This report examines the major determinants of control strategies adopted by multinational enterprises (MNEs) and the extent to which parent companies allow subsidiaries decision-making autonomy. Drawing on established conceptual frameworks — including Porter's Five Forces, the PARTS model, and Porter's diamond framework — the paper analyzes environmental forces shaping global strategy. Two MNEs are contrasted: Marks & Spencer, whose competitive advantage rests on supplier integration, brand reputation, and supply-chain technology such as RFID; and Johnson & Johnson, which leverages a decentralized global structure and deep consumer trust. Survey data on Fortune 500 leadership priorities under adverse economic conditions further illuminate how organizations pursue competitive advantage through market share growth, strategic alliances, and brand management.
Today's business world is characterized by rapid change. A multinational enterprise (MNE) must keep pace with these changes if it is to maintain a competitive advantage. There are five sets of environmental forces that every MNE must take into consideration:
(1) Industry Structure; (2) Macroeconomic variables; (3) Political variables; (4) Societal variables; and (5) Technological variables.
Industry structure relates to responses to the strategies of customers, suppliers, and competitors, as well as dependence of profitability on unique value-added activities.
Macroeconomic variables are related to "income levels and growth rates, foreign exchange rates, inflation rates, interest rates, and unemployment rates" (Conklin, 2003).
Political variables encompass "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).
An examination of the conceptual frameworks used in the analysis of industry structure reveals several different existing models. The first is Porter's Five Forces, which analyzes an industry from the perspective of existing competition, the threat of new entrants, buyers' bargaining power, the threat posed by substitutes, and suppliers' bargaining power. A sixth force — the "impacts of complementors" — can be added to this model (Conklin, 2003). The structure of an industry in one country may differ considerably from that in another, which "may provide a rationale for international investment" and can empower a firm to realize increased profit by moving from one market to another to exploit advantages arising from unique activity provision.
Critical differences in industry structure from country to country are driven by environmental forces such as levels of economic development, political regulations, consumer preferences, and technological elements. As discussed in "Designing a New Course: The Global Environment of Business," Douglas North argues that the institutions within a country can actively shape the international competitiveness of an industry. Brandenburger and Nalebuff have proposed an analytical framework for industry analysis as represented in Figure 1 below.
Figure 1 — Brandenburger and Nalebuff's Value Net
Customers, Company, Substitutes, Suppliers, and Complementors within the industry or market interact dynamically. Brandenburger and Nalebuff state that each corporation should use PARTS as "a comprehensive, theory-based set of levers" to generate strategies. PARTS represents:
Players — the number of players may change when a corporation enters an industry. Added Values — a firm may lower the added value of others while increasing its own. Rules — a corporation may change rules by developing new pricing policies. Tactics — altering the perceptions of others and thereby influencing their decisions. Scope — the scope of the game may change by severing old alliances and forming new ones (Conklin, 2003).
The industry may also be viewed as a "value chain," in which analysis focuses on the added value brought to products or services through alternative business activities. In evaluating international competitiveness, Michael Porter proposed a "diamond framework" that identifies differential investment opportunities across countries based on factor conditions, demand conditions, rivalry among competitors, and related and supporting industries (Conklin, 2003). When government's role in the industry is added to this mix, the potential combination creates competitive advantage and a "cluster" of firms emerges.
When conducting this type of analysis, one must remember that new factors in international trade and investment agreements can "radically alter" the diamond and change the competitive advantage of an entire industry or country. As Conklin (2003) states: "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."
The different governmental structures found throughout the world also help shape the political environment of business — ranging from dictatorships to democratically elected governments to parliamentary systems. Just as each governmental structure is unique, so too is the role government plays in the lobbying process, which differentiates the type of relationship that exists between government and business. For instance, what were once considered purely "domestic" policies have increasingly become barriers to free trade and restrictions on foreign investment. Additional factors that may restrict international trade in services include immigration and travel restrictions. Intellectual property has become a matter of primary importance in today's high-technology business market, with issues such as dumping, competition policy, environmental standards, and labor standards all requiring consideration. Harmonization of taxes and differences in technical standards are also relevant factors. Societal forces — including differences in culture, values, and ethics — vary considerably from one industry to another. Technological gaps throughout the world greatly affect a firm's operational capacity; infrastructure deficiencies, particularly relevant in the recent growth of e-commerce, are one such example. International agreements such as the Kyoto Protocol, with its focus on technological changes to reduce pollution, are also important considerations.
Zornoza and Alcami, in "The Enabling Role of Information Technologies on the Emergence of New Organizational Forms," argue that if an organization is to survive 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." According to Zornoza and Alcami, the following researchers are convinced that networks are the organizational structures of the future: Thorelli (1986); Miles (1989); Szarka (1990); Larson (1991); Easton (1992); and Hinterhuber and Levin (1994).
Network theory examines deeply the types of relationships that exist among enterprises. As defined by Knoke and Kuklinski (1983), a network is "a specific kind of relationship joining a particular group of people, objects, or events." The work of Johan Lembke, "Global Competition and Strategies in the Information and Communications Technology Industry: A Liberal Strategic Approach" (2002), examines the roles that multinational corporations and the European Union play in structuring competition globally around wireless standardization. Lembke analyzes the "realities of global competition in information and communications technology (ICT) markets from a more liberal-strategic viewpoint than the subsidy-based, industry-supported approach." He argues that the approach taken by both the EU and multinational corporations constitutes an "aggressive outward-oriented strategy" (2004).
The competitive advantage of Marks & Spencer rests squarely on "the structure of its relationships with suppliers and employees, and on its brand and reputation." Marks & Spencer demonstrates the importance of key internal and external relationships to competitive advantage through its long-term, productive relationships with both its workforce and its suppliers. Another area in which Marks & Spencer creates competitive advantage is in its purchasing methods. Marks & Spencer does 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).
While most manufacturers regard the retail company as the sole customer, Marks & Spencer pursues integration at all levels of production, distribution, logistics, and information technology. The company's quality food products — including perishables such as salads and vegetables — demand accurate and fast delivery to its UK food stores, making supply chain efficiency particularly critical.
The Head of Supply Chain Logistics and IT at Marks & Spencer has stated that, in order to stay ahead of competitors, the company's management has been proactive in identifying the potential benefits of RFID (radio frequency identification) for improving the fresh food supply chain. 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 percent compliance" (Case Study Marks & Spencer, 2005).
Marks & Spencer is one of the largest retailers in the UK, with 65,000 employees in over 450 stores and a network of 198 franchised stores in 30 territories worldwide. Total sales for the Marks & Spencer group in 2005 were £7.8 billion. RFID technology is used by Marks & Spencer to track the movement of products. A tag (a mobile device) transmits data that is read by an RFID reader; the data is then processed according to the specific application and its associated requirements. The technology solution used by Marks & Spencer is the "Half Portal Writing Solution," which comprises a Controller Station (housing the portal electronics), a touch screen, and a choice between tethered readers or handheld devices (Case Study Marks & Spencer, 2005). The configuration can be accomplished with just a few keystrokes and can program multiple tags simultaneously.
"Global affiliates and consumer loyalty strategy"
"Survey data on Fortune 500 leadership priorities"
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