Ib2 Grpb L3 International Sequential Advantages - Jann Teo

International Sequential Advantages and Network Flexibility Student Name: Jann Teo Li Yuan Date: 3rd April 2008

International Sequential Advantages and Network Flexibility First part of the paper: International Strategies through the development of economies of scale and scope, learning and operating flexibility. 

Second part of the paper: How organization and co-ordination of the multinational corporation gradually evolve to support the passage of foreign direct investments from initial entries to sequential investments. 

International Sequential Advantages and Network Flexibility Multinationality  The reason for foreign investment is the extension of products for the domestic market.  The dilemma faced is whether the additional revenues of foreign market penetration are offset by the requirements of adapting the products to national markets.  The conflict between standardization and national differentiation arise.  However, subsequent advantages are still realized through the co-ordination of the multinational network as the firm establishes multiple subsidiaries throughout the world. 

International Sequential Advantages and Network Flexibility Sources of Competitive Advantage 3.Economies of Scale 4.Economies of Scope 5.Learning 6.Operating Flexibility Implicit Strategy 3.National segmentation and international aggregation 4.Product-line broadening/upgrading 5.Information updating 6.Operating flexibility

International Sequential Advantages and Network Flexibility 1. Economies of Scale  Closely linked to the advocacy of standardized products and global rationalization.  Determine at what point the economies of scale are exhausted.  To consider if scale play an important role in international competition 5.Access to the international market may be critical when there are important scale economies and the product life cycle is short. 6.Assume that the market is identical for similar products.  Exploited not through simple standardization of product design, manufacturing, and advertising, but through a segmentation of national markets.  Example: The AE-1 camera 

International Sequential Advantages and Network Flexibility 2. Economies of Scope  Cost of producing two products together is less than the sum of the costs of producing these products individually.  Existing overseas products can benefit the introduction of other lines internationally.  Two reasons for the market penetration: 5. Dynamic changes in a country running an export surplus lead to a shedding of lower value-added activities. 6.The initial product entry might exploit a low-cost and volume production strategy in order to justify the high initial costs.  Example: Honda Motors  Differentiating brand labels for different market segments. 

International Sequential Advantages and Network Flexibility 3. Learning  Costs fall with units of time rather than with units of output in any one production period.  For product with short product life cycles and relatively slow diffusion.  Represents the transfer of organizational practices and know-how across the firm. Reduced set-up costs.  Example: Proctor and Gamble  Trial launches in restricted geographical areas and, then based on results, adjust the campaign for the launch in the wider market. 

International Sequential Advantages and Network Flexibility 4. Operating Flexibility  Foreign entry.  Shift production to more favorable locations in the event of adverse exchange rate movements or to minimize taxes through various mechanisms.  Multinational dispersion of the firm presents profit opportunities.  Example: General Motors  Ear-marked certain plants for production at full economy of scale without shifting or relied on local manufacturing for local sales. 

International Sequential Advantages and Network Flexibility Sequential Strategy and Organizational Evolution  Dependent upon two organizational properties of duplication and differentiation, backed by an international competence in terms of both management and operating systems at the functional level. 

International Sequential Advantages and Network Flexibility Heterarchy and the professional organization  The internal hierarchy of the corporation is replaced by balance interdependence i.e. heterarchy.  The multinational corporation moving from a hierarchical control to a more cooperative relationship between headquarters and subsidiaries. 

International Sequential Advantages and Network Flexibility Duplication and Differentiation  Utilizes the international network of subsidiaries presumes that the value in the co-ordination of activities across the borders is worth its costs.  Duplication is to achieve gains through the arbitrage of factor, product, and technological markets.  Duplication of resources is the organizational requisite to exploiting operating flexibility.  Differentiation is the utilization of the variation in subsidiary and national resources for the benefits of the wider network.  Differentiation of tasks among subsidiaries may simply from the acquisition of foreign companies.  Differentiation reflects the allocation of different capabilities to national subsidiaries. 

International Sequential Advantages and Network Flexibility International Competence and Integrative Systems  Headquarters play a major role as the co-ordinating center for the management of the multinational network. 