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«A.Rugman University of Reading, UK Chang Hoon Oh Brock University, Canada Dominic S.K. Lim Brock University, Canada The aim of this series is to ...»

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Discussion Paper Series

The Regional and Global Competitiveness of Multinational Firms


University of Reading, UK

Chang Hoon Oh

Brock University, Canada

Dominic S.K. Lim

Brock University, Canada

The aim of this series is to disseminate new research of academic distinction in the fields of international business and strategy. Papers are

preliminary drafts, circulated to stimulate discussion and critical comment. Publication in the series does not imply that the content of

the paper reflects the views of Henley Business School, the John H. Dunning Centre or the University of Reading.

John H. Dunning Centre for International Business Discussion Paper No. 2011-003 June 2011 dunning@henley.reading.ac.uk www.henley.reading.ac.uk/dunning 1 The Regional and Global Competitiveness of Multinational Firms By Alan M. Rugman*, Chang Hoon Oh**, and Dominic S.K. Lim*** Forthcoming: Journal of the Academy of Marketing Science * Alan M. Rugman (Corresponding Author) Director of Research and Professor School of Management Henley Business School, University of Reading Henley-on-Thames, Oxon RG9 3AU, United Kingdom Email: a.rugman@henley.reading.ac.uk Tel: +44 (0)1491 418 801 Fax: +44 (0) 1491 418 751 ** Chang Hoon Oh Faculty of Business Brock University 500 Glenridge Avenue

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Keywords: international competitiveness; regional; global; diamond; double diamond; international

marketing strategy; firm-specific advantages (FSAs); country-specific advantages (CSAs) (Version:

dated June 9, 2011)

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Abstract International competitiveness ultimately depends upon the linkages between a firm’s unique, idiosyncratic capabilities (firm-specific advantages, FSAs) and its home country assets (countryspecific advantages, CSAs). In this paper, we present a modified FSA/CSA matrix building upon the FSA/CSA matrix (Rugman 1981). We relate this to the diamond framework for national competitiveness (Porter 1990), and the double diamond model (Rugman and D’Cruz 1993). We provide empirical evidence to demonstrate the merits and usefulness of the modified FSA/CSA matrix using the Fortune Global 500 firms. We examine the FSAs based on the geographic scope of sales and CSAs that can lead to national, home region, and global competitiveness. Our empirical analysis suggests that the world’s largest 500 firms have increased their firm-level international competitiveness. However, much of this is still being achieved within their home region. In other words, international competitiveness is a regional not a global phenomenon. Our findings have significant implications for research and practice. Future research in international marketing should take into account the multi-faceted nature of FSAs and CSAs across different levels. For MNE managers, our study provides useful insights for strategic marketing planning and implementation.

3 Introduction The collaboration between scholarly disciplines (e.g., psychology and marketing; marketing and international business) has been the driver of some major advancements in academic fields.

International competitiveness is a subject that draws upon perspectives from international business, strategy, international economics, as well as international marketing. In this paper, we provide a broad yet refined perspective of international competitiveness by building on the international business and strategy literature. In doing so, our purpose is to facilitate further collaboration between academic disciplines, which is essential if we are to examine finer-grained research questions concerning the concept of international competitiveness. Specifically, we adopt a multiple perspectives approach to present a new conceptualization of international competitiveness. We further demonstrate the merit of our approach by analyzing and testing the nature and extent of international competitiveness of the world’s 500 largest firms. These firms account for over half the world’s trade (on an intra-firm basis as well as with arm’s length customers) and over 90% of the world’s foreign direct investment (FDI) (Rugman 2005).

International competition has brought dramatically increased pressure to cut costs in order to compete with foreign companies, to satisfy to domestic and foreign customer needs, and to improve business processes. However the role of marketing in enhancing competitiveness has been neglected in the literature (Doyle and Wong 1998). In addition, most of the literature measuring international competitiveness focuses on firms from a country or region (e.g., Buckley, Pass, and Prescott 1990; Coviello, Ghauri, and Martin 1998; Doyle and Wong 1998; Ӧzҫelik and Taymaz 2004;

Traill and da Silva 1996) and thus ignores country (region) specific factors. As an initial step toward addressing this gap, we focus on the location specificity of international competitiveness by comparing firms from different countries and regions. That is, we investigate the extent to which the domestic, home region, and global activities of the largest 500 firms are determined by international competitiveness, which, in turn, comprises national, regional, and global competitiveness.

A critical insight from this approach is that international competitiveness occurs at the intersection between country-level and firm-level advantages. In short, international competitiveness relates country-specific advantages (CSAs) to firm-specific advantages (FSAs). In turn, these linkages between CSAs and FSAs can be analyzed both theoretically and empirically.

Here we develop a framework relating CSAs to FSAs building upon Rugman’s (1981) FSA/CSA matrix and examine the linkages between CSAs in the home country, home region, and the globe (foreign regions) and the potentially related FSAs of those home country firms; the framework is based on 4 the concept of international competitiveness and the new perspective of regional multinational enterprise (MNE) (Rugman and Verbeke 2004). This analysis of international competitiveness also embeds the findings of the nature and extent of FSAs and CSAs within the classic diamond framework of Porter (1990) as extended by Rugman and D’Cruz (1993) into the double diamond.

We believe that our integrative consideration of firm-specific and country-specific determinants can add significantly to international marketing research on international competitiveness. As MNEs play increasingly important roles in the integrated world economy, a sophisticated perspective about how these MNEs leverage their FSAs, derived from CSAs—both their home countries and host countries—should be useful as we seek to better understand their international marketing strategies and implementation.

This paper proceeds as follows. We first illuminate the regional reality by examining the nexus between country-level and firm-level factors. Next, we expand our perspective beyond the country level to incorporate regional and global levels of analysis. We then describe our data and method and present our empirical findings on the international competitiveness of the world’s 500 largest firms. Finally, we discuss the implications of this empirical evidence for international marketing researchers as well as managers.

Theories and literature A firm’s international activity is a complex phenomenon, influenced by a myriad of countryand firm-specific factors. For example, Vernon’s (1966) work on the product cycle (e.g., new product, maturing product, and standardized product stages) links the success of U.S. MNEs to strong U.S. CSAs in technology. He shows that U.S. MNEs expand U.S. national competitiveness through international trade and foreign direct investment. These MNEs have marketable products based on technology, knowledge, and resources. Their success is determined by the ease of communication, which is a function of geographical proximity, even if we assume that MNEs in different countries can have access to identical knowledge and resources. In a similar vein, from an international marketing perspective, Wells (1968) notes that the export success of U.S. MNEs was determined by a great deal of knowledge based on a very high-income, consumer-based CSA in the U.S.

In addition, MNEs differ in their level of capabilities to access and utilize CSAs in knowledge and resources, and thus firm-specific characteristics, FSAs, also determine marketability. Marketing capability does not work in isolation from the firm’s other capabilities and processes (Doyle and 5 Wong 1998). In fact, internalization theory (Rugman 1981) considers FSAs and CSAs as the two building blocks to analyze international competitiveness.

The next wave of international business research focused on the FSAs of international activity. For example, literature identified such FSAs as: firm size (Levitt 1983), managerial capability (Bartlett and Ghoshal 1989; Kogut 1985; Porter 1986), R&D and marketing capabilities (Buckley and Casson 2010; Porter 1986), and financial capability (Agarwal and Ramaswamy 1992; Grosse 1992).

Recently Johanson and Vahlne (2010) have underlined business relationships and networks within a company and between companies. Thus these FSAs lead to superior performance by MNEs in international markets (Kirca et al. 2011). However, focusing only on firm-specific determinants can be misleading if we do not take into account the context within which these firm-level factors are embedded. As such, there has been a renewed need to look at country-specific determinants and how these two determinants affect the competitiveness of firms in international business (Dunning 1998).

International competitiveness and international marketing The need for consideration of CSAs in both home and host countries has been emphasized in the literature on the strategy and performance of MNEs and their subsidiaries (Dunning 1998;

Grewal et al. 2009; Rugman 1981; Rugman and Verbeke 2001). In marketing, early stage research tended to focus on a simple dichotomous view of foreign versus domestic products, or, in a similar vein, ‚nationality‛ itself as a factor (e.g., Kotabe 1990). The marketing literature also highlighted the role of national culture, more specifically, cultural distance or similarity between the host country and home country (i.e., country of origin effects). The main finding is that consumers prefer products from the countries with a relatively similar culture (e.g., Johansson, Douglas, and Nonaka 1985; Heslop, Papadopoulos, and Bourke 1998; Wang and Lamb 1983).

However, the increasingly important role of MNEs in the world economy calls for a more sophisticated perspective about how these MNEs leverage competitive advantages conferred or affected by country-specific factors. These home country factors include competitiveness and regulatory frameworks that may affect home country–level operations (e.g., Carpano, Chrisman, and Roth 1994; Grewal et al. 2009; Porter 1986). For example, a country’s economic competitiveness may determine the sophistication with which a country’s firms develop FSAs in marketing, production technology, physical capital, and managerial skills (Balabanis and Diamantopoulos 2004). This view on the relevance of home CSAs is consistent with Porter’s perspective as he argues 6 that a firm’s competitive performance within world markets is influenced by a variety of home country factors (Porter 1990).

The home country national environment (represented by the Porter home country diamond) has significant influence on a firm’s competitive advantage and therefore its strategy formulation.

Grant (1991) further argues that factor conditions and the related and supporting industries may influence a firm’s resource strengths, while rivalry and home demand conditions mainly influence key success factors within the market. Scholars in international business have explored other dimensions of international competitiveness such as government conditions and macro-economic policy that Porter originally considered as exogenous factors (Cho and Moon 2000; Moon, Rugman, and Verbeke 1998; Rugman and Verbeke 1990).

Despite the intuitive appeal of this perspective on the role of the firm as an agent for international competitiveness, the extant marketing literature has not found strong and consistent support for the influence of national competitiveness on firm performance and marketing strategy.

For example, Balabanis and Diamantopoulos (2004) could not confirm the hypothesized relationship between economic competitiveness and consumer ethnocentrism, and they conclude that this viewpoint does not provide significant value to managers. Tellis, Prabhu, and Chandy’s (2009) investigation of radical innovation in 17 major economies in the world also suggests that widely recognized country-level metrics of labor, capital, government regulation, and culture do not have a direct impact on radical innovation.

This lack of empirical support for the application of the Porter home country diamond to international marketing could be due to the methodology and framing adopted in some of these works. For example, some researchers focus only on host country market characteristics in terms of demand potential and similarity of legal and regulatory frameworks (e.g., Cavusgil, Zou, and Naidu 1993; Cavusgil and Zou 1994), while some others focus on home country characteristics (e.g., Tellis et al. 2009). In addition, the literature suggests that Porter’s diamond framework can apply to large economies but not to small non-triad nations such as Austria, Australia, Canada, Finland, the Netherlands, and New Zealand (Davis and Ellis 2000; Rugman and D’Cruz 1993). As previously discussed, this has led to the logic of the double diamond framework, whereby a small economy’s diamond is examined along with the diamond of its largest trading partner (Rugman and D’Cruz 1991, 1993). Another source of the inconsistent findings in marketing about international competitiveness could be the simplistic metrics that some of these studies use to test national competitiveness or its distance between home country and host country. For example, Balabanis and Diamantopoulos (2004) use the national competitiveness rankings based on WEF Current 7 Competitiveness Index (CCI), and Johnson and Tellis (2008) measure economic distance between two countries based on per capita GNP.

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