Confusion of termsIn this chapter and in the rest of this book we consistently use the terms
multidomestic, international, global andtransnational to describe
industries, strategies and structures. In terms of strategy, there are a number
of other terms in use: country-centred, simple global and complex global
(Porter, 1986) and nationally responsive, worldwide integration and multi-
focal (Prahalad and Doz, 1987). Although the specific emphasis sometimes
differs, generally speaking these terms can be compared to our terms:
multidomestic, global and transnational respectively. In the marketing litera-
ture the term global is often used to describe characteristics of what we
would call a transnational environment, industry, strategy or structure,
while in the international economics literature, the term transnational cor-
poration is used simply as an alternative to the generic term multinational
corporation. The best advice we can give is to compare characteristics and
not labels.Competitive strategies and ownership, location
and internalization advantagesRugman and Verbeke (1992) link the transaction cost theory of international
production, as discussed in the previous chapter, to the competitive strategies
distinguished by Bartlett and Ghoshal. Their analysis is rather complex.
However, it is probably the first attempt which successfully managed to incor-
porate both the economic perspective on multinationals as discussed in
Chapter 1 and the managerial perspective we take in the remainder of this
book. Rugman and Verbeke’s analysis takes as its starting point the position
that foreign direct investment has been chosen as a more efficient mode of
entry than export, licensing or a joint venture. In terms of Dunning’s eclectic
theory: there are advantages to internalization.
Rugman and Verbeke then go on to distinguish two types of ownership-
specific advantages – which they call firm-specific advantages (FSAs) – namely
location-bound firm-specific advantages and non-location-bound firm-specific
advantages. The benefits of location-bound firm-specific advantages depend on
their being used in one particular location (or a set of locations). They cannot
easily be transferred and cannot be used in other locations without significant
adaptation. An example would be a firm’s expertise in dealing with the idio-
syncrasies of the Japanese distribution system. Transferring this specific exper-
tise to other locations would be useless. Non-location-bound firm-specific
advantages do not depend on their being used in one particular location. They
can be used on a global scale, because transferring them to other locations can
be done at low cost and without substantial adaptation. Best known in this
respect is proprietary technology resulting from research and development
Strategy and Structure of Multinational Companies 39