Dit document bevat korte en duidelijke notities van het vak Global Strategic Management gegeven door Ernest Verwaal in KULeuven Antwerpen. Dit is in januari, voor alle studenten die een Engelse Master doen.
Global Strategic Management
- 3 elements of global strategic advantage:
Location advantage (where)
Firm-specific advantage (what) (FSA)
Governance-based advantage (how)
- Difference between regular competitive advantage and global strategic advantage?
In global strategy you add an additional dimension
- Components of a Value Chain of Porter: Primary and Secondary Activities
Primary activities: basic activities
Only looked at the company
Value for the customer is very critical in the value chain --> increase value
- Profit is part of the value and allocated to the company
- Adding value --> increasing the willingness to pay of the customer
- 2 dimensions: creating value and capturing value
If you can’t capture value, you don’t have a successful company
- Supply chain --> costs are important --> reduce costs
- Value chain = a series of value-added processes involved in the production of any good or
service.
Research, development and design
Fabrication in an advanced manufacturing process
Assembly and testing
Final incorporation
- What determines the performance of a firm? --> By Kogut
The links in the value chain that generate attributes that are most valued by
consumers
The extend to which those attributes correspond to the present and future
competitive advantages of the firm
- Smile curve
R&D is high --> easy to protect --> creates monopolistic power
Higher the value, the more important it is to keep an eye on it in
your strategy
Companies with high value is positive for the government
because it can increase tax incomes
- Firms choose the GVC activities that correspond to the present and potential firm specific
advantages
- The more suppliers/machines --> the lower they can make the price
- Standardized activities at more locations because the activity can then be copied to other
locations and can be taken over by local people
Most R&D are created without thinking about value --> Why? Little communication + only interested in
technology and when they have to talk to e.g. a marketing employee, there is a kind of error
- Comparative advantage (where)
Cause by an intensive critical activities
Relates to two different explanations with different strategic implications:
Relative factor endowments in for example: Labor - Capital – Land -Natural resources
Rule: locate value chain activities where the intensive resources are relatively
abundant.
Relative productivity
1
, Rule: locate value chain activities where superior
- Model: changes in the value-added chain of comparative advantages
Lines represent the maximum output that these countries can produce
Curves represent the values you can produce with $1
Activities that are more labour-intensive --> produce more value in the less
developed countries
Activities that are more capital-intensive --> produce more value in the more
developed countries
Comparative advantage for that specific country --> connected to the location
Not a perfect predictor but very close
Productivity is the driver force
- Productivity differences are location-dependent because they depend on a cluster of
specialised suppliers, workers and knowledge institutes
- Monopolistic advantage is also driver of location advantage
Learning effects of companies are high
Leads to increasing economies of scale and learning
Cost savings that come from learning by doing
Implications for global advantage
Time is an important advantage as scale and experience effects of first
movers may deter new entrants from global markets.
- Paradox: global markets lead to more local advantage
The main effect of global markets is to expand the market in which local domestic
firms compete.
Global trade increases the price elasticity of demand for any individual firm
Demand curve becomes flatter: lower price and higher output
The total number of firms in the global market will decrease, but the number of available
varieties is higher, with more varieties based on local based monopolistic advantages.
Global market allows specialization for a local firm
- Monopolistic competition makes time of critical strategic importance.
- Most of the product require local adaption
- Information barriers have a big impact on the value
- How-question is important
- Belgium is good in R&D and marketing
- How question: different ways to manage interdepence in global value chains:
Market: standard contractual relationships
Independent, local partner in control
Modular: occurs when the product and production process in question are standard
and generic, and the suppliers are coalesced around specific breakpoints in GVCs.
Relational: MNE-supplier interactions are more complex, “mutual dependence”.
Associated with trust, ethnic ties or geographic proximity
Captive: an asymmetric relationship in which the MNE is dominant over its suppliers.
You are the owner and you can decide
Disadvantage of control: make decisions for local company but you don’t
know the company/customers
- How question: why do we need control over GVC partners?
Distance: Creates information barriers in GVCs
Agents are bounded rational and bounded reliable
To mitigate the risks of bounded rationality/reliability firms need control.
2
, Control reduces the capacity for local adaptation.
7 basic questions of global strategic management:
- WHY?
More customers, you can develop more in your country.
The learning effect will be bigger
Comparative advantage --> lower cost
Technology: lower costs on a particular production thing
- WHAT?
Focus on the resources where the company has a superior control over
- WHERE?
Focus on the cluster effects
Internal: difficult to influence
External advantages of the location! E.g.: specialized people
- WHEN?
Timing of the decision --> wait for the right moment
- HOW?
How to manage the:
Bounded rationality
Bounded reliability: you have the information but you use it in a way that
damage your chain position
- BY WHOM?
The decision of who are your partners
EU will introduce legislation, so you are responsible for the actions of your partners
- FOR WHOM?
Shareholders wants money
Not so simple
The communities have a big impact
The international agreements have a direct impact of your global chain
Drivers of global strategic advantage
Strategic advantage: relative position that you have
against your competitors in a specific market
o Internal: in the company
o Industry-based advantage: relative straight
of your position in the industry
All the other elements are negative:
o Firm-specific advantage: internal advantages
o Institution: different between countries
These 4 need to be analysed for the global strategy
Competitive drivers: Interdependence between
countries: sharing production among countries,
market share of a competitor in one country affects
its scale and overall cost position in the shared activities.
Governmental Drivers: Enhancing bargaining power: A company whose strategy allows for switching
production among different countries greatly increases its bargaining power with suppliers, workers,
and host governments.
Market drivers: Many suppliers of financial services, such as credit cards, must have a global presence
because their service is travel-related.
3
, Competitive Drivers: A company can decide to settle in a certain country because a main competitor is
there, not necessarily because this is an attractive market in and of itself
Recombination capability is important for your long term success
The recombination and transferability of FSA is key
o The overall majority of the FSA is still located in the home country
Move to another country --> you can only take the transferable FSA with you
Other parts --> adapt to the local requirements and needs --> it’s a cost but it
sometimes leads to new improvements
o Location-bound FSA’s --> needed to be recreated in the host locations
Stand-alone resources (linked to location advantages)
Local market knowledge and reputational resources
Local best practices
Domestic recombination capability
Distance in general is related to information barriers --> uncertainty
o Try to reduce distance
Glocal firms optimally benefit from cluster advantages, in contrast, international coordinators
coordinate the benefits from many locations.
R&D in 2 countries --> smart to use that kind of local knowledge from each country
- An FSA should be VRIO
Valuable
Rare
Imitate (non-substitutional)
Organization
- Prahalad and Hamel Core competence model
1) Does not refer to the role of location advantages
2) Does not recognize locational embeddedness of knowledge
3) Overlooks the problem of transferability
4) Overlooks the problem of bounded rationality
5) Does not recognize the position in the GVC
6) underestimates the problem if core rigidity
- 4 archetypes of administrative heritage of FSA transfer Verbeke
Centralized exporter: A glocal firm exporting to host countries
All the FSA’s stay in the home country, only the output is transferred
Examples
Standardised (in terms of location) products or services
FSA developed in home location
Successful through exporting
Limited value creating facilities abroad
FSAs embodied in the products or services
International projector: A local firm replicating FSAs in host countries
They copy their business model and spread it over the world
It transfer the FSA’s by making a copy (e.g. McDonalds in another location
they try to copy the environment, the store in a specific format)
Examples:
Foreign subsidiaries are essentially clones of home country FSAs
Knowledge-based FSAs transferred to subsidiaries: transfer typically
depends on expatriates from the home country as transfer agents.
4
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