Sample Question 2

Word Count: 723

Q2.The three sources of competitive advantage available to

international businesses are global efficiencies, multinational flexibility,
and worldwide learning. a) Define each of the three sources of
competitive advantage. b) Why is it difficult for firms to exploit these
three competitive advantages simultaneously?
(a) Competitive advantage refers to the conditions or factors that differentiate a company from
its competitors, and puts it in a superior business position (Peterdy, 2023). To achieve
competitive advantage organisations can adopt various strategies. The three (3) main causes of
sustainable or long term competitive advantage are (1) global efficiency, (2) multinational
flexibility and (3) worldwide learning (Cavusgil, Knight and Riesenberger, 2017).

Global efficiency refers to the ability of a firm to operate efficiently through achieving
economies of scale and lowering costs throughout its business functions at the global level.
International businesses can gain global efficiency through the centralization and
standardization of various business processes or activities, such as marketing, production etc, or
they may shift their operations to countries with lower costs of production i.e. mostly emerging
or developing economies (Cavusgil, Knight and Riesenberger, 2017). So, for example an
international company like Apple Inc. aimed to gain global efficiency through setting up
operations in China and recently in India in order to benefit from their large and cheap labour
force, as well their technologies (Kharpal, 2022; Pino, 2018). Another example is Coco Coal,
which sells the same types of product (standardization) throughout the world (Coca-Cola Inc,
2020).

Multinational flexibility is the ability of an international business to manage risks and

opportunities at the country level, by using local resources and capabilities. Multinational
organisations adapt and customize their strategies and products according to the diverse
environment, culture and demands of the local markets in which they operate. The decision
making process is de-centralized, and the management is able to be flexible and rapidly adjust
according to the needs and requirements of the local consumers as well as any changes in the
overall business environment (Cavusgil, Knight and Riesenberger, 2017). Multinational
organisations like Unilever or Proctor and Gamble etc are prime examples companies gaining
competitive advantage due to adopting multinational flexibility. These companies change and
adjust their strategies and business operations according to the local environment and demand.
The last determent of competitive advantage is worldwide learning. It is the ability of a firm to
absorb new technologies and innovations (absorptive capacity), and apply them to internal
business functions. Firms may use knowledge gained through its various experiences to
improve existing products and processes, or develop new ideas and technologies for both
existing and potential markets. In order to gain knowledge international companies may form
partnerships or joint ventures with organizations around the world, and then apply the
acquired abilities and skills to their internal processes and products (Cavusgil, Knight and
Riesenberger, 2017). The joint ventures such as Hero-Honda and Maruti-Suzuki, between
Japanese and Indian car companies, are good examples of worldwide learning, and have led to
knowledge sharing and collaboration, which in turn has resulted in growth of both international
companies (Kukreja et al., 2022).

(b) It can be difficult for international or multinational businesses to achieve and benefit from
all three (3) types or sources of competitive advantage at the same time. This occurs because all
three (3) sources need different organizational strategies, objectives, structures and culture,
and firms may be unable to align their resources and capabilities simultaneously (Hill and Hult,
2017). For example, a firm trying to achieve global efficiency may have to create strategies that
support standardization and centralization of business activities. This may impact a company’s
ability to achieve multinational flexibility because globally flexible firms have to allow
decentralized decision making and adopt strategies that cater to the needs of specific markets.
Similarly, worldwide learning requires investment in and adoption of new innovative
technologies and ideas, which may hinder the application of other competitive strategies. This
may lead to some companies prioritizing a particular source of competitive advantage
(Ghemawat, 2007).

However, to be truly successful in adopting and applying all three (3) sources of competitive
advantage organisations need to develop their core capabilities, and use them to achieve
multinational flexibility, global efficiency and worldwide learning (Roth, Prahalad and Doz,
1988).

In conclusion, to achieve competitive advantage international or multination organisations

need to achieve global efficiency, multinational flexibility and worldwide learning. However,
adopting all three (3) strategies at the same time may result in strategic imbalance, as all
sources of competitive advantage need different support strategies, culture and structure.
Hence, organizations must try to develop their core capabilities and then aim to achieve/adopt
the sources of competitive advantage.