- Created by: Michhell
- Created on: 17-03-20 13:48
Why location matters
The "spikes" are evident. Innovation, clustering, agglomerations are present. MNE's can exploit this due to their ability to outsource production easily compared to traditional businesses, creating a "firm-specific" advantage.
Exploiting either, or both:
- Location-bound resources
- Origin-bound advanatges
Despite Globalisation, "distance may be dying, but geography is alive and kicking" (Buckley and Ghauri, 2004, p. 89-90).
Factors affecting the home location
- The geography of some locations are just inherently better than others (land-locked, centrally located etc.)
- Comparative advantage (CA) through endowed labour, material and capital. Although, created CA is possible through economies of scale, externalities and agglomerations: static, through the simple location of related firms or dynamic, knowledge spill-overs, labour mobility).
- Honing their competitive advantage performance overseas via their national environment (Porter Diamond Model, see other revision card for breakdown).
- Institutions. Either helps reduce firm uncertainty through guidance, or can increase constraints on what a business can do. Directly impacting a firms strategy and its implementation of it. Think of them as the basic framework firms have to use as they plan a strategy.
Porter's Diamond of Competitive Advantage
Firm strategy, structure, and rivalry refer to the basic fact that competition leads to businesses finding ways to increase production and to the development of technological innovations. The concentration of market power, degree of competition, and ability of rival firms to enter a nation's market are influential here.
Related supporting industries refer to upstream and downstream industries that facilitate innovation through exchanging ideas. These can spur innovation depending on the degree of transparency and knowledge transfer. Related supporting industries in the Diamond model correspond to the suppliers and customers who can represent either threats or opportunities.
Demand conditions refer to the size and nature of the customer base for products, which also drives innovation and product improvement. Larger, more dynamic consumer markets will demand and stimulate a need to differentiate and innovate, as well as simply greater market scale for businesses.
Factor conditions are those elements that a country's economy can create for itself, such as a large pool of skilled labour, technological innovation, infrastructure, and capital.
Factors affecting the host location
Do MNE's like a location due to the resources (resource-seeking), the market available for their products (market-seeking), cheaper and easier production (efficiency-seeking) or looking for a specific type of asset the firm lacks (strategic-asset-seeking).
MNE's have evolved their strategy from simply market and resource seeking, to intelligence gathering. People and skills are valued more than raw materials and profit margins, at least initially, but are expected to come with a more skilled workforce (Bartlett and Beamish).
But, although MNE's may have access to these locations, they need to navigate the local differences (localisation), to access the advanced and specialised factors these locations provide. Coupled with the headache of integrating multiple, overseas locations can be a challenge, considering CSR, policies and laws (integration).
Physical distance is still a cost factor to realise, even if technology may be making the perceptual distance shorter (Ghemawat, 2001).