Business-level strategies and performance in a global industry

Date

1998-08

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Publisher

Texas Tech University

Abstract

Both conventional wisdom and theoretical arguments lend support to the proposition that in global industries multinational enterprises (MNEs) will outperfor their domestic rivals. According to this position MNEs benefit from economies of scale in production, purchasing, distribution, and R&D, which places them in an advantageous position. Furthermore, they may enjoy lower labor costs, have easier access to capital and engage in cross-subsidization across national markets. But is this really the case? Extant research has not provided us with an unequivocal answer. This study attempts to address this issue, among others, by looking at the business-level strategies and performance of firms operating in a global industry.

The literature review provides the theoretical foundation for the hypotheses. Issues pertaining to industrial organization (10) economics and the resource-based view (RBV) of the firm are presented, which is then followed by a discussion on MNEs, the environment, and business-level strategies.

This dissertation utilizes Porter's (1980) well-known typology of generic businesslevel strategies while analyzing the competitive actions of both MNEs and domestic firms to uncover the appropriate strategies for these entities. A twenty-seven firm sample from the semiconductor industry is used to test the hypotheses. In contrast to traditional survey type approaches, the generic strategies of low-cost leadership, differentiation, and focus are measured with objective data. Also, due to the small sample size, this study employs nonparametric techniques while tackling the research question.

The results provide support for the hypothesis that domestic firms will follow focus low-cost strategies in a global industry. Some of the remaining results are in the right direction but do not reach statistical significance. Of great interest, however, is that no evidence was found for the widely held position that MNEs outperform their domestic rivals in global industries. It seems that domestic firms are holding their own in the semiconductor industry by simply exporting their products, and thus are avoiding the problems associated with having production facilities in more than one nation.

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