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Multinational Enterprises, Innovation, and Competitiveness Lecturer: Paul Sorensen. Chapter 3. Objectives. Define innovation and map out some innovation trends across firms and countries.
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Multinational Enterprises, Innovation, and Competitiveness Lecturer: Paul Sorensen Chapter 3
Objectives Define innovation and map out some innovation trends across firms and countries. Explain how the resource-based view (RBV) and the VRIO framework connect innovation and competitive advantage. Understand how dynamic capabilities underpin a capacity in firms to continuously innovate, alongside the R&D and technology development functions. Explore different systems of innovation and the international dimensions of innovation. Examine the MNE as a differentiated network, locating and linking different innovation activities in different locations.
Lecture outline Introduction Trends in innovation at the firm and country level The resource-based view (RBV) and the VRIO framework Dynamic capabilities Connecting FSAs to CSAs Systems of innovation International dimensions of innovation The location of innovation activities in the MNE.
Trends in innovation at the firm and country level • Developed countries still dominate the production of knowledge- and technology-intensive (KTI) industries. • The KTI share of the world’s developed economies grew from 29 percent to 32 percent between 1997 and 2012.
Trends in innovation at the firm and country level (Continued) Figure 3.1 Output of high-tech manufacturing industries for selected economies, 1997–2012 Source: National Science Board, Science and Engineering Indicators 2014 Digest. Notes: Output of high-technology (HT) manufacturing activities is on a value added basis. Value added is the amount contributed by a country, firm, or other entity to the value of a good or service and excludes purchases of domestic and imported materials and inputs. HT manufacturing industries are classified by the Organisation for Economic Co-operation and Development and include aircraft and spacecraft, communications, computers, pharmaceuticals, semiconductors, and testing, measuring and control instruments. The EU excludes Cyprus, Estonia, Latvia, Lithuania, Luxembourg, Malta, and Slovenia. China includes Hong Kong. Developed countries classified as high-income countries by the World Bank. Developing countries classified as upper- and lower-middle-income countries and low-income countries by the World Bank.
Trends in innovation at the firm and country level (Continued) The top three R&D-performing countries accounted for over half of the estimated $1.44 trillion in global R&D in 2011 withthe United States ($429 billion), China ($208 billion), and Japan ($147 billion) spending the most.
Trends in innovation at the firm and country level (Continued) Figure 3.2 Global R&D expenditures by region, 2015 Source: Industrial Research Institute.
The resource-based view (RBV) • RBV argues that the idiosyncratic, immobile strategic resources owned or controlled by a firm are its source of competitive advantage.
Resources & Capabilities Table 3.1 Firm-specific resources and capabilities
The VRIO framework • The VRIO framework is a theoretical model based on the resource-based view (RBV) that helps to understand the sources of sustainable competitive advantages. • Do a firm’s resources and capabilities add value by enabling it to exploit opportunities and/or neutralize threats? (Valuable) • How many competing firms already possess these valuable resources and capabilities? (Rare)
The VRIO framework (Continued) • Do firms without a resource or capability face a cost disadvantage in obtaining it compared to firms that already possess it? (Imperfectly Imitable) • Is a firm organized to exploit the full competitive potential of its resources and capabilities? (properly organized)
The VRIO framework (Continued) Figure 3.6 The VRIO framework: a decision-making process Sources: Adapted from J. Barney, “Firm resources and sustained competitive advantage,” Journal of Management, vol. 17 (1991); J. B. Barney, “Looking inside for competitive advantage,” Academy of Management Executive, vol. 9, no. 4 (1995).
Dynamic capabilities • Dynamic capability refers to the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. • Firms need three main types of dynamic capabilities in order to respond to changes or new challenges: • quick learning; • the effective integration of new assets/processes; • the ability to modify or transform existing assets/processes.
Connecting FSAs to CSAs • The interaction of FSAs and CSAs underlies the competitiveness of firms, and because countries are sovereign, the policies of governments matter. • MNEs are by definition located in many different locations, and this FSA–CSA interaction needs to be appreciated and understood in each location. • One of the key advantages of being an MNE is the ability to take advantage of different opportunities within its portfolio of locations.
Systems of innovation Systems of innovation (SI) stress the “importance of ‘systemic’ interactions between the various components of inventions, research, technical change, learning and innovation.” Figure 3.7 The conventional model of an innovation system
International dimensions of innovation MNEs manage business operations across a range of country contexts, each of which represents a different set of opportunities for innovation. Figure 3.8 International dimensions of innovation
International dimensions of innovation (Continued) Figure 3.9 MNE headquarters linked through its affiliates in other countries to the innovation systems of other countries
The location of innovation activities in the MNE MNEs have to cope with the competing pressures of integration and responsiveness: that is, to derive benefits such as economies of scale from the integration and standardization of their operations globally, while at the same time customizing and adapting in response to local customers and contexts.
The location of innovation activities in the MNE (Continued) Figure 3.10 Structural, strategic, and organization dilemmas for the innovative multinational firm Source: Adapted from C. Bartlett and S. Ghoshal, Managing across Borders: The Transnational Solution (Boston, MA: Harvard Business School Press, 2002).
The location of innovation activities in the MNE (Continued) Figure 3.11 Global MNE structures for managing innovation Source: N. Nohria and S. Ghoshal, The Differentiated Network: Organizing MNCs for Value Creation (San Francisco, CA: Jossey-Bass, 1997).
