C H A P T E R 1 0
Corporate strategy and national competitiveness
Chapter objectives
2. Present a double-diamond model that illustrates how firms in nontriad countries such as
3. Discuss the benefits and effects of the North American Free Trade Agreement on both
Mexico and Canada.
5. Define the terms economic integration and national responsiveness and relate their
importance to MNE strategies throughout the world.
Chapter summary
1. Porters diamond model is based on four country-specific determinants and two external
2. Canadas economic success will depend on its ability to view itself as part of the North
American market and to integrate itself into this overall market. This requires the use of a
3. Mexicos economic success also depends on its ability to integrate itself into the North
American market. However, this strategy is different from that of the Canadians because
Mexico does not have the foreign direct investment (FDI) to invest in the US market. Much
4. A major trend that has affected the thinking of corporate MNE strategists over the past 10
years is that of balancing a concern for economic integration and globalization with that of
Chapter outline
Introduction
The Single Diamond
Determinants and external variables
Critique and evaluation of the model
The Double Diamond
Integration and Responsiveness
Integration versus national responsiveness
Balancing the trade-offs
Competitiveness in the triad
Lecture outline
A. Introduction
1. Some multinational firms rely on their home market to generate the research,
development, design or manufacturing that is needed to sell their goods in international
markets. More and more, MNEs, however, are finding that they must focus on the
markets where they are doing business and on strategies for tapping the resources of
B. The single diamond
1. Porters diamond model is based on four country-specific determinants and two
external variables. The determinants include (a) factor conditions; (b) demand
2. In applying this model to international business strategy, it is important to first critique
and evaluate the Porters paradigm and supporting arguments. First, the Porter model
was constructed based on the statistical analysis of aggregate data on export shares for
only 10 countries. Second, the government is of critical importance in influencing a
3. In applying Porters framework to international business at large, one conclusion is
C. The double diamond
1. Figure 10.3 illustrates how Porters single diamond would look if it were applied to
Canadas case. Two themes have recurred consistently in Canadian industrial policy:
export promotion for natural resource industries and import substitution in the domestic
arena. The Canadian market has always been seen as too small to support the
2. By the mid-1960s, however, it became clear that a more international focus was needed.
The 1967 CanadaUS Auto Pact demonstrated that significant economic benefits would
result from the elimination of tariffs on trade between the two countries in autos and
3. Today, major Canadian firms are working to develop competitive positions in the
United States, as well as worldwide. A good example is Magna International, Canadas
leading diversified automotive supplier headquartered in Aurora, Ontario, Canada. The
company designs, develops and manufactures automotive systems, assemblies, modules
4. Other major Canadian firms are following suit, operating from a North American
perspective in order to lay the groundwork for becoming globally competitive. This
involves viewing the United States and Canada as home-based markets and integrating
5. The primary advantage of using the double-diamond is that it forces business and
government leaders to think about management strategy and public policy more
6. Once a country has recognized the benefit of the double-diamond perspective, it should
identify successful and potentially viable clusters of industries within its borders and
7. There are currently several strategic clusters in Canada. One is the auto assembly and
auto parts industry in southwestern Ontario, led by the three big US auto multinationals
8. Many of the Canadian-based clusters are resource based. The challenge for managers in
these clusters is to continue to add value and eliminate the commodity nature of
9. The real sources of Canadian competitive advantage are to be discovered not only by
statistical analysis but also by interviewing managers and officials, that is, by fieldwork
10. Mexicos linkage to the US diamond is somewhat different from Canadas. One reason
11. Mexico is linking itself to the US diamond in a number of ways. One is by serving as a
12. In 1965, the Mexican government established the maquiladora industry to attract
D. Integration and responsiveness
1. A major trend that has affected the thinking of corporate MNE strategists over the past
10 years is that of balancing a concern for globalization (or economic integration) with
2. Conceptually, the twin issues of integration and national responsiveness can be
analyzed through the use of Figure 10.7 (which has been adapted from Bartlett, and
3. In quadrant 1, the need for integration is high and the need for awareness of sovereignty
4. The opposite situation is represented by quadrant 4, where the need for national
5. Quadrant 2 incorporates those cases where the need for both integration and national
6. In quadrant 3, the needs for integration and national responsiveness are both high. There
is a strong need for integration in production, along with higher requirements for
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7. In each quadrant, a different strategy is employed. For example, Disney uses high
8. This economic integration and national responsiveness matrix can also be applied to
analyze the influential book by Thomas Friedman on the Lexus and the Olive Tree.
9. Successful MNEs know that they can no longer afford to ignore national responsiveness
10. In many areas affecting the private sector today, the overwhelming characteristic of
doing business in the United States is the responsiveness of governments to special
interest groups and lobbies. The more decentralized the level of government, the more
11. Doing business in Eastern Europe for the next 5 to 10 years will be dominated by the
need for economic efficiency. The globalization concept will overwhelm concerns about
12. In Japan, centralized government policy is critical to implementing effective corporate
strategy. The Japanese cultural, religious, social and political system is much more
centralized in nature than that of other triad blocks. This has enabled Japanese MNEs to
follow globalization strategies. The government and the MNEs have worked together to
Answers to review and discussion questions
1. Porters Diamond is based on four country-specific determinants and two external
variables. What does this statement mean? Put it in your own words.
The statement means that four country-specific determinants (factor conditions, demand
2. Porter notes that Firms, not individual nations, compete in international markets.
How does this statement help to explain some of the major challenges facing MNEs?
3. Using Figure 10.2 as your point of reference, how does the current national
development of the United States differ from that of Korea? How does the UKs differ
from that of Singapore?
According to Figure 10.2, Korea is in the investment-driven stage of national development,
4. Why does Porters Diamond need to be modified in explaining the international
competitiveness of countries such as Canada and Mexico?
5. How does the double diamond, as illustrated in Figure 10.4, help explain international
competitiveness in Canada?
6. How can Canadian firms view the United States and Canada as home-based markets
and integrate the use of both diamonds for developing and implementing strategy? Be
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7. Of what value are strategic clusters in the double diamond? Explain.
8. How does the double diamond in Figure 10.6 help explain Mexicos international
business strategy?
9. How important are the maquiladoras to the growth of the Mexican economy? In what
way do these businesses link Mexico with the Canadian US double diamond?
10. In what way are economic integration/globalization and national responsiveness
important to MNE strategies?
Globalization is the production and distribution of products and services of a homogeneous type
and quality on a worldwide basis. National responsiveness is the ability of MNEs to understand
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11. In the entertainment industry, which is more important, integration or national
responsiveness?
12. Based on current developments in the PC market in Japan, which is more important
for US MNEs, integration or national responsiveness? Why?
13. Which is more important for US auto makers doing business in Europe, integration or
national responsiveness? Why?
While both are important, national responsiveness is probably more important because there are
many auto makers in Europe that can offer similar cars. US auto makers need to modify their
Answers to real cases
There is no global beer, only local
1. Is the production and distribution of beer nationally responsive?
The production and distribution of beer is nationally responsive in that it is generally done in the
area in which the beer will be marketed and consumed. This production and distribution might
be affected by government regulations regarding employment, health and safety, alcohol content
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2. If beer is mainly local, why are there mergers and acquisitions of beer companies?
3. In the integration/responsiveness matrix, where would you position the worlds largest
brand name beer companies and why?
IBM
1. Is IBM a multinational enterprise? Is it global?
2. How does contract manufacturing fit into IBMs strategy?
3. Using the integration and national responsive matrix, in what quadrant does IBMs
strategy fall?