Home Country Features

© Professor Daniel F. Spulber

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Boeing 787 Dreamliner

Airbus is a unit of the European Aeronautic Defense and Space Company (Dutch) with EU headquarters

Airbus 380

How much does the home country matter?Boeing (US) versus Airbus (EU/France)

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Home country features

When is headquarters location a source of competitive advantage / disadvantage?

• Company globalization – Launching pad• Company history and culture• Managers’ background• Corporate governance • Brand nationality• Home market• Political, legal, regulatory climate

Boeing (US) versus Airbus (EU/France)

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Home country featuresIn a global era with extreme advantage …The manager should consider:• Can the company overcome home country

limits?

• What critical functions are at headquarters? Brand management, human resource management, raising financial capital, research & development?

• What immobile inputs do we need at the headquarters: Human capital, technology

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MOST VALUABLE GLOBAL BRANDS – Nationality of brandsBrand Brand Value $m Country of origin Sector1 Coca-Cola 67,525 US Beverages2 Microsoft 59,941 US Computer Software3 IBM 53,376 US Computer Services4 GE 46,996 US Diversified5 Intel 35,588 US Computer Hardware6 Nokia 26,452 Finland Telecoms Equipment7 Disney 26,441 US Entertainment8 McDonald's 26,014 US Restaurants9 Toyota 24,837 Japan Automotive10 Marlboro 21,189 US Tobacco11 Mercedes 20,006 Germany Automotive12 Citi 19,967 US Finance Services13 H-P 18,866 US Computer Hardware14 Am. Express 18,559 US Finance Services15 Gillette 17,534 US Personal Care

Source: Interbrand, Business Week, July 2005, Value of brand as a asset based on estimate future earnings due to the brand.

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MOST VALUABLE GLOBAL BRANDS – Nationality of brands Brand Brand Value $m Country of origin Sector16 BMW 17,126 Germany Automotive18 Louis Vuitton 16,077 France Luxury19 Honda 15,788 Japan Automotive20 Samsung 14,956 Rep. of Korea Consumer Elec.24 Nescafe 12,241 Switzerland Beverages28 Sony 10,754 Japan Consumer Elec.29 HSBC 10,429 UK Finance Services35 Canon 9,044 Japan Computer Hardware36 SAP 9,006 Germany Computer Software42 Ikea 7,817 Sweden Home Furnishings43 Novartis 7,746 Switzerland Pharmaceuticals44 UBS 7,565 Switzerland Finance Services45 Siemens 7,507 Germany Diversified49 Gucci 6,619 Italy Luxury50 Nintendo 6,470 Japan Consumer Elec.Source: Interbrand, Business Week, July 2005, Value of brand as a asset based on estimate future earnings due to the brand.

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“Unilever’s strategy is to focus research and development and marketing on our leading brands, that is, those that are most in demand from consumers”

Brands can sometimes transcendthe company’s home country

“Consumers drink over 177 billioncups of our tea every year” (Lipton)

World leader in tea, ice cream, some prepared foodsParent companies: Two headquarters: Dutch (Unilever NV) and British (Unilever PLC )

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Sold 27 and 33 businesses in 2000 and 2001 including:

• Bestfoods Baking Company

• Elizabeth Arden

• Dry soup and sauces businesses in Europe

Made 20 acquisitions in 2000 including:

• Bestfoods - Foods international

• Amora Maille - Culinary products in France

• Ben & Jerry’s - Ice cream primarily in the US

• Cressida - Foods and Home & personal care in Central America

• Slim-Fast - Nutritional bars and beverage products in the US

Unilever manages many international brands that transcend its nationality

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Hutchison HouseCourtesy of Hutchison Whampoa Limited

How does Hutchison Whampoa’s HQ location affect manager’s knowledge and the competitive advantage of the company’s five core business areas?

Location and manager knowledge

Example: Hutchison Whampoa (Hong Kong)

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The combined MARKET CAP of the Cheung Kong Group accounts for 15% of the total MARKET CAP of the Hong Kong stock market.

49.9%

Cheung Kong is the leading Hong Kong based multi-national conglomerate.

Hutchison Whampoa

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• Telecomm – Global network– Acquisition of Western Wireless– Divested Orange, acquired Global Crossing– Need to coordinate international network– Not dependent on HQ location

• Energy and Infrastructure – Mainly Asia and Hong Kong– Infrastructure, mainly in China, some in Canada– Energy business: mostly local electric power

focus– Less dependent on HQ location

Hutchison Whampoa

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Hutchison Whampoa

• Real estate – Mainly Asia and Hong Kong– Local knowledge critical

• Ports – Global– One of the world’s leading operators, Panama Canal,

global network– International trade knowledge– Not dependent on HQ location

• Retail and Manufacturing – Mainly Asia and Hong Kong– A. H. Watson top Asian retailer – regional experience– International trading experience– Distribution JVs with Procter & Gamble– Focus on regional markets

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Home country features

Home market: Demand side• A large home market can be an

effective home base and launching pad for international expansion

• However, the international business need not have a large home market for competitive advantage

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Example: NOKIAHeadquarters in Finland

• World leader in wireless phones

• Small home market Customers are worldwide

• Suppliers are worldwide (Texas Instruments in US, many assembly plants)

• Few partners in Finland• Competition is from other

international businesses (Motorola, Sony/EricssonSamsung)

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Home country features

Home market: Supply side• Home country can be source of inputs

and production advantages

• However, suppliers need not be in home country for competitive advantage

• Manufacturing base need not be in home country

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Companies like Hutchison Whampoa or Jardine Matheson overcome supply-side

limits of Hong Kong

• Production and procurement throughout the world

• Business ties with 50 million overseas Chinese

• Open markets and international arbitrage

• Half the world’s population in 5 hours flying time

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Manufacturer can move mobile factors to where they are needed for production

Land Human Resources Technology Inputs Capital

Least mobile Most mobile

Some barriers to mobility:– Work force: Preferences and immigration restrictions limit

human resource mobility– Trade regulations and transport costs for inputs– Capital regulations and informational home bias for finance

capital

Home country features

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Home country features

• Manufacturers can move production to best location outside of home country

For example to countries with productive/low cost labor

• Companies can purchase best products

• Companies can contract with best suppliers

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3,670

3,360

2,160

2,073

1,228

1,154

1,111

1,050

913

705

640

479

440

389

350

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Malaysia

Shanghai

Thailand

Bijing/Tanjin

East China

Northeast China

South China

Philippines

North China

Central China

Indonesia

Northwest China

India

Southwest China

Vietnam

Source: Citigroup, 2002

Regional differences: for sourcing and servingAnnual Per Capita Incomes $

Per capital income differences affect both wages and product prices

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Political, legal, regulatory climate

• Political system: democracy, corruption, business risk

• Legal: contracts, tort• Regulation: costs of doing business• Trade regulations• Industrial policy, subsidies• Open markets reduce protection for home

market incumbents• Open markets reduce costs of operating

international business from home country

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Example -- globalization Indian outsourcing industry

Infosys TechnologiesSatyam Computer ServicesTata Consultancy Services

• Government policy changes ended state monopoly on Internet access and opened Indian economy

• Customers located outside India

• Growth in software and services, export of services online

• Headquarters near source of human capital

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Summary and Take-Away Points

International business must address home country advantages/disadvantages to meet global challenges

Maximize home country advantages!

Transcend home country limits using global markets!

(finance capital, technology and expertise, inputs, manufacturing and distribution services, final goods and services)

Recognize both immobile factors for production and need to be close to customers in sales and distribution