Diamond of National Advantage
a model that explains why a country fosters successful multinational corporations
Demand Conditions
the home market demand for the industry’s product or service
strong trait of the U.S ; more willing to try NEW products/innovations than other countries
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Diamond of National Advantage
a model that explains why a country fosters successful multinational corporations
Demand Conditions
the home market demand for the industry’s product or service
strong trait of the U.S ; more willing to try NEW products/innovations than other countries
Factor Endowments
a nation’s position in the factors of production
another factor U.S is strong in ; many laborers and land
Firm Strategy, Structure, and Rivalry
the conditions in the nation for which companies are created, organized, and managed, as well as the nature of domestic competition/rivalry
aka: business knowledge ; need the skill and knowledge/info to manage
another factor U.S is strong in
Related Supporting Industries
the presence, absence, and quality in the nation of suppliers industries — better for the prosperity if suppliers to firm are WITHIN the SAME country
“controversial” ; external suppliers are good but it gives more bargaining power to external countries rather than stating within firm’s own country
a WEAKNESS for U.S due to the reliance on external suppliers and countries
International Expansion [Desire to Enter Global Markets]:
1. Motivations
Increase Market Size — increases demand when more people are reached
Take Advantage of Arbitrage: buy a product where it is cheap and sell it where it is expensive
Optimize the Location of Value-Chain Activities: performance enhancement, cost reduction, risk reduction — by going into other parts of the world, performance increases due to access to new information, cheaper labor, more gov’t/legal support, more effective R&D, etc.
DON’T invest on cheap financing, won't always translate to great profits
2. Risk
Political Risks
Economic Risk and Counterfeiting
Currency Risks — fluctuations within currency exchanges
Management Risk — entering a new country and not adhering to their culture
Management Risk: WHY do Expatriate Management Fail?
many American expatriates FAIL when they do business outside of the U.S.
due to cultural differences of SPOUSE
Expatriates: a person who leaves outside their native/home countries
Outsourcing
using other firms to perform value-creating activity that were previously performed in-house
first, done WITH-IN house, then, finding an OUTSIDE firm to do the work
usually done for cheaper costs
Offshoring
shifting a value-creating activity from a domestic location to a foreign location
service of firm completed OUTSIDE of the FIRM and OUTSIDE OF NATIVE/HOME COUNTRY
first few years = cheaper for firm
AFTER 5 years = cost reductions are completely NEUTRALIZED
Hidden Cost of Offshoring:
Higher number of hours to produce the same product
More training and supervision costs
Intellectual property risks
Wage inflation
Achieving Competitive Advantage in Global Markets
4 Strategies to Compete Globally
Strategy | Example | Major Strength | Major Risk |
International Strategy | Merick | Leverage knowledge and core competencies | Limited ability to adapt to local markets |
Global Strategy | Sony | Economies of Scale COST EFFECTIVE | Dependence on a single facility |
Multidomestic Strategy | Kraft | Adapt products to local markets | Low cost savings Product Diversification = high costs |
Transnational Strategy | McDonald’s | Adapt products to local markets AND pursue economies of scale (cost efficient and adaptable) | High managerial challenges for knowledge transfer COMPLEX |
Entry Modes of International Expansion
Strength and Risks of Entry Modes
Factor | Definition | Major Strength | Major Risk | Example |
Exporting | Producing goods in one country to sell them in another country | Inexpensive to enter foreign markets | Difficulty to meet local market needs | Diamond Company |
Licensing & Franchising | - Contract for the right to use IP - Contract for the right to use IP & monitoring and training | Little risk and need to invest | Forgoes potential revenues and profits | Franchising: hotels |
Strategic Alliance & Joint Ventures | - Cooperation relationship b/w two or more firms - ALLIANCE involving the contribution of equity to form a NEW ENTITY | Share risks and enhance learning | Cultural issues can lead to conflict | Joint Venture: Cars/automobiles |
Wholly Owned Subsidiary | A business in which a multinational company owns 100% of the stock | Possibly highest return | Most expensive and risky |