During the last decade or so, international business has experienced a major changes and transformations. A special role is played by international, multinational, global and transnational corporations. In most cases, international business means the one-way expansion of firms to the rest of the world. International stage of development does not involve investments outside the home country but only import and export operations (Drejer, 2002). The majority of international companies simply exports to, or manufactured in, the foreign country. Examples of international companies are Lumene, Orifleme, Garnier. The basis for the competitive advantage of the international firm shifts from product innovation to the barriers to entry generated by scale in production, transportation, and marketing.
In contrast to international companies, multinational companies invest in foreign production and business outside the home country. While multinational firms have subsidiaries all over the world, they have been somewhat reluctant to develop an integrated and well coordinated global strategy that successful European and Japanese multinational firms have managed to establish (Keegan & Green 2004). At the core of an integrated strategy lies the firms’ ability to coordinate manufacturing activities with R&D, engineering, and marketing along the value chain on a global basis. Indeed, European and Japanese multinational firms have heavily invested in, and improved upon, their strengths in manufacturing that many U.S. multinational firms have ignored. The remarkable feature of multinational companies is that they adapt their products and services to local markets (Hollensen, 2007).
Examples of multinational companies are Nokia, Motorola, Ford, Toyota, BMW. Evidence clearly suggests the complex nature of trade and foreign production managed by multinational firms in global competition. Therefore, the development of “global” sourcing and marketing strategies across different foreign markets has become a central issue for many multinational firms (Keegan & Green 2004). There is a growing realization of the advantages to be acquired by coordinating and integrating operations across national boundaries. Generally, it has been examined under the general rubric of the international product cycle model, which is primarily an explanation of the evolution of sourcing strategy of a multinational manufacturing firm over time and space at the industry level. However, there has been little empirical investigation at the individual firm level of factors influencing sourcing policy. If they do, competition on a global scale through syndicated competitors will overcome the innovator’s initial competitive advantages. This global orientation will prompt the multinational firms to simultaneously invest in manufacturing process innovations to maintain their product-based competitive advantage (Hollensen, 2007).
A global stage of development means that a company invests and is presented in many foreign countries. Today, executives have come to accept a new reality of global competition and global competitors. An increasing number of firms from around the world, particularly from the United States, Western Europe, and Japan, are competing head-on for a global dominance. Global competition no longer permits the firms a polycentric, country-by-country approach to international business. Global companies have coordinated brand strategies and unified marketing systems (Keegan & Green 2004). Despite such a limitation, the model provides conceptually rich insights into the dynamics of global sourcing strategy, and will be explained in the next section.
The development of local competitors overseas may form a threat to the innovator, which will create an incentive for the innovator’s foreign direct investment in order to maintain the status quo of its competitive position abroad (Kotabe & Helsen 2006). Finally, at the standardized product stage, the technology stabilizes and the product enjoys general consumer acceptance. This leads to mass production which largely requires raw materials, capital, and unskilled labor. As the product matures and becomes standardized, comparative advantage tends to shift from an advanced country relatively abundant in skilled labor to a developing country abundant in unskilled and inexpensive labor. Coca-Cola, McDonalds, Hitachi are examples of the global corporations.
The transnational stage of development means that a corporation has a complex structure and invests heavily in foreign countries. This corporation has autonomous and independent subsidies in all regions around the world and allows its subsidies to develop decision-making, R&D and marketing strategies (Kotabe & Helsen, 2006). The overriding concern at this stage becomes the stable oligopolistic conditions achieved through pricing conventions (e.g, basepoint pricing and other coordinated pricing strategies), and hostages and alliances (e.g., concentration of production in the main marketing areas of rival firms, partnerships in joint ventures, and ” follow-the-leader” overseas investment). Global competition, successful companies are evolving from a product policy of offering customized products to that of offering globally standardized ones (Pittengrew et al 2006). Mature transnational firms have come to learn the strategic importance and benefit of global strategy in increasingly homogenized markets, in particular, of the Triad regions of the world. It is further argued that the Triads are forming with such speed that transnational firms with significant product innovations can no longer approach Triad markets on a country-by-country basis because of the immediate threat from potential entrants. Examples of multinational companies are Proctor & Gamble and Samsung.
Drejer, A. 2002, Strategic Management and Core Competencies: Theory and Application. Quorum Books.
Hollensen, S. 2007, Global Marketing: A Decision-Oriented Approach. Financial Times/ Prentice Hall; 4 edition.
Keegan, W. J., Green. M. C. 2004, Global Marketing. Prentice Hall; 4 edition.
Kotabe, M., Helsen, K. 2006, Global Marketing Management. Wiley.
Pittengrew, A. M., Thomas, H. Whittington, R. 2006, Handbook of Strategy and Management. Sage Publications.