The four determinants of national competitive advantage are proposed by Porter’s Diamond theory. This theory is designed to stimulate understanding of a nation’s competitive advantage. It provides information to the government to act as a catalyst in order to improve the position of a country in a competitive economic environment. Hence, Porter theorizes four determinants that help nations achieve a competitive advantage. The four factors are:
- Firm Strategy, Structure, and Rivalry
- Related supporting Industries
- Demand conditions
- Factor conditions
Firm strategy, structure, and rivalry refer to the fact that competition leads businesses to find new ways to develop technology and innovation to increase production. The related supporting industries determinant refers to upstream and downstream industries that facilitate innovation in the industry by supporting and exchanging ideas. Demand conditions concern the nature and size of the customer base, which also drive innovation and improvement in products. Finally, the most significant determinant is factor conditions, which enable the economy to sustain itself through resources such as capital, infrastructure, technological innovation, and a large pool of skilled labor.
Example
Consider the case of Japan, which has gained and developed a competitive economic presence globally that goes beyond the inherent resources of the country. Such resources have been, in part, a result of having a high number of engineers. The engineers have helped the nation drive technological innovation within Japanese industries.
Companies can maintain their economic competitiveness in the nation by employing different strategies. These enable companies to work in the context of international leadership that helps a nation achieve a competitive advantage. A competitive advantage can be achieved through innovation and technological advancement that enable a nation to achieve better economic conditions. The emergence of new technologies will support companies in working in unique and better ways in order to achieve economic competitiveness (Kiragu, 2014).
Multinational enterprises do not formulate worldwide strategies but rather regional strategies. Using appropriate examples, models, and theories, critically evaluate what this statement means and how it helps to better understand international business.
Multinational enterprises do not formulate worldwide strategies but rather regional strategies. This is because regional strategies enable enterprises to think and act according to the culture of the prospective country. Therefore, the focus of multinational enterprises is to formulate regional strategies. Regional strategies help organizations achieve their results in an effective and profound manner. The advantage of formulating regional strategies can lead multinational enterprises to great achievements and success because they work according to the needs and demands of people in the nation. This helps multinational enterprises fit into the climate of the nation by providing goods and services in the market as demanded. This concept is further clarified by the stated example of McDonald’s:
McDonald’s Perspective of Focusing Regional Strategies:
McDonald’s is one of the leading multinational corporations. It focuses on the implementation of regional strategies, as this helps the company think according to consumer perceptions. The strategies of McDonald’s vary from nation to nation. In India, its strategies are based on the tastes and demands of Indians, as many prefer vegetarian meals. For this reason, McDonald’s emphasizes regional strategies instead of formulating worldwide strategies. Regional strategies help McDonald’s achieve its results in an effective and profound manner. The advantage of formulating regional strategies can lead multinational enterprises like McDonald’s to great achievements and success because they work according to the needs and demands of consumers.
Hence, multinational enterprises focus on sourcing strategies in the host region in order to support home-region sales. This helps multinational corporations achieve their sales targets in the prospective region. It enables multinational organizations to fit into the culture of the nation by providing goods and services in the market as demanded (Verbeke, 2016).
Critically identify and explain, using case examples, the five basic steps in the international strategic management process.
A strategic management process is a set of rules to follow to complete business activities. It is identified as a philosophical approach to business. It enables top management to think strategically before implementing any process. It is implemented best when everyone gains a proper and full understanding of the strategy (Theriou, 2015). In addition to this, the five stages of the strategic management process are:
- The goal setting
- Analysis
- Strategy formation
- Strategy implementation
- Strategy monitoring
In order to have a more precise understanding of the strategic management process, let’s consider how Nestle focuses on the strategic management process in order to think strategically before implementing any process. Hence, Nestle’s strategic management process comprises the following stages.
- The main aim of Nestle’s goal-setting is to clarify the vision. Hence, this stage is completed by identifying short- and long-term objectives, identifying the process of accomplishing the objectives, and finally ending with objective customization.
- Then, Nestle focuses on information gathering and analysis in order to identify the relevance of data to accomplishing the vision.
- Then, strategies are formulated by gathering the information. This is completed by determining all possible resources.
- Nestle focuses on the successful implementation of the strategy, as it is very critical to the business venture. Thus, it is one of the main action stages of the strategic management process.
- Finally, Nestle has adopted a proper evaluation and control system that enables it to evaluate the implemented strategy in order to monitor performance and make relevant changes on a timely basis.
Why do MNEs use an international division structure? Are there any drawbacks to the organizational arrangement? Using real-life examples, critically answer these questions.
Multinational enterprises use an international division structure in order to accommodate foreign operations. The international division is organized without disrupting the home market organization. This structure is used by multinational corporations for the establishment of the home market and the rapid growth of business from an international perspective. It allows the organization to remain free to keep its full focus on the home market, while leaving the international division free to adapt foreign-market activities in an effective and smooth manner. Multinational ventures utilize a global division structure to accommodate remote operations. The worldwide division is managed without disturbing the home market association (Cavusgil, 2014). This structure is used by multinational enterprises for the foundation of the home market and for the fast development of business from a global viewpoint. It enables the association to remain free to maintain its full focus on the home market and leaves the worldwide division free to adjust remote market activities in a viable and smooth way.
Example
Consider the case of McDonald’s. The company places a strong emphasis on the international division structure in order to accommodate foreign operations. It focuses on the international division for the establishment of the home market and for the rapid growth of business from an international perspective. This structure is used by the multinational enterprise for the foundation of the home market and for the fast development of business from a global perspective.
Drawbacks
However, the disadvantages of the international division structure are that a number of redundant efforts may be required for the completion of international division activities, and it also increases the rate of competition between divisions.
Consider the cultural difficulties that may face a British or American company that has acquired an existing company in Asia.
The cultural difficulties that have been faced by Nike in acquiring its position in Asia are defined in this section. Any type of organization acquiring a position in a new market, especially in a new region, faces a lot of issues. Thus, one such issue is based on the cultural dimension. This is because the culture of the organization varies from nation to nation because each nation has its own norms, values, and beliefs. With this in mind, an analysis of the cultural aspect of Nike is discussed to identify the cultural difficulties it faces. By operating in Asian countries like Pakistan and India, Nike has faced the serious cultural issue of child labor, as the rate of child labor is very high in these countries. In addition to this, another cultural issue it faces is poor working conditions. However, the main cultural issue faced by Nike is child labor, as a number of soccer balls have been produced using child labor in Asia (Coombs, 2018). The cultural difficulties that Nike has faced in establishing its position in Asia are characterized in this section. Any organization entering a new market, particularly a new region, faces a considerable number of issues. One such issue concerns the cultural dimension. This is because an organization’s culture shifts from country to country as a result of differing standards, values, and beliefs.
Investing in emerging market economies can involve greater risks than making a similar investment in a developed economy.
Investing in emerging market economies can involve greater risks than making a similar investment in a developed economy. This is because there are a number of potential risks associated with investment in emerging markets. However, emergence in a new market offers new and unique investment opportunities because of the high expected return associated with an elevated economic growth rate. There are a number of risks associated with such emerging markets of which the investor must be aware in order to invest capital in an effective and appropriate manner (Athukorala, 2017). This is because investing resources in developing market economies can involve more serious dangers than making a comparative investment in a developed economy. There are various potential hazards related to investment in developing markets; however, entering a new market offers new and novel opportunities for speculation because of the high expected return associated with the financial development rate. There are various dangers related to such expansion of which the financial specialist must be mindful in order to invest capital in a compelling and appropriate way. Hence, some of the major potential risks faced by Adidas when investing in emerging markets are stated as follows:
- The increased chance of bankruptcy is a main issue Adidas faces because of weaker accounting procedures. Bankruptcy is a common risk to be considered in any economy, but the chance of such risks increases if the investment is made outside the developed world.
- Weaker corporate governance is another main issue Adidas faces because of the highly significant role the government plays in the market, which is greater than that of firm shareholders.
- Moreover, a greater risk Adidas faces in an emerging market is foreign-exchange-rate risk. This is because foreign stocks and bonds will typically provide returns in the local currency.
Expatriate managers can play a key role in a MNE’s international growth.
An expatriate manager is one who lives in another country for the sake of work while retaining citizenship in another country. An expatriate works temporarily in a new country. The role of the expatriate manager is to perform duties in other countries in order to support the potential growth of the business (Cecchi, 2016). The expatriate manager lives in another area for work while retaining citizenship in another nation. An expatriate works temporarily in another nation. Hence, some of the advantages and disadvantages Nestle faces as a result of adopting a strategy of using expatriate managers in Asia are stated as follows:
Advantages
- Hiring an expatriate manager in the international market helps Nestle in terms of delivering quality over quantity, as hiring locally can become extremely difficult.
- Business operations in the international market can maintain the same standards as those in the home market in the target country.
Disadvantages
- One of the major disadvantages is that hiring an expatriate manager is identified as problematic and expensive in some nations, as employees demand full expenses for their families.
Policies a company can adopt to maximize the performance of its expatriate managers
Some such policies are stated as follows.
- To develop a policy to check the understanding level and expatriate remuneration value internally
- To perform the proper cost calculation
- To examine the competitive environment
- To properly review the terms and conditions of the assignments
Why would a company choose to enter into an international joint venture? Given the high ‘failure’ rate of international joint ventures, what can be done to increase the likelihood of a successful outcome?
A company may choose to enter into an international joint venture because it helps organizations learn about market values and customer perceptions. This happens because the other company is already working in the market. An international joint venture basically minimizes risks that can be higher in a business acquisition (Tong, 2015). However, there have been no high ‘failure’ rates of international joint ventures identified. Instead, an international joint venture can deliver many benefits to an organization. Through the emergence of the international joint venture, Oman Arab Bank obtained new expertise and capacity that allowed the bank to enter a new geographic market. Another benefit of having an international joint venture is that it allows the organization to make short-term objectives and commitments in order to achieve high business profit and growth. Therefore, it is essential for an organization to enter a worldwide joint venture, as it helps organizations understand market values and customer perceptions. This happens because the other organization is already working in the market. A global joint venture essentially limits the risk that can be higher in a business acquisition. It helps organizations work in the most effective and efficient manner.
References
Athukorala, P. C. (2017). This paper examines Sri Lanka’s experience with manufacturing exports expansion, placing emphasis on opportunities and policy priorities in a rapidly changing global context in which global production sharing has become the prime mover of cross border production and trade (No. 2017-03).
Cecchi, M., & Nwosu, B. (2016). Human capital development: perspectives of an expatriate hotel manager in Africa. Worldwide Hospitality and Tourism Themes, 8(2), 207-210.
Coombs, W. T., & Laufer, D. (2018). Global Crisis Management–Current Research and Future Directions. Journal of International Management.
Kiragu, S. M. (2014). Assessment of challenges facing insurance companies in building competitive advantage in Kenya: A survey of insurance firms. International journal of social sciences and entrepreneurship, 1(11), 467-490.
Theriou, N. G. (2015). Strategic Management Process and the Importance of Structured Formality, Financial and Non-Financial Information. European Research Studies, 18(2), 3. Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014). International business. Pearson Australia.
Tong, T. W., Reuer, J. J., Tyler, B. B., & Zhang, S. (2015). Host country executives’ assessments of international joint ventures and divestitures: An experimental approach. Strategic Management Journal, 36(2), 254-275.
Verbeke, A., & Kano, L. (2016). An internalization theory perspective on the global and regional strategies of multinational enterprises. Journal of World Business, 51(1), 83-92.
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