Internationalization Corporate Strategy PDF

Topic 5.Internationalization Corporate strategy Pág. 1 Agenda 5.1 5.2 5.3 5.4 The companies The The dilemma of the The competitive global:advantages internationalization reduct...

Topic 5.Internationalization Corporate strategy Pág. 1 Agenda 5.1 5.2 5.3 5.4 The companies The The dilemma of the The competitive global:advantages internationalization reduction of the advantage of the and inconveniences of the company costs and the global nations adaptation Biblography: Grant, R. (2022):Chapter11 Navas and Wars (2022). Chapter 13 Rothaermel (2024):Chapter10 Topic 5. Internationalization Pág. 2 5.0 Preamble Introduction The internationalization strategy is part of the corporate strategies Reminder: They determine the actions that the company carries out to obtain a competitive advantage in the different business units or in the different geographic markets in which it operates They mark the limits of the company in 3 dimensions: 1) Degree of vertical integration, in which activities of the industry value chain should it compete? 2) Product or service diversification: what range of products and services should you offer? 3) Geographic diversification: in which geographic markets should you compete? (TOPIC 6) The formulation of the internationalization strategy focuses mainly on determining the direction which countries to expand and how to do it Topic 5. Internationalization Pág. 3 5.0 Preamble Introduction The internationalization of companies is an increasingly frequent phenomenon that has been favored by the globalization Globalization is a process of integration and exchange between different countries around the world, mainly enhanced by: 1. The fall of trade and investment barriers 2. Advances in telecommunications 3. Reducing transport costs Engine of globalization THE MULTINATIONAL COMPANY Topic 5. Internationalization Pág. 4 5.0 Preamble Introduction The multinational enterprise (MNE) is an entity that deploys resources and capabilities in the acquisition, production and distribution of goods and services in more than one country Example: Inditex, Santander, Telefónica, P&G, Disney, McDonald's… Regarding MNEs… Needs an effective global strategy that allows you to obtain and maintain a competitive advantage when competing with other companies around the world When they make investments in value chain activities abroad we can say that multinationals make foreign direct investment (FDI) Topic 5. Internationalization Pág. 5 5.0 Preamble Introduction Companies operating in different countriesThey need an effective internationalization strategy that allows them to create value at a global level. Keep in mind: Competitors may vary from one country to another and are not only domestic competitors (last section of this topic) Other industry characteristics or conditions (not just competitors) may differ across countries. General environmental factors (government policies, economic conditions, etc.) may differ substantially between countries. Topic 5. Internationalization Pág. 6 5.0 Preamble Introduction In the digital age in which we find ourselves, some companies are born global. Their founders start them with the intention of running global operations. Internet-based companies like Amazon, eBay, Google, and LinkedIn by nature have a global presence. In fact, Facebook, with over a billion users worldwide, would, if it were a country, be the third most populous country in the world after China (1.4 billion) and India (1.2 billion). To better customize their websites and make them fit local preferences and cultures, these companies still tend to set up offices and maintain computer servers in different countries. Example:Amazon.com, customizes its product offerings for different markets * see country-specific sites at:www.amazon.cnfor China,www.amazon.defor Germany andwww.amazon.com.brfor Brazil) Topic 5. Internationalization Pág. 7 5.0 Preamble Introduction Large American multinationals (such as Boeing, Caterpillar, Coca-Cola, GE, John Deere, Exxon Mobile, IBM, P&G or Walmart), constitute less than 1% of the total number of US companies, but they represent: ü 11% of private sector employment growth since 1990 ü 19% of the workforce ü 25% of the total salary paid ü 31% of US GDP ü 74% of private sector R&D spending The economic power of the US is based precisely on its large multinationals (Apple,Alphabet, Microsoft, Amazon, Tesla…) Topic 5. Internationalization Pág. 8 5.0 Preamble Introduction Some figures that reveal the importance of multinationals: In 2016, the combined value of the world's 10 largest multinationals was equivalent to the GDP of the 180 smallest countries (e.g. Ireland, Greece, South Africa, etc.) In 2021, the combined value of the companies in the 'trillion-dollar club' was only exceeded by the GDP of the US and ChinaàThe aggregate capitalization of these companies was equivalent to the third largest economy in the world. Topic 5. Internationalization Pág. 9 5.0 Preamble Introduction Annual evolution of the Inditex group's business figures Source: Inditex annual report (2020) Topic 5. Internationalization Pág. 10 5.0 Preamble Introduction STAGES OF GLOBALIZATION GLOBALIZATION 1.0: 1900–1941 GLOBALIZATION 2.0: 1945-2000 GLOBALIZATION 3.0: 21ST CENTURY GLOBALIZATION 3.1 DEGLOBALIZATION? Topic 5. Internationalization Pág. 11 5.0 Preamble Introduction 1.GLOBALIZATION 1.0: 1900–1941 In that period, basically all important business functions were located in the multinational's home country. Typically, only the operations of the sales and distribution were carried out abroad, essentially exporting goods to other markets In some cases, companies acquired raw materials from abroad. The formulation and implementation of the strategy, as well as the flows of knowledge, followed a one-way path: from the national headquarters to the international outposts. During this period the idea of multinational companies was born. It ended with the arrival of the Second World War. Topic 5. Internationalization Pág. 12 5.0 Preamble Introduction 2.GLOBALIZATION 2.0: 1945-2000 With the end of World War II came a new focus on business growth, not only to meet needs that were not met during the war years, but also to rebuild the damage caused by the war. From 1945 until the end of the 20th century, in the Globalization 2.0 phase, multinationals began to create smaller, independent copies of themselves, with all business functions intact, in a few key countries (in particular, American companies, for example, were located in European countries, Japan, and Australia). This strategy required significant amounts of FDI. Although it was costly to duplicate business functions in overseas locations, doing so allowed for greater local responsiveness to country-specific circumstances. Topic 5. Internationalization Pág. 13 5.0 Preamble Introduction 3.GLOBALIZATION 3.0: 21ST CENTURY Multinational companies that had been at the forefront of globalization have evolved into global collaboration networks. These companies now freely locate their business functions anywhere in the world based on an optimal combination of costs, capabilities and PESTEL factors. Massive investments in telecommunications networks around the world have effectively reduced communication distances, allowing companies to operate 24 hours a day, 7 days a week, 365 days a year. Topic 5. Internationalization Pág. 14 5.0 Preamble Introduction 3.GLOBALIZATION 3.0: 21ST CENTURY Figure. Establishment of global collaboration networks of multinationals Topic 5. Internationalization Pág. 15 5.0 Preamble Introduction 3.GLOBALIZATION 3.0: 21ST CENTURY In the stage of Globalization 3.0, the strategic objective of the multinational company changes. The multinational reorganizes itself from being a company with autonomous operations in a few selected countries to a more fluid global company with centers of expertise. Each of these centers of expertise is a hub within a global network for delivering products and services. Creating a global network of local expertise is beneficial not only in service companies, but also in the industrial sector. The trend toward global collaboration networks during the Globalization 3.0 stage raises the interesting question: What defines a company as “Spanish” or “American”? If it is the headquarters address, then IBM, GE, and others are American companies, even though most of their employees work outside the United States. On the other hand, non-American companies such as automobile manufacturers from Japan (Toyota, Honda, and Nissan) and South Korea (Hyundai and Kia) and several engineering companies (Siemens from Germany and ABB, a Swiss-Swedish multinational) make significant investments in the United States and create a large number of well-paying jobs. Topic 5. Internationalization Pág. 16 5.0 Preamble Introduction 4.GLOBALIZATION 3.1 DEGLOBALIZATION? Various events of black swan(i.e. highly improbable, but high-impact events) have hit the world economy in recent years (global financial crises, Covid-19, conflicts in the Middle East, etc.). All these macro events have contributed to a rise in nationalism in some countries. See the case of Brexit, where in 2016, the British voted to leave the EU. In addition, right-wing parties recorded strong gains in national elections in many European countries. Or the Trump organization was under the slogan "America First". In general, the future viability of entire economic trading blocs such as the EU is being questioned. The United States and China are beginning to see each other more as strategic rivals vying for supremacy, rather than deeply intertwined trading partners. As competition between different political and economic systems and the race for global supremacy intensifies, the United States and China are embroiled in a trade war. Any further changes to existing trade rules are likely to impact cross-border trade negatively, further affecting multinational companies. Are we facing a new scenario where new strategies must be implemented? Topic 5. Internationalization Pág. 17 5.1 Global companies: advantages and disadvantages Pág. 18 5.1 Global companies: advantages and disadvantages Why do companies internationalize? European aircraft manufacturer Airbus is investing $600 million in Mobile, Alabama, to build passenger planes Why? Avoid voluntary import restrictions Take advantage of favorable conditions in that region (e.g. lower taxes, lower labor costs, incentives provided by states in the southern U.S.) Getting closer to customers in North America Topic 5. Internationalization Pág. 19 5.1 Global companies: advantages and disadvantages Why do companies internationalize? In general, companies expand beyond their borders if they can create greater value and thus improve their ability to generate or maintain competitive advantage. Therefore, when deciding whether to expand into a new country, companies compare the benefits and costs of that expansion move. ü If the benefits outweigh the costsàwill expand ü If the costs outweigh the benefitsàwill not expand Important: Although some costs and benefits are common to any international expansion movement, each country offers its own advantages and creates its own costs a company may be interested in expanding into one country but not into another Topic 5. Internationalization Pág. 20 5.1 Global companies: advantages and disadvantages Why do companies internationalize? Advantages of performing activities in other countries (different from the country of origin) 1. Access to larger markets 2. Access to cheaper factors of production 3. Developing new skills or accessing new resources 4. Extending the industry life cycle (emerging markets) Disadvantagesof being present in other countries (different from the country of origin) 1. The risk of being a foreigner (“liability of foreignness”) 2. Loss of reputation 3. Loss of intellectual property 4. Increase in some costs Topic 5. Internationalization Pág. 21 5.1 Global companies: advantages and disadvantages Why do companies internationalize? Advantages 1. Access to larger markets: ü Better use of economies of scale and experience ü When domestic demand is not sufficient, even the largest companies are forced to export (eg: Boeing, Toyota, IBM…) ü For companies in small economies it may be a necessity: Nestlé (Switzerland), Philips (Netherlands), Samsung (South Korea) and Inditex (Spain) 2. Access to cheaper factors of production: ü Access to lower labor costs (Example: countries like China or India) ü Access to raw materials at lower cost (iron, oil, etc.) Topic 5. Internationalization Pág. 22 5.1 Global companies: advantages and disadvantages Why do companies internationalize?Advantages 3. Development of new skills or access to new resources: ü Be part of learning communities that are often located in specific geographic regions ü Taking advantage of location economies: the benefits of locating value chain activities in countries that are optimal for a specific activity 4. Extending the industry life cycle (emerging markets): ü Great growth potential for technological products and services in these markets ü In addition, some of them (China, India...) are countries with many potential consumers. Topic 5. Internationalization Pág. 23 5.1 Global companies: advantages and disadvantages Why do companies internationalize?Disadvantages 1. The risk of being a foreigner (“liability of foreignness”): ü It refers to all the additional costs that a foreign company must incur in the destination country and which a local company should not face (Zaheer, 1995) ü These costs can be created by: 1. Lack of familiarity or legitimacy in the destination country 2. Lack of knowledge of environmental conditions in the destination country 3. Lack of experience in the destination country (or similar) 4. coordination costs across geographic or spatial distance, or a combination of these ü Example: Walmart failure in Germany, Disney case in Europe ü It represents a competitive disadvantage for foreign companies in relation to local companies. Topic 5. Internationalization Pág. 24 5.1 Global companies: advantages and disadvantages Why do companies internationalize?Disadvantages 2. Loss of reputation ü Internationalization can have undesirable effects on the company's reputation (a valuable, scarce and difficult-to-imitate resource). Importance of CSR ü It may affect other countries where the company was already present and successful. Loss of competitiveness in those countries ü Example: Apple had to deal with reputation problems associated with its main supplier, Foxconn (suicides associated with poor working conditions); textile companies accused of exploitation problems in their factories (e.g. Nike) 3. Loss of intellectual property ü The obligation to reach agreements with local companies to enter the country sometimes implies the loss of intellectual property. Reverse technology. Example: the entry of high-speed rail into China Topic 5. Internationalization Pág. 25 5.1 Global companies: advantages and disadvantages Why do companies internationalize?Disadvantages 4. Increase in some costs ü The international company becomes larger (remember the disadvantages of growth seen in Topic 4: administrative costs). ü The complexity of management is aggravated when crossing the borders of the country of origin (taking into account the costs of distances). Possibility of increased costs due to the need to adapt the product/service to the local consumer. Topic 5. Internationalization Pág. 26 5.2 The internationalization of the company Pág. 27 5.2 The internationalization of the company The internationalization of the company Now that we have analyzed why companies expand internationally, we now turn our attention to… 1. Which countries do multinational companies choose to expand in?(Direction) WHERE TO ENTER? 2. What methods do they use to enter those countries (method) HOW TO ENTER? Topic 5. Internationalization Pág. 28 5.2 The internationalization of the company Where to enter? (Direction) If we look at trade movements between countries we see that: 1. Factors and characteristics of the destination country matter (absolute measures). Example: A 1% increase in a country's wealth leads to a 0.8% increase in international trade 2. Proximity and similarities between countries of origin and destination also matter (relative measures): Geographic distanceàCountries that are 5,000 miles away trade only 20% of the amount traded between countries that are closer together Cultural distanceàHaving a common language increases trade between two countries by 200% compared to countries that do not share a common language. Administrative/political distanceàHaving the same currency improves trade by 340% compared to not having it Topic 5. Internationalization Pág. 29 5.2 The internationalization of the company Where to enter? (Direction) If we look only at absolute measures and compare several countries, they can all obtain similar scores.Ex.: market size, consumer purchasing power… HOW TO DECIDE? Example:Ireland and Portugal have similar cost structures and both provide access to the European Union's 500 million customers. In these cases, how does a multinational company decide where to locate? Topic 5. Internationalization Pág. 30 5.2 The internationalization of the company Where to enter? (Direction) Example:Ireland and Portugal have similar cost structures and both provide access to the European Union's 500 million customers. In these cases, how does a multinational company decide where to locate? In this example, if the importance of relative distance is taken into account: Having a common language would make an American multinational company prefer Ireland, while a Brazilian multinational would select Portugal. In the latter case, Brazil and Portugal also share a historical 'colony-colonizer' relationship. This link increases the expected trade intensity between these two countries by another 900% compared to country pairs where this link does not exist. Topic 5. Internationalization Pág. 31 5.2 The internationalization of the company Where to enter? (Direction) Most of the costs and risks associated with internationalization are created by the distance between the country of origin and the destination country. Therefore, when deciding which country to expand to, not only must absolute measures be taken into account (such as market size, consumer purchasing power, tax level, etc.) but the relative distance between the country of origin and the destination must also be considered. The framework CAGE is an acronym for Cultural, Administrative and Political, Geographic and Economic distance Topic 5. Internationalization Pág. 32 5.2 The internationalization of the company Where to enter? (Direction). The CAGE framework Cultural Distance Administrative and political Geographical Distance Economic Distance distance Different languages, Absence of trade block Lack of common Different consumer incomes ethnicities, religions, Absence of shared currency border, access to Different natural, financial and human resources (in social norms and Absence of monetary or waterways, adequate cost and quality) Factors that dispositions political association transportation or Different information or knowledge reduce the Lack of connective Political hostilities communication links probability social or ethnic Weak legal and financial Physical distance of entry networks institutions Different climates (more Absenceof colonial and time zones distance) ties (culture and language) Have a high linguistic They are considered like Have a ratio of Demand varies significantly according to consumer content (TV) acommodity (electricity) retained value / income (cars) Related to the Build a national reputation weight that is low The manufacturing costs (eg.labour) are very These national and/or (aerospace) (cement) important (textiles) factors religious identity of the They are key to national They are fragile or affect country (food) security perishable (glass, industries HEassociated with (telecommunications) meat, etc.) more than… ountry-specific quality They depend heavily associations (wines) oncommunications (financial services) Topic 5. Internationalization Pág. 33 Source:Adaptedby P. Ghemawat (2001), “Distance still matters: The hard reality of global expansion,” HBR, September: 137–147.  Example of international expansion (2001-2016) COUNTRY REGION SAME SUBREGION HISTORICAL TIES Germany Western Europe No No Argentina South America No Y Austria Western Europe No No Brazil South America No No Colombia South America No Y Costa Rica Central America No Y Ecuador South America No Y El Salvador Central America No Y Slovakia Eastern Europe No No Guatemala Central America No Y Ireland Northern Europe No No Island of Man Northern Europe No No Italy Southern Europe Y No Morocco North Africa No No Mexico Central America No Y Nicaragua Central America No Y Panama Central America No Y Peru South America No Y Puerto Rico Caribbean No No United Kingdom Northern Europe No No Czech Republic Eastern Europe No No Uruguay South America No No Venezuela South America No Y TOTAL 23 4.34% 47.82% Topic 5. Internationalization Pág. 34 Source :Elaboration own. 5.2 The internationalization of the company Where to enter? (Direction) Although the CAGE framework helps to determine the attractiveness of countries in a more detailed way because it introduces relative measures, it is only a first step. Companies must assess their resources and capabilities to see if these increase or reduce the distance with destination countries. For example, a company with a high diversity of managers and a more diverse workforce will be less affected by cultural differences between the home and host countries than a company with a more homogeneous or less diverse culture where all managers come from the home country. While technology may make the world more homogeneous and geographic distances less relevant, the different dimensions of the CAGE framework do exist. Ignoring the costs associated with these distances can lead to poor decisions that put the company at a competitive disadvantage. Topic 5. Internationalization Pág. 35 5.2 The internationalization of the company Where to enter? (Direction) Managers must decide how to enter the new country by comparing the level of investment that is necessary and thel evel of controlthat this investment provides them with an advantage over the business unit in the destination country Generally, the lower the level of investment, the less control by the company. Each mode has its own advantagesandDisadvantages, which suggests that a correct choice is key for the company to successfully implement its internationalization strategy. Multinational companies operating in many countries often use multiple entry modes.àThe choice depends not only on the characteristics of the company but also on those of the country itself. Topic 5. Internationalization Pág. 36 5.2 The internationalization of the company How to enter? (Method) MODES Export Strategic Subsidiaries alliances - License - Acquisition - Franchise - Joint-Venture - New Businesses (greinfield) Investment and Investment and Control Control Topic 5. Internationalization LOW Fountain: Rothaermel (2024). HIGH Pág. 37 5.2 The internationalization of the company How to enter? (Method) EXPORT: The foreign company sends the products it produces in its home market to the destination country. This is usually the entry mode initially used and is very popular among SMEs. LICENSES/FRANCHISES: Agreement between a foreign company and another company or companies from the country of origin so that the local companies grant the foreign company the right to use an asset (patent, brand, process, etc.) in the destination country, in exchange for a cost or royalty. Example: Agatha Ruiz de la Prada JOINT VENTURE: The foreign company shares ownership of an entity (may be a plant) in the destination country with a local company. For companies in some sectors, it is the only way to enter certain countries (China, Saudi Arabia, etc.) SUBSIDIARIES Acquisition. The foreign company buys (or acquires a significant percentage) of a company located in the destination country. It usually offers more control than the previous options and is quicker to implement than creating a new company (next option). New companies (greenfield). The foreign company invests directly in the destination country to create a new subsidiary of which it has full ownership. Complex and expensive but offers maximum control Topic 5. Internationalization Pág. 38 5.2 The internationalization of the company How to enter? (Method) METHOD ADVANTAGES DISADVANTAGES - Taking advantage of economies of scale and - High transportation costs experience (more demand) - Costs of the bcommercial arrears Export -Low risk - Easier undo option -Lower entry costs than other options - Minor global strategic coordination capacity -Allows you to overcome some barriers to entry - Lack of control over technology and quality Licenses or franchises -Low risk - Access to local partner knowledge - Minor global strategic coordination capacity - Distribution of costs and risks - Minor quality control (which in the caseof subsidiaries) Joint Ventures - Complianceof demandspolicies - Less control over technology (than in the case of subsidiaries) - Quick access to new markets with a higher - High costs and risks degree of control - Business integration problems – post-entry opportunism Acquisitions - Greater coordination capacity - Complex negotiations - Possibility of economies of experience - Full control over operations - High costs - percentage of results - It takes a lot of time New companies - Protection of technology -A lot of risk (Greenfield) - Elderlycstrategic coordination capacity -Lack of knowledge oieslocal company - Possibility of economies of experience Topic 5. Internationalization Pág. 39 5.3 The dilemma of cost reduction and local adaptation Pág. 40 5.3 The dilemma of cost reduction and local adaptation The dilemma of cost reduction and local adaptation In the process of internationalization, companies face two conflicting pressures: 1. Reduce costs thanks to the application of astandardized strategythat is common in all countriesàenjoy economies of scale, greater bargaining power...Ex.: IKEA 2. Adapt to the needs, tastes and preferences of local consumers by applying aadapted strategyto the local characteristics of the destination country.Ex.: Ford Company, McDonald's… Standardization prevents the product or service from being adapted to consumers in the destination country (lower perceived benefit) and adaptation makes it difficult to take advantage of economies of scale and other sources of cost savings (higher costs). Which option did we choose? Relevance of theintegration-response framework Topic 5. Internationalization Pág. 41 5.3 The dilemma of cost reduction and local adaptation The dilemma of cost reduction and local adaptation Topic 5. Internationalization Pág. 42 Fountain: Rothaermel (2024). 5.3 The dilemma of cost reduction and local adaptation The dilemma of cost reduction and local adaptation 1. INTERNATIONAL STRATEGY: same product in all countries Characteristics Benefits Risks Usually, the first step in theprocess Leveraging core No or limited local ofinternationalization competencies generated in response Used by multinational companies countries of the country of origin Highly affected by originrelatively large or exporting a lot Economies of scale exchange-rate (Example, multinationals from the USA, Low-cost implementation fluctuations Germany, Japan, South Korea) through: Intellectual Products and services tend to have strong - Exportation or licensing property embedded brandsand widely recognized (for products) in a product or Competitive strategy tends to be - Franchises (for services) service could be differentiation because the local consumers - License (for trademarks) expropriated want to enjoy the 'true experience' of those strong brands (Eg. Harley-Davidson) Topic 5. Internationalization Pág. 43 5.3 The dilemma of cost reduction and local adaptation The dilemma of cost reduction and local adaptation 2. MULTI-DOMESTIC STRATEGY:product or service adapted to the destination country so that it is perceived as a local product or service Characteristics Benefits Risks Used to compete in countries Greater adaptation to Duplication of key ofdestinationlarge but idiosyncratic thelocal demand business functions across (Example: Japan, Saudi Arabia…) conditions multiple countries Often used in consumer products Greater (high implementation cost) andinfood industries (Ex.Nestlé) benefitperceived by the Little or no economies of The main competitive strategy is consumer scale differentiation. Minor exchange rate Impossibility to transfer The multinational wants to be exposure learning across regions perceived as a local company Higherrisk of intellectual property expropriation Topic 5. Internationalization Pág. 44 5.3 The dilemma of cost reduction and local adaptation The dilemma of cost reduction and local adaptation 3. GLOBAL STANDARDIZATION STRATEGY: standardized products created in the location where the best relationship between resources-capabilities-costs is found Characteristics Benefits Risks TheMultinationals that use this strategy are Location economies: global No local responsiveness organized in a network (incurring the lowest division of labor based on where Little or no product possible costs) the best capabilities reside at differentiation Used by multinationals offering standardized the lowest cost Some exposure to exchange products and services (Ex.Lenovo) Economies of scale and rates The main competitive strategy is cost standardization Some risk of expropriation of leadership intellectual property Topic 5. Internationalization Pág. 45 5.3 The dilemma of cost reduction and local adaptation The dilemma of cost reduction and local adaptation 4. TRANSNATIONAL STRATEGY: Product or service that is slightly adapted but can benefit from certain sources of cost savings Characteristics Benefits Risks Used by multinationals pursuing a Combines the benefits of the The global matrix structure is competitive strategyof blue ocean, adaptation strategy and of expensive and difficult to combiningsimultaneously product the strategy of implement, resulting in a high differentiation and low cost standardization failure rate Mantra: Think globallybutact locally simultaneously: Exchange rate exposure i. economies of scale, Increased risk of intellectual location, experience and property expropriation learning Topic 5. Internationalization Pág. 46 5.3 The dilemma of cost reduction and local adaptation The dilemma of cost reduction and local adaptation The initial choice of a strategy does not imply that it must remain fixed over time.àstrategic dynamism in the internationalization processes Example of strategic dynamism at MTV Topic 5. Internationalization Pág. 47 Fountain:Rothaermel(2015) 5.3 The dilemma of cost reduction and local adaptation The dilemma of cost reduction and local adaptation The initial choice of a strategy does not imply that it must remain fixed over time.àstrategic dynamismin the internationalization processes High pressure to reduce costs GLOBAL STRATEGY TRANSNATIONAL STRATEGY Low local sensitivity High local sensitivity Future INTERNATIONAL STRATEGY MULTI-DOMESTIC STRATEGY 2015 2018 Topic 5. Internationalization Low pressure to reduce costs Pág. 48 Fountain:Rothaermel(2024) 5.4 The competitive advantage of nations Pág. 49 5.4 National competitive advantege National competitive advantage Evidence shows that in certain sectors, the world's leading companies come from the same country. Examples: ü The chemical sector is dominated by German companies ü Consumer appliances by Japanese companies ü The leisure industry by North American companies ü The pharmaceutical sector by Swiss companies This evidence leads us to ask: ü Why do some countries outperform others in certain sectors of activity? ü Is it possible to talk about competitive advantages at the country level? THE COMPETITIVE ADVANTAGE OF NATIONS Topic 5. Internationalization Pág. 50 5.4 National competitive advantege The competitive advantage of nations PORTER'S DIAMOND Topic 5. Internationalization Pág. 51 5.4 National competitive advantege Porter's Diamond 1. FACTOR CONDITIONS The existence of certain productive factors in a country can confer competitive advantages to its companies (natural resources, trained human resources, technological resources, specialized knowledge, capital markets...) Sometimes, the lack of productive factors in the country induces companies to create them. Examples: South Korea lacks abundant natural resources but has generated a very powerful workforce and valuable technological know-how. In Japan the use ofHitarose due to high storage costs Topic 5. Internationalization Pág. 52 5.4 National competitive advantege Porter's Diamond 2. DEMAND CONDITIONS A country where consumers are sophisticated and very demanding induces its companies to create more value This level of demand can also help companies identify new needs for incentives to innovate. Large transferable economies of scale Examples: Japan, with its dense urban living conditions, hot, humid summers and high energy costs, encouraged the creation of small, quiet and energy-efficient air conditioners. Finland's smaller population, living in more remote areas, encouraged the development of mobile phones. Topic 5. Internationalization Pág. 53 5.4 National competitive advantege Porter's Diamond 3. COMPETITIVE INTENSITY OF THE INDUSTRY The types of strategy, structure and rivalry between companies vary greatly from one country to another. Companies with high local market competition will outperform competitors that do not face the same conditions in their home markets (capacity development and alertness make them more competitive globally) Examples: In Germany, the automotive sector is exposed to a very hostile environment (highways with no speed limits, more demanding consumers) Companies in this sector are better prepared to compete globally In Italy, companies in the fashion industry face high competition that has led them to global success. In the USA, success of the computer and software products industry Topic 5. Internationalization Pág. 54 5.4 National competitive advantege Porter's Diamond 4. RELATED AND SUPPORTING INDUSTRIES The existence of related industries can favour the process of internationalisation and the improvement of competitiveness. This phenomenon is much greater if it is between suppliers and customers. Advantages derived from continued coordination: innovation and technological improvement, transfer of information,R&D, etc. Examples: Toyota's success story between 1990 and 2000. Quality suppliers with highly competitive products Italy, leading industry in footwear and leather In Japan, cameras and photocopiers are related industries. Topic 5. Internationalization Pág. 55 5.4 National competitive advantege Porter's Diamond Example Porter's Diamond Analysis Applied to Silicon Valley An example of a region where Porter's diamond is present in all its splendor is Silicon Valley. a) Situation of the production factors: in this specific area there are many companies in a certain sector (technological), therefore, it is an area where a large part of the sector's highly qualified professionals are present. qualified labor factor present in the area b) Demand conditions: These technology companies work in an environment of constant innovation due to the demanding and changing technology market. c) Competitive intensity in the local industry: the environment in Silicon Valley is highly competitive and rivalrous, which helps companies to also have high global competitiveness in the sector. d) Related and support industries: both parent companies and their suppliers are present in this area, all of them highly prestigious worldwide. Conclusion: We can see how the 4 dimensions of the diamond work in their maximum splendor, giving rise to a network of highly competitive and interconnected companies internationally. Topic 5. Internationalization Pág. 56 Topic 5.Internationalization Corporate strategy Pág. 57