Term Project

A. WORLDWIDE COMPETITIVE ADVANTAGE

1. Three Strategic Objectives/goals required of firms for worldwide advantage:

a. Must build global-scale efficiency in existing activities

b. Must develop multinational flexibility to manage country-specific risks and opportunities.

c. Must create ability to learn from, and exploit its international exposure

2. Sources of global competitive advantage to exploit:

a. Scale economies

b. National differences

c. Scope economies

B. THE STRATEGIC GOALS OF WORLDWIDE COMPETITIVE ADVANTAGE

1. Global Efficiency

a. Overall efficiency – ratio of value of outputs (revenues) to value of inputs (costs)

b. Efficiency results from either reducing costs and/or enhancing revenues.

2. Multinational Flexibility

a. Defined as: The ability of a company to manage the risk and exploit the opportunities that arise from diversity and volatility of the global environment.

b. Types of risks in multinational environment (due to diversity and volatility)

i. Macroeconomic risks – those outside the control of the MNE (price changes, wages rates, effects of war).

b. Types of risks in multinational environment (due to diversity and volatility) (continued)

ii. Political Risks – due to actions by national governments.

iii. Competitive Risks – caused by competitors’ reactions to the MNEs activities.

iv. Resource Risk – availability of raw materials, capital, management talent, etc.

NOTE: Risks vary over time and from country to country.

3. Worldwide Learning

a. Diversity of Environments –

i. A key asset of the MNE

ii. Allows opportunities for greater learning due to exposure outside its domestic market.

C. THE MEANS OF ACHIEVING WORLDWIDE COMPETITIVE ADVANTAGE

1. National Differences

Firms should exploit:

a. Differences in costs in input markets due to country-by-country differences in factor endowments (i.e., labor, material, capital)

b. Differences in output markets due to consumer tastes, government regulations, effectiveness of promotion strategies, etc.

2. Scale Economies

a. Gaining advantage through high-volume production.

b. Benefits may be dynamic and will be affected by the learning effect

3. Scope Economies

a. Cost of the joint production, development, or distribution of 2 or more products can be less that producing/developing/distributing them separately

3. Scope Economies (continued)

b. Shared investments across same or different value chains.

c. e.g., using a common distribution channel

D. TYPES OF STRATEGIES (4 types) (refer to Table 3-3)

1. International Strategy

a. Strategic Orientation/Defined as: Exploitation of domestically-developed innovations in overseas markets

b. Focus on: Use of innovations

c. Uses all three means (national differences, scale economies, scope economies).

d. Was common among many US MNEs

2. Multinational Strategy

a. Strategic Orientation/Defined as: Using primarily one means (i.e., national differences) to achieve strategic goals.

b. Focus on: Product differentiation

c. Polycentric strategy

d. Subsidiaries in each country are primarily self-sufficient

e. Used by many European firms

3. Global Strategy

a. Strategic Orientation/Defined as: Developing global efficiency by using all 3 means to achieve best cost and quality positions for the firm’s products

b. Focus on: best-cost position

c. Use of centralized global-scale operations

Continued

D. TYPES OF STRATEGIES (4 types) (continued)

3. Global Strategy (continued)

d. Requires high level inter-country shipments (e.g., of parts and supplies)

4. Transnational Strategy

a. Strategic Orientation/Defined as: Simultaneous use of all 3 strategies above (international, multinational, global) to achieve competitive advantage.

b. All aspects (costs, revenues, innovation etc) managed simultaneously.

c. Use of both centralized and decentralized processes as needed.

d. Use of excentralization (a/k/a flexible specialization) – i.e., locating a centralized activity offshore.

E. STRATEGIC TASKS – Tasks/challenges facing companies to maintain or achieve worldwide competitive advantage

1. Defending Worldwide Dominance

a. Faced by established, major worldwide players

b. Aim: defend dominance while seeking new sources of competitive advantage

2. Challenge Global Leaders

a. Faced by smaller firms that seek worldwide competitiveness

b. Aim: tackle industry leaders using internal and external sources (e.g., product development, satisfying certain niches, etc.)

3. Protecting Domestic Niches

a. Faced by companies focused on their national markets due to unwillingness or inability to expand overseas.

b. Aim: Protect their national markets from global (outside) competitors.

E. STRATEGIC TASKS (continued)

3. Protecting Domestic Niches (continued)

c. Methods used:

i. Use of nationalism

ii. Seek government assistance (e.g., “national champion”)

iii. Join forces with other global firms