Please enable JavaScript.
Coggle requires JavaScript to display documents.
International Business Lectures 3 & 4 (Multinational Enterprises (Why…
International Business
Lectures 3 & 4
Competitiveness
And Porters Diamond
Relative strength necessary to win in competition against industry rivals.
Country
Competitiveness:
Extent to which a country is capable of generating wealth when measured against other countries in global markets.
The Role of the Government
Essential helper or supporter of an industry
Creates the need for continuous help or protection
No intervention, adopt the free market way.
Why do companies trade internationally?
Porter found four conditions that are important for competitive superiority:
Influenced by: Chance, Govt. Policy and Companies
Sophistication of demand
Demand Conditions:
Nations gain competitive advantage in nations where the home demand gives a clear or early picture of emerging needs (first mover)
E.g. USA - Fast Food, Credit Cards.
Sophistication of demand impacts on quality and innovation.
Factor Endowment
Factor Conditions:
Labour, land, natural resources, capital, infrastructure...
Related and supporting industries
Need to be internationally competitive
Suppliers are global competitors
Firms can create clusters of supporting industries
Firm strategy, structure, and rivalry
Competitiveness is affected by how companies are created, organised, managed and compete.
Long term corporate vision is a determinant of success.
Presence of a domestic rivalry will increase competitiveness
Limitations
Not enough econometric testing of hypotheses
No guaranteed success
Confusing at times
Does not account for internationalisation of demand, factor conditions, rivalry or supporting industries
Not rigorous enough
Many times firms benefit from the diamond of other countries rather than their own.
AKA: Determinants of the Competitive Advantage of Nations
(Porters Diamond)
Increasing Competitiveness
The Government
Focus on specialised factor creation
Avoid intervention in factor and currency markets
Enforce strict product, safety and environmental standards
Sharply limit direct co-operation among industry rivals.
Promote goals that lead to sustained investment
Deregulate competition
Enforce strong domestic antitrust policies
Reject managed trade
Companies
Create pressures for innovation
Seek out the most comparable competitors as motivators
Establish early-warning systems (for opportunities)
Improve the national diamond (porters model)
Welcome domestic rivalry
Globalise to tap selective advantages in other nations
Use alliances only selectively
Locate in clusters to support competitive advantage
Multinational Enterprises
Companies that are headquartered in one place, but have operations in one or other countries.
Sometimes difficult to tell if a company is an MNE
Traditionally MNEs are headquartered in developed economies, especially the triad.
Recently there has been a growth of EMNEs, those that are headquartered in emerging countries. E.g. BRICS
Hymers Monopolistic Advantages Theory
Monopolistic advantage:
Owning an advantage no-one else has. E.g. Coca Cola recipe.
Argues that the theory of indirect or portfolio capital transfers cannot explain the foreign value added activities of firms.
Expands the idea of FDI, implying that FDI involves a transfer of a package of resources (tech, management skills, entreprenuership etc.) and not just capital.
Firms with more resources in more countries will find it easier to move these to new environments and therefore will see the benefits of FDI more easily.
For firms to own and control foreign value-adding activities, they must first possess some sort of monopolistic advantage, which is sufficient to outweigh the disadvantages they face in competing with indigenous firms.
Internalisation Theory
Using Hierarchies rather than markets to organise the cross-border transactions of intermediate products.
Revolves around the idea that knowledge should be internalised within a company to create an advantage - this creates entire markets that only a firm with knowledge can exploit, and therefore a reason for MNEs to exist.
Firms engage in FDI whenever the net benefits of common ownership of domestic and foreign activities and the transactions between these are bigger than the benefits offered by trading partnerships.
These theories combined help to explain the existence of MNEs, but each separately cannot explain the phenomenon.
Strategy
MNE's make decisions based on whats best for the company, even if this means transferring jobs abroad. They use a worldwide approach to their operations.
Internationalisation Process follows Upsala Model
Export through agent/distributor
Export through own sales representative
Local packaging / assembly (Vertical FDI)
Horizontal FDI (Replicate entire operation in new country)
Why do firms Internationalise?
Diversify against risks and uncertainties of domestic business
Tap growing world markets
Protect their home market in response to foreign competition
Reduce costs
To Overcome protective devices such as tariffs and non-tariffs barriers
Take advantage of technological expertise by manufacturing goods directly rather than under license
Chinese MNE's
Amongst the biggest in the world
Are risk takers
Have large financial resources available as a result of state ownership
Government or party have representatives on the board
Many expand to acquire natural resources
Strategy is highly influenced by govts. go global policy.
FSA-CSA Matrix
Firm specific advantages
Country specific Advantages
Provides a framework for global strategy
FSAs are unique capabilities that are proprietary to an organisation.
CSA can be based on national resources, labour costs, or cultural factors.
Managers of MNEs use strategies that build on the interactions between FSA-CSA.