Changing Patterns of International Competition

United Nations Center on Transnational Corporations, Salient Features and Trends in Foreign Direct Investment (New York, NY: United Nations, 1984).

For a survey, see Caves R.E. Jones Ronald W. , World Trade and Payments, 4th ed. (Boston, MA: Little, Brown, 1985).

There are many books on the theory and management of the multinational, which are too numerous to cite here. For an excellent survey of the literature, see Caves R.E. , Multinational Enterprise and Econonomic Analysis (Cambridge, England: Cambridge University Press, 1982).

Vernon Raymond , “International Investment and International Trade in the Product Cycle,” Quarterly Journal of Economics, Vol. 80 (May 1966): 190–207. Vernon himself, among others, has raised questions about how general the product cycle pattern is today.

Porter Michael E. , Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York, NY: The Free Press, 1980); Porter Michael E. , “Beyond Comparative Advantage,” Working Paper, Harvard Graduate School of Business Administration, August 1985.

For a description of this research, see Porter Michael E. , ed., Competition in Global Industries (Boston, MA: Harvard Business School Press, forthcoming).

The distinction between multidomestic and global competition and some of its strategic implications were described in Hout T. Porter Michael E. Rudden E. , “How Global Companies Win Out,” Harvard Business Review (September/October 1982), pp. 98–108.

Perlmutter Howard V. , “The Tortuous Evolution of the Multinational Corporation,” Columbia Journal of World Business (January/February 1969), pp. 9–18. Perlmutter's concept of ethnocentric, polycentric, and geocentric multinationals takes the firm not the industry as the unit of analysis and is decoupled from industry structure. It focuses on management attitudes, the nationality of executives, and other aspects of organization. Perlmutter presents ethnocentric, polycentric, and geocentric as stages of an organization's development as a multinational, with geocentric as stages of an organization's development as a multinational, with geocentric as the goal. A later paper ( Wind Yoram Douglas Susan P. Perlmutter Howard V. , “Guidelines for Developing International Marketing Strategies,” Journal of Marketing, Vol. 37 (April 1973: 14–23) tempers this conclusion based on the fact that some companies may not have the required sophistication in marketing to attempt a geocentric strategy. Products embedded in the lifestyle or culture of a country are also identified as less susceptible to geocentrism. The Perlmutter et al. view does not link management orientation to industry structure and strategy. International strategy should grow out of the net competitive advantage in a global industry of different types of worldwide coordination. In some industries, a country-centered strategy, roughly analogous to Perlmutter's polycentric idea, may be the best strategy irrespective of company size an international experience. Conversely, a global strategy may be imperative given the competitive advantage that accrues from it. Industry and strategy should define the organization approach, not vice versa.

Porter Michael E. , Competitive Advantage: Creating and Sustaining Superior Performance (New York, NY: The Free Press, 1985).

Buzzell ( Buzzell Robert D. , “Can You Standardize Multinational Marketing,” Harvard Business Review [November/December 1980], pp. 102–113); Pryor ( Pryor Millard H. , “Planning in a World-Wide Business,” Harvard Business Review, Vol. 23 [January/February 1965]); and Wind Douglas Perlmutter (op. cit.) point out that national differences are in most cases more critical with respect to marketing than with production and finance. This generalization reflects the fact that marketing activities are often inherently country-based. However, this generalization is not reliable because in many industries, production and other activities are widely dispersed.

A number of authors have framed the globalization of industries in terms of the balance between imperatives for global integration and imperatives for national responsiveness, a useful distinction. See, Prahalad C.K. , “The Stategic Process in a Multinational Corporation,” unpublished DBA dissertation, Harvard Graduate School of Business Administration, 1975; Doz Yves , “National Policies and Multinational Management,” an unpublished DBA dissertation, Harvard Graduate School of Business Administration, 1976; and Bartlett Christopher A. , “Multinational Structural Evolution: The Changing Decision Environment in the International Division,” unpublished DBA dissertation, Harvard Graduate School of Business Administration, 1979. I link the distinction here to where and how a firm performs the activities in the value chain internationally.

See, for example, Williamson Oliver , Markets and Hierarchies (New York, NY: The Free Press, 1975). For an international application, see Casson Mark C. , “Transaction Costs and the Theory of the Multinational Enterprise,” in Rugman Alan , ed., New Theories of the Multinational Enterprise (London: Croom Helm, 1982); Teece David J. , “Transaction Cost Economics and the Multinational Enterprise: An Assessment,” Journal of Economic Behavior and Organization (forthcoming, 1986).

The difficulties in coordinating are internationally parallel to those in coordinating across business units competing in different industries with the diversified firm. See Porter Michael E. , Competitive Advantage: Creating and Sustaining Superior Performance (New York, NY: The Free Press, 1985), Chapter 11.

Empirical research has found a strong correlation between R&D and advertising intensity and the extent of foreign direct investment (for a survey, see Caves , 1982, op cit.). Both these factors have a place in our model of the determinants of globalization, but for quite different reasons. R&D intensity suggests scale advantages for the global competitor in developing products or processes that are manufactured abroad either due to low production scale economies or government pressures, or which require investments in service infrastructure. Advertising intensity, however, is much closer to the classic transfer of marketing knowledge to foreign subsidiaries. High advertising industries are also frequently those where local tastes differ and manufacturing scale economies are modest, both reasons to disperse many activities.

For an interesting description of the industry, see the paper by Yoshino Michael in Porter , ed., op. cit., (forthcoming).

It has been recognized that comparative advantage in different stages in a vertically integrated industry sector such as aluminum can reside in different countries. Bauxite mining will take place in resource-rich countries, for example, while smelting will take place in countries with low electrical power cost. See Caves R.E. Jones Ronald W. , op. cit. The argument here extends this thinking within the value chain of any stage and suggests that the optimal location for performing individual activities may vary as well.

The firm need not necessarily be owned by investors in the country, but the country is its home base for competing in a particular country.

See Porter , Competitive Advantage, op. cit.

See Linder S. , An Essay on Trade and Transformation (New York, NY: John Wiley, 1961); Vernon , op. cit., (1966); Gruber W. Mehta D. Vernon R. , “R&D Factor in International Trade and International Investment of United States Industries,” Journal of Political Economics, 76/1 (1967):20–37.

Where it does recognize scale economies, trade theory views them narrowly as arising from production in one country.

See Chandler Alfred in Porter , ed., op. cit., (forthcoming) for a penetrating history of the origins of the large industrial firm and its expansion abroad, which is consistent with the discussion here.

Ibid.

For data on auto assembly, see “Note on the World Auto Industry in Transition,” Harvard Business School Case Services (#9-382-122).

For a supporting view, see Levitt Theodore , “The Globalization of Markets,” Harvard Business Review (May/June 1983), pp. 92–102.

The implications of the shift from multidomestic to global competition were the theme of a series of papers on each functional area of the firm prepared for the Harvard Business School Colloquium on Competition in Global Industries. See Porter , ed., op. cit., (forthcoming).

For a discussion, see Hout Porter Rudden , op. cit. For a recent treatment, see Hamel Gary Prahalad C.K. , “Do You Really Have a Global Strategy,” Harvard Business Review (July/August 1985), pp. 139–148.

Teece David J. , “Firm Boundaries, Technological Innovation, and Strategic Planning,” in Thomas L.G. , ed., Economics of Strategic Planning (Lexington, MA: Lexington Books, 1985).

For a treatment of coalitions from this perspective, see Porter Fuller Rawlinson , in Porter , ed., op. cit., (forthcoming).

Hladik's recent study of international joint ventures provides supporting evidence. See Hladik K. , “International Joint Ventures: An Empirical Investigation into the Characteristics of Recent U.S.-Foreign Joint Venture Partnerships,” unpublished Doctoral dissertation, Business Economics Program, Harvard University, 1984.

For the seminal work on contractual failures, see Williamson , op. cit.

For a thorough and sophisticated treatment, see Christopher A. Bartlett's paper in Porter , ed., op. cit., (forthcoming).

For a good discussion of the mechanisms for facilitating international coordination in operations and technology development, see Flaherty M.T. in Porter , ed., op. cit., (forthcoming). Flaherty stresses the importance of information systems and the many dimensions that valuable coordination can take.

For a discussion, see Porter Michael E. Millar Victor , “How Information Gives You Competitive Advantage,” Harvard Business Review (July/August 1985), pp. 149–160.

Prewar international sales enjoyed by Japanese firms were handled largely through trading companies. See Chandler , op. cit.