Dave Shen

Firms need to exploit the three sources of competitive advantages: natural differences, scale economies, and scope economies in order to optimize efficiency, risk, and learning simultaneously. Although it has been discussed that labour costs may be lower in for certain countries and that may help configure the value chain, it is also an advantage for the MNC to have certain functions such as R&D to better understand the regional market’s customer needs. Their primary focus in R&D is hiring the best talent for research, not cost.  Although Microsoft’s main R&D facility is in Redmond, WA, they have 6 R&D facilities in 3 continents.    The largest lab outside is Microsoft Research Asia in Beijing, where 200 researchers are developing next-generation multimedia applications and Asia-specific computing technologies. Having R&D labs globally allows Microsoft to develop products that are unique to a particular market — but also acts a global think tank where there is mutual collaboration amongst the teams.

Firms should look to exploit scale economies by expanding its total volume of sales and reducing cost per unit.  Expanding the product into new markets increases volume and therefore enable to lower costs.  For example, Apple is able to purchase components such as NAND Flash drives at a fractional cost because of their large order requests.  The cost to develop to an MP3 player that is of similar experience will be lower than other rivals because they are able to take advantage of their economies of scale.  In certain cases, it may be prudent for a MNC to avoid increase complexity and outsource certain functions to suppliers in order possess operational flexibility.

Firms need to exploit scope economies as a source of competitive advantage i.e.knowledge, brands, functions, markets, suppliers, customers, channels, government– this can help reduce cost of developing new products and move the experience curve further down.  The mobile technology markets in Japan and South Korea are at at least five years ahead of the North American markets — firms in this space with presence in this regions could help develop new products by gaining thru the learnings and challenges faced.  Companies like Samsung and LG have leveraged their product development for the North American market.