05-08-2014, 09:45 AM
Frameworks for Global Strategic Analysis
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Introduction
Strategic analysis in a global setting involves competition in industries that extend across national boundaries and among firms with different national home bases that may tap into strategic resources in more than one location. This note provides frameworks for global strategic analysis at four levels: the geographic scope of the industry, the competitiveness of various locations, the geographic reach of the firm, and the global integration vs. local focus of specific activities. This multilevel approach makes it possible to "zoom in" on a particular strategic setting, taking into account the most important factors at each level.
. Levels of Analysis: Issues, Frameworks, and Actions
This note introduces the principal frames of reference required for strategic thinking and action in an international context. These include those required for defining the geographic scope of industries, the competitive advantage of countries (regions) and its implications for the location of activities, and the appropriate tradeoffs between local responsiveness and global integration of different activities in the value chain. Strategic thinking in any context involves the identification of a set of issues, the selection and/or development of an appropriate conceptual framework for assessing these issues and identifying potential courses of action, measuring key variables, and selecting courses of action.
. Levels of Analysis: Issues, Frameworks, and Actions
This note introduces the principal frames of reference required for strategic thinking and action in an international context. These include those required for defining the geographic scope of industries, the competitive advantage of countries (regions) and its implications for the location of activities, and the appropriate tradeoffs between local responsiveness and global integration of different activities in the value chain. Strategic thinking in any context involves the identification of a set of issues, the selection and/or development of an appropriate conceptual framework for assessing these issues and identifying potential courses of action, measuring key variables, and selecting courses of action.
Internationalization of the Firm
The core question in strategy in an international context is whether a firm should internationalize its activities along a variety of dimensions including where it sells its products or services, where it produces these products or services, where it outsources key inputs and where it obtains the know-how or technology to produce these products or services. In the early international strategy literature of the 1960s and 70s, which corresponded to a major
expansion of multinationals from the U.S. and Europe, the emphasis was on entry strategies - whether a firm should enter a market by exporting, either through an independent distributor or its own network, or through direct foreign direct investment (FDI) with dedicated local facilities, either on a
wholly-owned or joint-venture basis.6 The motive for expansion, by and large,
was taken to be to tap additional markets in order to exploit firm-specific capabilities developed in the home market as explained in a seminal article by Vernon (1966). This emphasis remains relevant for new firms expanding abroad, but by the end of the 1970s, Vernon (1979), for example, argued that the product life-cycle explanation of entry was no longer relevant for established firms which have moved well down the internationalization learning curve. Rather, the more central question is how they should (re) configure their activities across the world to maximize their competitive advantage, a point we return to in Section 6 below.
Regardless of the motive - to tap new markets, to gain scale economies, to
arbitrage cost differences, or to access and/or develop new technology, the key questions are: Does internationalization represent a sustainable competitive strategy and, if so, how should a firm internationalize? The answer, of course, will depend on their industry, their positioning within the industry, the competitive position of their home base, etc.? In an industry that is quite global in nature due to market similarities, scale economies, and/or comparative advantage, internationalization will be an imperative unless the firm can identify a business model that differs from the norm. On the other hand, if an industry is primarily domestic in character, internationalization is probably a trap, again unless the firm has some very unique advantages that it can exploit through internationalization. For most firms, the answer will be more ambiguous. Internationalization will at best represent an opportunity for those firms that possess some unique capabilities that can be exploited
internationally7. For this to be the case, these capabilities must pass the RATs
test, they must be relevant, transferable, and appropriable. The conditions for sustainable competitive advantage from internationalization are perhaps best summarized by Dunning’s (1981) OLI framework: where O refers to ownership, i.e., firm-specific capabilities, L refers to advantages associated with specific locations, and I refers to advantages that can best be exploited through internalization, e.g. directly controlled activities involving cross- border transfers of tangibles and intangibles inside the firm.
. Summary and Conclusions
This note has presented the principal frameworks for global strategic analysis in a hierarchical fashion. This multi-level approach facilitates “zooming in” on a particular strategic setting, taking into account the most important factors as each level.