PDF Ebook The Competitive Advantage of Countries and The Activities of Transnational Corporations
The dynamic interplay between the competitive advantages of countries and those of companies of a particular nationality is a subject commanding increasing attention by students of the transnational corporation (TNC). Indeed, it has been suggested that a fuller understanding of the nature, content and determinants of that interaction, as it affects the globalization of production and markets, may provide the basis for one of the next advances in the theory of foreign value-added activity1 [Dunning, 1990].
Since the mid-1970s, the focus of scholars interested in explaining the existence and growth of the TNC has been directed to identifying and evaluating the relative costs and benefits of organizing the cross-border transactions of intermediate products by hierarchies or markets. Since the early 1990s, however, renewed attention2 has been given to explaining the origin and composition of the resources and capabilities3 of corporations to engage in production outside their national boundaries and to the determinants of their success in managing and organizing the international portfolio of resources they own or control. Faced with the same economic conditions and prospects, why are some firms significant global players and not others? Why is the share of international direct investment accounted for by companies from Japan rising so rapidly? Why is Europe claiming a larger share of United Statesbased TNC activity than it used to? What explains the rapid growth of the participation of foreign-owned firms in the United States? What determines which developing countries will emerge as important international investors? Why do firms conclude strategic alliances with some firms, but avoid them with others? Why is foreign direct investment (FDI) in services rising more rapidly than that in goods?
Those are just some of the questions now demanding answers by TNC researchers. What is their response? Well, one response by the scholar of the TNC, qua TNC,4 is that only part of the explanation for the growth of foreign-owned production may have to do with the increasing propensity of firms to internalize their crossborder transactions. For example, a particular competitive advantage that may help to explain the capability of a firm to supply a particular market, or set of markets, is not, in itself, a sufficient reason for that firm to create or add value to that advantage from a foreign located facility.
Take for example, a pharmaceutical patent as a competitive advantage of a United Kingdom TNC. The origin of that advantage is likely to be determined by a combination of factors, including the amount of resources the company allocates to innovatory activities, the quality and motivation of research and development (R&D) personnel, the organization and technical efficiency of the R&D department and the successful commercialization of that R&D. The outcome of that advantage is that it may enable the United Kingdom firm to increase its penetration of the world drug market. Is the possession ofthat advantage an explanation for any increase in foreign production which might directly arise from such an advantage, or is it simply to be taken as an exogenous variable which may or may not lead to such production?
Supposing that it can be shown that it is more profitable for the United Kingdom firm to produce the new pharmaceutical product for world-wide distribution from its German plant rather than to export it from its United Kingdom plant. Is that an explanation of international production, or is it rather an explanation for the location of economic activity given its ownership? Or is the explanation of TNC activity only concerned with the circumstances of why a firm engages in foreign production relative to the other possible options open to it, given the resources and capabilities it possesses and the locational opportunities open to it?
If the latter is regarded as the main focus of interest, then Michael Porter's latest book, entitled The Competitive Advantage of Nations [Porter, 1990], will be of limited appeal (at least as an explanation of the growth of the TNC). If, however, it is perceived that, for example, part of Japanese direct investment in the United States auto industry is due to the success of Japanese-owned firms in producing highly saleable motor vehicles, irrespective of the mode by which that advantage is exploited, and that the reasons for such a success arc, themselves, part of the explanation for their foreign activities, then much of the Porter monograph is highly relevant to the student of the TNC.
Porter has rendered a major service in identifying many of the explanatory variables that help us better appreciate some country specific explanations of the changing pattern of international production by TNCs. In particular, his extensive field research has advanced our knowledge of why corporations domiciled in some countries have been successful in penetrating foreign markets in some product areas but not in others, and also why some countries have been able to attract the participation of foreign-owned firms in some value-added activities but not in others. The book also offers a penetrating insight as to why, in some countries and sectors, the activities of TNCs help stimulate the technological and organizational efficiency of local firms, while in other cases they may inhibit it. More generally, many of the ideas and concepts articulated by Porter enrich our understanding of the dynamic interplay between the strategy of TNCs and the competitive advantages of countries in which they operate.
Download
PDF Ebook The Competitive Advantage of Countries and The Activities of Transnational Corporations
Posted in :
