This action might not be possible to undo. Are you sure you want to continue?
Reinert/Windows on the World Economy, 2005
The Porter Diamond and the Role of the Home Base
A competitive firm can choose from a number of trade, contractual, and investment modes of foreign market entry Why can a particular firm in a particular home country develop and maintain its competitiveness as it moves through the trade, contractual, and investment modes of globalization? Why do particular firms accumulate the tangible and
intangible assets that support international competitiveness? • Has a lot do with the home base of the firm
which Porter views as the determinants of competitive advantage • Factor conditions • Demand conditions • Related and supporting industries • Firm strategy. and rivalry Main argument: “Nations are most likely to succeed in industries or industry segments where the national „diamond‟ is most favorable” 3 .The Porter Diamond and the Role of the Home Base Porter introduced a diagram—the Porter diamond— that has become very well known Focuses on four central aspects of the home base. structure.
The Porter Diamond 4 .
and physical capital to be basic factors that are largely inherited More important from Porter‟s point of view are advanced factors that are created which include • Sophisticated infrastructure • Labor educated and trained in very specific ways • Focused research institutions Porter also makes a distinction between • Generalized factors—can be used in a number of different industries • Specialized factors—tailored for use in specific industries 5 .Porter Diamond Factor conditions Porter considers labor. natural resources. land.
demanding. the more it contributes to firms‟ competitiveness • Demand size and pattern of growth • Degree of internationalization 6 . and early home demand are positive aspects of the home base The more home demand is synchronized with international demand trends. and anticipatory (anticipates trends in global demand) home demand contributes to firms‟ success Large.Porter Diamond Demand conditions Stresses three aspects in the home base • Demand composition Sophisticated. rapidly-growing.
and sometimes preferential access to the most cost-effective inputs • Ongoing coordination • Innovation and upgrading A competitive domestic supplier industry is better than relying on well-qualified foreign suppliers 7 . rapid. early.Porter Diamond Related and supporting industries Supplying industries in the home base has several advantages in downstream industries • Efficient.
and rivalry One country differs from another with regard to managerial systems and philosophies and with regard to capital markets Institutional environments that allow firms to take a longterm view contribute positively to competitiveness Presence of a large number of competing firms or rivals in the domestic industry • Competition among firms is necessary for allocative efficiency in a market system. structure. technological efficiency 8 .Porter Diamond Firm strategy. but domestic rivalry contributes to dynamic.
advanced factors A group of domestic rivals contribute to the presence of specialized and sophisticated suppliers Rivalry among domestic firms producing differentiated products enlarges home demand and makes it more sophisticated 9 .Porter Diamond Interactions Most important Interactions—all related to rivalry Domestic rivals—particularly when clustered in a geographic region—contribute to the creation of factors • Especially specialized.
Interaction in the Porter Diamond 10 .
Spatial Clusters in the World Economy Flexibility and home base concepts converge in spatial clustering Interlinked firms/activities that exist in the same local and regional setting (in terms of economic. social and collective process among a group of firms 11 . networks. innovation and learning is a spatially-located. in what is now known as the Third Italy. and industrial districts First noticed in Silicon Valley in the United States. communicated via a highly social process of face-to-face interaction over a relatively long period of time Consequently. social. centers of excellence. and in East Asia Much productive knowledge cannot be codified into explicit forms Rather. cultural and institutional factors) AKA clusters. in Southern Germany.
Spatial Clusters in the World Economy Why do spatial clusters contribute to the productivity of firms? Concentrated communication made possible by a cluster increases learning and innovation • Contributes to the dynamic. technological efficiency of firms in the cluster Trust increases over time which facilitates contracting and exchange among firms Common business culture develops which reduces uncertainty 12 .
social cohesion. educational institutions. research institutions. and local government Milieu supports the cluster with rules and norms for business activity.Spatial Clusters in the World Economy A cluster exists within a milieu which consists of Cluster‟s firms Knowledge embedded within the cluster Institutional environment Ties of the cluster‟s firms to customers. business culture. and government support 13 .
A Value Chain Within a Spatial Cluster 14 .
Provide channels for rapid dissemination of knowledge and information Provide a basis for co-operation leading to a continuous stream of improvements Spatial clusters are important in both the home base and in the foreign operations of MNEs 15 . etc. a MNE obviously has the possibility of contributing to the local cluster and milieu Also possible that a MNE can tap into selected foreign clusters and milieus In the local milieu where the (MNE) controls full-fledged operations • Can be characterized as an insider • Linked to other firms in both formal and informal networks • Typically maintains close linkages to local research and education facilities.Spatial Clusters and Milieus In its home base. governmental bodies.
Multinational Management: The Local-Global Paradox Ownership advantages offset the extra costs of doing business internationally As a firm globalizes its production system it must decide upon Location of the components of the multinational value network Coordination among these components Summarize some issues raised in book Managing Across Borders: The Transnational Solution by Bartlett and Ghoshal (2002) • A recurring theme relating to a creative tension between the local and the global—local-global paradox 16 .
Multinational Management: The Local-Global Paradox Strategic challenges faced by MNEs Global efficiency • Obtained from economies of scale and scope Local responsiveness • Involves using local facilities and personnel to tailor goods and services to the needs and preferences of local consumers Global innovation • Refers to the combined and complementary use of innovations from many parts of the multinational value network 17 .
but lacking in the areas of global efficiency and innovation Global Firm Subsidiaries are little more than means to deliver uniform goods and services to local markets Home office of the global firm is very important in planning the realization of global economies of scale and scope Traditionally associated with Japanese MNEs Good at delivering global efficiency. “Multinational” Firm Subsidiaries are distinct entities allowed to be very responsive to their local environments Traditionally associated with European MNEs Good at delivering local responsiveness. less effective in the areas of local responsiveness and global innovation 18 .
International Firm Pursues a strategy concerned with disseminating the parent company‟s knowledge to the foreign markets Parent retains considerable influence and control. but less than in a classic global company • National units can adopt products and ideas coming from the center. but have less independence and autonomy than „multinational‟ subsidiaries Traditionally associated with US-based MNEs Good at delivering global innovation but not local responsiveness and global efficiency 19 .
Argue in favor of a transnational model of global management A “flexible centralization/coordination” or an “integrated network” network. differing among countries • Role of subsidiaries is differentiated throughout the multinational value One subsidiary might only be involved in sales. while another is involved in R&D • Coordination of the multinational value network is achieved using multiple methods Flows of goods are coordinated through centralization Flows of resources are coordinated through formalization Flows of information are coordinated through socialization Bartlett and Ghoshal advocate the rotation of personel throughout the network • Disparate elements of the MNE are tied together in a coherent mission through the use of vision and innovative human resource development policies 20 .
Examples of Multi-Home-Based MNEs 21 .
Schools of Thought on MNEs Home-based—originates from a strategic and environmental perspective of how MNEs develop and sustain international competitive advantage Porter emphasizes the importance of the home base in the process of upgrading competitive advantage Heterarchical—originates from the field of organization and management of the MNE A common theme MNE builds increasingly complex organizational structures and management processes 22 .
linking diverse influences from around the world through corporate culture competitive advantage which cannot be easily imitated by “outsiders” • Home-based model—mechanisms are related to the country or regional • Knowledge is an important connection among the OLI framework. the Porter diamond. and application of knowledge 23 .Schools of Thought on MNEs Sölvell and Zander stress that the two models have a common ground The mechanisms for fluid exchange of information and upgrading of level Heterarchical MNE—related to the organizational level. spatial clusters. and the transnational model Any understanding of the role of MNEs must include an understanding of the development. transmission.
Cultural Issues Another difficulty faced by MNEs is culture Adler (2002) argues that cross-cultural business activities typically tend towards either highly effective outcomes or highly ineffective outcomes Managing these sorts of relationships can involve a search for cultural synergy 24 .
Cultural Issues Cultural dominance subsidiaries MNE that imposes its own national or business culture on its foreign • More powerful companies tend to use this approach Cultural accommodation MNE tries to blend into their host country culture at all costs Cultural avoidance • Weak base on which to build long-term business relationships across cultures Cultural compromise business in a third country Both MNE and hosts pretend as if there were no cultural differences MNE and partners meet each other half way. sometimes literally. conducting Another method Look for ways in which the two cultures can reinforce each other or compromise in specific ways that benefit both sides 25 .
The Search for Cultural Synergies 26 .
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue reading from where you left off, or restart the preview.