QXD 11/11/05 12:11 AM Page 439 Part Four INTERNATIONAL BUSINESS STRATEGIES IN ACTION Chapter 15 Corporate Strategy and National Competitiveness Chapter 16 European Union Chapter 17 Japan Chapter 18 North America Chapter 19 Non-Triad Nations Chapter 20 Ethics and the Natural Environment INBU_C15.QXD 11/11/05 12:11 AM Page 440 INBU_C15.QXD 11/11/05 12:11 AM Page 441 Chapter 15 CORPORATE STRATEGY AND NATIONAL COMPETITIVENESS Objectives of the chapter The primary objective of this chapter is to provide an overall framework for understanding how both nations and MNEs must fashion their strategies to achieve international com- petitiveness. In doing so, we give particular consideration to Canada and Mexico. The specific objectives of this chapter are to: 1 Examine the determinants and external variables in Porter’s “diamond” model of national competitiveness and critique and evaluate the model. 2 Present a “double diamond” model that illustrates how Contents firms in non-triad countries such as Canada are using Introduction 443 their diamond to design corporate strategies for the North American market.
Porter’s diamond 443 3 Discuss the benefits and effects of the North American Other “diamond” models: two case examples 447 Free Trade Agreement on both Mexico and Canada. 4 Describe how Mexico is using a double diamond model Globalization and corporate strategy 454 to tap into the North American market. ■ ACTIVE LEARNING CASE 5 Define the terms economic integration and national Worldwide operations and local strategies responsiveness and relate their importance to MNE of ABB 442 strategies throughout the world. ■ INTERNATIONAL BUSINESS STRATEGY IN ACTION Nokia and Ericsson 449 Kodak 455 ■ REAL CASES There is no global beer, only local 464 IBM 465 INBU_C15.QXD 11/11/05 12:11 AM Page 442 CHAPTER 15 · CORPORATE STRATEGY AND NATIONAL COMPETITIVENESS ACTIVE LEARNING CASE Worldwide operations and local strategies of ABB Headquartered in Zurich, Switzerland, Asea Brown Boveri local environments and works closely with customers so (ABB) is one of Europe’s major industrial firms.
Since the that it is viewed as a national rather than a foreign com- merger in 1987 that created it, ABB has been acquiring or pany; and (4) it works closely with companies in other taking minority positions in a large number of companies countries that are favored by their own government but throughout the world. In recent years it has purchased need assistance in financing and producing locomotive Westinghouse’s transmission and distribution operations equipment for that market. As a result, ABB is able to cap- and Combustion Engineering, the manufacturer of power- italize on its technological and manufacturing expertise and generation and process-automation equipment. In Mexico, develop competitive advantages in both triad and non-triad ABB acquired FIP SA in 2001, an oil and gas production markets.
The conglomerate, which currently In some cases ABB has gone so far as to take an ownership employs 102,000 people worldwide, has annual revenues position in companies located in emerging economic markets. in excess of $20 billion. Fifty-five per cent of its revenues For example, the firm purchased 76 per cent of Zamech, come from Europe, 25 per cent from the Americas, and Poland’s leading manufacturer of steam turbines, transmission 12 per cent from Asia. The remainder comes from Africa gears, marine equipment, and metal castings.
And it has and the Middle East. bought into two other Polish firms that make a wide range ABB operates on both local and global terms. On the one of generating equipment and electric drives. ABB is now in hand it attempts to maintain deep local roots wherever it the process of reorganizing these firms into profit centers, operates so that it can modify both products and operations transferring its own expertise to local operations, and devel- to that market.
For example, managers are trained to adapt oping worldwide quality standards and controls for produc- to cultural differences and to learn how to communicate ef- tion. If all goes according to plan, ABB will soon have a fectively with local customers. At the same time the com- thriving Polish operation that will be helping to rebuild pany works to be global and to make products that can be Eastern Europe. sold anywhere in the world because their technology and ABB works hard to be a “good citizen” of every country quality give them a worldwide appeal.
in which it operates, while also maintaining its supranational A good example of a business that demonstrates ABB’s status. As a result, the company is proving that it is possible advantages is transportation. The company generates $2 to have worldwide operations and local strategies that work billion a year in revenues from such products as subway harmoniously. cars, locomotives, suburban trains, trolleys, and the electric- Website: www.
al and signaling systems that support these products. This is possible for four reasons: (1) ABB’s research and devel- Sources: Adapted from William Taylor, “The Logic of Global Business: An Interview with ABB’s Percy Barnevik,” Harvard Business Review, March/April opment makes it a technology leader in locomotives and 1991, pp. 91–105; Carla Rapoport, “A Tough Swede Invades the US,” power electronics, enabling it to develop and build high- Fortune, June 29, 1992, pp. 76–79; Carol Kennedy, “ABB: Model Merger for speed trains and rail networks throughout the world; (2) its the New Europe,” Long Range Planning, vol.
Andrews, “ABB Will Cut 10,000 Jobs and Switch Focus to Asia,” operations are structured to take advantage of economies New York Times, October 22, 1997, p. Rugman, The Regional of scale and thus keep prices competitive; (3) it adapts to Multinationals (Cambridge: Cambridge UP, 2005). 1 In what way does ABB’s strategy incorporate Porter’s four country-specific determinants and two external variables? 2 Why did ABB buy Zamech? How can the company link Zamech to its overall strategic plan? 3 How does ABB address the issues of globalization and national responsiveness? In each case, cite an example.QXD 11/11/05 12:11 AM Page 443 PORTER’S DIAMOND INTRODUCTION Some MNEs rely on their home market to generate the research, development, design, or manufacturing needed to sell their goods in international markets. More and more, how- ever, they are finding that they must focus on the markets where they are doing business as well as on strategies for tapping the resources of those markets and gaining sales entry.
In short, multinationals can no longer rely exclusively on the competitive advantage they hold at home to provide them with a sustainable advantage overseas. In addition, many small countries realize they must rely on export strategies to ensure the growth of their economies. Those that have been most successful with this strategy have managed to tap into markets within triad countries. Good examples are Canada and Mexico, both of which have found the United States to be a lucrative market for exports and imports.
As a result, many successful business firms in these two countries have inte- grated themselves into the US economy, while creating what some international econo- mists call a North American market. In the future many more MNEs are going to be following this pattern of linking into the economies of triad members. The basic strategy these MNEs are following can be tied directly to the Porter model presented in Chapter 1, although some significant modifications of this model are in order. We will first examine Porter’s ideas in more detail and then show how these ideas are serv- ing as the basis for developing corporate strategies and international competitiveness in Canada and Mexico.
PORTER’S DIAMOND In Chapter 1 we identified four determinants of national competitive advantage, as set forth by Porter (see Figure 15. We noted that these factors can be critical in helping a country build and maintain competitive advantage. We now return to Porter’s “diamond” framework in more depth, examining how his findings apply specifically to triad countries and deter- mining how the ideas can be modified and applied to nations that are not triad members.1 Porter’s single diamond framework Source: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from The Competitive Advantage of Nations by Michael E. Copyright © 1990, 1998 by Michael E.QXD 11/11/05 12:11 AM Page 444 CHAPTER 15 · CORPORATE STRATEGY AND NATIONAL COMPETITIVENESS Determinants and external variables Porter’s “diamond” model is based on four country-specific determinants and two external variables.
The determinants include: 1 Factor conditions. These include (1) the quantity, skills, and cost of the personnel; (2) the abundance, quality, accessibility, and cost of the nation’s physical resources such as land, water, mineral deposits, timber, hydroelectric power sources, and fishing grounds; (3) the nation’s stock of knowledge resources, including scientific, technical, and market knowledge that affect the quantity and quality of goods and services; (4) the amount and cost of capital resources that are available to finance industry; and (5) the type, quality, and user cost of the infrastructure, including the nation’s transportation system, communications system, health-care system, and other factors that directly affect the quality of life in the country. These include (1) the composition of demand in the home market as reflected by the various market niches that exist, buyer sophistication, and how well the needs of buyers in the home market precede those of buyers in other markets; (2) the size and growth rate of the home demand; and (3) the ways in which domestic demand is internationalized and pulls a nation’s products and services abroad. 3 Related and supporting industries.
These include (1) the presence of internationally competitive supplier industries that create advantages in downstream industries through efficient, early, or rapid access to cost-effective inputs; and (2) internationally competitive related industries that can coordinate and share activities in the value chain when competing or those that involve complementary products. 4 Firm strategy, structure, and rivalry. These include (1) the ways in which firms are man- aged and choose to compete; (2) the goals that companies seek to attain as well as the mo- tivations of their employees and managers; and (3) the amount of domestic rivalry and the creation and persistence of competitive advantage in the respective industry. The four determinants of national advantage shape the competitive environment of in- dustries.
However, two other variables, chance and government, also play important roles: 1 The role of chance. Chance events can nullify the advantages of some competitors and bring about a shift in overall competitive position because of developments such as (1) new inventions, (2) political decisions by foreign governments, (3) wars, (4) signifi- cant shifts in world financial markets or exchange rates, (5) discontinuities in input costs such as oil shocks, (6) surges in world or regional demand, and (7) major technological breakthroughs. 2 The role of government. Government can influence all four of the major determinants through such actions as (1) subsidies, (2) education policies, (3) the regulation or deregu- lation of capital markets, (4) the establishment of local product standards and regula- tions, (5) the purchase of goods and services, (6) tax laws, and (7) antitrust regulation.1 provides an illustration of the complete system of these determinants and ex- ternal variables.
Each of the four determinants affects the others, and all in turn are affected by the role of chance and government. Critique and evaluation of the model In applying this model to international business strategy, we must first critique and evalu- ate Porter’s paradigm and supporting arguments. First, the Porter model was constructed based on statistical analysis of aggregate data on export shares for 10 countries: Denmark, 444 INBU_C15.QXD 11/11/05 12:11 AM Page 445 PORTER’S DIAMOND Italy, Japan, Singapore, South Korea, Sweden, Switzerland, the UK, the United States, and West Germany. In addition, historical case studies were provided for four indus- tries: the German printing press industry, the US patient monitoring equipment indus- try, the Italian ceramic tile industry, and the Japanese robotics industry.
In each case the country is either a member of the triad or an industrialized nation.