Syrian Refugee Crisis

Competing across locations Locations:

Enhancing Competitive Advantage through a global strategy

M. Porter, 1998 (24 pages)  

Note: Focus on Global Operations exam is on the first 2 pages of this document

The Paradox

• Although companies compete globally and inputs move freely around the world, location continues to play a crucial role in competitive advantage
• Initial location-based advantages are extended through a global network

Competitive Advantage

• Materializes either through lower cost compared to rivals or the ability to differentiate and command a premium price; can arise from operational effectiveness or strategy; is necessary to tap new markets
• Firms understand it we have to examine a firm’s value chain

[pic 1]

International Competition Strategies

Multidomestic Industries

• Industries present in many countries; competition takes place on country-by-country basis with little linkage; value chain performed in each country

Global Industries

• Competition in different countries is linkes as a firms position in a specific country affects its position elsewhere; value chain spread over countries

2 Gears for International Strategy

Configuration

• Focuses on where each value chain activity is located and the number of sites

Coordination

• Extend to which dispersed activities are coordinated in a network or remain autonomous (tailored to local circumstances)

Motivation for Locating an Activity

Comparative advantage

• Location with most effective factor costs  or size → aims at operational effectiveness

Competitive/productive advantage

• Most attractive locations for innovation & productivity growth → ensure superior productivity in using inputs; display “home base” for a particular department

→ paradigm governing competition among locations has  shifted from comparative to  
    competitive advantage

Globalization of Competition

• Allows firms to gain competitive advantage independent of location by coordinating activities across a range of countries
• But: has not eliminated importance of location (e.g. specific industry head quarters or operations are typically located in a few or just one country)

Competitive Advantage of Locations (Porter’s Diamond)

• Lies in the quality of environment it provides for achieving high productivity
• Porter defines 4 aspects of a local environment that define context for growth, innovation and productivity and work together as a dynamic system:

• Factor input conditions: e.g. labor, capital, land etc.

• Comparative advantage: cost & availability of inputs
• Competitive advantage: high quality/specialized inputs

• Context for Strategy & Rivalry

• Advantages in productivity competition exist if context fosters sustained investments (e.g. in R&D, training etc.)

• This context includes: Tax system, IP rights, macroeconomy, political stability

• Rivalry heightens pressure to innovate & upgrade

• Demand conditions

• Demanding customers pressure companies to have high standards

• Related & Supporting Industries

• Capable spezialized suppliers & related industries

→ Reduces transaction costs and delay of importing

→ Nearby clusters of interconnected companies enable rapid flow
    of information → increases innovation & productivity

[pic 2]

How to Reach a Local - Global integrated Strategy 

• Maintaining a consistent strategy across countries reinforces competitive adv.
• Firm must have clear home base for competing in strategically different busin.

• Home based should be located in region with most favorable diamond
• Support home base and relocate it if necessary

• Preserve national identity in business units
• Non-core activities should be dispersed; value chain should be examined for opportunities, which will take one of the following forms:

• Sourcing comparative advantages
• Improving foreign market access (signalling commitment)
• Selectively tapping competitive advantages (in addition to home base)

• Globally coordinate & integrate dispersed activities (increases consistency, knowledge & technology transfer)
• Alliances with firms based elsewhere enables more effectively achieving the desired configuration

Competing from a Developing Country

• Many firms in developing countries are exporters
• Challenge: Shift from comparative to competitive advantage over time to succeed