Advanced Corporate Strategy

ST104x

Transferring distinctive competencies

We will next look at the motives for geographic diversification.

One of the most important motives is the transfer of distinctive competencies to locations
where such competencies can create a competitive advantage. For example, consider
Starbucks, the global coffee chain company. Starbucks has very distinctive competencies in
this business which include those related to sourcing, roasting and blending of coffee beans,
distribution and the in-store experience. Starbucks can transfer these capabilities to its global
subsidiaries.

There is a certain cost associated with transferring these competencies, but such costs will be
lower than the costs of developing the competencies from scratch. Since Starbucks already
has invested in developing these competencies, and to the extent that local competitors do
not have the same level of competencies, its local subsidiary will incur lower costs and gain a
competitive advantage over the local rivals.

Further, if the competencies that Starbucks has are rare and difficult to imitate or substitute,
the local rivals will not be able to develop similar competencies and, again, the local subsidiary
will gain competitive advantage over rivals. Transferring distinctive competencies to global
subsidiaries is becomes easier as markets across the world are becoming similar, but at the
same time, there are still enough differences across markets that can make the transfer of
competencies a challenging task for a multinational enterprise. We will discuss these issues
later in this module when we discuss how a globally diversified firm should be managed.

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