Chapter 10 - Global Strategy: Competing Around the World

Multinational enterprise (MNE)

A company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries.

CAGE distance framework

A decision framework based on the relative distance between home and a foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance. CAGE is an acronym for different kinds of distance: ■ Cultural ■ Administrative and political ■ Geographic ■ Economic.

Liability of foreignness

Additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances.

Administrative and Political Differences

Administrative and political distances are captured in factors such as the absence or presence of shared monetary or political associations, political hostilities, and weak or strong legal and financial institutions

Death-of-distance hypothesis

Assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally.

Cultural distance

Cultural disparity between an internationally expanding firm's home country and its targeted host country.

RELATED AND SUPPORTING INDUSTRIES/COMPLEMENTORS

Leadership in related and supporting industries can also foster world-class competitors in downstream industries. The availability of top-notch complementors—firms that provide a good or service that leads customers to value the focal firm's offering more when the two are combined— further strengthens national competitive advantage

PORTER'S DIAMOND FRAMEWORK

Michael Porter advanced a framework to explain national competitive advantage—why are some nations outperforming others in specific industries. This framework is called Porter's diamond of national competitive advantage. As shown in Exhibit 10.9, it consists of four interrelated factors: ■ Factor conditions. ■ Demand conditions. ■ Competitive intensity in focal industry. ■ Related and supporting industries/complementors.

Global-standardization strategy

Strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost.

Integration-responsiveness framework

Strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally.

Multi-domestic strategy

Strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies.

Transnational strategy

Strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global standardization strategy (lowest-cost position attainable).

International strategy

Strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets.

Local responsiveness

The need to tailor product and service offerings to fit local consumer preferences and host-country requirements.

Economic Distance

The wealth and per capita income of consumers is the most important determinant of economic distance. Wealthy countries engage in relatively more cross-border trade than poorer ones. Rich countries tend to trade with other rich countries; in addition, poor countries also trade more frequently with rich countries than with other poor countries. Companies from wealthy countries benefit in cross-border trade with other wealthy countries when their competitive advantage is based on economies of experience, scale, scope, and standardization. This is because replication of an existing business model is much easier in a country where the incomes are relatively similar and resources, complements, and infrastructure are of roughly equal quality. Companies from wealthy countries also trade with companies from poor countries to benefit from economic arbitrage.

National competitive advantage

World leadership in specific industries.

Advantages of going Global

■ Gain access to a larger market. ■ Gain access to low-cost input factors. ■ Develop new competencies: communities of learning

Foreign direct investment (FDI)

A firm's investments in value chain activities abroad.

Globalization hypothesis

Assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogeneous.

Location economies

Benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be.

Disadvantages of going Global

Companies expanding internationally must carefully weigh the benefits and costs of doing so. If the cost of going global as captured by the following disadvantages exceeds the expected benefits in terms of value added (C > V), that is, if the economic value creation is negative, then firms are better off by not expanding internationally. Disadvantages to going global include: ■ Liability of foreignness. ■ Loss of reputation. ■ Loss of intellectual property.

COMPETITIVE INTENSITY IN A FOCAL INDUSTRY

Companies that face a highly competitive environment at home tend to outperform global competitors that lack such intense domestic competition

DEMAND CONDITIONS

Demand conditions are the specific characteristics of demand in a firm's domestic market. A home market made up of sophisticated customers who hold companies to a high standard of value creation and cost containment contributes to national competitive advantage. Moreover, demanding customers may also clue firms into the latest developments in specific fields and may push firms to move research from basic findings to commercial applications for the marketplace

FACTOR CONDITIONS

Factor conditions describe a country's endowments in terms of natural, human, and other resources. Other important factors include capital markets, a supportive institutional framework, research universities, and public infrastructure (airports, roads, schools, health care system), among others.

Global strategy

Part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world.

National culture

The collective mental and emotional "programming of the mind" that differentiates human groups. Based on data analysis from more than 100,000 individuals from many different countries, four main dimensions of culture emerged: Power distance, individualism, masculinity-femininity, and uncertainty avoidance. Hofstede's data analysis yielded scores for the different countries, for each dimension, on a range of zero to 100, with 100 as the high end. More recently, Hofstede added two additional cultural dimensions: long-term orientation and indulgence. Cultural differences find their expression in language, ethnicity, religion, and social norms. They directly affect customer preferences

Globalization

The process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs.