Competitive Advantage Mnes New Organizational

competitive advantage MNEs

NEW ORGANIZATIONAL STRATEGIES and STRUCTURES for COMPETITIVE ADVANTAGE in the GLOBAL Business ENVIRONMENT

The objective of this work is to "assume the position of a member of the strategic planning team in a large multinational enterprise (MNE). It has been acknowledged by the team that other MNEs appear to have set out changing the strategies and structures of the organizations in order to obtain competitive advantage in the changing global environment. A written report is required that: (1) examines the major determinants of the control strategies adopted by MNEs and the extent to which they parent companies are prepared to allow their subsidiaries decision making autonomy; and (2) describe the organizational structures used to implement such strategies, the types of control mechanisms most likely to be used and explain why these might be deemed effective gi9ven the control strategy(s) adopted. Finally this report will research and examine the theoretical and empirical literature and illustrate the points with examples. Two MNE structures will be contrasted. This work has chosen Marks & Spencer and Johnson & Johnson for comparison.

Introduction

Today's business world is characterized by rapid changes. If the multinational enterprise must keep pace with these changes if they are to maintain a competitive advantage. There are five sets of environmental forces that must be taken into consideration by the MNE which are:

1) Industry Structure;

2) Macroeconomic variables;

3) Political variables;

4) Societal variables; and 5) Technological variables.

The industry structure is related to the "responses to strategies of customers, suppliers and competitors, dependence of profitability on unique value-added exchange rates, inflation rates, interest rates, and unemployment rates.

Macroeconomic variables are related to "Income levels and growth rates, foreign exchange rates, inflation rates, interest rates, and unemployment rates." (Conklin, 2003)

Political variables are the factors of "regulations, financial incentives, taxation, foreign investment restrictions and international trade and investment agreements." (Conklin, 2003)

Societal variables include: "Labor and environmental practices, ethics, corporate social responsibility, Boards of Directors, and demographics." (Conklin, 2003)

Technological variables include: "Technological infrastructure and the pace and direction of technological changes, including in particular the Internet and e-business." (Conklin, 2003)

Conceptual Frameworks

In making an examination of the conceptual frameworks used in the analysis of industry structure reveals several different existing frameworks. The first of these is a model referred to as Porter's Five Forces which makes analysis of an industry from the perspective of the existing competition, the threat of new entrants into the market, the buyer's bargaining power, the threat demonstrated by substitutes in the market and the supplier's bargaining power. There is a sixth force that can be added to this model which is that of the "impacts of complementors." (Conklin, 2003) the structure of the industry in one country may be quite different in another country and this "may provide a rationale for international investment" which has the capacity to empower a firm to realize increased profit through moving from one market to another to realize advantages due to unique activity provision.

Critical differences in the structure of the industry from county to country is due to environmental forces such as economic development levels, political regulations and consumer preference technological elements as well. The work entitled: "Designing a New Course: The Global Environment of Business" points out the discussion of Douglas North who holds that the institutions within a country are able to actually shape the international competitiveness of an industry. It has been proposed by Brandenburger and Nalebuff that an analysis that can be effectively used for an industry is that as shown in the following diagram labeled Figure 1.

Brandenburger and Nalebuff state each corporation should utilize 'PARTS' as "a comprehensive, theory-based set of levers" that help generate strategies. PARTS is stated to represent the number of PLAYERS that might be changed upon entrance of a corporation into that industry. The ADDED VALUES may change through the added value of others being lowered while increasing one's own. RULES may be changed by the corporation due to development of new policies in pricing and the corporation may very well change TACTICS altering the view of others and the resulting decisions. The SCOPE of the game may change through breaking or cutting ties with former alliances and building new alliances. (Conklin, 2003; paraphrased)

The industry may be viewed as a "value chain" which holds analysis to be one of added value to the products of services through alternative business activities. In the evaluation of the international competitiveness Michael Porter has proposed a 'diamond framework'. Differential opportunities for investment differ between countries specifically as to "factor conditions, demand conditions, rivalry among competitors and related and supporting industries." (Ibid) When all of this is added to government's role in the industry there is a potential combination that creates the competitive advantage and the 'cluster' of firms is seen to develop. When conducting this type of analysis one must remember that the new factors in international trade and investment agreements have the potential to "radically alter" the diamond and change the competitive advantage of an industry or country competitiveness. Stated is that: "Trade and investment agreements, together with an industry structure of a value chain or a creative web can facilitate the location of separable activities in different countries, with each country offering a competitive advantage for a specific type of activity, leading to the concept of an activity/country competitive advantage." (Ibid)

The different government structures throughout the world help shape the political environment of businesses. These governments range from dictatorships to democratic elected officials to parliamentary systems. Just as each government structure is unique the role that the government plays in the lobbying process is that which differentiates the type of relations that exist between government and business. For instant what were generally viewed as 'domestic' policy has the world of free trade become restrictive barriers to trade and as well have restricted activities in foreign investment. Other factors that may restrict international trade in services are restrictions relating to immigration or travel. Intellectual property is of primary importance in today's high-tech business market with issues including dumping, competitive policy, environmental standards and labor standards all being factors necessary for consideration. Other factors include harmonization of taxes and technical standard differences. Societal forces include differences in culture, values and ethics which differ a great deal from one industry to another. Other factors of possible import are inclusive of differing societal forces. Technological gaps that exist throughout the world greatly impact the ability of a firm such as the impact when infrastructure deficiencies exist specifically in the recent past in the case of e-commerce. Inclusive are agreement such as the 'Kyoto Protocol' with its' focus on technological changes in the reduction of pollution.

II. Technology Identified as Critical Element in Emerging New Organizational Forms

The work of Zornoza and Alcami entitled: "The Enabling Role of Information Technologies on the Emergence of New Organizational Forms" states that if an organization is going to manage survival in a competitive environment characterized by "turbulence that is engulfing a growing number of industries, firms will need to pinpoint innovative practices rapidly, to communicate them to their suppliers and to stimulate further innovation." In fact according to Zornoza and Alcami the following authors are convinced "that the networks are the organizational structures of the future":

Thorelli (1986)

Miles, 1989;

Szarka (1990)

Larson (1991)

Easton (1992)

Hinterhuber and Levin (1994)

The 'network' theory is one that examines deeply the types of relationships that exist among enterprises. " (Ibid) the network as defined by Knoke and Kuklinski (1983) is "a specific kind of relationship joining a particular group of people, objects or events. The work of Johan Lembke entitled: "Global Competition and Strategies in the Information and Communications Technology Industry: A Liberal Strategic Approach" (2002) conducts an examination of the roles that multinational corporations and the European Union play in the structuring of competition globally around wireless standardization. Analyzed are the "realities of global competition in formation and communications technology (ICT) markets from a more liberal-strategic viewpoint than the subsidy-based industry supported." This work holds that the approach take by the EU and the Multinational corporations is one that is an "aggressive outward-oriented strategy."(2004)

III. Marks & Spencer

The competitive advantage of Marks & Spencer rest squarely on: "the structure of its relationships with suppliers and employers, and on its brand and reputation. Marks & Spencer demonstrated the importance of key internal and external relationships to competitive advantage through its productive relationships that were long-term relationship with both its workforce and its suppliers. Another area that Marks and Spencer creates a competitive advantage in is their purchasing methods. Marks and Spencer do not "buy its products 'off-the-shelf' from suppliers. Instead technologists, designers, buyers and merchandisers from both sides- along with the raw material producers - work together to identify new products and designs." (Buyer Behavior and Relationship Development, 2001) in fact the customer is viewed by most manufacturers as being the customer of the retail company only however, integration at all levels of production, distribution, logistics and information technology. Marks & Spencer further has quality food products that are perishables such as salads and vegetables. This is complex and requires accurate and fast delivery to the UK food stores.

The work entitled: "Keeping Real Time Tabs on Fresh Food Supply Helps Guarantee the quality of Perishable Products" cites the statement of the Head of Supply Chain Logistics and it at Marks and Spencer who states that in order to stay ahead of the competitors Marks & Spencer's management has been expedient and efficient in identification of the potential benefits of RFID (radio frequency identification) for improving the supply chain in fresh food. According to Gary Pile General Manager of Melrow Salads: "Once Marks & Spencer decided to move ahead with RFID, we took the opportunity to work with them. RFID brings real benefits in improving our operational efficiency, giving us constant detailed feedback on our performance. That enables us to optimize the supply chain and move even closer to our target of 100% compliance." (Case Study Marks & Spencer, 2005)

The Case Study on Marks & Spencer states that the company is one of the largest retailers in the UK with 65,000 employees in over 450 stores and with a network of 198 franchised stores in 30 territories worldwide. The total sale for the Mark & Spencer group in 2005 was £7.8billion. RFID technology is being used by Marks & Spencer in tracking the movement of their products. The tag (a mobile device) transmits data which is read by a RFID reader and then the data is processed depending on the specific application and its' associated needs. The technology tool used by Marks & Spencer is the "Half Portal Writing Solution" which is comprised of a 'Controller Station' (houses the portal electronics) a touch screen and a choice between "tethered readers or handhelds." (Ibid) the configuration is easily accomplished with just a few keystrokes and can easier program multiple tags at one time.

IV. Johnson & Johnson

Johnson & Johnson are one corporation that is stated to use the factor of social partnering to sustain their competitive advantage. Company products are sold in countries totaling more than 175 with an annual revenue generated globally in excess of $36 billion. The products produced and sold by Johnson & Johnson meet a wide range of needs for human healthcare and include: anti-infectives, orthopaedics, cardiology and circulatory diseases, urology, diagnostics, women's health, mental health, skin care and many more. Johnson & Johnson states that their "unique organization structure allows us to effectively support our business strategy of remaining the worlds' most comprehensive and broadly-based healthcare company." Johnson & Johnson forms 37 global affiliates with 200 operating units. Johnson & Johnson has certainly managed a competitive advantage in the area of customer loyalty. Johnson & Johnson has "over time, and through a variety of means. Built customer loyalty to the products convincing the customers that its products are 'safe'. Johnson & Johnson backs this by removing, immediately from the market, any product proven to be unsafe. One example of this is the Chicago 'Tylenol' case and while "experts - predicted the death of Tylenol because they reasoned that Johnson & Johnson's recall was an admission of guilt, three months later Johnson & Johnson reintroduced the product, showed how the company had eliminated the possibility of tampering, demonstrated the product was safe again and traded on the user's loyalty to regain sales." (Robert, 2006) Reports state that six months later the product was reintroduced with safety tampering features and the customers again trusted Johnson & Johnson and the Tylenol product.

Summary

While both the companies of Johnson & Johnson and Marks & Spencer have been witness to being 'up' and 'down' in the marketplace, what these two companies have is determination to keep their customers and to gain new customers in what is termed a competitive advantage over other companies with similar products. In the work entitled: "Leading in (and out of) Adversity" the authors Vinay Couto, James O'Toole, and Alec Levenson (2002) reported is a 2001 case study conducted by the Center for Effective Organizations and Booz Allen Hamilton research through administering surveys to a sampling composed of 36 Fortune 500 Companies in order to assess how' worsening economic conditions" were affecting the companies and what the leaders were doing to combat the economic downturn. Stated in the report in relation to Organizational Evolution that "As the industry goes through its first major cycles, the survivors learn: How to ride out the demand fluctuations and build competitive advantage; and How to predict when future downturns will occur." The emphasis should be on both "efficiency and revenue growth at the same time" and should be "extremely tenacious when dealing with competition attacking with distributions channels or sales, and quality and productivity operations simultaneously. A study was conducted by these authors states that 48.1% of companies are experiencing decreased sales and increased competition.