The four types of competitive strategies distinguished by Bartlett and Ghoshal
(1989, 2000) have been situated in this figure. The type of strategy that is
captured best by the original theory on multinational firms (Dunning’s eclectic
theory) is the international company. The original framework assumes that
firm-specific advantages are non-location bound, that is that they can be used
anywhere in the world. The actual choice for the optimum location for sub-
sidiaries in this type of company is based on static host country country-
specific advantages (such as a cheap labour force). The product life cycle theory
described in Chapter 1 also describes the characteristics of this type of strategy.
In the case of a multidomestic strategy, differences between countries with
regard to customer preferences, market conditions and government regulation
force companies to develop location-bound firm-specific advantages. These
location-bound firm-specific advantages will often complement the country-
specific advantages of the countries involved, such as the local marketing infra-
structure or protected government markets.
A global strategy would obviously be based on non-location-bound firm-
specific advantages that can be exploited on a global scale. Home country
country-specific advantages are more important than host country country-
specific advantages, because production operations are often concentrated in
the home country.
The transnational strategy is based on a combination of location-bound
and non-location-bound firm-specific advantages. Location-bound firm-specific
advantages would be necessary in countries with a need for national respon-
siveness. Non-location-bound firm-specific advantages would permit global
exploitation. With regard to country-specific advantages, the transnational
strategy draws on advantages from both home and host countries. And in con-
trast to the situation in international and multidomestic strategies, host coun-
try country-specific advantages can also be used in a leveraged way. In Chapter 1
we already referred to the fact that the transnational company would choose the
country with the most favourable domestic diamond to locate its home base for
each particular Strategic Business Unit (SBU). Porter’s emphasis on innovation
and the constant upgrading of competitive advantages is highly compatible
with the leveraged use of country-specific advantages.
4 STRUCTURING MULTINATIONAL COMPANIES
Although the choice of a company’s competitive strategy is a very important
decision, a successful implementation of this strategy depends to a large extent
on the structure and processes of the company in question. This section there-
fore looks at the structuring of MNCs. We will first discuss the early studies
with regard to MNC structure, focusing on Stopford and Wells’s now classic
Strategy and Structure of Multinational Companies 41