Porter and International Business Strategy. By Dr. Michael McDermott

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1 Porter and International Business Strategy By Dr. Michael McDermott

2 Porter s four types of International Business Strategy Cell 1: Cell 2: Cell 3: Cell 4: export-based, decentralised marketing country responsive high foreign investment, extensive co-ordination pure global strategy Cell 1 is not a global strategy

3 Porter s 4 IB Strategies Type of IB Strategy Production location Control of Marketing Export-based, decentralized marketing Home country only The foreign buyer Pure Global Strategy Home country only The parent company (i.e. HQ) Country Centered High Foreign Investment, Extensive Co-ordination In every country where it seeks to sell Optimum and multiple locations The foreign subsidiary Regional/Global HQ

4 Porter s 4 IB Strategies Type of IB Strategy Comment Examples Export-based, decentralized marketing OEM sales Chinese companies today who sell to large retailers overseas or a major MNE Pure Global Strategy Country Centered Where standardization is vital Local production for local market and high level of adaptation Luxury products (e.g. Swiss watches) Often exists either due to host country protectionism or mega market High Foreign Investment, Extensive Co-ordination Optimum and multiple locations Japanese auto or electronics production

5 Porter s 4 IB Strategies Type of IB Strategy Export-based, decentralized marketing Typical Generic Strategy of Company Low cost Pure Global Strategy Country Centered Focused differentiation Either High Foreign Investment, Extensive Coordination Differentiation

6 (Geographical) Configuration of activities Dispersed Concentrated High Co-ordination of activities Cell 3 Cell 4 Low Cell 2 Cell 1

7 Look at how two MNEs have changes their IB strategy Configuration Dispersed Concentrated High BMW Co-ordination Hyundai Low

8 Impact of Strategy/Cell Cells 1,2, and 4 are relatively uncomplicated Cell 3 is much more problematic Why is that?

9 Cell 3: the pros and cons Pros Results in plant specialization A plant makes one product or a particular component and enjoys large economies of scale Plant serves regional or global market Cons Disruption due to labor disputes or natural disaster can disrupt production at every plant buying its output Floods in Thailand in Fall 2011 disrupt Japanese auto production worldwide

10 Configuration Dispersed Concentrated High Co-ordination Cell 3 Cell 4 Low Cell 2 Cell 1

11 Relationship between Type of IB Strategy and Foreign Subsidiary Strategy Type of IB Strategy Type of Subsidiary Strategy Export-based strategy with Marketing satellite decentralised marketing Country centred Miniature replica High foreign investment with Rationalised manufacturer extensive co-ordination among subsidiaries Purest global strategy Product speciality (possibly strategic independent)

12 Export Based Country- Centred High Foreign Pure Global Profile Ethnocentric Polycentric Geocentric/ Regiocentric Ethnocentric Production Labour Relations High Economies of Scale Low Economies of Scale High economies of scale High economies of scale Home country Host country Best practices Home Country Management Home country nationals Locals Initially expats to locals Home country nationals

13 Overview of Foreign Subsidiary Strategy Type of foreign subsidiary Service Sales and Marketing Distribution Production R&D Market Scope Marketing Satellite X X Local Miniature Replica X Local Rationalised Manufacturer X Global Product Specialist Global Strategic Independent Global

14 Criticisms of Porter s model Fails to take account of political imperative and strategic predisposition of the MNC Choice for MNE is not simply global vs country-centred (see Doz on multi-focal strategies)

15 Criticisms of Porter s model Non-Triad markets often insist upon MNCs implementing a national responsiveness strategy Tends to consider exporting and fdi as sole means of market supply

16 Criticisms of Porter s model Non-Triad markets often insist upon MNCs implementing a national responsiveness strategy Tends to consider exporting and fdi as sole means of market supply

17 Points to Consider Within the same industry, major and successful players follow different types of IB strategy MNCs from the same home country may pursue different types of IB strategy

18 Porter s Four Strategies: Some Comments are they related to generic strategy? are they related to macro considerations are they determined purely by economic factors? are they sustainable?

International Strategy

International Strategy Ramsin Yakob, PhD ramsin.yakob@liu.se IEI/Linköpings Universitet What is it? The field of international strategy concerns the study of international activities of firms and their