BU491 Chapter Notes - Chapter 3: Tesla Model S, Air Canada, Factor Cost
BU491 Chapter 3 – Developing Transnational Strategies: Building Layers
of Competitive Advantage
Worldwide Competitive Advantage: Goals and Means
The goal of an MNE is to exploit: scale economies, national differences, and scope economies
oTo achieve global efficiency, multinational flexibility, and worldwide learning
To achieve these goals, you gotta balance goals with means
The Goals: Efficiency, Flexibility, Learning
Global Efficiency
oIncreasing efficiency means increasing outputs (revenues) while lowering inputs (costs)
oThe vertical axis shows the benefits of efficiencies in scale and the horizontal axis shows
the benefits from being flexible in different countries
Multinational Flexibility
oThis means having the ability to manage risks and diversity to create new opportunities
in a global environment (which is very volatile!)
o4 sources of diversity and volatility:
Macroeconomic risk
Changes factor costs, exchange rates, or prices
Caused by war, natural disasters, or economic cycles
Political risk
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Exchange rate and interest rates
Caused by gov’t policies
Competitive Risk
The uncertainty of what competitors will do in response to the MNE
entering the market
Resource Risk
The availability of resources, capital, or managerial talent
oManaging all these risks requires management to constantly be scanning the
environment and making changes appropriately
Worldwide Learning
oThe idea here is that the MNE can extract additional profits around the world from it’s
internal capabilities (technology, brand name, etc.)
oHOWEVER, profit is not the only reason MNEs exist
Going worldwide exposes you to way more stimulation and cause you to learn
and grow as you adapt
The Means: National Differences, Scale, and Scope Economies
These are the 3 ways you can build a competitive advantage in a global context
oExploit differences in sourcing and market potential
oExploit Economies of Scale
oExploit Economies of Scope
National Differences
oDifferent countries have different factor prices, so by coordinating the value chain in a
way that has each operation set up in the nation with the lowest factor cost, you can be
more efficient
However, this isn’t stable all the time and you must be flexible and responsive
to changes in prices or imitative forces
oYou can’t target consumers in emerging markets the same way you can a US consumer
Their income is lower, so you probably need to rethink basic business models to
give them a product that is accessible and affordable (i.e. think refrigeration or
laundry machines)
Scale Economies
oBy producing more, you also learn more which gives you a cost advantage
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Bu491 chapter 3 developing transnational strategies: building layers of competitive advantage. The goal of an mne is to exploit: scale economies, national differences, and scope economies: to achieve global efficiency, multinational flexibility, and worldwide learning. To achieve these goals, you gotta balance goals with means. Global efficiency: increasing efficiency means increasing outputs (revenues) while lowering inputs (costs, the vertical axis shows the benefits of efficiencies in scale and the horizontal axis shows the benefits from being flexible in different countries. Multinational flexibility: this means having the ability to manage risks and diversity to create new opportunities in a global environment (which is very volatile!, 4 sources of diversity and volatility: Caused by war, natural disasters, or economic cycles. The uncertainty of what competitors will do in response to the mne entering the market. The availability of resources, capital, or managerial talent: managing all these risks requires management to constantly be scanning the environment and making changes appropriately.
