As an international or global company with competitively valuable resources and capabilities

Magazine Winter 2013 Research Feature

To create and sustain a global competitive advantage, companies need a systematic approach to exploiting, renewing and enhancing their core capabilities.

October 25, 2012 Reading Time: 20 min 

CEMEX, the Mexican cement company, developed a systematic strategy for replicating its business abroad.

Image courtesy of CEMEX.

Global competition is becoming tougher and more complicated than ever. Over the past 30 years, sharp declines in communication and transportation costs and the reduction of trade barriers have reshaped the global economy. Major new markets continue to open. Supply chains are becoming increasingly deverticalized and geographically dispersed. In many industries, new emerging-market competitors are now challenging established multinationals. Indeed, the global competitive landscape is becoming increasingly dynamic and complex, creating both new threats and new opportunities.

Today, global strategists need to go beyond such traditional questions as which are the most attractive markets for their company, and which markets are “closest” to them in terms of institutions, level of development and culture. They must sharpen their global strategies by focusing on how to exploit, enhance and renew or even transcend their home-based sources of advantage. The question is, how? What critical questions do global strategists need to answer before committing their companies’ resources to new markets?

Through our research and teaching, we have developed a framework to help strategists answer the two most crucial questions of any global strategy. (See “About the Research.”) Those two crucial questions are:

1. Will a company’s current capabilities provide a competitive advantage in a target market?
2. Will that new location give the company an opportunity to enhance its capabilities?

About the Authors

Donald Lessard is the Epoch Foundation Professor of International Management and Engineering Systems at the MIT Sloan School of Management in Cambridge, Massachusetts. Rafael Lucea is an assistant professor of international business at George Washington University in Washington, D.C. Luis Vives is an associate professor of strategy and entrepreneurship at ESADE Business School of Ramon Llull University in Barcelona, Spain.

References

1. L. Vives, “Telefónica: Building a Global Company,” ESADE Business School case (Barcelona, Spain: ESADE Business School; 2009).

2. P. Ghemawat, D. Kiron and C. Knoop, “Amore Pacific: From Local to Global Beauty,” Harvard Business School case no. 706-411 (Boston: Harvard Business School Publishing, 2006).

3. M. Landler, “Wal-Mart Gives Up Germany,” International Herald Tribune, July 28, 2006.

4. K. Bradsher, “To Conquer Wind Power, China Writes the Rules,” New York Times, Dec. 14, 2010.

5. E. Westney, “Shimano Inc.,” (case study, MIT Sloan School of Management, Cambridge, Massachusetts, 2006).

6. L. Vives and D. Lessard, “The PC Wars: Dell vs. Lenovo” (case study, MIT Sloan School of Management, Cambridge, Massachusetts, 2006).

7. “Tata Motors and Hispano Carrocera SA Sign Investment Agreement,” press release, March 16, 2005, http://tatamotors.com.

8. C. Rodrigues, “On the Fast Track,” April 2006, www.tata.com.

9. J. Birchall,“WalMart Lines Up Sites for Smaller Stores,” Financial Times, Sept. 19, 2010.

10. D.R. Lessard and R. Lucea, “Mexican Multinationals: Insights from Cemex,” in “Emerging Multinationals from Emerging Markets,” ed. R. Ramamurti and J.V. Singh (Cambridge, U.K.: Cambridge University Press, 2009), 280-311; and D.R. Lessard and C. Reavis, “Globalization ‘The Cemex Way,’” MIT Sloan School case no. 09-039 (Cambridge, Massachusetts: MIT Sloan School of Management, 2009).

11. P. Ghemawat, “Managing Differences: The Central Challenge of Global Strategy,” Harvard Business Review 85, no. 3 (March 2007): 59-68.

12. J. Santos, Y. Doz and P. Williamson, “Is Your Innovation Process Global?” MIT Sloan Management Review 45, no. 4 (summer 2004): 31-37.

Abstract

Global presence by itself does not confer global competitive advantage. Global presence makes available to the firm's managers five value-creation opportunities: to adapt to local market differences, to exploit economies of global scale, to exploit economies of global scope, to tap optimal locations for activities and resources, and to maximize knowledge transfer across locations. However, each of these opportunities is associated with significant obstacles and challenges that often prevent firms from exploiting them optimally. To overcome these challenges, managers need to adopt a two-step approach for analysis and action. They should first evaluate the optimality of the firm's global network for each value-chain activity along the dimensions of activity architecture, competencies at the locations, and coordination across locations. Based on this evaluation, they should then design and execute actions to mitigate or eliminate the suboptimalities.

Journal Information

Effective with the February, 2006 issue the Academy of Management Executive has changed its name to the Academy of Management Perspectives. The overall goal of the Academy of Management journals is to serve the interests of the Academy's members, and the specific goal of the new Academy of Management Perspectives (AMP) is to publish accessible articles about important issues concerning management and business. AMP articles are aimed at the non-specialist academic reader, and should also be useful for teaching. Serving both these goals more effectively requires a change in strategy and direction for the journal. Going forward, Perspectives will concentrate on two types of articles aimed at this thought leader audience. The first are accessible surveys and reviews of contemporary knowledge about management and business issues. The goal would be to make information about empirical research in management accessible to the non-expert, including students, and the focus of the reviews would have to be on the phenomena of business and management, not the development of the academic literature.

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The Academy of Management (the Academy; AOM) is a leading professional association for scholars dedicated to creating and disseminating knowledge about management and organizations. The Academy's central mission is to enhance the profession of management by advancing the scholarship of management and enriching the professional development of its members. The Academy is also committed to shaping the future of management research and education. Founded in 1936, the Academy of Management is the oldest and largest scholarly management association in the world. Today, the Academy is the professional home for more than 18290 members from 103 nations. Membership in the Academy is open to all individuals who find value in belonging.

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