Re-Examining Global Integration and National Differentiation

There are a variety of manners a firm can achieve global integration and national differentiation. Both processes depend upon a firm’s ability to differentiate, its management style, and its competitive strategy.

Regardless of the industry, almost all firms are directly or indirectly dependent on a global supply chain. For example, a software firm may have many IT personnel located overseas, while a manufacturer has a global supply chain for its inputs. In both cases, the firms are actively engaging in a global supply chain.

All firms, regardless of their global exposure, differentiate. Even a producer of a standardized product such as lettuce differentiates through packaging and advertising. Differentiation is a part of a firm’s competitive strategy and its decision to expand internationally expand its market. There are two basic strategies a firm can use, either global integration or national differentiation.

Global Integration and National Differentiation

Through global integration, a firm operates as an absolute managerial leader or an ideological leader to produce and distribute a good or service with standardized methods for its international market (Palmisano, 2006). The strategy’s advantage is that the firm is building value by ensuring standardization and common marketing practice. National differentiation is where a firm develops unique products for the overseas or domestic markets (International Business, 2017). A firm can achieve this through franchises, subsidiaries, strategic alliances, or partnerships through a management practice. The firm also allows a great deal of autonomy in determining what the local market needs while at the same time ensuring a universal quality standard.

Other standardized factors may include a universal code of ethics and conduct for the collaborating firms. Consider a firm that has a centralized management structure and depends upon a network of strategic alliances and partnerships to develop unique products for its global market. In this scenario, the firm uses this national differentiation model to build value in its global brands and share the value with its allies (Dirisu et al., 2013). Value creation across all stakeholders is essential.

Strategy and Location Reconciliation

Another example is the firm’s strategy dependent on a limited diversification of its devices through the confidence of centralized low-cost production, management, and marketing (Abimbola, 2010). The competitive advantage lies in low-cost production and marketing, building brand confidence, and market dominance through unique products. The firm’s location reconciliation is based upon choosing a high-quality, low-cost manufacturer for their product, and the global price premium strategy is based upon centralized management and marketing.

Another firm’s strategy is based on localized diversification and marketing under standardized ethics, codes of conduct, and centralized global management. The firm’s competitive advantage is based on its ability to create a worldwide network of producers, suppliers, and marketers with a universal quality standard. The firm’s diversification allows it to dominate many markets in the fast-moving consumer goods segment through price leadership and brand quality (Dirisu et al., 2013). Having a firm follow a global reconciliation strategy allows it to become a true price leader through its localized economies of scale and its universal quality standard.

Background of Porter’s National Diamond Framework

Porter’s National Diamond Framework is related to his work on the competitive advantage theory, which outlines the Five Forces (Bakan & Do?an, 2012). The framework presents a basis to analyze industry and competitive advantage at the national level in international trade. The framework depends on how firms and industries build competitive advantage between each other in the domestic context and how national domestic policies can stimulate this advantage at home and abroad. The primary part of the private sector component is dependent upon the Five Forces. In contrast, the national part depends on how a nation can build similar competitive advantages for its firms. Examples of intrinsic competitive advantages that a nation may have are its natural resources, its labor capacity, and its physical, legal, economic, and political infrastructure. A firm can proactively use the framework to develop its national and global strategy. Symbiotically, the nation can use the framework to analyze the strengths, weaknesses, opportunities, and threats of its domestic industry.

Porter’s National Diamond Framework

Porter’s National Diamond Framework has four components.

The overlaying component is that of national conditions. The conditions can refer to a nation’s political, economic, social, technological, and legal environment. A country that creates an environment where its business can become internally competitive and advantageous can present itself as competitively advantageous in trade. For example, the US pursued a financial and banking deregulation policy allowing this sector to become nearly globally dominant. China follows a Five Year Plan policy and subsidies for industries it considers critical, allowing the nation to become nearly dominant in manufacturing. In both examples, the policy is targeted towards the domestic market to create a healthy business environment that creates an international competitive advantage.

The second is the firm’s strategy, competition, and organization. The first component depends on the firm’s ability to be proactive in a competitive environment through innovation and its ability to enter the market. The firm must compete against the concentration of market power of its competition and dominate its market through price leadership, differentiation, and innovation (Márkus, 2008).

The third component of support industries is the external value chain that provides a knowledge-sharing environment internally and externally to the firm (Smit, 2010). The effect of this component is one that spurs innovation and promotes appropriate transparency. Consider a firm that developed a circular economy to source its raw materials to recover and repurpose them (Batisa et al., 2019). The innovative and co-created model depends on open collaboration and co-creation with local firms, the government, and the population. The component is related to the Five Forces threat of suppliers and consumers. Through a proactive, collaborative, and co-creative process, the firm takes the risks and creates opportunities.

The fourth component of consumer demand relates to the scale and type of demand. Depending on the type of demand, a firm must innovate, differentiate, and if possible, develop economies of scale (Pawar & Veer, 2013). The component is highly related to the basic threat of the many buyers’ market, which can depress a product’s price. As an industry, horticultural products such as tomatoes suffer from this component. Producers must compete against a nearly standardized product with very price-conscious consumers. A successful producer must differentiate their product through packaging and become a cost leader through innovative production and value chain cost reduction.

Remarks

A firm needs to choose which strategy to adopt, which depends on its competitive landscape and can encounter a competitive advantage. In reconciling the type of strategy to use, a firm also needs to decide the level of diversification it needs and create value from it.

Both examples demonstrate two distinct global methods to create value and management’s relationship with the value chain. A firm may use a centralized, limited differentiated, and international integration to ensure the firm seeks to become a price leader by demanding premium prices for standardized products with a dominant brand. Some firms use a national differentiation model to build strategic alliances and partnerships under a centralized code of ethics, standards, and centralized management. Through universal differentiation, diversification, quality, and cost leadership these firms create global shared value.

References

Abimbola, T. (2010). Brand strategy as a paradigm for marketing competitiveness. Journal of Brand Management, 18(3), 177.

Bakan, ?., & Do?an, ?. F. (2012). Competitiveness of the industries based on the Porter’s diamond model: An empirical study. International Journal of Research and Reviews in Applied Sciences, 11(3), 441–455.

Batista, L., Gong, Y., Pereira, S., Jia, F., & Bittar, A. (2019). Circular supply chains in emerging economies–a comparative study of packaging recovery ecosystems in China and Brazil. International Journal of Production Research, 57(23), 7248–7268.

Dirisu, J. I., Iyiola, O., & Ibidunni, O. S. (2013). Product differentiation: A tool of competitive advantage and optimal organizational performance (A study of Unilever Nigeria PLC). European Scientific Journal, 9(34).

International Business. (2017). International Business Strategy. Retrieved from?https://www.business-to-you.com/international-business-strategy/

Pa Pawar, P. A., & Veer, N. B. (2013). Competitive Advantage of India for FDI in Retail: A Porter’s Diamond Approach. Annual Research Journal of Symbiosis Centre for Management Studies, Pune, 1, 69–83.

lmisano, S. J. (2006). The globally integrated enterprise. Foreign affairs, 127–136.

Smit, A. J. (2010). The competitive advantage of nations: is Porter’s Diamond Framework a new theory that explains the international competitiveness of countries?. Southern African Business Review, 14(1).