CONFIGURAL ADVANTAGE IN GLOBAL MARKETS
C. Samuel Craig* and Susan P. Douglas
Stern School of Business
New York University
* contact author
44 West 4th St., KMEC 8-87
New York, NY 10012-1126
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CONFIGURAL ADVANTAGE IN GLOBAL MARKETS
Achieving a sustainable competitive advantage in global markets depends on the geographic scope and diversity of the firmís operations and their interlinkage, as well as the extent of market integration and interdependence. The spatial configuration of the firmís assets, capabilities and resources and the ability to manage and use these resources effectively are crucial elements of the firmís global strategy. This paper examines the nature of a firm's configural advantage in global markets in terms of its key components, capabilities and management issues.
Traditional Approaches to Building A Sustainable Competitive Advantage
Traditional approaches to developing competitive advantage focus on developing a positional advantage (Porter 1980) relative to competition based either on cost leadership or differentiating the product /service offering. Each type of advantage can be developed in relation to a broad-based market or a focused target segment. These positional advantages are not necessarily mutually exclusive. Developing a differential advantage does not, for example, imply lack of attention to costs, and conversely, use of a cost leadership strategy does not necessarily mean that the firm does not differentiate its product or services from its competition. The term "playing the spread" has, for example, been used for firms that are both cost leaders and also differentiate their product or service offering (Day 1990).
More recently, attention has shifted to focus on the capabilities and assets or resource endowments which are the source of the firmís advantage and enable it to build a positional advantage in the market place (Rumelt, Schendel and Teece 1991). According to this perspective (Grant 1991), in order to develop and sustain a superior competitive position, a firm has to possess certain distinctive assets and capabilities that distinguish it from its competition. These capabilities should enable the firm to deliver superior value to customers or to deliver value in a more cost-effective manner than its competitors (Prahalad and Hamel 1990). In addition, such capabilities should be rare, not substitutable and they should not be readily imitable by competitors; otherwise they will not remain distinctive (Barney 1991).
Distinctive capabilities are the foundation of a firmís position in the marketplace. In assessing whether these capabilities can be transferred to international markets so as to provide the firm with a sustainable competitive advantage, two important issues need to be considered. The first is the extent to which the markets targeted are characterized by distinctive customer needs and interests, competitors and market infrastructure, and separated by economic, political and cultural barriers. These may require the firm to tailor its position and adapt or develop distinctive capabilities to meet specific local needs. The second concerns how far assets and capabilities are location-specific, as, for example, production techniques or processes adapted to a specific cultural environment, labor or management skills, or channel bonding processes tailored to unique distribution systems and channel relationships built on trust and commitment.
Where the firmís distinctive capabilities are grounded in unique location-specific skills and knowledge, only limited direct transfer of capabilities is feasible. Some aspects of management processes or systems may be transferred, but in essence, the firmís ability to leverage its distinctive capabilities and intangible assets depends on its ability to establish mechanisms to facilitate organizational learning and the transfer of knowledge across markets (Hall 1993). As international markets become more interlinked and integrated either regionally or globally, the development of such learning mechanisms becomes critical to link and coordinate spatially diverse positions so as to achieve synergies in resource utilization and establish a superior competitive advantage on a global basis.
Leveraging Positional Advantage in International Markets
A firm initially entering international markets typically attempts to leverage its domestic positional advantage based on its assets and distinctive capabilities. Since these are defined in relation to customer needs and competitors in the domestic market, the challenge is to leverage these in different and diverse international markets (Craig and Douglas 1996). Where the firm targets the same market segment adopting the same positioning worldwide, as for example, Benneton or Nike, this may pose few difficulties. Similarly, if a firm operates in globally integrated industries such as aircraft, industrial electronics or specialty chemicals, a key customer requirement is ability to supply and service customer operations worldwide. If, on the other hand, markets are fragmented and customer needs differ substantially from one market to another, gaining a configural advantage will be considerably more complex.
Direct Leveraging of Positional Advantage
Firms focusing on a global market segment can often effectively utilize the same capabilities and skills to target that segment throughout the world. For example, Godiva chocolates are positioned as high-end luxury chocolates to consumers worldwide. The elaborate packaging in gold boxes, decorated with bows, coupled with full-page color advertisements in high-end magazines projects a sophisticated image and provides high visibility worldwide. This is reinforced by distribution through small specialty shops, or boutiques in high-end department stores worldwide. Substantial synergies accrue from leveraging the firmís positional advantage internationally, particularly as in this case where establishing a distinctive global identity for the corporate brand or product is a key element of the firmís competitive strategy (see Figure 1a).
Where the market is globally or regionally integrated, and customer needs and interests are the same worldwide, as, for example, aircraft, industrial electronics, business computers, a firm will typically need to compete on a global scale in order to be successful (see Figure 1b). For example, Boeing and Airbus compete in developing planes for global customers. Similarly, an important aspect of the success of Hilton and Sheraton hotels in targeting the growing market for international business travel is their extensive network of hotels worldwide which offer a consistent and reliable standard of service and comfort for the business traveler from Uzbekistan to Madagascar.
Modifying Positional Advantage in International Markets
More commonly, firms compete in markets, which are spatially dispersed, and in some cases independent, though more frequently interlinked. Customer needs and interests as well as the nature of competition and the market infrastructure differ from one market to another. Consequently, a firm needs to modify its domestic positional advantage to each market in order to be successful (see Figure 2). For example, P&G has had to modify existing detergents products as well as their positioning and develop new products to match differences in washing habits, water conditions and use of washing machines in different parts of the world. For example, Ariel was initially developed in Europe as a low temperature detergent powder with an environmentally friendly version. In India, it has been marketed as a presoak, and in the U.S. as Cheer, an all-purpose detergent. Differences in the cost and availability of local resources may also suggest the desirability of tailoring how a competitive position is built and value delivered to customers from one market to another.
In modifying positional advantage in dispersed markets, the firm needs to develop the capability to support that position in each local market. Often, it will need to make use of location-specific assets and resources to build local capabilities and operational systems to sustain its position. In some instances, the firm will replicate a distinctive activity system (such as a new product development or brand management system) in another market. For example, P&G has been highly effective in duplicating their distinctive system of brand management and mass merchandising in multiple country environments. This implies that the firm has also to develop the ability to manage the deployment of its distinctive skills, assets and capabilities across markets, and transfer learning across markets.
In other instances the firm needs to develop context-specific capabilities, for example, building channel relationships based on trust in Japan. In this case, the firm develops specific capabilities adapted to idiosyncratic market conditions, but ones that cannot be readily leveraged to other markets. For example, Smith, Klein & French had to invest in establishing a strong network of personal relationships with wholesalers in Japan, in order to successfully enter the market.
In other instances, the firm will utilize local skills and resources to implement their unique competitive advantage, while fine-tuning its position to local market characteristics. For example, the key strength of volume discounters such as Walmart and K-mart is their operational efficiency. After a number of false starts, they are now successfully replicating their operational and management systems in countries outside the U.S. in Europe and Asia, while at the same time, modifying the retail assortment and other aspects of their retail format to meet local customer needs.
Designing the Spatial Configuration of Activity Systems in International Markets
The design of the spatial configuration of the firmís activity systems is a key element of configural advantage. Activities at different stages in the value chain need to be spatially arrayed to take advantage of location-specific assets such as labor, while at the same time enabling the firm to deliver superior customer value relative to its competitors. Linkages between competitive positions and the underlying capabilities in each market need to be developed to provide strategic flexibility. This also facilitates learning and generates synergies across markets reinforcing the firmís global competitive position (Malnight 1996). A key parameter in determining the spatial configuration of activities is the degree of market integration.
The Growing Integration of Markets
International markets are becoming integrated at a number of different levels (Bettis and Hitt 1995, Dicken 1998, Dunning 1998). Most broadly, integration is taking place at the macro-economic level. The economies of many countries, particularly within regional trading blocs, are becoming more closely intertwined. Visible manifestations of this are cross-border flows of goods and services coupled with the growth of organizational networks spanning national boundaries, as well as air traffic, mail flows, increased tourist and business travel, and migration of people (Douglas and Craig 1996). Geographic proximity is a driving factor as proximate markets are more likely to be integrated than distant markets.
Market infrastructures are also becoming more interlinked and integrated as a result of advances in communication technology, satellite links, growth of company intranets, the Internet and improvements in physical communication networks and linkages. Regional expansion of distribution networks at both the wholesale and retail levels, and the global expansion of service organizations, such as advertising agencies, research agencies and financial institutions all serve to reinforce market integration.
Market integration is facilitated by two critical "space-shrinking" technologies, transport systems and communications (Dicken 1998). The transport systems make possible rapid supply from distant locations. Communication systems facilitate rapid dissemination of information as well as communication both within the firm and externally. Increasing market integration, coupled with the ability to coordinate and exchange information, enables the firm to plan and manage strategy and supporting activities directed toward highly integrated markets as one. As a result, integration takes place in two overlapping spheres. First, markets for goods and services are becoming increasingly integrated as a result of competitive, technological and market forces. Consequently, firms seek to integrate their own activities in response to market integration. However, firms are not passive participants, as often their actions speed and shape market integration, particularly at the level of the product market or industry.
Determining the Spatial Configuration of Activities
Integration of markets requires the firm to reassess the location of value-creating activities, particularly with a view to determining whether greater concentration will provide efficiencies, or whether dispersion combined with strong horizontal and vertical linkages will provide greater flexibility. The array of value-creating activities that the firm engages in vary in terms of their potential for concentration (Porter 1986). Typically, firms concentrate upstream value chain activities such as R&D and production first, as these activities benefit from economies of scale. Furthermore, even if functions such as R&D and manufacturing do not take place in one location, the activities benefit from formal linkages that help coordinate operations and facilitate the exchange of information. On the other hand, downstream activities such as marketing and distribution are by their very nature geographically dispersed.
Concentration of the firmís value-creating activities offers a number of advantages insofar as scale economies can provide the firm with a cost advantage relative to competitors in serving a given market (Porter 1986). Equally, concentration enables utilization of superior or highly specialized skills and expertise or an accumulation of specialized knowledge, relating, for example to production design or creation of advertising copy. For example, P&G concentrates R&D in detergents in three centers located in the U.S., Japan and Europe. Each center works on different problems and shares the results to develop new products or product formulations for different markets. Similarly, Unilever has three new product development centers that work on new product ideas for the entire organization.
Geographic dispersion of activities, on the other hand, provides greater contact with customers and also with competitors. Particularly where the firm emphasizes customization of its offerings, proximity to customers may enable it to provide rapid response and tailoring of product and services to meet specific customer needs (Bartmess and Cerny 1993). For example, Hyundai's computer division established an assembly plant in California in order to be close to consumers and competitors, although there are substantial production efficiencies in centralization. Proximity to customers may provide a significant advantage; especially where there are differences in customer demand from one location to another.
Proximity to competitors also facilitates greater awareness of competitor innovations and changes in strategy, as, for example, new products, innovative production processes or breakthroughs in R&D (Porter 1990). In some cases, these may be stimulated by local market demand or resource availability or the existence of local support industries. For example, advances in environmentally friendly products have occurred primarily in Germany where there is substantial customer sensitivity to environmental issues. Equally, innovation in surfactants has occurred primarily in the Japanese market, where there is a concentration of research in coatings of different types.
Dispersion also provides greater flexibility to changes in macroeconomic or market conditions in different locations. Geographic dispersion, for example, enables the firm to shift production or adjust sourcing policies more rapidly to swings in foreign exchange, changes in economic or political conditions, work stoppages due to strikes or labor unrest, etc. thus diversifying macro-economic risk and providing greater strategic flexibility.
Managing the Spatial Configuration of Activities
Management systems to direct the spatial deployment of assets and resources across markets as well as within markets are critical and provide the firm with a competitive advantage at a global level. Co-ordination and elimination of inconsistencies between positions in different countries is essential, where the firm has modified its competitive position to meet differences in customer demand or competitive conditions in local markets, or has established independent competitive positions based on local skills and capabilities. Linkages between operations /activity systems at different stages of the value chain in different markets can also generate efficiencies (Malnight 1996). In some instances, this may lead to the establishment of capabilities that transcend national boundaries, as, for example, global production platforms or global category management systems. Mechanisms such as global information systems and regularly scheduled meetings between country or regional managers facilitate transfer of ideas, experience and dissemination of best practices across markets and are crucial in promoting organizational learning.
Co-ordination of competitive positions across markets is critical where the firm has fitted its positional advantage to local market conditions (Prahalad and Doz 1987). Mechanisms need to be established that help to minimize inconsistencies in positions or dislocation of flows of goods and services from one market to another. These can detract from configural advantage when actions in one market weaken a strong position in another. Aggressive pricing to meet competition in one market, can for example, result in the growth of gray markets. This results in dislocation of logistical flow of goods as well as the erosion of the firmís margins in these markets. However, while closer alignment of prices will tend to eliminate such effects, greater uniformity of prices may lower overall sales.
Where advertising or promotional campaigns are tailored to local markets and differ substantially, use of umbrella advertising can help to introduce greater consistency of themes and enhance the firmís visibility across markets. Similarly, where the firm has a high proportion of local brands in its international portfolio, use of the corporate logo or brand names can help to consolidate brand image in international markets. Differences in brand names and brand identities across countries and geographic regions even for the same product result in fragmentation of image. A shift to emphasis on a corporate or uniform house brand, harmonization of packaging and other visual markers across countries, can help to forge a common identity. For example, Nestlé now places the Nestlé corporate brand on almost all product lines to reinforce global corporate identity. This in turn strengthens the firmís global image and its competitive position, generating synergies across markets and geographic regions. A critical element here is the development of organizational processes and procedures to facilitate improved co-ordination of strategy and its implementation across regional or national boundaries (Bartlett and Ghoshal 1989).
Linking operations/activity systems. Development of operational links between activity systems across markets and regions also helps to strengthen the firmís configural advantage especially against local competitors, or firms operating on a decentralized basis. Advances in information and communications technology facilitate linking of geographically dispersed activities, in order to compensate for some of the disadvantages of geographic dispersion (Bradley 1993, Bradley, Hausman and Nolan 1993). Linking skills and capabilities not only improves operational efficiency and strategic flexibility but also permits use of highly specialized skills that would not be feasible on a smaller scale of operations (Malnight 1996). In some instances, this may also lead to the development of capabilities that span national boundaries, i.e. the firm develops the capability to organize or perform a specific value-generating activity at a global or regional level rather than a national level.
Product design or co-ordination of production of individual components in different parts of the world can be accomplished with CAD and CAM systems. In the automobile industry, firms, such as Ford and Honda are moving towards building global production platforms, which enable them to produce models for world or regional markets, achieving efficiencies in production design. This provides cost savings and efficiencies through sourcing of standardized components from a more limited number of suppliers. However, this does not necessarily imply the marketing of globally standardized products. Mass-customization techniques such as modular production technology and flexible manufacturing systems enable the firm to provide product variety and customize products to local markets (Sanchez 1995). Mass customization also enhances the firmís competitive position by providing flexibility and quick responsiveness. Honda, for example, has developed a global production platform for the Accord. In contrast to platforms developed by other automobile makers, the platform is flexible, and can be bent and stretched to build vastly different cars geared to local markets around the world.
Similarly, R&D systems may be integrated regionally or globally with each site working on a specific problem or type of research. For example, in detergents, P&G research labs in Japan specialize in surfactant research, those in Germany on phosphates and environmentally sensitive formulations and packaging and those in the U.S. on enzymes. This research can then be coordinated to develop a product adapted to specific regional needs, for example for a brand for the U.S. or the European market. Insofar as research reflects specific local market conditions (e.g. high environmental sensitivity in Germany), this provides the firm with a configural advantage relative to firms with a narrower geographic scope of operations.
Use of interactive software enables managers or consultants in different locations scattered throughout the world to work together on the development of a marketing plan for the launch of a new product, or the writing of a consulting report. This facilitates exchange of ideas as well as use of the best-qualified individuals with specialized knowledge or expertise for a given project. As a result, firms with a broader geographic network of operations will benefit from a richer resource base than their competitors.
Transfer of information, experience and know-how. Establishment of formal and informal mechanisms to transfer learning across diverse markets can also provide the firm with a competitive advantage stemming from utilization of a broader and richer base of experience and ideas. Global information systems or intranets often play a key role in the transfer of best practices (Bradley 1993). In some instances, formalized mechanisms to facilitate the reporting and dissemination process can be established. In other instances, it may be accomplished through regular meetings of regional or country managers or the building of transnational management teams (Bartlett and Ghoshal 1989).
Ideas for new products, packaging or advertising copy can be leveraged across countries or geographic markets, and adapted or reformulated for local market conditions. For example, a highly successful advertising campaign in the U.S. for Tasterís Choice was in fact an adaptation of a campaign originally developed in the UK. The ad campaign features a man and a woman (Tony and Sharon), in a series of mini-soap operas that wove Tasterís Choice into the story line. As the campaign evolved in the U.K. and new episodes were developed, these were eventually adapted to the U.S. market.
Marketing and management skills or experience in dealing with a specific type of market environment or competitor can also be transferred from one country or region to another. For example, McDonalds used expertise developed in Brazil in managing pricing in an inflationary environment to develop pricing and sourcing strategies for their operations in Moscow. Equally, experience in developing marketing and promotional tactics in different types of retail environments (e.g.. in relation to highly fragmented distribution structure or highly concentrated structures) can be transferred. For example, consumer packaged goods companies such as Colgate-Palmolive and Best Foods utilize experience gained with distribution channels in Latin America to manage operations in Poland.
Gaining a Configural Advantage in International Markets
Gaining a configural advantage in international markets entails a number of aspects. In the first place, assets and resources should be configured to provide the firm with a strong market presence in key markets worldwide. In addition, the configuration should provide flexibility to adjust to changing macroeconomic, market and competitive conditions and enable the firm to act quickly in launching new products or responding to competitor moves.
Building Market Presence and Position
In building the spatial configuration of resources in international markets, the firm first has to build market presence in key markets worldwide. This implies not only establishing an anchor position in mature markets, but also in the growth markets of the future such as India and China. Two important aspects of this presence are the geographic scope or coverage of the firmís operations, and the strength of its position in each market.
Geographic coverage. A firm's competitive position in world markets depends in part on the geographic scope of its operations, i.e. the number of country markets or geographic regions in which the firm is involved. The importance of having a broad spatial configuration is illustrated by the success of Procter and Gamble in exploiting a product innovation pioneered by a competitor whose spatial configuration of activities was more limited (Hamel and Prahalad 1994). Kao, the Japanese detergents firm, initially developed the super absorbent diaper, overtaking P&G as the market leader in Japan. P&G was quick to respond by developing their own superabsorbent version of Pampers. They not only sold this aggressively in Japan, but also throughout their worldwide distribution system. Kao, with a limited presence outside Japan, was unable to capitalize on its technological expertise because it lacked a global distribution network.
The strategies pursued by News Corp. and Viacom dramatically illustrate the importance of establishing extensive geographic coverage ahead of competition. News Corp., through its satellite and terrestrial-based networks around the world, has made it all but impossible for competitors to achieve the same scale of operations and realize the attendant synergies. Viacom's ubiquitous MTV network has established a strong presence in 83 countries and essentially foreclosed the market to would-be competitors. Both companies have realized the importance of establishing a strong geographic configuration as well as having appropriate entertainment products to deliver to viewers.
Market strength. A second issue is the strength of the firmís position in each market. This can be assessed based on the firmís market share of a product category in each country, or the average market share occupied by its top four brands in a product market (Gogel and Larreche 1989). In many product markets, establishment of strong brands is a key element in developing a strong market position. Strong brands help to establish the firmís identity in the market place, and develop customer and distributor franchise as well as providing the base for brand extension further strengthening the firmís position. With escalating media costs, strong core brands reduce the cost of launching extensions, and where present in multiple markets provide efficiencies and synergies. Strong brands are also important weapons to counterbalance the growing power of retailers as they expand across international boundaries.
In the case of MTV, for example, presence in multiple geographic markets strengthens the visibility and perceived value of the brand to teens and young adults. The pervasiveness of the brand and its projection of a common music and video culture creates a universal language bonding young adults in markets throughout the world. This is further reinforced by the broad range of product and distribution offerings which extend beyond television and create synergies in catering to the rapidly evolving needs and technological preferences of the worldwide teen market.
Flexibility in allocating resources and developing skills and capabilities is another critical component of configural advantage. As market and competitive conditions fluctuate or change in different parts of the world, the firm needs to develop flexibility to adapt to these conditions, and to redeploy resources to take advantage of operating in a given location (Malnight 1996). Establishment of linkages between activity systems is crucial in generating this flexibility to respond to change.
Multiple sourcing and flexible logistics. Sourcing or production at multiple locations reduces risk exposure and dependence on a single supply location. Sourcing and production can be shifted to the most cost-effective locations to counter fluctuations in exchange rates and their impact on production or supply costs or work stoppages due to strikes and labor unrest or changes in economic and political conditions (Kogut 1985, Kogut and Kulatilaka 1994). Orders can also be directed to locations operating below capacity to maximize efficiency and shorten delivery times. Both Levi-Strauss and VF corporations have directly linked retail outlets to their ordering systems so that orders are sent directly to a production center operating below capacity. This is estimated to have shortened delivery time to under four weeks. Subcontracting arrangements can also enhance flexibility, though this may reduce control and hence ease of achieving fit.
Global logistical systems can also be designed to provide strategic flexibility. For example, in the 80s Bennetonís innovative global logistical systems based on global information systems provided them with a competitive advantage relative to competitors operating on a national basis (Dapiran 1992). Through the use of advanced information technology, monitoring sales trends in key stores worldwide Benneton was able to adapt production schedules based on top selling colors and styles and fill orders within six weeks, rather than requiring retailers to order seasonally, substantially cutting markdowns and improving margins.
Skill adaptability and transferability. In addition to operational flexibility, ability to adapt firm-specific skills and capabilities to specific market conditions or resource conditions and to develop and manage location-specific capabilities is another important feature of configural advantage. At the same time, the firmís ability to transfer capabilities across borders provides a firm-specific advantage relative to local competitors (Kogut and Zander 1993). For example, KFC whose business in the U.S. was built on "take-out" operations, has built its business in China around large "eat-in" restaurants, and has been able to transfer this capability successfully to other countries in Southeast Asia.
Speed of Resource Deployment
Rapid deployment of assets and resources at different stages of the value chain is also critical. The firm needs to be able to move speedily in launching new products or to build or strengthen its position in growth markets. Ability to respond rapidly to competitor moves, whether local competitors or major global competitors, is critical.
Speed to market. It is critical for the firm to reduce market penetration cycle times (Robertson 1993). In world markets this means having the resources to launch new products simultaneously, rather than rolling them out sequentially market by market (Birkinshaw, Hood and Jonsson 1998). This also means, as the example of Kao and P&G demonstrates, that a firm with a distribution network providing worldwide or strong regional coverage will have an advantage over a firm, which only has a national or spotty regional distribution network. A firm with limited geographic distribution can enter into an agreement with another firm via an alliance or licensing agreement, but is unlikely to obtain the same level of promotional effort, or control as a firm using its own network. In addition, time delays and costs are likely to be incurred in setting up such agreements.
Speed of response. Another important factor is speed of response to competitor moves or competitor entry into a new market. Here it is important for a firm to be able to follow a competitor rapidly, in order to block the competitor from establishing a strong market presence or brand equity, or developing relations with the most efficient distributors. For example, the international expansion of fast food chains such as McDonald's and Burger King since the 1960s demonstrates that each rapidly followed the other into a new foreign market to avoid the leader building a dominant market position. In addition, the firm needs to be able to respond rapidly to local competitors, for example, meeting price cuts, matching or countering promotional campaigns or launching new products adapted to local market tastes.
In responding to Kaoís introduction of superabsorbent diapers in the Japanese market, Procter and Gamble was able to utilize their global distribution network to reap the main benefits from the super-absorbent technology. However, when competing against rivals with similar spatial configurations, such as Unilever and Nestle, global market presence does not in itself provide a configural advantage. In fact P&G recently announced a corporate reorganization into seven global category management divisions. Each of these groups provides a strong global focus concentrated on lines of related businesses. This is designed to improve flexibility and reduce the time to implement decisions as well as to avoid some of the administrative diseconomies of scale that were part of the previous geographic organizational structure. An extensive geographic scope does not per se confer a stronger configural advantage than that enjoyed by equal-sized rivals, but needs to be accompanied by speed and flexibility.
The spatial configuration of resources is a concept rich with potential for further understanding the complexity of global marketing strategy. Research on international marketing strategy typically examines the role of individual country markets and firm characteristics. Country markets are viewed as the relevant unit of analysis without regard to interlinkages between markets. This perspective fails to capture the unique characteristics of international markets, their underlying dynamics and the intertwined nature of configural advantage spanning national boundaries. While for most purposes, a domestic market can be viewed as spatially integrated; international markets are geographically dispersed and vary widely in terms of the degree of interlinkage or integration. Consequently, the spatial configuration and deployment of the firmís assets and resources assumes critical importance in the battle for global market share. Here, there are a range of issues which need to be further explored, of which the following are particularly critical for understanding configural advantage.
Global Market Sensing
Market sensing (Day 1994) is a critical input to the development of a strong configural advantage for the market-driven firm. However, the inherent dilemma in diverse international markets is that the process of market sensing will by its very nature provide multiple and often conflicting inputs. As the firm attempts to use market place information to guide strategy formulation, mechanisms must be established to effectively synthesize and interpret information if it is to guide efforts to coordinate positions across multiple markets. At the most basic level, market-sensing inputs from linked markets must be aggregated so that potential synergies across markets with commonalties can be assessed. More broadly, the synthesis must try to establish a basis for optimization across multiple markets.
The firm also needs to develop the ability to operate effectively across boundaries in multiple diverse markets. In other words, the firm has to be able to simultaneously manage and respond to competitive situations in multiple interdependent markets. Part of the focus is on adapting competitive position and the related activity systems to effectively meet customer needs and market conditions in various markets. In addition, the firm has to respond to competitorsí moves simultaneously in different geographic markets. An aggressive action in one market may, for example, impact a competitor who has a stronger position in another market and retaliates in that market (Jayachandran, Gimeno and Varadarajan 1999). Consequently, the firm needs to consider the impact of its actions in one market on competitive position in another.
Developing Border-Spanning Capabilities
Closely related to the linking or integration of activity systems across country markets or geographic regions is the development of border spanning capabilities. These may be defined as capabilities that enable the firm to manage and coordinate activity systems across national boundaries. Where markets are not integrated, these capabilities enable the firm to take advantage of efficiencies and synergies associated with operating across markets, while at the same time providing adaptation to local market characteristics, competitive conditions, and resource availability.
Procedures and capabilities to manage an international brand portfolio, consisting of global, regional and local brands, are essential. Custody for managing an international brand might, for example, be assigned to a senior corporate manager or a manager in the lead country for the brand. Responsibility for monitoring the consistency of the brandís positioning across countries and for sanctioning brand extensions in different countries would reside with the brand custodian. Another type of border-spanning capability might relate to new product development and centers of excellence, integrating information from market sensing in different countries and R&D centers in different locations to develop new products and product modifications or extensions for different markets.
Facilitating Global Learning
Management systems and organizational mechanism linking competitive positions in different geographic locations, as well as activities at different stages of the value chain are critical for managing and sustaining configural advantage in international markets. These systems should not only manage and coordinate operations across markets, but also help to stimulate learning within the firm, and in relation to the diverse external environments in which the firm is involved.
Global information systems help to facilitate exchange of information and sharing of best practices among managers in different locations throughout the globe. Organizational learning (knowledge) is transferred across borders and provides a richer base of knowledge and skills to enhance the firmís competitiveness in global markets. Skills, experience and capabilities developed in response to a specific market environment or market conditions, e.g. experience in dealing with large scale distribution, can be transferred to other similar market conditions. Equally, skills and capabilities, which are culturally embedded or location-specific, e.g. advertising creativity, can be utilized to broaden the range of skills and capabilities supporting the firmís operations in another market. Alternatively, distinctive skills and capabilities from diverse market and cultural contexts can be used in collaborative efforts such as new product development teams that provide the firm with a competitive advantage relative to the firm competing in a single market or on a multi-domestic basis.
As international market expansion becomes a key priority for an increasing number of firms, formulating a strategy to compete effectively in global markets becomes critical to success. The firm needs to establish a strong competitive position in a broad range of markets relative to local and regional competitors as well as other firms operating on a regional or global scale. In building a global competitive position, it is important to consider the spatial configuration of assets and resources, and to assess not only similarities and differences between markets in different geographic locations, but also the patterns of market interdependence and the forces driving towards greater market integration.
In many cases, where markets are geographically dispersed and independent, the firm will need to compete across multiple diverse markets, modifying its positional advantage to local market characteristics and competitor posture. At the same time, mechanisms to coordinate these positions will need to be developed Ė through improved harmonization and integrating and linking activity systems across markets. Often this leads to the development of border spanning capabilities that provide the firm with a competitive advantage in managing activity systems in international markets. As markets become more integrated, development of such capabilities, becomes increasingly critical in order to effectively leverage the spatial configuration of the firmís assets and resources in global markets.
Building a configural advantage in global markets and developing an effective strategy to beat competition is, however, not enough in and of itself. In addition, the firm needs to develop management systems and capabilities to build and sustain that advantage and provide strategic flexibility in the light of changing market dynamics, resource conditions and competitor configurations. In particular, development of mechanisms to facilitate transfer of information, experience and ideas from one market to another becomes essential to stimulate organizational learning. Only then can the firm utilize the diversity of its experience and exposure and the rich base of its resources to build a strong configural advantage in international markets.
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