration
Value chain configuration & Intra-MNC coordination (cont.)
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Firms may also configure their value chain in such a way that the individual
activity is carried out at a few locations or at only one.
o All of a firm’s value chain activities are exercised in different countries,
taking full advantage of factor endowment differentials.
o The local subsidiary is the sole performer of specific activities in the
firm’s value chain
o The subsidiary is assigned a corporate world mandate à an international
division of labour takes place within the corporation’s value chain.
o Such a well-developed international division of labour creates a need
for extensive coordination among the various units of the MNC.
Example of a concentrated value chain configuration
Lecture 6 IB: Multinational Enterprise´s Global Strategy
15th November 2017
Global Integration-Local Responsiveness framework: some implications for MNEs’
strategies
Both strategies are not mutually-exclusive
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The emergence of globally integrated production systems and networks in
which subsidiaries are exporting to the global, corporate network through a
highly complex intra-firm division of labour (Hansen et al. 2009)
MNEs may combine strategies of integration & responsiveness in pursuit of
‘transnational production network configurations’ (where strategic FDI come
more into play)
Beyond the bi-polar dichotomy: Four Basic Strategies derived from the I-R matrix
Example: Ford’s Global Strategy
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Ford Focus for Europe vs. Ford Focus for US
Localization strategy:
o Ford’s long-standing strategy of regional
models was based upon the assumption
that consumers in different regions had
different tastes and preferences, which
required considerable local customization
Standardization strategy:
o A shift towards a ‘one-Ford’ strategy in
the aftermath of 2008-2009 crisis
Lecture 6 IB: Multinational Enterprise´s Global Strategy
15th November 2017
Reconciling IR matrix with AAA strategies (Peng and Meyer, 2011)
The illustration of the integration / responsiveness matrix
Changes over Time
Lecture 6 IB: Multinational Enterprise´s Global Strategy
15th November 2017
In sum…
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Managers of most MNEs use strategies that build on CSAs and FSAs, where the
former are natural factor endowments of a nation, and the latter are based on
the firm’s internalisation of an asset.
Porter’s ‘diamond’ model is useful to analyse country specific advantages,
though when applied to smaller open economies, a modification is required
A major trend that has shaped the MNE strategies is balancing a concern for
economic integration and globalisation with that of national responsiveness
Key Readings
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Hill et al. (2014), Chapter 8.
Peng, M. and Meyer, K. (2011) Chapter 14; Chapter 12 (to revise the material
on MNEs’ entry strategies and FDI motives discussed as part of the
internationalisation process in Lectures 1-2).
Hansen, M., W. Pedersen and B. Petersen (2009) MNC strategies and linkage
effects in developing countries, Journal of World Business 44(2009): 121-130
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