Maximization Of MNCs' Competitive Advantage

The main purpose of this study is to explore the motive international industrial transfer from an all-new angle, i.e. competitive advantage of Multinational Corporations (MNCs), the subject of international industrial transfer, and put forward relevant suggestions for escalation of China's manufacture development and international competitiveness of Chinese manufacturers by shifting from an international industrial transfer receiver to a sponsor.This dissertation combines normative and empirical analysis. In the using of normative analysis, this dissertation proposes the theory of maximum competitive advantage as theoretical pivot of dissertation, based on theories of international trade, industrial organization, foreign direct investment (FDI), competitive advantage and new institutional economics, by studying the motive international industrial transfer from the angle of MNCs, Besides, the dissertation also analyzes realization of maximum competitive advantage-the matrix division of labor and its determinants. As guided by the theory, paths of internationalization of Chinese enterprises are studied. In empirical analysis, case studies and models are used. The dissertation compares characteristics of international industrial transfer carried out by MNCs based in countries on different levels of international division of labor to find out commonalities. Meanwhile, the dissertation selects typical cases on internationalization of Chinese enterprises to verify the theoretical pivot. In addition, mathematical models are applied to analyze the deciding factors of matrix division of labor and adverse international industrial transfer as well as the relationship among competitive advantage, matrix division of labor and international industrial transfer.This dissertation is divided into six chapters.Chapter 1 is preface, describing the research background, purpose, significance, reasoning, methodology, innovation and drawbacks of the dissertation respectively. Based on summary and comments of present explanation on motive of international industrial transfer from the angles of industry and MNCs, this chapter points out the defects of present theories, and it is necessary to comprehend and explain international industrial transfer. from the perspective of micro subject of international industrial transfer-MNCs. Chapter 2 redefines international industrial transfer from the perspective of MNCs on the basis of criticism on existing definitions. International industrial transfer is regarded as a conscious and strategic behavior of MNCs because of their important role in latest international industrial transfer, which clarifies the orientation of this study, and provides the foundation of the next chapter.Chapter 3 answers "what" is maximum competitive advantage. First, the chapter figures out that competitive advantage -oriented international industrial transfer is a higher level of internationalization than exporting and FDI by analyzing evolution motivation of international operation. Furthermore, the chapter analyzes the differences between source, embodiment, entry barriers, business risks and market risks of two cornerstones of competitive advantage-cost leadership and differentiation as well as the relationship between two kinds of competitive advantages and value-added and competitiveness. Then, the chapter probes competitive advantage of MNCs, and declares compared with ordinary firms, MNCs are able to reach harmony, balance or concession of two kinds of competitive advantages. Based on the opinion, the theory of maximum competitive advantage is forwarded and interpreted. Finally, empirical analysis of maximum competitive advantage is carried out by selecting four typical countries-the United States, Japan, South Korea and India, as representatives of traditional industrialized countries, newly developed countries, newly industrialized countries and developing countries respectively, and comparing strategic behaviors of manufacture MNCs based in these countries in latest international industrial transfer. The common feature of outward industrial transfer of MNCs from four countries is global positioning of research & development (R&D), manufacturing and marketing of different purposes and on different levels to achieve the goal of strengthening competitive advantage.Chapter 4 answers "why" should competitive advantage be maximized. To explore ways to achieve maximum competitive advantage, this chapter establishes a framework of matrix division of labor covering value chain, service outsourcing, R&D transfer and competitive advantage, based on empirical analysis of MNC activities. various value chain activities are brought into this framework to illustrate the pattern of fragmentation of R&D, manufacturing and marketing, and relationship between the matrix division of labor and competitive advantage of MNCs. Then, the development and determinants of matrix division of labor are discussed and it is concluded relative factor costs and institutional costs are major determinants in the formation of matrix division of labor. Finally, a mathematical model based on basic model of vertical integration is constructed to analyze the relationship among maximum competitive advantage, matrix division of labor and international industrial transfer.Chapter 5 answers "how" to apply maximum competitive advantage. First, the chapter analyzes development and international competitiveness of China's manufacturing industry and affirms differentiation advantage is the vital gap between China and genuine world plants. Under guidance of theory, of maximum competitive advantage, the chapter suggests China's manufacturing enterprises should learn from the experience of successful countries, and actively participate differentiation advantage seeking international industrial transfer. At the end, from the perspective of firms and government countermeasures for outward transfer of Chinese manufacturing industry are presented.Chapter 6 is conclusions and prospects of this dissertation. The chapter summarizes the main conclusions and drawbacks, and opens up prospects for future research.The main conclusions include:(1) International industrial transfer does not equal to FDI. They are similar or even identical in subject and performance, but strictly speaking, they are interrelated and independent concepts. FDI is only one of the ways of international industrial transfer with declining importance. The purposes of FDI are relatively more diversified, including trade barriers avoiding, local resource exploiting, as well as elimination of competitors and so on. International industrial transfer is strategic behavior adopted by MNCs to adapt to changing environments and competition.. International industrial transfer must be defined as follows, an profit-maximizing enterprise in changing business environments, transfer some functions (production, marketing and R&D, etc) to other countries or regions in accordance with principle of comparative advantage, through FDI or international trade, etc. When a number of enterprises participate in such shift, spatial distribution and migration of the industry occurs.(2) Compared with exporting and FDI, the international industrial transfer process includes not only the movement of both commodity (inflow of intermediate products and outflow of final products) and capital, but also non-equity ways like outsourcing. Traditional international operations are usually market access oriented. International industrial transfer is deliberate, strategic and systematic decision of MNs. Through seeking and selecting optimal location globally, MNCs establish production networks to exert their advantage to organize and transfer resources globally. In this sense, international industrial transfer is a business practice in higher stage of international operation than exporting and FDI to help enterprises maintain and gain competitive advantage in increasingly competitive market.(3) Differential and cost leadership are two cornerstones of competitive advantage. The former mainly comes from innovation, embodied as monopolizing power based on patents, brands and other intangible assets; the latter mainly generates from economy of scale, management and inter-country differences in elements and systems, embodied as low prices or high performance/price ratio. Differentiation has higher barriers to entry, and accordingly, higher value-added, and vice versa. There are contradictions between two kinds of competitive advantages, the implementation of differentiation often means higher costs. Competitive advantages of MNCs also include differential and cost leadership, but MNCs with ability of global resource planning can coordinate, balance and compromise between these two advantages, and gain maximum competitive advantage. Maximum competitive advantage means MNCs in increasingly competitive market and facing different industry development environments in different countries, slice and re-locate value chain functions in countries or regions with comparative advantage, to obtain, maintain and maximize competitive advantage. MNCs from the US, Japan, South Korea and India have consciously followed this rule in outward industrial transfer.(4) Competitive advantage impenetrate all aspects and levels of the value chain. Realization of maximum competitive advantage needs optimal layout of various value-creating activities and improvement of overall operating efficiency. So, international industrial transfer is not limited to the manufacturing process, but also extended to R&D and marketing. Nowadays, MNCs further subdivide value chain(R&D, manufacturing and marketing) into a number of levels, and form matrix division of labor covering value chain, service outsourcing, R&D transfer and competitive advantage. The higher level the value creating activities in each stage of this division of labor occupies, the higher value-added taken, and the closer to differentiation advantage. Contrary, the lower value-added taken, and the closer to cost leadership advantage. MNCs maximize competitive advantage through matrix division of labor. Positions of countries in division of labor are determined by costs of factors and institutional costs. MNCs select optimal location of different costs of factors and institutional costs in international industrial transfer.(5) The size of China's manufacturing industry and commodity export have ranked No.1 in the world, but the main competitive advantage of China's manufacturing industry still focuses on labor-intensive products and low value-added parts in the production of capital-and technology-intensive products. Matrix division of labor shows, despite the technical content of Chinese exports has increased successively, following the rising level of international industrial transfer, and China has become the major destination of R&D transfer from developed countries, China still stays in the low end of international division of labor of R&D, manufacturing and marketing and shares small part of the interest. Depending on fragile cost advantage, Chinese companies embed in global production networks of MNCs, assuming the part of the lowest value-added. Lack of differentiation is the major disadvantage of China's enterprises' international competitiveness.(6) According to the theory of maximum competitive advantage and case study on typical countries, firms can achieve leapfrog development in matrix division of labor and improve international competitiveness by integrating elements of higher quality and better institutional arrangements globally through international operations. To occupy high-ends of matrix division of labor, Chinese enterprises should improve differentiation advantage. In internationalization, Chinese enterprises must be fully aware of the disadvantage in high-end R&D, manufacturing and marketing, carry out adverse international industrial transfer, actively seek differention advantage while maintaining cost leadership. In this process, they must select the appropriate manner, and be cautious to risks.The main innovations of this dissertation are:(1) This dissertation breaks the limitation of micro- and industry-oriented research on international industrial transfer focusing on technology spillover, industrial upgrading and economic growth effects and benefit distribution, studies motivations of international industrial transfer from the angle of MNCs as micro subject, andgives a new explanation based on relationship between international division of labor and competitive advantage.(2) This dissertation forwards theory of maximum competitive advantage from the perspective of MNCs, and considers maximum competitive advantage is the major motivation of international industrial transfer. Meanwhile, to research the way to maximize competitive advantage, this dissertation builds a framework of matrix division of labor covering R&D, manufacturing, marketing, which are often been fragmented in researches perspective. With the introduction of value-added and competitive advantage to the analytical framework, the international industrial transfer is completely studied.(3) This dissertation studies China as both a receiver and sponsor of international industrial transfer. Especially Chinese enterprises' outward industrial transfer is studied. Besides, this dissertation changes the traditional perspective of "going out" strategy limited to market entry and natural resource seeking, and proposes maximum competitive advantage oriented internationalization strategy of Chinese enterprises...