Globalisation and Strategic Choice: How Multinational and Local Company Perspectives Differ:: A...

European Management Journal Vol. 21, No. 6, pp. 671–685, 2003 2003 Elsevier Ltd. All rights reserved.Pergamon

Printed in Great Britain0263-2373 $30.00doi:10.1016/j.emj.2003.09.011

Globalisation andStrategic Choice: HowMultinational and LocalCompany PerspectivesDiffer:A Spanish Case StudyCHRIS CARR, University of Edinburgh Management SchoolCLARA-EUGENIA GARCIA, Universidad Carlos III de Madrid

Strategic implications arising from globalisation areless clear-cut for executives in local companies,particularly in more peripheral countries such asSpain, than those suggested by general strategicprescriptions often more appropriate to Multi-national Companies (MNCs). Local companies’ stra-tegic choices are heavily constrained as a result oflimited resources and distinctive evolutionarypaths, and alternative theoretical perspectives onoffer may be relevant, but to different extents. The-orists such as Porter emphasise market power andmarket positioning, whereas, more recent com-petence- and resource-based perspectives stressmore internal issues such as technology and controlof factor markets. Both sets of issues may be bothpertinent and complementary for MNCs, butsmaller local companies may require much greateremphasis on resource-based considerations.

This study investigated the strategic priorities aris-ing from globalisation as perceived by senior execu-tives in eight MNC and nine independent vehiclecomponent companies in Spain, and also as seen bycustomers. We confirmed this difference in empha-sis for local independent companies as opposed toMNCs. More surprisingly, it emerged that for bothtypes of companies there appears to be some shiftof emphasis as globalisation proceeds, stage by

European Management Journal Vol. 21, No. 6, pp. 671–685, December 2003 671

stage, highlighting the need for some dynamic per-spective. Strategies and policy choices of companiesare distinguished and categorised for the twogroups using two diamond configurations, provid-ing some indication of required future policy shiftsfor companies so far less advanced in terms of theirexposure and response to globalisation. 2003 Elsevier Ltd. All rights reserved.

Keywords: Globalisation, Strategy, Spain, Multi-national and small firms, Vehicle component

Introduction and Literature Review

Strategic choices arising from globalisation are fre-quently analysed from the perspective of core andlarger multinational players (MNCs), located incountries well favoured in terms of national com-parative advantage (NCA). Prescriptions frequentlyemphasise global market domination, drawing onhighly successful US exemplars (such as GE’s rule oftop 3), but the position of small local firms may bevery different particularly in countries with moretypical levels of comparative advantage. In terms ofNCA, Spain ranked exactly half way in both 1999 and2000 in IMD NCA assessments of 47 major countries

GLOBALISATION AND STRATEGIC CHOICE

(IMD, 2000, p. 25). Yet of just five Spanish companiesincluded in Fortune’s global top 500, not one achievesa position within the top 10 players in its own sector1.Local companies may therefore generally require dis-tinctive strategic frameworks and policy choices.Multinational responses to globalisation areimportant, but in most countries such as Spain it isnecessary to address and to differentiate strategicframeworks and policy guidelines as between twotypes of manufacturers, multinationals (coming fromseveral, generally highly competitive countries) andindependent local companies.

This article develops frameworks and policy guide-lines to handle both situations, but the emphasis ison recognising the points of either commonality ordifferentiation for local independent companies, ascompared with MNCs whose international strategieshave been more widely discussed. We begin with areview of globalisation issues and strategic optionsfrom the perspective of larger, highly competitiveMNCs, and then differentiate from the viewpoint ofsmaller, local players. Hypotheses are developedconcerning appropriate strategic frameworks andpolicy choices in each case. We then outline ourmethodology for testing and developing such ideasand present findings, based on interviews with eightMNCs and nine independent companies in the Span-ish vehicle components sector.

The Perspective of Highly Competitive MNCs

For powerful MNCs facing globalisation, global mar-ket domination prescriptions are highly pertinent butstill contentious. From an external competitive mar-ket perspective, domination may yield scale econom-ies, market power and better profits (Porter, 1980;Hout et al., 1982; Ohmae, 1985; Buzzell and Gale,1987; Boston Consulting Group, 1991; Yip, 1992).General Electric, the world’s most profitable com-pany2, aims to achieve one of the top three worldpositions in any given market segment (Tichy andSherman, 1994, p. 16).

However, the first problem is defining globalisationto determine when such strategies are genuinelyappropriate. Whilst globalisation has been definedfrom many different disciplinary perspectives3,Porter (1986) defines global industries as ones inwhich a firm’s competitive position in one country issignificantly affected by its competitive position inother countries and vice versa. Taking a similar com-petitive perspective, we define globalisation moretightly as a process of global concentration, measuredin terms of the number of major competitive playersworldwide and their cumulative world market share.More specifically, we define globalisation as havingtaken place4 where the cumulative share of the topfour companies has reached 40 per cent, since this isthe point at which the potential effects of more oligo-polistic behaviours are likely to arise (Scherer, 1990)5.

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Moves and counter-moves, notably through cross-border mergers, acquisitions or strategic alliances,may also accelerate any such globalisation process ashas happened, for example, in the spirits industry(Hout et al., 1982; Schwittay, 1999).

Whether such competitor moves are appropriatedepends upon a wide range of underlying forces aswell as counter-forces for localisation, well summar-ised in Bartlett and Ghoshal (1991). These are sectorspecific and distinguishing critical drivers from themyriad of forces identified in checklists (Porter, 1980;Prahalad and Doz, 1987; Bartlett and Ghoshal, 1991;Yip, 1992) is difficult. Marxian and Schumpeterianperspectives highlight technological change as thecritical long-term driver of scale economies, in turndriving global concentration (Marx, 1919; Schum-peter, 1961, 1964, 1975; Galbraith, 1952). Baden-Fullerand Stopford (1991) warn against superficial analysis.Their economic analysis of the domestic applianceindustry demonstrated that ‘globalisation’ factorswere less advanced than suggested by cursoryinspection. Global players were found to performworse than by major national players. Indeed Whirl-pool’s aggressive strategy of global market domi-nation has subsequently proven disappointing com-mercially, at least to date. Ghemawat and Ghadar(2000) similarly argue that many sectors (includingcars) are less subject to global concentration thanmight be imagined6 and that many aggressive acqui-sition-based strategies are unlikely to add share-holder value.

Notwithstanding Ghemawat and Ghader’s (2000) res-ervations, many would argue global patterns of com-petition in the car industry are more clearly estab-lished (Womack et al., 1990; Gestrin, 2000; Gestrin etal., 2000). Concentration trends are illustrated by thedemise or takeover of many former major nationalplayers, such as Rover, Seat, Skoda, Jaguar, Volvo,Saab and Chrysler. Most Japanese companies, withthe exception of Toyota and Honda, and most Koreancompanies are in virtually the same position. Glo-balisation in vehicle components, in turn, has beenspurred by globalisation of car assemblers, togetherwith their requirements for international sourcing.Outsourcing and ‘tiering’ trends have hastened con-centration for ‘first tier’ suppliers, particularly onnew ‘systems’, with technology and scale economiesacknowledged as underlying factors (Helper, 1987;Carr, 1990; Helper and Levine, 1991; Dyer and Ouchi,1993; Lamming, 1986, 1993; Nishiguchi, 1994; Helperand Sako, 1995; Nishiguchi and Brookfield, 1997).The number of direct automotive suppliers world-wide fell from 30,000 in 1988 to 8000 in 2000 and isforecast to fall to 150–175 major first tier suppliersby 2008, leaving some 2000 suppliers (including hightechnology specialists) to support this first tier7. Carr(1993) argued that global strategies in the sector werefeasible and commercially successful, but warnedthat they required massive resources and rarelyemerged from players not located in countries excep-


tionally favoured in terms of NCA. National marketleadership strategies on the other hand had provencommercially disastrous.

Whatever the desirability of global market objectivesfor well-positioned companies, the question of pre-cisely why and how such objectives should be achi-eved is also contentious. The emphasis on strategyon market power (Porter, 1980), emanating fromindustrial economists’ concerns in the fields of mon-opoly and oligopoly, has been challenged by therevived emphasis on core competence (Prahalad andHamel, 1990; Hamel and Heene, 1994; Hamel andPrahalad, 1994; Hamel, 20008). Instead, the priority isto become world-best practice in terms of morefocused organisational and technological com-petencies, and to achieve scope benefits by leveragingsuch unique skills. Sometimes the two viewpoints arecomplementary, but sometimes they are not. A com-pany emphasising market power for example mayincline towards acquisitions extending geographicalmarket coverage quickly; a company emphasisingtechnological competencies on the other hand mayinvest more heavily in organic growth through itsown R&D efforts. In contrast to the aggressive com-petitive stances suggested in Hout et al. (1982), com-petence-based approaches also more comfortablycombine international co-operation through alliances(Hamel and Prahalad, 1989; Carr, 1997), or throughinternational acquisition (Carr, 1999).

The focus on unique resource endowments (arisingfrom supply, labour or knowledge markets) not eas-ily accessible to potential imitators, also accentuatescompetencies, but it also introduces other new pri-orities (Wernerfelt, 1984; Barney, 1991; Collis, 1991;Grant, 1991). Many large MNCs have recently beenre-structuring to focus more sharply on genuine corecompetencies (Young et al., 2000, p. 1014) and manyhave also exploited opportunities in respect of supplychain management for example.

The question of whether companies should empha-sise externally orientated issues such as marketpower or more internally orientated issues, such ascompetencies or factor inputs, has antecedents instrategy literature going back to the subject’s busi-ness policy origins (Ansoff, 1968; Andrews, 1971)9.Extreme interpretations of particular strategyschools, stressing either external market positioningissues or alternatively internal competence issues inevery conceivable context, risk naivety or evencharges of guru-dom (Huczynski, 1993). There is aneed for empirical studies clarifying the relative per-tinence of different theoretical perspectives in prac-tice. Is the emphasis as between the two perspectivesalways the same? Does the required emphasis per-haps shift as globalisation proceeds? Is it the samefor different players and, in particular, is it the samefor MNCs and local independent companies?


Local Independent Company Perspectives

Examining globalisation in vehicle componentsmanufacture, Carr (1993) showed the infeasibility ofprescriptions for global dominance even for most UKnational leaders as national comparative advantagedeclined10. Only one company was said to have sus-tained such a strategy and, only as a result of movingglobally exceptionally early and with exceptional pat-ents and resource commitments. Most leading play-ers had exited. Carr (1993) argued that the remainingleading national leaders were better advised to re-adjust radically along more resource-based lines, tak-ing account of their evolution and administrativeheritages as suggested by Collis (1991), even if thisentailed some loss of market position and retrench-ment.

Marinaccio (1989) demonstrated benefits from jointventures with Japanese component partners, whilstCarr (1997, 1999) concurred that in many cases suchinternational joint ventures or getting acquired hadultimately proven the only answer. Dawar and Frost(1999, p.120) argued, however, that ‘becoming a sub-ordinate partner to a multinational, or simply sellingout’ were not the only options. More positive optionsdepended upon focusing on niches, playing to a com-pany’s critical ‘assets’ or competencies, where MNCs’global advantages were weaker and localisationadvantages more important. Bajaj Auto, India’s larg-est maker of motor scooters, had successfully coun-tered Honda through such a ‘defender’ strategy.Where global pressures were stronger, ‘dodger’ stra-tegies could be considered, re-structuring within thevalue chain, or even becoming suppliers to incomingMNCs. More positive international strategies werealso feasible where such critical ‘assets’ were inter-nationally transferable, by targeting countries offer-ing similar niches. Where global pressures wereweaker, more aggressive ‘contender’ strategies werefeasible, as exemplified by Raba from Hungary inheavy duty tractor axles; where stronger, subtler andeven more targeted ‘extender’ strategies could beconsidered. Televisa, Mexico’s largest media com-pany, had employed an ‘extender’ strategy, focusingon linguistic and cultural differences, to become theworld’s most prolific producer of Spanish languagesoap operas. Nevertheless, Dawar and Frost (1999, p.127) conceded that ‘for extenders and contenders,alliances are often essential’: Sundaram from Indiahad used an outsourcing alliance with GM in radiatorcaps as the basis of its more global strategy.

For smaller local companies, some such optionsmight apply but generally their strategic choicesmight be even more heavily constrained as a result oflimited resources and distinctive evolutionary paths,perhaps inhibiting bolder moves. Small firms’ stra-tegic priorities and orientations are likely to be dis-tinctive as compared with larger companies (Hall,1995). We would expect less emphasis on anyattempt to achieve sustainable market power


(whether in respect to customer markets or factormarkets) than major MNCs, and commensuratelymore emphasis upon unique skills or ‘assets’ includ-ing flexibility or local relationships. Table 1 postu-lates potentially four positions, according to theextent of market power exercisable by companies inexternal product markets on the one hand, or ininput-factor markets on the other11. Leading MNCsare more likely to be situated in the top left-hand boxand may be best able to exploit competitive advan-tages, drawing on all three strategic schools ofthought12. This position accords well with the intuit-ively appealing view that different strategic schoolsought to be generally reconcilable: e.g. it is difficultto achieve market share without some distinctivecompetence and vice-versa. Such distinctions mayhowever be strategically critical for smaller localfirms: generally in the lower right hand box, theymay find themselves more constrained and empha-sise different priorities13. Lacking the same degree ofcontrol over either customer markets or supplysources, they might reappraise their sources of tech-nology know-how, or unique areas of tacit knowledgeas sources of sustainable competitive advantage.

Clearly, from what has been argued, much dependsupon the degree of globalisation but this raises amore dynamic issue. Should we not expect appropri-ate strategic orientations and options to change asglobalisation intensifies? Leading global MNCsmight favour consistency as they increasingly domi-nate markets set for world consolidation, but moregenerally laggard companies might well need toadapt either to catch up, or to respond more oppor-tunistically particularly in the case of smaller local

Table 1 Analysis of Economic Power — Four Alternative Strategic Approaches for Suppliers

External Companies should balance considerations raised by Aim for global dominance as suggested by Porter (1980)market all three schools of strategic thought. The aim of and Hout et al. (1982), utilising Prahalad and Hamelpower achieving global market dominance as suggested by (1990) competence concepts where possible to achievehigh Porter (1980) and Hout et al. (1982), should be this same aim. Less negotiating power to exploit

balanced by the aim of becoming world-class in advantages in factor-input markets. Wider customerrespect to technological competencies, utilising portfolios desirable.Prahalad and Hamel (1990) competence concepts.Wernerfelt (1984) factor-input concepts may yieldfurther insights & priorities especially regarding supplychain management. Wider customer portfoliosdesirable.

External Emphasise either core competence concepts as Less likelihood of achieving negotiating power in eithermarket suggested by Prahalad and Hamel (1990), or customer markets or factor-input markets. Emphasisepower resource-based analysis as suggested by Wernerfelt unique competencies based on administrative heritage,low (1984). Porter (1980) style analysis may nevertheless whilst preserving flexibility to pursue more ad-hoc

raise relevant customer dependency issues and strategic opportunities. Loyalties with particularloyalties with particular customers strategically more customers though more important because ofimportant. dependency issues. Some small firms might need

focused niche strategies, to the point of not exporting atall (Hall, 1995).

Input-factor market power high Input-factor market power low


firms? 14 This adaptability may prove their best initialdefence, as Dawar and Frost (1999) suggest. A poten-tial problem is that traditional protective barriersmay be gradually undermined, as MNC rivals bringinternationally based advantages to bear whilstlearning to overcome encumbrances. At this pointthey may need to prioritise different sources of com-petitive advantage, new market roles, or face beingrelegated to tiny niches, if not altogether.

A number of hypotheses thus merit investigation:

H1.1 For leading MNCs global market dominanceis a key issue, demanding distinctive policy choices,and possibly requiring a distinctive orientation interms of strategic paradigms emphasised.H1.2 Such distinctive orientations and choices maysuggest appropriate future agendas for laggardMNCs, whose approaches may have been appropri-ate at early stages of globalisation.H2.1. Even large local companies from a typicallyadvantaged country such as Spain may find globalmarket dominance infeasible, leading to distinctivestrategic orientations and policy choices, as com-pared with MNCs.H2.2 Even large local companies may ultimatelyhave to seek international joint ventures or to beacquired.H2.3 Some local players may, however, be able todevelop independent international strategies byfocusing on niches and unique yet transferable‘assets’ or competencies, and by then targetingcountries offering similar niche opportunities.H2.4 These international strategic options mayentail at least some form of alliance, if only through


close relationships with particular car customers orby becoming suppliers to MNCs and so becomingindirect (2nd or 3rd tier) suppliers.H2.5 Companies less able to transfer such ‘assets’internationally may nevertheless be able to focus onniches, less vulnerable to MNC rivalry, althoughwhere global competition is more intense this maynecessitate re-focusing within value chain activitiesand restructuring.H3.1 Leading local suppliers, particularly smallercompanies, will exhibit distinctive emphases inrespect to their strategic orientations and conse-quent policy choices, as compared with MNCs, andalso as compared with laggards who may need tocatch up if they are to survive any process of glo-bal concentration.

In summary, the broad hypothesis to be explored isthat, in the context of globalisation, the practical util-ity of competing theoretical perspectives will be dif-ferent for executives in local firms, as compared withthose in larger MNCs from well favoured countries.We would expect to see this in terms of executives’practical policy priorities and expressed in terms ofcomments, reflecting in turn those ‘theories whichmanagers hold in their heads’ (Baden-Fuller andSydow, 2000, p. xiv). Calori et al. (2000) and Buckleyand Chapman (1996, 1997) likewise argue that suchresearch explorations into managers’ own mentalmodels hold the key to new theory building. Metho-dologically this is justifiable but difficult (Buckley,2001). We have therefore chosen to follow simply ourfocused research themes, concentrating on one industryand one country. Secondly, we hypothesise that as glo-balisation proceeds some change of emphasis may sug-gest the need for some more dynamic model offering atleast some scope for prediction. As Buckley and Casson(1999) argue, the real challenge is to push frameworksinto more formal models, with real predictive power.

Methodology

The vehicle components industry has been in thevanguard of globalisation and has been previouslywell researched and documented internationally.Sharpe (1997a,b, 1998) affords the most in-depthrecent organisational research in the industry in theUK, but is not focused on globalisation. Inter-nationally based research has achieved less depth ofaccess organisationally but provides comparativestrategic perspectives in this industry in the USA,Japan, Germany and Britain (Carr, 1990, 1993; Nishig-uchi, 1994; Carr and Tomkins, 1998). Less is knownabout the position in perhaps more typical countriessuch as Spain even though car production there hasnow climbed higher than Britain. Surprisingly thereare no MNC parent groups in Spain and we wantedto test how far strategic conceptual frameworks needto be amended to deal with local companies.

Given our previous global perspective, we were also


keen to carry out research to develop new modelsand approaches, exercising those research disciplinesassociated with grounded theory (Yin, 1984). Weacknowledge that by focusing on one country andwith limited access time, our research approach hasto be regarded as exploratory, especially from a moreinternational perspective. Yet other research has notyet addressed these issues and they appear pertinentto many countries.

Local Spanish companies were all located in the Mad-rid region to highlight any geographical cluster effect(Piore and Sabel, 1984; Porter, 1990; Dicken, 1998).Larger multinational subsidiaries were separatelyidentified from all regions, as we were more inter-ested in their MNC perspective, as opposed to theirinteractions with local clusters (as examined, forexample, by Birkinshaw and Hood, 2000). Compo-nent company interviews were carried out in sum-mer 1998, generally with chief executives, butincluded senior strategic planning, finance and tech-nical executives, and a number of plant visits andinterviews. The field work for local companies wasdone during four months of intensive interviewing,and information about the company as well as thevisions of the industry in the local, national and inter-national arena were provided by general managers,and also typically by the owners of SMEs companies.To gain a critical strategic perspective and furtherdepth on ‘tiering’ issues, car companies were alsointerviewed, including VW Seat and other Europeanand US subsidiaries in Spain (FASA-Renault and PSAPeugeot). We interviewed the executive manager ofSERNAUTO, the Spanish Association of VehicleComponents Manufacturers to get a broad view ofthe pressures, tensions and recent changes experi-enced by the industry.

Cross-sectional analysis was carried out for the sam-ple of 17 components companies against the hypoth-eses identified, with further cross checking using datafrom car companies and industry reports. Multi-nationals (all first tier suppliers and designated M1–8 to protect confidentiality) were from the USA (2),Germany (2), France (2), Britain (1) and Sweden (1).To facilitate interpretation we numbered these com-panies in descending order of market share (asdefined within their own product markets), so thatM1 has the highest share of its particular productmarket and so on. Locally-owned Spanish suppliersincluded four first tier, designated L1–4. L5 and 9operated in 1st, 2nd and 3rd tiers; L6 in 2nd and 3rdtiers and L8 just in the 2nd tier.

Findings

Multinational Perspectives in Spain: The Role ofNational Comparative Advantage

In 1997 Spain was the world’s sixth largest car pro-ducer at 2.0 m after Japan (8.5 m), the USA (5.9 m),


Germany (4.7 m), France (3.3 m) and Korea (2.1 m),surpassing the UK (1.9 m), Brazil (1.7 m), Italy (1.6m) and Canada (1.4 m) (Grant and Newpert, 1999, p.60). One Spanish-owned vehicle component com-pany (Tarabusi) ranked number 80 among all sup-pliers located within Europe in 1989 but, by 1991, notone Spanish-owned company remained within thetop 80 (Sleigh, 1989, 1991). At that time, the Spanishindustry comprised approximately 500 medium-sized local companies, typically around 120employees, and foreign multinational corporation(MNC) subsidiaries, but there were no otherrecorded large national companies (Slade andFordham, 1990, p. 3.11).

Discussions with car companies and MNC compo-nent producers starkly clarified the strategic signifi-cance of such an absence of domestic MNC activity.In theory, more global strategies might also arisethrough exporting, through ‘niching’ (Simon, 1992,1996a,b), or Spanish companies might be at a stagejust prior to becoming fully-fledged MNCs. Wefound, however, no evidence of this in terms of genu-inely global strategies. Rather, we found ubiquitousevidence of increasing worldwide concentration(certainly in terms of 1st tier supply) in whichcomponent companies that were not already MNCshad little prospect of competing. Major 1st tier sup-pliers were now being asked by car companies toquote for next generation car models, on the basis ofthe same price (stated in a single currency) for allthe major worldwide car plants, and geographicallyproximate production. Even M1, with the highestworld market share of any company interviewed andwith plants all over the world, was stretched to thelimit by foreign direct investment demands associa-ted with new orders. Even for the world’s largestMNC suppliers, these developments posed huge newchallenges of global rationalisation and integration;for Spanish suppliers, not even yet multinational,strategies based on global domination appearedalmost inconceivable.

The absence of global players in such an importantnational vehicle component market supports Carr’s(1993) contention that strategies for global marketdomination are rarely feasible in countries less wellendowed historically in terms of national competitiveadvantage (NCA). It endorses the need for the typeof analysis of national comparative advantage sug-gested by Porter (1990) and others. As Porter (1990)argues traditional notions of national comparativeadvantage emphasising labour costs or resourceendowments offer limited explanations15.

NCAs had played a major role historically determin-ing membership of today’s fairly exclusive MNCclub, though at earlier stages in globalisation therehad still been scope for a few companies (even fromslightly less competitive countries) to move pro-actively internationally. Today such moves by muchlater entrants, from less advantaged countries were


considered less conceivable. MNC executives alsosuggested that NCAs would play a far more limitedrole as global integration became fully implemented.

Multinational Perspectives in Spain: The Roles ofMarket Power and Innovation

Our interviews with larger MNCs emphasised andevidenced global concentration in their market seg-ments and all emphasised the strategic importance(albeit to a lesser extent in the case of lower shareplayers) of achieving 1st, 2nd or 3rd world marketshare positions. We then investigated views on therelative strategic significance of achieving marketpower in external markets as opposed to a majoremphasis on core competence and found in practicedifferent modes of strategic orientation as portrayedin Figure 1. The two companies (M1 and 2) withhighest world market shares and most developed interms of their global strategies explicitly pursued thismarket share objective, recognising potential benefitsfrom scale and market power. Global systems supplytrends, however, placed intense demands on tech-nology. M1 argued that any form of monopoly rentwas fairly transient and depended on keeping aheadin terms of a frenetic innovation race. However, theyaccepted that ‘market power [was] very high for newproducts developed and leading edge products’.Thus more advanced global companies appeared tobalance the two considerations of market power andtechnological competence as mutually dependentobjectives (Mair, 1999). The evident success of suchstrategies here appears consistent with Porter’snotion that careful market positions lead to superiorprofitability. However, this may equally be consistentwith strategic models emphasising world class oper-ations or technology (Womack et al., 1990; AndersenConsulting, 1993; Hamel and Prahalad, 1994; Wom-ack and Jones, 1996; Hamel, 2000).

MNCs M3, M4, M5 and M6’s views and strategicorientations were slightly different. In M3’s marketsegment seven majors held 90 per cent of the worldmarket, but its general manager argued that anyscope for exercising market power was extremelylimited, even for bigger world players:

Monopoly power simply does not exist. Customers do notcare who survives. They know there are a sufficient num-ber of suppliers for them to be able to increase theirdemands. All the time there’s pressure on prices. That iswhy even ITT does not have the financial performance itwould like and has just sold off its entire worldwide auto-motive division. Worldwide money knows where it has togo to maximise its potential.

World market share, though strategically critical,acted more as a constraint on strategic choice in termsof survival. Having accepted the requirement for glo-bal integration, strategic priorities entailedbenchmarked world class performances on pro-ductivity growth, quality and service. M3 (and also


Figure 1 Market Power vs Core Competence Emphasis?

M4) explicitly prioritised core competence16 and tech-nology to a greater extent than M5, 6 and 7 who wereless dominant worldwide: ‘R&D is the top priorityfor the group’. Historically M5 had been even moreproduct and technology led, but in recent years, ithad found it necessary to switch explicitly to fargreater market-orientation: ‘We’re only 20 per centcompetence-led compared with 60 per cent 20 yearsago’. Given that attention in strategic managementliterature has shifted away from market-based issuesto internal core competence issues, it surprising thatsome top world players have been moving in pre-cisely the opposite direction. M7 had also shiftedexplicitly in this direction, but was bemoaning theloss of technological competencies post-acquisition,as a result of their head office’s control approach.

Any former advantages in terms of market powerhad by now been undermined by the process ofworld concentration, reducing numbers of reallymajor players down to about 8–12 (M5’s estimate) oreven lower in most component segments. M6 indi-cated that of five major national players in shockabsorbers, MNCs had acquired two and three hadclosed. M5 was only aware of two major remainingSpanish owned suppliers, the rest having sold out ordisappeared. In M2’s segment, five or six companieswere already dominant worldwide 15 years ago,today these were down to two.

Companies such as M1 and M2 operating in seg-ments most advanced in terms of globalisationappear to exhibit four distinctive, mutually reinforc-ing priorities as summarised and illustrated in Figure


2. Both emphasised the increasing importance of ‘sys-tems partnership’ and, in this context, of beingdemonstrably at the forefront of innovation as com-pared with rivals. We also observed that these twocompanies had the most comprehensive car customerportfolios. Executive comments implied that theunderlying logic behind such global strategies werescale economies, driven in turn by the dictates of thenew systems technologies. Keeping up required thehighest possible volumes, which in turn dependedon operating globally to service the greatest possiblerange of customers. Companies in sectors, lessadvanced in terms of globalisation, and lessadvanced in terms of their own international devel-opment, seem equally to be gradually shiftingtowards the outside ‘perimeter of the diamond’already established by the most global players. Todate their strategic choices are distinguishable asillustrated. As globalisation proceeds, we tentativelyspeculate that the area within any successful 1st tiersupplier’s diamond will steadily increase, untilachieving this final profile.

Nationally Owned Suppliers

Local companies’ strategic choices were far morehighly constrained, and quite distinctive from thosefacing MNC subsidiaries (illustrated in Fig. 2). Mod-els of strategic choice, based upon dominant econ-omic perspectives seemed less relevant to locallyowned Spanish companies. Thus, whilst a dominantworld player could contemplate a consistent, relent-less dominant global strategy over time; the same


Figure 2 MNC Responses to Global Concentration

option of consistency was rarely if ever open to lessdominant local players from less dominant countries.

Constrained by resources, history and competition,no Spanish-owned supplier has emerged as an MNCand none has achieved a strategy of global marketdominance. A strategy that has just occasionallyproved feasible at a far earlier phase of globalisationfrom moderately favoured countries, such as Swedenand Britain has never been achieved in Spain. Thenew stage of globalisation with car customers nowdemanding world manufacturing support also posesa severe threat to the survival of 1st tier Spanishowned suppliers, none of whom possess appreciableglobal production presence. Local, smaller compa-nies’ views on the issue of market power were corre-spondingly quite distinctive from those of executiveswithin MNCs with high world market shares, asshown in Table 2.

Some nationally owned domestic market leaders hadpreviously enjoyed some limited market power, butthis had proved unsustainable as globalisation pro-ceeded further. If the locus of competition ultimatelybecomes defined globally, it seems there are ulti-mately few rewards from ‘coming second’ in the raceand achieving strong market positions merely dom-estically. Once this club of global winners is determ-ined NCA analysis may yield fewer strategic insights,as local companies grapple with strategy formulation


Table 2 To What Degree does your Company haveMarket Power?

Company High Limited Very low None!

M1a YM2 YM3 YM4 YM5 YM6 YM7 YL1 YL2 YL3 YL4 YL5 YL6 YL7 YL8 YL9 Y

M1–7 3 4 0 0L1–9 0 1 2 6

aCompany numbers designated in descending order based onmarket shares

recognising the competitive constraints, posed bysuch formidable global players.

In the views of car customers and competitors inter-viewed, 1st tier Spanish suppliers generally neededeither to be acquired by MNCs, or retrench to 2nd tierroles or find new market niches. Since they lacked the‘power to keep up with technology’ they were notexpected to survive for long. The share of nationalcompanies in one sector, for example, had fallen from35 to 25 per cent in the previous four years, and wasexpected to fall further to 15 or 10 per cent. Withoutvolume it was impossible to maintain the combi-nation of technological/market support and costreduction schedules required. Local Spanish sup-pliers interviewed were, however, not all pro-activein terms of strategic choices, their approaches beingshown in Figure 3. We distinguish suppliers’ tier pos-itions, in the light of shifts being contemplated. Stra-tegic options being pursued by more pro-active Span-ish suppliers are illustrated in Figure 4.

Local Company Case Study

The strategic dilemma was most acute for L1, whichhad the highest market share of national suppliersinterviewed. Their competitive advantage hadstemmed from a particularly favourable license dealwith a US company in the early 1960s. As a smallcompany starting out, it is unlikely it had anyappreciable external market power as against power-ful car company customers. On the other hand, it vir-tually owed its raison d’etre to the type of factor mar-ket imperfection highlighted in Wernerfelt’s resource


Figure 3 (a) Pro-active vs Responsive Approaches for1st vs 2nd and 3rd Tier Suppliers. (b) Pro-active vsResponsive Approaches for 1st vs 2nd and 3rd TierSuppliers

Figure 4 (a) Local Responses to Global Concen-tration. (b) Local Responses to Global Concentration


based analysis (1984): a substantial proportion of sub-sequent profits might be traceable to the excess‘rental value’ of such critical knowledge over anymodest royalty payments.

In addition though, unique competencies graduallydeveloped as they struggled successfully to adapt UStechnology to the needs of the European market. Thistechnological task was seriously underestimated, buttough policy choices gradually created a distinctiveknowledge base allowing progressive market entry.We argue, in line with Table 2, that as globalisationprogressed a little, it was more this unique combi-nation of resource market advantage and competencedevelopment which staved off competition; other-wise European rivals might have eventually suc-ceeded in licensing US technology, or US rivals mightwell have come to Europe.

To these advantages was later added the prospect ofmonopoly power as L1 advanced to the number onenational market position. Following the close downof a major rival in 1988, they enjoyed for a brief per-iod a degree of monopoly power in the Spanish mar-ket, but this was soon undermined by internationalis-ation. Their share of the European market (now theirprincipal competitive focus) is today roughly 10 percent, but the other 90 per cent is controlled by fourmain companies, two of whom have 80 per cent ofthe market.

Severe financial constraints, coupled with powerfulcustomer demands, have marooned L1 strategicallyin a responsive mode. Its international strategy hasnot been ignored, but its piece-meal evolution nowappears skewed and vulnerable in the light of globalconcentration and recent customer demands. Closerelationships have been strategically crucial indeveloping essential overseas business. Yet, for allthe discussion on long-term relationships and trust(Helper and Levine, 1991; Nishiguchi, 1994; Helperand Sako, 1995) they had been forced to recognisethat loyalty had little value in itself; relationshipswere valuable, but only to the extent of their ownspeed in matching demands.

L1 has also sharpened up its core competence focusby outsourcing any non-core or less competitiveelements in its value chain. Interpreting this parti-cular policy choice could be consistent with any oneof the four quadrants in Table 1. Policy prescriptionsoffered by different strategy schools coalesce inendorsing such obvious practical choices (Mair,1999). Opinion was divided on whether L1 was bigenough to remain as a 1st tier supplier, given theirlack of overseas manufacturing capability. As theysought to be more proactive, they faced difficultchoices on further major investments needed to keepup, and on whether to court international acquisitionand integration. Some car customers have alreadyhinted that this would be necessary, but an alterna-tive might be to switch to a 2nd tier role.


Other Local Companies

Other local suppliers were slightly differently pos-itioned as shown in Figure 3, but L2 and even L3 andL4 appear to face similar strategic dilemmas. Just oneEuropean OEM purchasing director told us that serv-icing just a few car customers from manufacturingfacilities only in Spain remained a credible strategy,so long as they kept up. Other car companies andcomponent MNCs argued more convincingly, how-ever, that this would proved unsustainable owing toinadequate volumes and scale economies, and thesubsequent problem of keeping up technologically.M1, M2 and M3 evidenced scale economies, worldconcentration rates and smaller suppliers’ lower mar-gins, exits and diminishing survival prospects. M3’sGeneral Manager argued that in his segment ‘Youhave thousands and thousands of different parts and,as a small manufacturer, unless you have a soundbase worldwide, it is impossible that your list of sol-utions is a convenient list’.

Some 2nd and 3rd tier suppliers were also attemptingto address strategic choices more proactively, ascharacterised and summarised in Figure 4. L6 wasfocusing, after deliberation, on a more specialistniche and playing to opportunities afforded by tier-ing to smaller suppliers. The company was deliber-ately matching its own profile to meet the purchasingneeds of an increasing number of higher tier compo-nent companies, whilst focusing its product niche. Itcould not afford R&D levels typical in MNCs, but itwas investing heavily in more basic technologygeared up, for example, to achieving new qualitystandards such as ISO 9000 and TUV (set byGermany). Loyalty was seen as crucial to long-termrelationships, but they acknowledged that their ownnegotiating power was low, relinquishing them tobeing price takers. Even in a niche position, withtechnological innovation providing a more modestentry barrier, they therefore had to drive hard forvolume through gaining more OEMs, to achievenecessary price reductions. They operated solely inthe domestic market, though even here concentrationwas weeding out less proactive suppliers: the num-ber in their segment had come down to nine, all ofthem local.

L5, 7, 8 and 9 were far less proactive than L6 alongall dimensions shown in Fig. 4. L7’s policy was towait and react, but not to be an active innovator. L9relied heavily on one client whose volumes wereregarded as sufficient to cover annual operationalcosts. Their perceived core competencies rested uponresponsiveness to subtly changing customer needs,but their policy overall was not to panic about majorcompetitive shifts and changes: indeed they sawbenefits in being marginal. L5 accepted (as did L7and L9) that they had absolutely no prospect, as asmall company, of achieving market power whetherin product or factor markets. The sector was ‘becom-ing a Mafia’, exercising strong control over pricecompetition. They had been forced to down-tier,


effectively writing off inappropriate investments, butlike L9 saw benefits in being placed very far from theOEMs and the big battles within the industry. Lowerlevels in the hierarchy mean higher stability.

We speculate that laggard nationally owned sup-pliers may need to match their diamond profilesmore closely towards those of more proactive sup-pliers such as L6 to survive globalisation; if not theymay be relegated to tiny niches or forced to exit alto-gether. Local companies’ competitive advantagesoften reflected fairly unique, past technological tra-jectories17. Such advantages appear to have consti-tuted desirable entry barriers, where built upon posi-tively as in the case of L6. However, less proactivecompanies appeared not to realise the extent towhich this traditional defence was being eroded as aresult of international procurement policies, coupledwith technological progress and transfer processeswithin MNC rivals18. We note that strategicapproaches relevant to national suppliers, summar-ised in Figures 3 and 4, appeared quite distinctivefrom those applicable to multinational subsidiaries,summarised in Figures 1 and 2. For all suppliersthere is also some tendency for appropriate policyperspectives and policy priorities to shift as globalis-ation proceeds, thus allowing some measure of pre-dictability.

Conclusion

Our ideas have developed along the lines ofgrounded theory (Yin, 1984) and our conclusionsmust be regarded as still exploratory. Focusing on asingle industry is necessitated by the requirement fora more robust understanding, but the industry’suniqueness likewise raises issues of generalisation.What is fascinating though is the degree of globalis-ation and its visible effects, highlighted by holding anumber of variables constant. Even if we were onlypartially right in our analysis, we have been led to adifferent way of thinking about strategies for moretypical local companies, as compared with multi-national companies from highly advantagedlocations. Our approach is not merely descriptive butalso potentially predictive of required or future pol-icy shifts. Necessary qualifications aside, our con-clusions at least raise strategic questions, which mayprove all the more important for companies lessexperienced in handling globalisation.

Dealing with hypotheses in turn, hypothesis H1.1appears confirmed. Notwithstanding Ghemawat andGhadar (2000)’s reservations, all MNCs explicitlyaimed at global market dominance, achieving highlevels of perceived market power particularly in thecases of M1, M2 and M4. Figure 2 provides detailsof four policy choices further associated with moresuccessful such strategies. M1 and M2 emerged asleading players in this respect and such policychoices would appear to pose issues appropriate to


laggard MNCs, though certainly not appropriate tolocal players (confirming H1.2). No local companywas able to aspire to mimic such global strategies oridentified policy priorities, confirming H2.1. Norcould Carr’s (1997, 1999) assertion of the likelihoodand even desirability of ultimately getting acquired(H2.2) be dismissed. One local player was activelyconsidering this, two further companies envisagedthis becoming likely, and car assembler customerswarned that even large local companies wouldincreasingly have to consider this.

Nevertheless, we found evidence of some more posi-tive local company ‘niche’ strategies. Figure 4 pro-vides further clarification of such strategies and pol-icy choices, particularly as pursued by moreproactive and successful local players. They involvedfocusing on just one or two close customer relation-ships, a tighter product or market focus, and stepchanges in terms of volume demands and orien-tation, and in terms of efforts in respect to productand process innovation. Five out of nine had effec-tively down-tiered and two others were consideringthis, confirming H2.4 though the term ‘alliances’ forsuch customer relationships (as suggested by Dawarand Frost, 1999, p. 127) appeared over-blown. Somecompanies remained hesitant before committing thelevels of associated investment implied, but for mostthe stark alternative was looking increasingly likeexit, certainly from the perspective of customers,MNCs and more pro-active local players. Four localcompanies emerged as clear laggards, under strongpressure to respond along the lines of pro-active localplayers or exit, confirming H3.1. We note the moreproactive local model is quite distinctive, in terms ofstrategic orientation and policy choices, from thatapplicable to MNCs. (The increased emphasis on R&D by MNCs, for example, is quite inappropriate tolocal companies). Whist niche strategies identifiedprovide a measure of broad support for hypothesesH2.3 and H2.5, we note this option was just as likelyfor domestic and as for more internationally orien-tated local players (see Fig. 3a&b). Dawar and Frost’s(1999) sharp distinction based on ‘internationallytransferable assets’, whilst intuitively self-evident,was in practice less helpful in anticipating distinc-tions. However, we did observe interesting examplesof local companies utilising particular car companyrelationships as the basis for highly international,though highly skewed strategies. These confirmedand clarified Dawar and Frost’s (1999) ‘contender’strategies, but they appeared considerably lessimpressive in terms of their international impact andstill vulnerable in relation to global concentrationtrends taking place.

Finally, we note that current and competing theoriesin strategy have different degrees of relevance forlocal companies as opposed to MNCs, particularly inrespect to attitudes to market power and core com-petencies. As globalisation proceeds the balance ofemphasis also changes slightly and it is in the context


of such perspectives that specific policy choices haveto be made. In summary, we have provided someevidence of the potential applicability of two, quitedistinctive diamonds (illustrated in Figures 2 and 4)capable of differentiating strategic choices for localcompanies as compared with MNCs. These dia-monds also allow tentative predictions as to changingpolicy priorities as globalisation proceeds19. Time isultimately the best test of such incipient ideas; butclearly there is scope for further research by thosein other countries, or with more extensive databases.Aspects of national context and cultural affinity werealso suggested by our observations, but proved tobeyond the scope of a single focused article and com-parative work in countries highlighting such issuescould be particularly fruitful.

Acknowledgements

The authors would like to acknowledge the help of ProfessorSalvador Carmona, Professor Isabel Gutierrez and the Minis-try of Education, Spain for their support in facilitating andfunding this research. They would also like to acknowledgethe help of the Institute of Chartered Accountants of Englandand Wales who provided funding on the more internationalstudy which has complemented this research.

Notes

1. Fortune 24 July 2000 F15-F21’s analysis of 46 main sectors,though we would acknowledge that some of these sectorsare broad enough to allow for specialised sub-segments,more applicable for strategic analysis. Thus Nokia fromFinland does not feature in Fortune’s analysis of ‘Tele-communications’, but is nevertheless the world leader inmobile phones. However, we found few examples of keysectors, dominated internationally by Spain or other lessfavoured countries. This does not preclude the possibilityof highly specialised niches, but this will be discussed andthen examined more closely taking the case of automo-tive parts.

2. Fortune 27.8.2001.3. Scholars tend to define the issue from their own disci-

pline. Thus, as a sociologist, Giddens (1991, 1999) definesglobalisation in terms of ‘the intensification of worldwidesocial relations which link distant locations in such a waythat local happenings are shaped by events many milesaway and vice versa’. Most organisation theorists wouldadopt a similarly holistic viewpoint. International tradeeconomists, on the other hand, define globalisation interms of increasing international trade or foreign directinvestment; marketing scholars in terms of global brandsor global versus local tastes; manufacturing and procure-ment scholars in terms of integrating operations and sup-ply chains. Finance scholars point to the implications ofincreasingly common worldwide capital markets, whilstothers emphasise international technology life cycles andglobal integration of technology. In adopting a more holis-tic, strategic perspective, we recognise that all such issuestaken together, and taken in proportion, are likely to con-tribute as drivers in any process of global competition andindustry concentration. This determines our sense of pro-portion in paying attention to so many competing issuesand perspectives; we cannot cover everything in a sin-gle article.

4. We require some notion distinguishing globalised indus-tries, in view of possible strategic implications, but we donot imply that this is a once and for all phenomenon.Further global concentration and global integration seems


likely to occur in most such industries, although at somepoint we would expect diminishing returns with otheropportunities becoming more attractive. From this pointon, however (if not a little earlier), we would expect toobserve strategic implications arising from globalisation,with these being reflected in executives’ interviewresponses.

5. Herfindahl indices might alternatively be used as concen-tration measures, but their adoption by Ghemawat andGhadar (2000) leads to paraxodical results. Their figurefor the oil industry at 0.05 corresponds to more than 20equal-sized competitors (ibid. p. 67), but this does appearto be the documented oligopolistic nature of competitionby the industries five dominant players, particularly in thelight of the Exxon-Mobil, and BP-Amoco mergers. (Theycertainly predominate in terms of market capitalisation,arguably indicative of future expected monopolisticprofits). Similarly their HI for the automobile industry fellfrom 0.2 in 1955 to 0.075 in 1998 (ibid., p. 68), but theirindication that concentration has not taken place seems atodds with the sharp reduction in the number of majorworldwide players. We feel it is this latter consolidationeffect which is critical in driving competitive (and poten-tially oligopolistic) behaviour and that our chosen meas-ure (in line with Scherer’s) captures this more satisfac-torily than the Herfindahl index. Templeton’sglobalisation index (Gestrin, 2000; Gestrin et al., 2000),based on an industry’s share of foreign assets as a percent-age of total assets, is also intuitively appealing. This pro-duces a fairly high globalisation ranking for the automo-tive sector of 35 per cent (just above electronics), whichwould contradict Ghemawat and Ghadar’s conclusion;but even this measure can produce paradoxical results.Aerospace emerges with a very low figure of 24 per cent(below retail), whereas we would argue that the nature ofcompetition is very definitely global since four key play-ers dominate it. No measure of globalisation is perfect.Our simple measure, tempered with some recognition ofwhat is happening in terms of the number of major com-petitors worldwide, captures the essence of the problemand is consistent with Schwittay’s (1999) study of globalis-ation; other measures yield interesting insights, butrequire very careful interpretation.

6. Though, as discussed in the previous footnote their defi-nition and interpretation of global concentration is opento question.

7. The European Association of Automotive Suppliers,CLEPA, cited by Scholfield and Henry (2000, p. 3). IndeedPricewaterhouse Coopers argue the number of 1st tiersuppliers could fold into just 30 by 2010, leaving only 8002nd tier suppliers (Financial Times 8.12.2000, p.IV).

8. Hamel (2000) recognises economic effects such as scalebut his argument (pp. 305–7) makes clear that ‘innovation[rather than scale] is the big story’. His introduction (p.ix) clarifies that his intention is to challenge the formerprevalent view of strategy coming from industrial econ-omists that has ‘no place for passion, ambition, creativity,and serendipity’. Many hold the intuitively appealingview that his competence-based arguments are oftencomplementary to prescriptions from industrial econom-ists, but there is potentially a difference in terms of policyemphasis which may be more important in particular con-texts.

9. We appreciate there is also a long-standing debate onplanning versus incrementalism, epitomised in the debatein the Summer 1996 edition of the California ManagementReview 38(4), 78–117. Brewis and Hunt’s (1999) study ofplanning practices in 656 firms partially resolve this bysuggesting ‘good’ strategic planning entailed both,especially in unstable environments. Our focus in this arti-cle is more concerned to establish which of the more pre-scriptive paradigms prove most helpful to top executives,rather than to resolve this more process centred debate.

10. The performance of national leaders emerging from earl-ier periods of national consolidation declined dramati-


cally following internationalisation, but neither did thisstudy find any evidence of successful regional leadersemerging. This may be because customers were multina-tionals already operating across continents, prior to arapid acceleration in international procurement whichundermined the position of leading national suppliers.Thus, European suppliers responding to Ford and Gen-eral Motors rapidly required major positions in NorthAmerica and elsewhere in the world. From a theoreticalperspective there is a balance between forces for globalis-ation (principally scale economies) and constraints fav-ouring local operations (Bartlett and Ghoshal, 1986, 1991).Once the balance shifts in favour of the former, firms mayneed to become highly internationally orientated or turnto other routes in the search for competitive advantage;the half-way house alternative of regional domination hasin practice rarely proved sustainable in the vehiclecomponents industry.

11. We define market power here in terms of a firm’s abilityto exercise an advantageous price in respect to a givenquality of any given product or service, relative to otherplayers, resulting from a favourable negotiating position.

12. Mair’s (1999, p. 39) detailed study of Honda, for example,concludes ‘Honda was said to illustrate and legitimateeither learning or design, either industry analysis orresource-based approaches, either core capabilities or corecompetencies. Yet there is considerable evidence to sug-gest that a significant characteristic of management think-ing at Honda is a focus on the reconciliation of apparentlycontradictory conceptual dichotomies, and that is a spe-cific route to innovation’. Combs and Ketchen (1999) sug-gest firms placing resource-based concerns in front of con-siderations from organisational economics when decidingwhether or not to engage in interfirm cooperation. Givingprimacy to resource concerns was found, however, tohave detracted from the performance of some of the 94publicly held restaurant chains they investigated.

13. Perks and McQueen (2000)’s entrepreneurial researchindicates differences in terms of the practical applicationof these theoretical ideas in Britain, Germany, France andItaly. Harris and Ghauri (2000) likewise demonstrate suchdistinctive emphases in the case of small/medium sizedelectronic companies in Britain, France and Holland, butthey also demonstrate that such differences are influencedby different national cultural contexts. There is a richliterature on national cultural differences and Carr andTomkins (1998) highlight the effect of national culturaldifferences on strategic decisions in vehicle components.Exploring the effects of national cultural differences isbeyond the scope of this article, but executives in smallerfirms do appear to emphasise different theoretical per-spectives according to their different country contexts.

14. Our reasoning and justification for introducing thisadditional perspective is based on a four-phase model ofglobalisation similar to that employed in Schwittay (1999).The framework is based on Vernon’s (1966) internationalproduct life cycle. It looks at the character of an industryand the industry players in terms of concentration andmaturity. It is consistent with Carr’s (1993) analysis of glo-bal moves in the vehicle components industry. Moredirect global strategic moves, for example, going straightto phase four are conceivable and do sometimes occur inthe case of high technology developments, but most com-panies studied longitudinally appear to have adopted amore evolutionary development, moving through eachphase in turn (Carr, 1990).

In stage 1, an emergent industry stage prior to evennational concentration, we suggest that sustainable com-petitive advantages might ensue from expedient use offactor-input markets. Most companies though, parti-cularly small ones, probably rely heavily on developingsome sort of distinctive competence since the scope forany form of economic power (whether in external orinput-factor markets) is likely to be limited.


At stage 2 some larger firms gradually derive increasedeconomic power in respect to input-factor and externalproduct markets and scale economies, through expansionand acquisitions. Firms, previously orientated to localisedcustomer niches and specific competencies, may experi-ence some dilution in such a sharp focus and trade-offsmay occur in terms of time and investment resources.However emerging national market leaders are able tofund technologies, especially those appropriate to largerorders and a wider range of customers. At some third tran-sitional stage when customers step up international procure-ment or MNC rivals appear, any scope for market powermay evaporate even for national market leaders, forcingthem to re-emphasise their unique competencies or otherresource-based advantages (ibid.). Co-operative optionssuch as international strategic alliances or acquisitions mayalso then prove attractive either to aggressive MNCs seekinglocal market entry or, conversely, to local firms seeking part-ners with greater access to scale advantages or better tech-nology (Marinaccio, 1989; Carr, 1997, 1999).

At the fourth and final stage of globalisation, internationalsupply chains offer particular opportunities in respect tofactor-input markets; oligopolistic inter-reaction, analysedthrough strategic groups analysis (Hunt, 1972; Porter,1980; McGee and Thomas, 1986, 1992; Bognor andThomas, 1993; Schwittay, 1999) may sharply increase inimportance. Yet, if technology is such a fundamentaldriver the achievement of such world market positionsmay simultaneously depend upon world class com-petencies. We may find global leaders becoming better atreconciling approaches aimed at pre-eminence in terms ofcore competence with approaches more directly addressedto achieving power in external product markets.

By the final stage of globalisation, the impact of nationalcompetitive advantage may likewise diminish, as dispro-portionate attention to home country origins subsides. Atprior transitional stages however, the success of MNCForeign Direct Investment (FDI) policies or internationalcooperation depends critically on sensitively applied poli-cies of know-how transfer. Failing this, recent inter-national trade theory (Dunning, 1992; Parker, 1998) sug-gests MNCs can expect little net ‘economic rent’. Asinternational competition consolidates, even majornational leaders from less favoured countries sometimeslose out in the race for world leadership and domesticmonopolies may prove millstones (Porter, 1990; Carr,1993). National competitive advantage may then becomehighly significant in determining global winners andlosers (Schwittay, 1999). Nimbler, smaller players frommore favoured countries such as Germany often win outas global winners by focusing on niches (Simon, 1992,1996a,b), though in doing so many transform into power-ful MNCs, transcending country loyalties (Parker, 1998).

15. In 1994 Spanish and UK motor industry compensationrates, at $18.1 an hour (including benefits), were lowerthan France and Italy, roughly 57 per cent of those inJapan and the USA, and only 42 per cent of those in Ger-many (US Dept of Labour). On the other hand, Spain’s lab-our costs remain substantially higher than those in Turkeyand those in other larger even faster growing markets suchas India, China and East Europe.

16. Some readers may be sceptical as to executives’ rhetoricin citing their ‘core competencies’. We were slightly scep-tical and aware that Prahalad and Hamel’s (1990) con-cepts in fact reflect and are an amalgam of at least threetypes of ‘competence’. However, many executives inMNCs were fairly convincing, arguing that they coulddemonstrate that they had for example made difficultdivestment decisions in line with more sharply defined‘competencies’. We provide indicative quotations, so thatreaders can gauge some sense of executives’ languageand perceptions.

17. Such advantages and entry barriers often appeared reliant


on some form of tacit knowledge (Nonaka and Takeuchi,1995), but fuller discussion of technology policies issueslies beyond the scope of a single article.

18. Any cluster effect, which we were expecting to see, wasalmost absent in terms of any evidence forthcoming fromour discussions with executives or from their pronounce-ments in respect to their strategies. Young et al. (2000,p.1029) made the same surprising observation based ontheir research in Scotland. We would suggest that thecluster effects in automotive components manufacturehave come to depend heavily upon close relationshipswith particular customers (as for example with Japanesecar customers). Relationships with particular car compa-nies remain especially important for local companies,though less so for MNCs dealing with many such carassemblers. However, in this new phase of global concen-tration, we believe that any former benefits from Spanishsuppliers’ geographical clusters per se have now substan-tially diminished. We acknowledge that our MNC samplewas not designed to highlight interaction between MNCsubsidiaries and any local clusters, but the lack of refer-ence to cluster issues by local companies interviewed wassurprising. Local companies or policy-makers over-rely-ing upon cluster benefits may dangerously stave off deal-ing with other strategic adjustments suggested by ouranalysis.

19. We have also utilised the same framework to analysemore specific technological policy issues arising, but it isbeyond the scope of a single paper to do justice to suchan analysis and to the wide range of literature in this field.

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CHRIS CARR, University CLARA-EUGENIAof Edinburgh Management GARCIA, UniversidadSchool, William Robertson Carlos III de Madrid,Building, 50 George Square, C/Madrid 126–128, 28903Edinburgh EH8 9JY, UK. E- Getafe, Madrid, Spain. E-mail: [email protected] mail: [email protected]

Chris Carr is Professor of Dr Clara-Eugenia Garcia isCorporate Strategy at the Lecturer at the UniversityUniversity of Edinburgh. Carlos III of Madrid andPrevious appointments Director of the University’sinclude the University of Technology Centre. Earlier,

Manchester and 10 years with British Aerospace and she undertook research at UC Berkely, California.GKN.


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