CONFIGURAL ADVANTAGE IN GLOBAL MARKETS
C. Samuel Craig* and Susan P. Douglas
Stern School of Business
New York University
October 1999
* contact author
44 West 4th St., KMEC 8-87
New York, NY 10012-1126
Tel: (212) 998-0555
Fax: (212) 995-4006
e-mail: scraig@stern.nyu.edu
CONFIGURAL ADVANTAGE IN GLOBAL MARKETS
Abstract
Achieving a sustainable competitive advantage in global markets depends on the geographic scope and diversity of
the firm’s operations and their interlinkage, as well as the extent of market integration and interdependence.
The spatial configuration of the firm’s assets, capabilities and resources and the ability to manage and use these
resources effectively are crucial elements of the firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 firm’s 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 Taster’s 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 Taster’s 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 firm’s 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 firm’s position in each market. This can be assessed based
on the firm’s 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 firm’s identity in
the market place, and develop customer and distributor franchise as well as providing the base for brand extension
further strengthening the firm’s 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.
Strategic Flexibility
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 Benneton’s 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 firm’s 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 Kao’s 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.
Implications
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 firm’s 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 competitors’ 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 brand’s 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 firm’s 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 firm’s 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.
Conclusion
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 – 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 firm’s 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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