International production and firm’s

strategies
Lecture 6

2023-2024

Professor Marzenna Anna Weresa

World Economy Research Institute
Warsaw School of Economics
Email: marzenna.weresa@sgh.waw.pl
 Agenda

▪ How can MNCs shape their strategies?

▪ Organizational structures of MNCs’
network
▪ Technology creation and management:
a challenge for the future
 Why do companies go global?
• To create a competitive advantage through
globalness
• To reap economies of scale
• To respond to international markets needs
• To assemble resources from around the world more
efficiently

What is the primary goal of a company?

To achieve and sustain superior long-term return on
investment
3
 Foundations of Competitive Advantage
The Value Chain
An introductory video https://www.youtube.com/watch?v=Nc-2dhw6ZsI (1 min)

Source: Porter (2008), figure 8.1., p. 310

4
 Value Chain

https://www.youtube.com/watch?v=g8p2H7EvoGM (4 min)
 Value chain and strategy
• The value chain provides the basic tool to highlight the
strategy issues unique to a global strategy.
• Competing in a business involves performing a set of
discrete activities, in which competitive advantage
resides.
• Competitive advantages in activities can arise from
both operational effectiveness and strategy
• The domestic company performs all activities at
home.
• Global strategy: a company spreads its value chain
across the globe
 Patterns of global strategy

• What is configuration?
Location of different activities of the value chain in
different countries (what is located and where)

• What is coordination?
The nature and extent to which different activities of a
firm are coordinated in a network or remain
autonomous

7
4 types of multinational
corporations’ strategies
 Choosing location
• PEST analysis of the national environment in possible foreign
locations:
Political and legal
Economic
Social and cultural
Technological
• The importance of the above dimensions differs according to
the intentions of the firm.
• Potential entrants must also consider production potential
and market characteristics.
 The network organization
• Emphasis on relational ties, both within the organization and
with outsiders
• Openness in communication leads to flows of information
and resources within the firm (including foreign locations)
and with other organizations
• Not so much a new structural model as a new managerial
approach
• Blurring of organizational boundaries
• Network approach accords with a stakeholder view of the
company
 Inter-organizational networks
• Formal and informal ties across organizations – consonant
with network organizations and decentralized decision-making
• Concept of the value chain – value created at each stage in
the production process.
• May be producer driven or buyer driven.
• The cluster – group of organizations which benefit through
co-operation in a particular sphere of activity.
• Can include manufacturing, services, R&D, enjoying
complementarities.
• The transborder cluster – benefits can be gained even
when participants are dispersed geographically.
Networks in Japan and South Korea
• Japanese keiretsu – Loose groupings of firms, usually centred on a
main bank;
- characterized by cross-shareholdings and relational ties between
suppliers and customers.
Strengths – benefits of networks in sharing expertise;
Weaknesses – became costly and inefficient.

• Korean chaebol – Family-owned conglomerates, ruled

paternalistically;
- strong mutual ties between employees and owners;
- supported by government.
Strengths – forces of economic development in South Korea;
Weaknesses – weak governance and lack of transparency
 Global Value chains explained
https://www.youtube.com/watch?v=GppysScJ-68
 Organizational structures of MNEs:
selected strategies

SIMPLE COMPLEX
STAND-ALONE
INTEGRATION INTEGRATION
STRATEGY
STRATEGY STRATEGY
STAND-ALONE STRATEGY

Source: UNCTAD (1993). World Investment Report 1993, Transnational

Corporations and Integrated International Production, New York, No.
E.93.II.A.14 Graphic V.2, p. 119.
Characteristic of STAND-ALONE STRATEGY
• a MNC replicates in its foreign
affiliates much of the value-
chain of the parent firm (with
the exception of technology
development and finance that
are retained at headquarter
operations),

• affiliates in host countries

perform the tasks necessary
for production to service the
host-country and/or
neighboring markets
 Characteristic of SIMPLE INTEGRATION
STRATEGY

a MNC locates one or a few elements of its

value chain in its foreign affiliates

the foreign affiliate undertakes (typically with Mother

technology obtained from the parent firm) a company
limited range of activities to supply its parent
firm with specific inputs or products that they Foregin affiliate Foregin affiliate Foregin affiliate
are in a more competitive position to produce country A country B country C

Simple integration strategy introduces a

complementary hierarchy of occupations within
a MNC system across different locations.
 The Value Chain

Affiliate Affiliate
in country A in country B
18
Source: Based on Porter (2008)
SIMPLE INTEGRATION STRATEGY

Source: UNCTAD (1993). World Investment Report 1993, Transnational

Corporations and Integrated International Production, New York, p.
120.
 Characteristic of COMPLEX INTEGRATION
STRATEGY

Under complex integration strategy:

• each MNC affiliate specializes in a product, process or function integrated
with those of other units within the MNC’s regional or global network of
integrated international production.
• MNCs usually locate abroad efficiency-seeking FDI
• Complex integration strategy means deeper integration within the
network that provides efficiency gains for a MNC
 Characteristic of COMPLEX INTEGRATION
STRATEGY

Source: UNCTAD (1993). World Investment Report 1993, Transnational Corporations and Integrated International Production, New
York, p. 123
 COMPLEX INTEGRATION STRATEGY &
efficiency gains

• Efficiency gains could result in a smaller system-wide

workforce for a given output size than the other two
strategies.

• Specialization and consolidation of business functions in

various locations have a rationalizing effect on total firm
employment when compared, for example, to the
replication of value-adding activities in all host locations
as in a stand-alone strategy, or limited specialization
among locations as under simple integration strategies.
 MNC and globalisation

• MNC strategies change in response to changes in global,

regional or country-specific conditions affecting their
competitive positions and profit opportunities.
• Globalization and increased global competition are leading
MNCs to shift towards more complex corporate strategies and
integrated international production structures.
 MNCs’ structures in the context of
globalisation

More complex corporate strategies and integrated

international production structures involve:
• a greater geographical dispersion of MNC activities,
• increasing coordination and specialization of the
activities of individual affiliates
• greater importance being attached to created assets in
making locational decisions.

• Host developing countries policy is important

(development of local human capital base).
 Elaborating a new strategy:
introducing innovation
2 dimensions
• Organizational change (organizational
innovation)
• Technological change (technological
innovation)
 Innovation is a core competency and
source of competitive advantage.

• Catalysts of innovation (M. Porter):

• New technology
• New or shifting buyer needs
• New industry segment
• Shifting input costs or availability
• Changes in government regulation

FIVE Innovations that will change business in 2023

https://www.youtube.com/watch?v=qsCz5SD5nG8
 Innovation in NIKE
• Inside Nike's LeBron James Innovation center
• https://www.youtube.com/watch?v=VCRXfGt
wX9Y
 Organizational change
• Change may be radical, altering structure and culture, or
narrower, altering systems and roles.
• The turnaround involves rapid deliberate change, often to
recover from poor performance.
• Revitalization involves gradual change.
• Change takes place at both formal and informal levels.
• The international context of change:
• Differing perspectives across the organization
• Differing roles & responsibilities across dispersed locations
• Need for integration of individual members in corporate
vision
Technological change in different types of
international business
 Innovation strategies vary
according to the type of business
• Born-global firm in knowledge-based sector – new
products and global ambitions from the outset.
• Research-intensive MNE – usually with strong R&D
department, and record of innovative products.
• MNE in consumer mass markets – broadly based
strategy and incremental innovation, adapting to
new markets.
 Managing technological change
• Creating new ideas: what can the management do?
• Foster a culture of openness
• Be willing to change
• Hire creative people

• External sources of new ideas:

• Co-operative R&D agreements
• Customer-focused innovation (user-driven innovation)
• Innovation from any participant in the supply chain
• Open innovation
• Technology transfer
Co-operative innovation strategies
• Reasons for co-operative strategies (co-operative R&D)

• Need to reduce costs generally, and curb rising R&D costs

• Shorter product life cycles, and shorter technology life
cycles
• Increasing complexity of some products
• Increasing integration of formerly independent sectors
• Seeking complementarities or pooling skills to speed up
the research process
 Technology transfer
Motives:
• Cost reduction of research,
• Risk reduction
• Efficiency improvement
Channels:
• Buying patents
• Buying a licence
• Consulting
• Reverse engineering
 Managing Intellectual Property Rights
• Intellectual property rights (IPR) – a source of
ownership advantage.
• Every product represents a bundle of rights, which
must be legally protected and defended, in differing
national environments
• The rise in outsourcing, licensing and collaboration in
R&D leads to the need for greater attentiveness to
who owns what IP rights
• Where IP rights are managed to deliver maximum
value to the firm, innovation is at the heart of
corporate strategy
Intellectual property protection
 Summing up….
• Competitive success depends on:
➢Designing appropriate startegy (configuration
and coordination)
➢Planning organizational structure: stand alone,
simple intergration, complex integration
➢Managing innnovation and IPR in both the
legal and organizational contexts
Thank you for your attention