Academic journal article Management International Review

Foreign Subsidiaries and Multinational Strategic Management: An Extension and Correction of Porter's Single Diamond Framework

Academic journal article Management International Review

Foreign Subsidiaries and Multinational Strategic Management: An Extension and Correction of Porter's Single Diamond Framework

Article excerpt


* Porter's single diamond framework holds that a multinational enterprise builds on a home base to achieve international competitiveness. His treatment of foreign-owned subsidiaries in smaller countries is incomplete and misleading. These need access to a triad market and their activities are better explained by a "double diamond" framework.

* We extend Porter's flawed work on Canada in order to relate it correctly to the large literature in international business dealing with two way flows of foreign direct investment, parent-subsidiary relationships, and the nature of network activities of MNEs.

Key words

* There are six types of foreign subsidiaries in non-triad economies, most of which cannot be analyzed with Porter's model.

Introduction: Porter's Diamond and Strategic Management

The interaction between country specific factors and firm specific factors as sources of global competitive advantage has been the subject of extensive academic and managerially oriented research. The best known conceptual framework in this area is probably the eclectic paradigm, see Dunning (1981, 1988a, 1988b). Three elements determine a multinational enterprise's (MNE) international competitiveness, the geographical configuration of its asset base, and its organizational structure. The three elements are; ownership specific advantages, location advantages and internalization advantages.

Most of the micro-economics emphasis in the literature on MNE growth has focused on the characteristics of the ownership and internalization advantages, see Buckley and Casson (1976, 1985), Casson (1987), Hennart (1982, 1986, 1991), Rugman (1981), Teece (1983, 1985). Similarly, a substantial body of research in global strategic management has focussed primarily on firm driven competition to explain successful international performance, see Ghoshal (1987), Levitt (1983), Ohmae (1987), Prahalad and Hamel (1990), Reich (1991).

However, a recent study on the competitive advantage of nations, by Porter (1990), attempts to redirect academic and managerial attention toward recognizing the major country specific attributes that stimulate the competitive advantage of particular industries. More specifically, Porter's study attempts to explain why a nation may become the home base for successful international competitors in an industry. In his view, multinational status is a reflection of a company's ability to exploit strengths gained in one nation in order to establish a position in other nations, see Porter (1990, p. 18).

In Porter, successful global competition is seen as the result of the characteristics of the MNE's home base. A firm's home base is considered to be the nation where it retains effective strategic, creative and technical control, i.e. it is the source of the MNE's core competencies. In addition, it is considered as central "to choosing the industries to compete in as well as the appropriate strategy", see Porter (1990, p. 599).

The relevance of Porter's framework for international trade theory has been discussed by Gray (1991) and its contribution to strategic management theory has been assessed by Grant (1991). Its application to Canada has been criticized by Rugman (1991 and 1992), while its application to New Zealand has been criticized by Cartwright (1992).

The key goal of this paper is to challenge Porter's allegation that the core competencies of large MNEs and the innovative processes occurring within these firms necessarily need to depend upon the characteristics of a single home base. Porter's view is that a simple distinction can be made between an MNE's home base, which provides the main source of the firm's competitive advantages, and other nations, which can be tapped into selectively but are certainly not as important as the home base. This viewpoint does not adequately address the complexities of real world global strategic management, especially for MNEs from small nations, such as Canada and New Zealand. …

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