Lecture - Topic 3

Managing the Multinational Enterprise – MN20604

International firms’ competitive

strategies

Mariachiara Barzotto
mb2602@bath.ac.uk
Lecture plan

Week 1 Lecture - Topic 1: Introduction to the unit and Multinational Enterprise Key Concepts
Lecture - Topic 2: Understanding global and local pressures
Week 2
Tutorial - Topic 2: Case study on understanding global and local pressures
Week 3 Lecture - Topic 3: International firms’ competitive strategies
Lecture - Topic 4: Global mindset
Week 4
Tutorial - Topic 4: Case study on global mindset
Lecture - Topic 5: Managing culture in international firms
Week 5
Tutorial - Topic 5: Case study on managing culture in international firms
Lecture - Topic 6: Corporate social responsibility in international firms
Week 7
Tutorial - Topic 6: Case study on corporate social responsibility in international firms
Week 8 Lecture - Topic 7: Global knowledge management
Lecture - Topic 8: International entrepreneurship
Week 9
Tutorial - Topic 8: Case study on international entrepreneurship
Lecture - Topic 9: Engaging in cross-border collaboration
Week 10
Tutorial - Topic 9: Case study on engaging in cross-border collaboration
Week 11 Lecture - Topic 10: Revision and exam preparation
Team deadline

§ Self-organised teams of 6 members

§ Indicate your team members in the Google doc by 20th Oct NOON
(UK time) here: https://docs.google.com/spreadsheets/d/1wXdmgCqgvAU5EE-
FfjZGwJw3u-Y_H9jO/edit#gid=1113278860
Course work deadline

Course work submission date:

Thursday, the 14th of December by 1pm
(UK time)

SUBMISSION INTO MOODLE, under “Coursework assignment” in the ‘Group coursework Information’ Section
What we learned last week

Conflicting environmental pressures for global integration and local

responsiveness.

1. Forces for cross-border integration and coordination

2. Forces for national differentiation and responsiveness
3. Forces for worldwide innovation and learning
Industry effect
Mapping industries according to their degree of globalisation

Global industry Transnational industry

Consumer electronics Pharmaceuticals

Global
integration
Forces

Multinational industry

Packaged foods

National Responsiveness Forces

Lecture Overview

§ Why go international? How does it support strategy?

§ The Integration-Responsiveness framework

§ Beyond the transnational

§ 3 ‘A’ strategies
Why go international?
Strategic intent

Scope
§ Global-scale efficiency
Scale
§ Multi-national
flexibility/responsiveness Adaptability

§ Worldwide learning and innovation R&D and Idea Sourcing

Prahalad & Doz (1987), Ghoshal & Bartlett 1989

Means to achieve competitive advantage
Three means/mechanisms

§ Economies of scale
- Cost advantages obtained due to size

§ Economies of scope
- Cost advantages realised through sharing/putting in common certain resources,
products, etc.
- Using common distribution channels, using a global brand name, pooling
knowledge in different markets, sharing research and development (R&D) for
several businesses

§ National differences
- Culture, tastes, behaviours, local competitors
- Differences in costs and currency stability
Bartlett et al 2011
Strategic objectives and means

Objectives (What)
§ Achieve global scale efficiency
§ Implement with locally responsive flexibility
§ Develop cross-border learning capabilities

Means (How)
§ Develop and leverage economies of scale
§ Sense and respond to national differences
§ Recognise and capture scope economies

Bartlett et al. (2011) Chapter 3

 Question

The diversity of environments in which MNEs operate enables them to

develop diverse capabilities and experience multiple learning
opportunities.

A. True
B. False

True. A key asset of the MNE is the diversity of environments in which it operates. This provides the MNC with broader
learning opportunities than the ones that are available to a purely domestic firm and will help them pursue the objective of
worldwide learning.
 Question

Why is it difficult to manage internationally?

 Cultural Distance

Heineken crossing differences

https://www.youtube.com/watch?v=etIqln7vT4w
• Different values, norms, and
dispositions
• Different customs
• Different foods Mr Baseball
• Different languages https://www.youtube.com/watch?v=bdeFdFEbuqk
• Different ethnicities; lack of
connective ethnic or social networks
• Different religions
• Lack of trust

Ref. Ghemawat 2004

 Civil Law
Administrative Legal Systems
Common Law

Distance Religious Law

Pluralistic Systems

• Different legal frameworks

• Different judiciary
• Different political structure
• Different human rights practices /
freedom of speech
• Currency convertibility / stability
• Trade restrictions (regulatory or
practice)

Ref. Ghemawat 2004

 Geographic Distance Flight times from Singapore around Asia-Pacific

• Physical distance
• Lack of land border
7hrs

s
6 hr
• Differences in time zones 9 .5 h
rs
• Differences in climates /

6 rs
h
disease environments
• Differences in population 8hrs
density

Ref. Ghemawat 2004

 Economic Distance
World Bank: GDP/Capita

• GDP Difference / PPP

Differences
• Labour cost & other
manufacturing costs.
• Financial resources, human
resources, infrastructure,
information or knowledge

Ref. Ghemawat 2004

CAGE Distance

Management time
& Investment
CAGE framework for international trade

https://www.youtube.com/watch?v=7FpUJaG7uMk
CAGE framework for international trade
 Question

Is it really worth operating internationally?

A. Yes
B. No
C. It depends
 YES, if it makes a difference to the competitive
performance of the firm.

Is it worth it?
YES, if how you operate internationally is aligned
with and strengthens the choice of how you compete
strategically.
Strategic Choice
Integration/

High
Responsiveness Matrix
Global Transnational

Need for global coordination

Strategy is making choices – of
what to do and what not to do.
Then aligning choices of how you
operate and behave with those
strategic choices.

There is no such thing as an International Multi-National

‘international strategy’; the question
is ‘how will my international
Low
activities help my competitive
Low High
strategy?’ Need for local adaptation
Ref. Michael Porter Bartlett et al 2008
 High

Global Transnational
Need for global coordination

International Multi-National

Their internationalisation process relies on transferring new

Low

Low High
Need for local adaptation

products, processes, or strategies developed in the home country

International Strategy to less advanced overseas markets: exploiting home-country
innovations abroad.
• Strategic orientation
- Exploiting knowledge from
the parent company by Pros: ability to create and leverage innovations
transferring it to foreign
Cons: deficiencies of both efficiency and flexibility because they
markets; expects to use do not develop:
innovations to reduce costs, • centralised and high-scale operations of companies
enhance revenues, or both adopting global strategies (obtained via global strategy)
• high degree of local responsiveness (that multinational
companies could master through their autonomous, self-sufficient, and
entrepreneurial local operations).
• Configuration of assets and
capabilities
- Core competencies E.g. U.S.-based MNEs such as: Kraft, Pfizer, Procter & Gamble, and General
centralised, others Electric.

decentralised.
Bartlett et al., 2008
 High

Global Transnational
Need for global coordination

International Multi-National Companies develop global efficiency, via different means to

achieve the best cost and quality positions for their products.
Low

Low High
Need for local adaptation

Global Strategy
Pros: efficiency
• Strategic orientation
- Global efficiency, Cons: less flexibility and learning
assumes that the best-
cost position is the key
source of
competitiveness

• Configuration of assets
and capabilities
- Centralised and globally-
E.g. Japan-based MNEs such as: Toyota, Canon, Komatsu, and
scaled Matsushita
Bartlett et al., 2008
 High

Global Transnational
Need for global coordination

International Multi-National Companies develop global efficiency, via different means to achieve
the best cost and quality positions for their products.
Low

Low High
Need for local adaptation

Global Strategy Pros: efficiency

• standardisation leads to higher economies of scale which
lowers costs.
• Strategic orientation • helps to create uniform standards of quality throughout the
world.
- Global efficiency,
assumes that the best- Cons: less flexibility and learning
• high level of inter-country product shipments can raise risks
cost position is the key of policy intervention.
source of • centralises R&D might constrain:
• the ability to capture new developments abroad
competitiveness • the leveraging of innovations created by foreign
subsidiaries in the rest of their worldwide operations.
• high sourcing risks (e.g. exchange rate exposure),
• Configuration of assets concentration of activities may increase dependence on a
single facility.
and capabilities • limited ability to adapt to local markets
- Centralised and globally-
scaled E.g. Japan-based MNEs such as: Toyota, Canon, Komatsu, and Matsushita

Bartlett et al., 2008

 High

Global Transnational
Need for global coordination

International Multi-National
Companies differentiate their products and services in response to
national differences in customer preferences, industry
Low

Low High
Need for local adaptation

characteristics and government regulations (local-for-local

Multi-national Strategy innovations).

• Strategic orientation Pros:

- Flexibility to respond to
differences in national
markets; sees differentiation
as the primary way to
enhance performance
• Configuration of assets
and capabilities
• ability to adapt products and services to local market conditions.
• match costs and revenues on a currency-by-currency basis,
ability to detect potential opportunities for attractive niches in a
given market, enhancing revenue.
• local self-sufficiency and local-autonomy to high flexibility and
responsiveness to local environments
Cons:
• Inefficiencies, less ability to realize cost savings through scale
economies.
• inability to exploit the knowledge and competencies of other
national units.

- Decentralised and self-

sufficient E.g. Europe-based MNEs such as: Unilever, ICI, Philips, and Nestlè.

Bartlett et al., 2008

 High

Global Transnational
Need for global coordination

International Multi-National Companies manage costs and revenues simultaneously, both

efficiency and innovation are important, and innovations can
Low

Low High

arise in many different parts of the world.

Need for local adaptation

Transnational Strategy The transnational:

• first decides which key resources and capabilities are best
centralised
• realises scale economies
• Strategic orientation • protects certain core competencies
- Global efficiency, • provides the necessary supervision of corporate management.
flexibility, worldwide Resources concentrated at home:
learning simultaneously • basic research with core technologies (for strategic security and
competence concentration)
• global account team (to facilitate top-management control)
• Configuration of assets and
Resources concentrated but not necessarily at home
capabilities • WorId-scale production plants for labour-intensive products in
- Dispersed, lower-wage countries.
• R&D resources and activities in technologically-advanced
interdependent, countries.
specialised

Bartlett et al., 2008

 High

Global Transnational
Need for global coordination

International Multi-National
Low

Low High
Need for local adaptation

Transnational Strategy Pros:

• Ability to attain economies of scale
• Ability to adapt to local markets
• Ability to locate activities in optimal locations
• Strategic orientation • Ability to increase knowledge flows and learning
- Global efficiency,
flexibility, worldwide Cons:
learning simultaneously • Unique challenges in determining optimal locations of
activities to ensure cost and quality.
• Unique managerial challenges in fostering knowledge transfer
• Configuration of assets and
capabilities
- Dispersed, E.g. Sony

interdependent,
specialised
Source: Dess, G. D. et al., 2014 Strategic Management. McGraw-Hill Education

Bartlett et al., 2008

History and Heritage = Biases and Preferences

International
European
Global

American
Multinational

Japanese Transnational
Integration-Responsiveness Framework

Industry Characteristics and Strategic Choices

Consumer Telecom, Toyota

Efficiency benefits from

electronics switching
global integration

Automobiles Honda

Cement Packaged
Foods Fiat

Differentiation benefits from

national responsiveness
Bartlett et al 2011
 Question

What do you think of the I-R framework?

What do you think of the I-R framework?
E D
I ON
S H
FA
L D
O
 Strategy choice is
INDEPENDENT of industry
context.

Limitations of the I/R

framework Strategy can VARY over time

Matrix organisation structures

often lead to GRIDLOCK
Integration/Responsiveness Matrix - Amazon
Does transnational really exist? (1)

Transnational
§ Pursuing simultaneously efficiencies (scope and scale), flexibility and learning
globally
§ Integrated network, managed through a matrix structure
§ Business Units x Functions x Geographical Areas

Bartlett and Ghoshal (1991)

Does transnational really exist? (2)

Is it possible?

§ Matrix gridlock

§ Flawed Decision Making

§ Primacy of home-base thinking
§ Strength of voice = weight of argument

§ Risk of losing control of operations in some countries.

Examples

§ Unilever

§ Schneider Electric

§ Standard Chartered Bank

§ Syngenta
Innovation

Innovation is the most important source of competitive advantage

§ Learning from and in the world Sensing

§ Not all knowledge is in one place
§ Knowledge is valueless unless it is applied +
§ The cost of distance is falling rapidly
§ Prospect for untapped knowledge sources Mobilising
globally
§ Create knowledge through experimentation +
§ Connect and leverage knowledge sources
Applying
Metanational – Beyond Transnational!

§ To develop flexibility:
§ Create specialised roles
§ Create special teams
§ Introduce boundary-spanning roles
§ Disperse responsibilities (empower people to act)

§ Multiple innovation processes: Local, central and global

§ Balance multiple perspectives

An alternative view: 3 ‘A’ Strategies

Aggregation: The pursuit of increased scale in order to achieve greater

efficiencies (e.g. sourcing) or effectiveness (brand recognition).

Arbitrage: The pursuit of flexibility in sourcing and market access in order

to increase competitive advantage (e.g. adjusting the balance
of supplies from different countries depending on the relative
exchange & logistics rates)

Adaptation: The pursuit of insight and innovation from markets, moving

knowledge between markets to apply elsewhere for competitive
advantage.

Ghemawat, P. (2007), ‘Managing differences: The central challenge of global strategy’. Harvard Business Review, 85/3 (March). P. 59-68.
Pankaj Ghemawat.
Managing Differences: The
central challenge of global
strategy

When managers first hear about

the broad strategies (adaptation,
aggregation, and arbitrage) that
make up the AAA Triangle
framework for globalization, their
most common response by far is
“Let’s do all three.” But it’s not
that simple. A close look at the
three strategies reveals the
differences – and tensions –
among them. Business leaders
must figure out which
elements will meet their
companies’ needs and
prioritise accordingly.

hbr.org | March 2007 | Harvard Business Review

The three As
§ Many companies will emphasise different As at different times of their evolution

§ Even within the same industry, firms can differ in their strategies

§ Companies should usually pursue one or two As

§ Ghemawat’s argument differs in this respect from Bartlett et al’s view on the transnational
strategy

§ It is possible for firms to progress on all three As but is challenging due to the tensions between
each strategy

§ Organisation & Strategy trade-offs make it very hard to pursue well, multiple ‘A’:
§ Choices and management of Staffing, Operations, Marketing, Leadership, Metrics, etc.

Ghemawat, P. (2007), ‘Managing differences: The central challenge of global strategy’. Harvard Business Review, 85/3 (March). P. 59-68.
 The AAA
Triangle
The AAA Triangle serves as a kind of strategy
map for managers. The percentage of sales
spent on advertising indicates how important
adaptation is likely to be for the company; the
percentage spent on R&D is a proxy for the
importance of aggregation; and the percentage
spent on labour helps gauge the importance of
arbitrage. Managers should pay attention to any
scores above the median because, most likely,
those are areas that merit strategic focus.
Median and top-decile scores are based
Scores above the 90th percentile may be on U.S. manufacturing data from
perilous to ignore. Compustat’s Global Vantage database
and the U.S. Census Bureau. Since the
ratios of advertising and R&D to sales
rarely exceed 10%, those are given a
maximum value of 10% in the chart

hbr.org | March 2007 | Harvard Business Review

What we have learned during Topic 3

Know what is the competitive strategy

Know how the international operations aligns/helps to achieve that strategy

Is it worth it? C.A.G.E distances

International – Global – Multinational – Transnational

Moving beyond the transnational: flexibility

3 ‘A’s – pursuing multiple strategic objectives

Any questions?
In preparation of Topic 4 Tutorial
ESSENTIAL READING:
Javidan, M. and Bowen, D. (2013), ‘The ‘Global
Mindset’: What it is, why it matters, and how to
develop it’. Organizational Dynamics.
CASE STUDY:
Learning to learn: Michael Faye gets a new
assignment
Please read this case study in advance of your
tutorial in w/c October 23. The case will be
discussed in class at the lecture. Please disregard
Appendix 3.
Pre-class assignment:
As you read the case study, please make notes on
the following questions.
We will use these as the basis for the class
exercise, so bring these notes and a copy of the
case study to the tutorial in w/c October 23.
1. How would you describe the learning style
of Michael Faye? What are the most powerful
elements of his learning style?
2. If you were Michael Faye, what would you
do differently, and why?
3. How would you describe your own learning
style? What are the strongest elements? What
works and what doesn’t?
Readings
Essential readings

Bartlett, C., Goshal, S. and P. Beamish (2008). Chapter 3 ‘Developing transnational

strategies’. In Transnational Management: Text, Cases and Readings in Cross-
Border Management. 5th edition. P. 197-210.

Ghemawat, P. (2007). ‘Managing differences: The central challenge of global

strategy’. Harvard Business Review, 85/3 (March). P. 59-68.
References

§ Prahalad, C. and Doz, Y. (1987). The Multinational Mission: Balancing Local

Demand and Global Vision. New York: Free Press.

§ Ghemawat, P., (2007). Redefining global strategy: Crossing borders in a world

where differences still matter. Harvard Business Press. Book. (Chapter 2).
Thanks for listening
Mariachiara Barzotto
mb2602@bath.ac.uk