Academic journal article Management International Review

The Competitive Positioning of Foreign MNEs in Domestic Markets: Theoretical Extensions and Evidence from the Israeli Market

Academic journal article Management International Review

The Competitive Positioning of Foreign MNEs in Domestic Markets: Theoretical Extensions and Evidence from the Israeli Market

Article excerpt

Abstract

* The paper offers a model of the competitive positioning of foreign MNEs (FMNEs) in less-developed countries. The model acknowledges that FMNEs and their domestic counterparts engage in strategic interactions and reference-points positioning with the objective of maximizing customers' satisfaction, and that customers respond to this strategic behavior.

* The analysis is based on a survey of 406 Israeli customers of 104 FMNEs and domestic firms. A structural equations model suggests that industry attractiveness affects the competitive positioning of FMNEs, resulting in enhanced marketing effectiveness and consequently, higher customer satisfaction.

Key Results

* The results show that customer satisfaction is higher for FMNEs than for domestic firms due to the ability of the former to utilize their capabilities and marketing efforts in a way that enhances their positioning.

Introduction

Recent waves of globalization have dramatically changed the competitive landscape in many national markets. Dunning (1993) provided evidence that foreign direct investment (FDI) had doubled and even tripled in the last fifteen years in less-developed countries (LDCs), generating a tremendous impact on the economic development and welfare of these countries. Yet, less attention has been given to the role that domestic customers and domestic competitors play in shaping the strategic behavior and performance of foreign MNEs (FMNEs) in the targeted markets. The current study examines the strategic positioning of FMNEs and their domestic competitors by supplementing traditional supply-side perspectives with an approach that focuses on demand-side marketing strategy and customer satisfaction perspectives.

In an attempt to provide insights into FMNE strategies in domestic markets, Prahalad and Doz (1987) offered the global integration--local responsiveness framework. This framework considered the effectiveness of FMNEs in employing national resources, their global strategies and capabilities, the competitiveness of domestic firms, and local demand characteristics. Yet, domestic customers played a passive role in guiding FMNE action, with customer preferences, rather than customer satisfaction and reaction, serving as the focal construct of interest. Furthermore, the competitiveness of domestic firms was considered a given factor rather than a variable that changes as a result of competitive interactions. Such an approach is typical of most of the existing literature, which advocates a supply-side MNE theory. For instance, MNE expansion has been associated with exploitation of economies of scale (Caves 1971, Hymer 1960) and scope (Teece 1980, Porter 1986, Prahalad/Doz 1987), exploitation of geographical advantages through global configuration of activities (Porter 1986, Caves 1971), and network advantages that provide MNEs with access to unique resources and manufacturing opportunities, which ultimately lead to higher performance (Buckley/ Casson 1976). These approaches relied on FMNE characteristics rather than on competitive interactions or domestic customers' reaction.

The current study extends existing perspectives by emphasizing demand-side aspects in the analysis of the strategic management of FMNEs. It incorporates competitive interactions (Henderson/Mitchell 1997) between the external environment, competitive strategy, and derived marketing activities. In particular, it evaluates the strategic positioning and competitive behavior of FMNEs in a domestic market and incorporates marketing theories pertaining to customers' perceptions in the assessment of FMNE operations.

In accordance with prior research that used customer satisfaction to explain the strong association between MNEs' strategic capabilities and their market capitalization (Morck/Yeung 1991, 1992), this study considers customer satisfaction as an important measure of long-term sustainable performance (Day 1990). …

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