Configural Advantage

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ABSTRACT Achieving a sustainable competitive advantage in global marketsdepends on the geographic scope and diversity of the firms opera-

tions and their interlinkage, as well as on the extent of market inte-

gration and interdependence. The spatial configuration of the firms

assets, capabilities, and resources and the ability to manage and use

these resources effectively are crucial elements of the firms global

strategy. The authors examine the nature of a firms configural ad-

vantage in global markets in terms of its key components, capabili-

ties, and management issues.

Building a sustainable competitive advantage is widelyviewed as a key factor underlying an effective marketingstrategy (Day 1990; Porter 1980). Yet despite the growing im-portance of international markets and the increasing numberof firms expanding internationally, most discussion has beenconfined to the domestic market. In international markets,interest has primarily been focused on the extent to whichdomestic market conditions provide industries with an ad-vantage in competing in international markets (Porter 1990),as well as on industry drivers of globalization (Yip 1995).Relatively little attention has been centered on how an indi-

vidual firm can or should craft a sustainable competitive ad-vantage in international markets. Typically, it is assumed thatthe firm can succeed by leveraging its domestic positioningfor example, through a cost leadership, differentiation, orniche strategy in international markets.

Although this assumption may be appropriate for firms ini-tially entering international markets or targeting global mar-ket segments, it does not take into account the existence ofdifferences among national markets or the spatial characterof the global landscape. Often, customer characteristics anddesired benefits, key competitors and their strategies, or the

nature of the market infrastructure differ from one market toanother, which requires the firm to modify substantially itscompetitive positioning to compete effectively. Yet at thesame time, interdependencies between markets are growingas a result of the flow of goods, people, and informationacross national boundaries (Featherstone 1990). As a result,in assessing its overall competitive advantage in global mar-kets, a firm needs to consider the strengths and weaknessesof its competitive positions in each countrys market and

Configural Advantage in Global Markets

Submitted March 1999

Revised October 1999

Journal of International Marketing

Vol. 8, No. 1, 2000, pp. 626

ISSN 1069-031X

C. Samuel Craig andSusan P. Douglas


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how these interact to influence deployment of resourcesworldwide. The following examples illustrate this issue.

In the United States, News Corporations Fox network typi-cally ends up fourth in the rating wars with the three estab-lished networks, ABC, NBC, and CBS. However, outside theUnited States, the picture is quite different. In addition to es-

tablishing a fourth television network, Rupert Murdoch isbuilding a strong configuration of satellite and cable compa-nies around the world. The extensive geographic network ofoperations allows content developed for the Fox televisionnetwork in the United States to be aired on News Corpora-tions vast satellite network, which consists of BSkyB in theUnited Kingdom, Star TV in Asia, and ISkyB in India, as wellas through satellite- and terrestrial-based networks in othercountries where News Corporation has strategic alliances.This vast network gives News Corporation a strong config-ural advantage over the three U.S. television networksonethat is very costly and difficult to replicate.

Kaos Attack is the leading brand of laundry detergent inJapan. It is so strong that an independent survey of 170leading brands found Attack to be the number one power

brand in Japan. Attack is so popular that it is frequentlygiven as a gift. However, outside Japan, Kao is a smallplayer in the detergent market that is dominated by Procter& Gamble, Unilever, and Colgate-Palmolive. This largely re-flects Kaos relatively limited configuration of operationsoutside Japan for any of its five major product businesses. In1999, only 29% of the companys sales were outside Japan,and approximately half those were to nearby Asian coun-

tries. The limited geographic scope of this network does notprovide a strong platform to expand its operations. This isfurther reinforced by its perception of its unique capabili-ties: ability to discover customer needs, superior researchand development (R&D), a strong sales force, and effectiveprofit management.

Nestl provides an example of a company with a strong con-figural advantage in the marketing, distribution, and manu-facture of food products. Nestl has developed an explicitinternational brand architecture that consists of 10 world-wide corporate brands, 45 worldwide strategic product

brands, 25 regional corporate brands, 100 regional productbrands, 700 local strategic brands, and approximately 7000local brands (Parsons 1996). On the production side it has522 factories in 81 countries that provide manufacturing ca-pabilities in key markets. The broad geographic coverage en-ables Nestl to realize sales from industrialized countries aswell as the increasingly important emerging market countriesand to transfer information and experience from one marketor region to another.

7Configural Advantage in Global Markets

EXAMPLES

Building Market Presence

Lack of GlobalMarket Coverage

Strategic Flexibility


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Viacom has been able to establish a strong configural advan-tage with MTV, its Music Television network, which reaches300 million households in 83 countries worldwide. The

brand identity is extremely strong and appeals to teensthroughout the world. Programs can be rapidly distributedthrough MTV Europe, MTV Latin America, MTV Brazil,MTV Asia, MTV India, MTV Mandarin, MTV Japan, MTV

Australia, and MTV Russia. In addition, content can be mod-ified to accommodate local music preferences. Viacom hasalso leveraged brand identity to MTV Books, MTV Films, andMTV On-Line, as well as to more than 50 international li-censes. MTV On-Line has become the most heavily visitedarea of America Online. The basic experience gained in oper-ating in other countries can also be transferred to other Via-com properties, such as Nickelodeon/Nick at Night, VH-1,and ShowTime, as well as Viacoms Blockbuster video storesin 26 international markets.

The spatial configuration of the firms assets and resources in

different markets thus becomes a key element of its competi-tive strategy. A firm needs to build a strong competitive posi-tion and a market presence in key growth markets toestablish a leadership position in world markets (Douglasand Craig 1996). In addition, the firm needs to retain strategicflexibility to respond to changing demand, resource, andcompetitive conditions in international markets (Dunning1998; Kogut 1985). Thus, the spatial deployment of the firmsassets, capabilities, and resources as well as the ability tomanage and use these capabilities effectively are the funda-mental components for establishing global market position.This can be termed the firms configural advantage.

The purpose of this article is to examine how developing asustainable competitive advantage differs in global marketscompared with a domestic market. The patterning of interna-tional markets is inherently complex. Markets are often geo-graphically dispersed and interlinked through trade flows,communication and distribution networks, a common marketinfrastructure, the presence of the same competitors or cus-tomers, and so forth (Dicken 1998). A key premise of this arti-cle is that the formula for achieving sustainable competitiveadvantage in global markets depends on (1) the extent of mar-ket integration and interlinkage, (2) the strength and geo-

graphic scope of the firms position in international markets,and (3) the organization and management of linkages betweenthe firms value-creating activities sustaining this position.The challenge is to achieve a complex matching of the firmsuse and deployment of resources and the configuration of itsoperations with the spatial distribution of markets.

The article is organized as follows. We first review traditionalapproaches to building a sustainable competitive advantage,

8 C. Samuel Craig and Susan P. Douglas

Speed of Resource Deployment


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as well as their application to international markets. Wethen discuss issues relating to the design of the spatialconfiguration of activity systems. We examine next keyaspects of a configural advantagemarket presence andposition, strategic flexibility, and speed of resource deploy-mentand finally outline some implications for interna-tional marketing strategy.

Traditional approaches to developing competitive advantagefocus on developing a positional advantage (Porter 1980)relative to competition based on either cost leadership or dif-ferentiating the product/service offering. Each type of advan-tage can be developed in relation to a broad-based market ora focused target segment. These positional advantages are notnecessarily mutually exclusive. Developing a differentialadvantage does not, for example, imply lack of attention tocosts, and conversely, use of a cost-leadership strategy doesnot necessarily mean that the firm does not differentiate itsproduct or services from its competition. The term playing

the spread has, for example, been used for firms that are costleaders and differentiate their product or service offering aswell (Day 1990).

More recently, attention has shifted to the capabilities andassets or resource endowments that are the source of thefirms advantage and enable it to build a positional advantagein the marketplace (Rumelt, Schendel, and Teece 1991). Ac-cording to this perspective (Grant 1991), to develop and sus-tain a superior competitive position, a firm has to possesscertain distinctive assets and capabilities that distinguish itfrom its competition. These capabilities should enable the

firm to deliver superior value to customers or to deliver valuein a more cost-effective manner than do its competitors (Pra-halad and Hamel 1990). In addition, such capabilities should

be rare, not substitutable, and they should not be readily im-itable by competitors; otherwise they will not remain distinc-tive (Barney 1991).

Distinctive capabilities are the foundation of a firms positionin the marketplace. In assessing whether these capabilitiescan be transferred to international markets to provide thefirm with a sustainable competitive advantage, two impor-tant issues must be considered. The first is the extent to

which the markets targeted are characterized by distinctivecustomer needs and interests, competitors, and market infra-structure and separated by economic, political, and cultural

barriers. These distinctive aspects may require the firm to tai-lor its position and adapt or develop distinctive capabilitiesto meet specific local needs. The second pertains to how farassets and capabilities are location-specific; for example,production techniques or processes may be adapted to agiven cultural environment with specific labor or manage-

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TRADITIONAL APPROACHESTO BUILDING A SUSTAINABLECOMPETITIVE ADVANTAGE



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ment skills. Channel bonding processes may be tailored todistribution systems in which channel relationships are builton trust and commitment.

If the firms distinctive capabilities are grounded in uniquelocation-specific skills and knowledge, only limited directtransfer of capabilities is feasible. Some aspects of manage-

ment processes or systems may be transferred, but in essence,the firms ability to leverage its distinctive capabilities andintangible assets depends on its ability to establish mecha-nisms to facilitate organizational learning and the transfer ofknowledge across markets (Hall 1993). As internationalmarkets become more interlinked and integrated eitherregionally or globally, the development of such learningmechanisms becomes critical for linking and coordinatingspatially diverse positions to achieve synergies in resourceuse and establish a superior competitive advantage globally.

A firm initially entering international markets typically at-

tempts to leverage its domestic positional advantage on thebasis of its assets and distinctive capabilities. Because theseare defined in relation to customer needs and competitors inthe domestic market, the challenge is to leverage these in dif-ferent and diverse international markets (Craig and Douglas1996). If the firm targets the same market segment adoptingthe same positioning worldwide, as Benneton and Nike havedone, this leveraging may pose few difficulties. Similarly, if afirm operates in globally integrated industries, such as air-craft, industrial electronics, or specialty chemicals, a keycustomer requirement is the ability to supply and servicecustomer operations worldwide. If, conversely, markets are

fragmented and customer needs differ substantially from onemarket to another, gaining a configural advantage will beconsiderably more complex.

Firms focusing on a global market segment often can effec-tively use the same capabilities and skills to target that segmentthroughout the world. For example, Godiva chocolates are po-sitioned as high-end luxury chocolates to consumers world-wide. The elaborate packaging in gold boxes decorated with

bows, coupled with full-page color advertisements in high-endmagazines, projects a sophisticated image and provides highvisibility worldwide. This image is reinforced by distribution

through small specialty shops or boutiques in high-end depart-ment stores worldwide. Substantial synergies accrue fromleveraging the firms positional advantage internationally, par-ticularly, as in this case, when establishing a distinctive globalidentity for the corporate brand or product is a key element ofthe firms competitive strategy (see Figure 1, Panel A).

If the market is globally or regionally integrated and cus-tomer needs and interests are the same worldwidefor ex-


LEVERAGING POSITIONALADVANTAGE ININTERNATIONAL MARKETS

Direct Leveraging ofPositional Advantage


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ample, in aircraft, industrial electronics, and business com-putersa firm will typically need to compete globally to besuccessful (see Figure 1, Panel B). For example, Boeing andAirbus compete in developing planes for global customers.Similarly, an important aspect of the success of Hilton andSheraton hotels in targeting the growing market for interna-tional business travel is their extensive network of hotelsworldwide, which offers a consistent and reliable standard ofservice and comfort for the business traveler from Uzbekistanto Madagascar.

More commonly, firms compete in markets that are spatially

dispersed, and in some cases independent, though more fre-quently interlinked. Customer needs and interests, as well asthe nature of competition and the market infrastructure, dif-fer from one market to another. Consequently, a firm mustmodify its domestic positional advantage to each market to

be successful (see Figure 2). For example, Procter & Gamblehas had to modify existing detergent products as well as itspositioning and develop new products to match differencesin washing habits, water conditions, and use of washing ma-chines in different parts of the world. For example, Ariel was

Domestic Positional Advantage

MarketA

International Configural Advantage

A: By Segment

MarketC

MarketB

Figure 1.Direct Leveraging ofPositional Advantage inInternational Markets


Global Configural Advantage

B: In Integrated Markets

Global Market

Modifying PositionalAdvantage inInternational Markets



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initially developed in Europe as a low-temperature detergentpowder with an environmentally friendly version. In India, ithas been marketed as a presoak, and in the United States asCheer, an all-purpose detergent. Differences in the cost andavailability of local resources may also suggest the desirabil-

ity of tailoring the development of a competitive position andthe value delivered to customers from one market to another.

In modifying positional advantage in dispersed markets, thefirm needs to develop the ability to support that position ineach local market. Often, it will need to make use of location-specific assets and resources to build local capabilities andoperational systems to sustain its position. In some cases, thefirm will replicate a distinctive activity system (such as anew product development or brand management system) inanother market. For example, Procter & Gamble has beenhighly effective in duplicating its distinctive system of brandmanagement and mass merchandising in multiple countryenvironments. This implies that the firm has also needed todevelop the ability to manage the deployment of its distinc-tive skills, assets, and capabilities across markets and trans-fer learning across markets.

In other cases, the firm needs to develop context-specific ca-pabilities, for example, building channel relationships basedon trust in Japan. In this case, the firm develops specific ca-pabilities adapted to idiosyncratic market conditions, butones that cannot be readily leveraged to other markets. For

example, Smith, Klein & French had to invest in establishinga strong network of personal relationships with wholesalersin Japan to enter the market successfully.

Other firms will use local skills and resources to implementtheir unique competitive advantages, while fine-tuning theirpositions to local market characteristics. For example, thekey strength of volume discounters such as Wal-Mart andKmart is their operational efficiency. After several falsestarts, they are now successfully replicating their operational

Figure 2.Modifying Positional

Advantage inInternational Markets


Positional

AdvantageMarket A

International Configural Advantage

PositionalAdvantage

Market B

PositionalAdvantage

Market C

Adapt Adapt Adapt


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and management systems in countries in Europe and Asia,while modifying the retail assortment and other aspects oftheir retail format to meet local customer needs.

The design of the spatial configuration of the firms activitysystems is a key element of configural advantage. Activitiesat different stages in the value chain must be spatially ar-

rayed to take advantage of location-specific assets, such as la-bor, while enabling the firm to deliver superior customervalue relative to its competitors. Linkages between competi-tive positions and the underlying capabilities in each marketmust be developed to provide strategic flexibility. This alsofacilitates learning and generates synergies across markets,which reinforces the firms global competitive position (Mal-night 1996). A key parameter in determining the spatial con-figuration of activities is the degree of market integration.

International markets are becoming integrated at several dif-ferent levels (Bettis and Hitt 1995; Dicken 1998; Dunning

1998). Most broadly, integration is taking place at the macro-economic level. The economies of many countries, particu-larly within regional trading blocs, are becoming more closelyintertwined. Visible manifestations of this are cross-borderflows of goods and services coupled with the growth of orga-nizational networks spanning national boundaries, as wellas air traffic, mail flows, increased tourist and businesstravel, and migration of people (Douglas and Craig 1996).Geographic proximity is a driving factor, because proximatemarkets are more likely to be integrated than distant markets.

Market infrastructures are also becoming more interlinked

and integrated as a result of advances in communicationstechnology, satellite links, growth of company intranets, theInternet, and improvements in physical communication net-works and linkages. Regional expansion of distribution net-works at both the wholesale and retail levels and the globalexpansion of service organizations, such as advertising agen-cies, research agencies, and financial institutions, all serve toreinforce market integration.

Market integration is facilitated by two critical space-shrink-ing technologies: transport systems and communications(Dicken 1998). The transport systems make possible rapid

supply from distant locations. Communications systemsfacilitate rapid dissemination of information and communica-tion, both within the firm and externally. Increasing marketintegration, coupled with the ability to coordinate and ex-change information, enables the firm to treat highly integratedmarkets as a single market. As a result, integration takes placein two overlapping spheres. First, markets for goods and ser-vices are becoming increasingly integrated as a result of com-petitive, technological, and market forces. Second, firms seek

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DESIGNING THE SPATIALCONFIGURATION OF

ACTIVITY SYSTEMS ININTERNATIONAL MARKETS

The Growing

Integration of Markets



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to integrate their own activities in response to market integra-tion. However, firms are not passive participants, because of-ten their actions speed and shape market integration,particularly at the level of the product market or industry.

Integration of markets requires the firm to reassess the loca-tion of value-creating activities, particularly with a view to

determining whether greater concentration will provide effi-ciencies or whether dispersion combined with strong hori-zontal and vertical linkages will provide greater flexibility.The array of value-creating activities that the firm engages invaries in its potential for concentration (Porter 1986). Typi-cally, firms first concentrate on upstream value-chain activi-ties, such as R&D and production, as these activities benefitfrom economies of scale. Furthermore, even if functionssuch as R&D and manufacturing do not take place in onelocation, the activities benefit from formal linkages thathelp coordinate operations and facilitate the exchange ofinformation. In contrast, downstream activities, such as mar-

keting and distribution, are by their very nature geographi-cally dispersed.

Concentration of the firms value-creating activities offersseveral advantages insofar as scale economies can providethe firm with a cost advantage relative to competitors in serv-ing a given market (Porter 1986). Equally, concentration en-ables the use of superior or highly specialized skills andexpertise or an accumulation of specialized knowledge relat-ing to production design, creation of advertising copy, orother functions. For example, Procter & Gamble concentratesR&D in detergents in three centers located in the United

States, Japan, and Europe. Each center works on differentproblems and shares the results to develop new products orproduct formulations for different markets. Similarly,Unilever has three new product development centers thatwork on new product ideas for the entire organization.

Geographic dispersion of activities, in contrast, providesgreater contact with customers and competitors. In particu-lar, if the firm emphasizes customization of its offerings,proximity to customers may enable it to provide rapid re-sponse and tailoring of product and services to meet specificcustomer needs (Bartmess and Cerny 1993). For example,

Hyundais computer division established an assembly plantin California to be close to consumers and competitors,though there are substantial production efficiencies in cen-tralization. Proximity to customers may provide a significantadvantage, especially if there are differences in customer de-mand from one location to another.

Proximity to competitors also facilitates greater awareness ofcompetitor innovations and changes in strategy, such as new


Determining the SpatialConfiguration of Activities


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products, innovative production processes, or breakthroughsin R&D (Porter 1990). In some cases, these may be stimulated

by local market demand, resource availability, or the exis-tence of local support industries. For example, advances inenvironmentally friendly products have occurred primarilyin Germany, where there is substantial customer sensitivityto environmental issues. Equally, innovation in surfactants

has occurred primarily in the Japanese market, where there isa concentration of research in coatings of different types.

Dispersion also provides greater flexibility to changes inmacroeconomic or market conditions in different locations.Geographic dispersion, for example, enables the firm to shiftproduction or adjust sourcing policies more rapidly toswings in foreign exchange, changes in economic or politicalconditions, work stoppages due to strikes or labor unrest, andso forth and thus diversifies macroeconomic risk and pro-vides greater strategic flexibility.

Management systems to direct the spatial deployment ofassets and resources across markets as well as within marketsare critical and provide the firm with a competitive advantageat a global level. Coordination and elimination of inconsisten-cies among positions in different countries is essential if thefirm has modified its competitive position to meet differencesin customer demand or competitive conditions in local mar-kets or has established independent competitive positions

based on local skills and capabilities. Linkages between opera-tions and activity systems at different stages of the value chainin different markets can also generate efficiencies (Malnight1996). In some cases, this may lead to the establishment of ca-

pabilities that transcend national boundaries, such as globalproduction platforms or global category-management systems.Mechanisms such as global information systems and regularlyscheduled meetings between country or regional managersfacilitate the transfer of ideas and experience and the dissemi-nation of best practices across markets and are crucial inpromoting organizational learning.

Coordination of competitive positions across markets is criti-cal if the firm has fitted its positional advantage to local mar-ket conditions (Prahalad and Doz 1987). Mechanisms must beestablished that help minimize inconsistencies in positions

or dislocation of flows of goods and services from one marketto another. These can detract from configural advantage whenactions in one market weaken a strong position in another.Aggressive pricing to meet competition in one market can, forexample, result in the growth of gray markets. This results indislocation of logistical flow of goods as well as the erosion ofthe firms margins in these markets. However, although closeralignment of prices tends to eliminate such effects, greateruniformity of prices may lower overall sales.

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Managing the SpatialConfiguration of Activities



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If advertising or promotional campaigns are tailored to localmarkets and differ substantially, the use of umbrella advertis-ing can help introduce greater consistency of themes and en-hance the firms visibility across markets. Similarly, if thefirm has a high proportion of local brands in its internationalportfolio, the use of the corporate logo or brand names canhelp consolidate brand image in international markets. Dif-

ferences in brand names and brand identities across coun-tries and geographic regions, even for the same product,result in fragmentation of image. A shift to emphasis on acorporate or uniform house brand, harmonization of packag-ing, and other visual markers across countries can help forgea common identity. For example, Nestl now places theNestl corporate brand on almost all product lines to rein-force global corporate identity. This in turn strengthens thefirms global image and its competitive position, generatingsynergies across markets and geographic regions. A criticalelement here is the development of organizational processesand procedures to facilitate improved coordination and im-

plementation of strategy across regional or national bound-aries (Bartlett and Ghoshal 1989).

Linking Operations/Activity Systems. Development of opera-tional links among activity systems across markets andregions also helps strengthen the firms configural advantage,especially against local competitors or firms operating on adecentralized basis. Advances in information and communi-cations technology facilitate linkage of geographicallydispersed activities to compensate for some of the disadvan-tages of geographic dispersion (Bradley 1993; Bradley, Haus-man, and Nolan 1993). Linking skills and capabilities not

only improves operational efficiency and strategic flexibilitybut also permits the use of highly specialized skills thatwould not be feasible on a smaller scale of operations (Mal-night 1996). In some cases, this may also lead to the develop-ment of capabilities that span national boundaries; that is,the firm develops the capability to organize or perform a spe-cific value-generating activity at a global or regional levelrather than a national level.

Product design or coordination of production of individualcomponents in different parts of the world can be accom-plished with computer-aided design and manufacturing sys-

tems. In the automobile industry, firms such as Ford andHonda are moving toward building global production plat-forms, which enable them to produce models for world or re-gional markets and to achieve efficiencies in productiondesign. This provides cost savings and efficiencies throughsourcing of standardized components from a more limitednumber of suppliers. However, this does not necessarily im-ply the marketing of globally standardized products. Masscustomization techniques, such as modular production tech-



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nology and flexible manufacturing systems, enable the firm toprovide product variety and customize products to local mar-kets (Sanchez 1995). Mass customization also enhances thefirms competitive position by providing flexibility and quickresponsiveness. Honda, for example, has developed a globalproduction platform for the Accord. In contrast to platformsdeveloped by other automobile makers, the platform is flexi-

ble and can be bent and stretched to build vastly different carsgeared to local markets around the world.

Similarly, R&D systems may be integrated regionally or glob-ally, which enables each site to work on a specific problem ortype of research. For example, in detergents, Procter & Gam-

ble research labs in Japan specialize in surfactant research,those in Germany on phosphates and environmentally sensi-tive formulations and packaging, and those in the UnitedStates on enzymes, which reflects problems prevalent ineach market. This research can then be coordinated todevelop a product adapted to a specific region or the world.

This pooling of R&D efforts across markets provides the firmwith a configural advantage relative to firms with a narrowergeographic scope of operations.

The use of interactive software enables managers or consul-tants in different locations scattered throughout the world towork together on the development of a marketing plan for thelaunch of a new product or on the writing of a consulting re-port. This facilitates exchange of ideas as well as the use ofthe best-qualified persons with specialized knowledge or ex-pertise for a given project. As a result, firms with a broadergeographic network of operations will benefit from a richer

resource base than will their competitors.

Transfer of Information, Experience, and Know-How. Estab-lishment of formal and informal mechanisms to transferlearning across diverse markets can also provide the firmwith a competitive advantage stemming from the use of a

broader and richer base of experience and ideas. Globalinformation systems or intranets often play a key role in thetransfer of best practices (Bradley 1993). In some cases,formalized mechanisms to facilitate the reporting and dis-semination process can be established. In others, it may beaccomplished through regular meetings of regional or coun-

try managers or the building of transnational managementteams (Bartlett and Ghoshal 1989).

Ideas for new products, packaging, or advertising copy can beleveraged across countries or geographic markets andadapted or reformulated for local market conditions. For ex-ample, a highly successful advertising campaign in theUnited States for Tasters Choice was an adaptation of a cam-paign originally developed in the United Kingdom. The ad-



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vertising campaign features a man and a woman (Tony andSharon) in a series of minisoap operas that wove TastersChoice into the story line. As the campaign evolved in theUnited Kingdom and new episodes were developed, theseepisodes were eventually adapted to the U.S. market.

Marketing and management skills or experience in dealing

with a specific type of market environment or competitor canalso be transferred from one country or region to another. Forexample, McDonalds used expertise developed in Brazil inmanaging pricing in an inflationary environment to developpricing and sourcing strategies for its operations in Moscow.Equally, experience in developing marketing and promo-tional tactics in different types of retail environments (e.g., inrelation to highly fragmented or concentrated distributionstructures) can be transferred. For example, consumer pack-aged goods companies, such as Colgate-Palmolive and BestFoods, use experience gained with distribution channels inLatin America to manage operations in Poland.

Gaining a configural advantage in international markets en-tails several aspects. In the first place, assets and resourcesshould be configured to provide the firm with a strong mar-ket presence in key markets worldwide. In addition, the con-figuration should provide flexibility to adjust to changingmacroeconomic, market, and competitive conditions andshould enable the firm to act quickly in launching new prod-ucts or responding to competitor moves.

In building the spatial configuration of resources in interna-tional markets, the firm first has to build market presence in

key markets worldwide. This entails establishing an anchorposition not only in mature markets but also in the growthmarkets of the future, such as India and China. Two impor-tant aspects of this presence are the geographic scope or cov-erage of the firms operations and the strength of its positionin each market.

Geographic Coverage. A firms competitive position in worldmarkets depends in part on the geographic scope of its opera-tions, that is, the number of country markets or geographicregions in which the firm is involved. The importance of hav-ing a broad spatial configuration is illustrated by the success

of Procter & Gamble in exploiting a product innovationpioneered by a competitor whose spatial configuration ofactivities was more limited (Hamel and Prahalad 1994). Kao,the Japanese detergents firm, initially developed the super-absorbent diaper, overtaking Procter & Gamble as the marketleader in Japan. Procter & Gamble was quick to respond bydeveloping its own superabsorbent version of Pampers. Thefirm sold this product aggressively not only in Japan but alsothroughout its worldwide distribution system. Kao, with a


GAINING A CONFIGURALADVANTAGE IN

INTERNATIONAL MARKETS

Building Market Presence

and Position


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limited presence outside Japan, was unable to capitalize onits technological expertise because it lacked a global distribu-tion network.

The strategies pursued by News Corporation and Viacom dra-matically illustrate the importance of establishing extensivegeographic coverage ahead of competition. News Corpora-

tion, through its satellite- and terrestrial-based networksaround the world, has made it all but impossible for competi-tors to achieve the same scale of operations and realize theattendant synergies. Viacoms ubiquitous MTV networkhas established a strong presence in 83 countries and essen-tially foreclosed the market to would-be competitors. Bothcompanies have realized the importance of establishing astrong geographic configuration as well as having appropri-ate entertainment products to deliver to viewers.

Market Strength. The strength of the firms position in eachmarket can be assessed on the basis of the firms market share

of a product category in each country or the average marketshare occupied by its top four brands in a product market(Gogel and Larreche 1989). In many product markets, estab-lishing strong brands is key to developing a strong marketposition. Strong brands help establish the firms identity inthe marketplace, develop customer and distributor franchise,and provide the base for brand extension, which furtherstrengthens the firms position. With escalating media costs,strong core brands reduce the cost of launching extensionsand, if present in multiple markets, provide efficienciesand synergies. Strong brands are also important weapons tocounterbalance the growing power of retailers as they expand

across international boundaries.

In the case of MTV, for example, presence in multiple geo-graphic markets strengthens the visibility and perceivedvalue of the brand to teens and young adults. The pervasive-ness of the brand and its projection of a common music andvideo culture create a universal language that bonds youngadults in markets throughout the world. This is further rein-forced by the broad range of product and distribution offer-ings, which extends beyond television and creates synergiesin catering to the rapidly evolving needs and technologicalpreferences of the worldwide teen market.

Flexibility in allocating resources and developing skills andcapabilities is another critical component of configural ad-vantage. As market and competitive conditions fluctuate orchange in different parts of the world, the firm must developflexibility to adapt to these conditions and redeploy resourcesto take advantage of operating in a given location (Malnight1996). Establishment of linkages among activity systems iscrucial in generating this flexibility to respond to change.

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Strategic Flexibility



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Multiple Sourcing and Flexible Logistics. Sourcing or pro-duction at multiple locations reduces risk exposure and de-pendence on a single supply location. Sourcing andproduction can be shifted to the most cost-effective locationsto counter fluctuations in exchange rates and their impact onproduction or supply costs, work stoppages due to strikesand labor unrest, or changes in economic and political condi-

tions (Kogut 1985; Kogut and Kulatilaka 1994). Orders canalso be directed to locations operating below capacity tomaximize efficiency and shorten delivery times. Both Levi-Strauss and VF have linked retail outlets to their orderingsystems so that orders are sent directly to a production centeroperating below capacity. This is estimated to have short-ened delivery time to less than four weeks. Subcontractingarrangements can also enhance flexibility, though they mayreduce control and therefore ease of achieving fit.

Global logistical systems can also be designed to providestrategic flexibility. For example, in the 1980s Bennetons

innovative global logistical systems based on global informa-tion systems provided the firm with a competitive advantagerelative to competitors operating on a national basis.Through the use of advanced information technology to mon-itor sales trends in key stores worldwide, Benneton was ableto adapt production schedules on the basis of top-sellingcolors and styles and fill orders within six weeks, instead ofrequiring retailers to order seasonally, and this strategysubstantially cut markdowns and improved margins.

Skill Adaptability and Transferability. In addition to opera-tional flexibility, the ability to adapt firm-specific skills and

capabilities to specific market or resource conditions and todevelop and manage location-specific capabilities isanother important feature of configural advantage. At thesame time, the firms ability to transfer capabilities across

borders provides a firm-specific advantage relative to localcompetitors. For example, KFC, whose business in theUnited States was built on take-out operations, has built its

business in China around large eat-in restaurants and hasbeen able to transfer this capability successfully to othercountries in Southeast Asia.

Rapid deployment of assets and resources at different stages

of the value chain is also critical. The firm needs to be able tomove speedily in launching new products or to build orstrengthen its position in growth markets. The ability torespond rapidly to competitor moves, whether those of localor major global competitors, is critical.

Speed to Market. It is critical for the firm to reduce marketpenetration cycle times. In world markets this means havingthe resources to launch new products simultaneously, in-


Speed of Resource Deployment


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stead of rolling them out sequentially market by market(Birkinshaw, Hood, and Jonsson 1998). This also means, asthe example of Kao and Procter & Gamble demonstrates, thata firm with a distribution network providing worldwide orstrong regional coverage will have an advantage over a firmthat only has a national or spotty regional distribution net-work. A firm with limited geographic distribution can enter

into an agreement with another firm through an alliance orlicensing agreement, but it is unlikely to obtain the samelevel of promotional effort or control as a firm using its ownnetwork. In addition, time delays and costs are likely to beincurred in setting up such agreements.

Speed of Response. Another important factor is speed of re-sponse to competitor moves or competitor entry into a newmarket. It is important for a firm to be able to follow a com-petitor rapidly to block the competitor from establishing astrong market presence or brand equity or from developingrelations with the most efficient distributors. For example,

the international expansion of fast-food chains such as Mc-Donalds and Burger King since the 1960s demonstrates thateach rapidly followed the other into a new foreign market toavoid the leaders building a dominant market position. Inaddition, the firm must be able to respond rapidly to localcompetitors by, for example, meeting price cuts, matching orcountering promotional campaigns, or launching new prod-ucts adapted to local market tastes.

In responding to Kaos introduction of superabsorbent diapersin the Japanese market, Procter & Gamble was able to use itsglobal distribution network to reap the main benefits from the

superabsorbent technology. However, when the firm com-peted against rivals with similar spatial configurations, suchas Unilever and Nestl, global market presence did not in it-self provide a configural advantage. Procter & Gamble re-cently announced a corporate reorganization into sevenglobal category-management divisions. Each of these groupsprovides a strong global focus concentrated on lines of related

businesses. This is designed to improve flexibility and reducethe time to implement decisions as well as to avoid some ofthe administrative diseconomies of scale that were part of theprevious geographic organizational structure. An extensivegeographic scope per se does not confer a stronger configural

advantage than that enjoyed by equal-sized rivals but must beaccompanied by speed and flexibility.

The spatial configuration of resources is a concept rich withpotential for further understanding the complexity of globalmarketing strategy. Research on international marketingstrategy typically examines the role of individual countrymarkets and firm characteristics. Country markets areviewed as the relevant units of analysis without regard to

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IMPLICATIONS



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interlinkages among markets. This perspective fails to cap-ture the unique characteristics of international markets,their underlying dynamics, and the intertwined natureof configural advantage spanning national boundaries.Whereas for most purposes, a domestic market can beviewed as spatially integrated, international markets aregeographically dispersed and vary widely in the degree of

interlinkage or integration. Consequently, the spatial config-uration and deployment of the firms assets and resourcesassumes critical importance in the battle for global marketshare. Several issues regarding these topics, of which thefollowing are particularly critical for understanding config-ural advantage, need to be further explored.

Market sensing (Day 1994) is a critical input to the develop-ment of a strong configural advantage for the market-drivenfirm. However, the inherent dilemma in diverse internationalmarkets is that the process of market sensing will by its verynature provide multiple and often conflicting inputs. As the

firm attempts to use marketplace information to guide strat-egy formulation, mechanisms must be established to synthe-size and interpret information effectively if it is to guideefforts to coordinate positions across multiple markets. Atthe most basic level, market-sensing inputs from linked mar-kets must be aggregated so that potential synergies acrossmarkets with commonalities can be assessed. More broadly,the synthesis must try to establish a basis for optimizationacross multiple markets.

The firm also needs to develop the ability to operate effec-tively across boundaries in multiple diverse markets. In

other words, the firm must be able to manage and respondto competitive situations in multiple interdependentmarkets simultaneously. Part of the focus is on adaptingcompetitive position and the related activity systems tomeet customer needs and market conditions effectively invarious markets. In addition, the firm must respond tocompetitors moves simultaneously in different geographicmarkets. An aggressive action in one market, for example,may affect a competitor that has a stronger position inanother market and that will retaliate in that market(Jayachandran, Gimeno, and Varadarajan 1999). Conse-quently, the firm must consider the impact of its actions in

one market on competitive position in another.

Closely related to the linking or integration of activity sys-tems across country markets or geographic regions is the de-velopment of border-spanning capabilities. These may bedefined as capabilities that enable the firm to manage and co-ordinate activity systems across national boundaries. If mar-kets are not integrated, these capabilities enable the firm totake advantage of efficiencies and synergies associated with


Global Market Sensing

Developing Border-SpanningCapabilities


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operating across markets, while providing adaptation tolocal market characteristics, competitive conditions, and re-source availability.

Procedures and capabilities to manage an international brandportfolioconsisting of global, regional, and local brandsare essential. Custody for managing an international brand,

for example, might be assigned to a senior corporate manageror a manager in the lead country for the brand. Responsibilityfor monitoring the consistency of the brands positioningacross countries and for sanctioning brand extensions in dif-ferent countries would reside with the brand custodian. An-other type of border-spanning capability might relate to newproduct development and centers of excellence: the integra-tion of information from market sensing in different coun-tries and R&D centers in different locations to develop newproducts and product modifications or extensions for differ-ent markets.

Management systems and organizational mechanisms link-ing competitive positions in different geographic locations,as well as activities at different stages of the value chain, arecritical for managing and sustaining configural advantage ininternational markets. These systems should not only man-age and coordinate operations across markets but also helpstimulate learning both within the firm and in relation to thediverse external environments in which the firm is involved.

Global information systems help facilitate exchange of infor-mation and sharing of best practices among managers in dif-ferent locations throughout the globe. Organizational

learning (knowledge) is transferred across borders and pro-vides a richer base of knowledge and skills to enhance thefirms competitiveness in global markets. Skills, experience,and capabilities developed in response to a specific marketenvironment or market conditions (e.g., experience in dealingwith large-scale distribution) can be transferred to other simi-lar market conditions. Equally, skills and capabilities that areculturally embedded or location specific (e.g., advertisingcreativity) can be used to broaden the range of skills and ca-pabilities supporting the firms operations in another market.Alternatively, distinctive skills and capabilities from diversemarket and cultural contexts can be used in collaborative ef-

forts such as new product development teams that providethe firm with a competitive advantage relative to the firmcompeting in a single market or on a multidomestic basis.

As international market expansion becomes a key priorityfor an increasing number of firms, formulating a strategy tocompete effectively in global markets becomes critical tosuccess. The firm needs to establish a strong competitiveposition in a broad range of markets relative to local and re-

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Facilitating Global Learning

CONCLUSION



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gional competitors as well as to other firms operating glob-ally. In building a global competitive position, it is impor-tant to consider the spatial configuration of assets andresources and to assess not only similarities and differencesamong markets in different geographic locations but also thepatterns of market interdependence and the forces drivingtoward greater market integration.

In many cases in which markets are geographically dispersedand independent, the firm will need to compete across multi-ple diverse markets, modifying its positional advantage to lo-cal market characteristics and competitor posture. At thesame time, mechanisms to coordinate these positions willneed to be developedthrough improved harmonization andintegrating and linking activity systems across markets. Of-ten this leads to the development of border-spanning capabil-ities that provide the firm with a competitive advantage inmanaging activity systems in international markets. As mar-kets become more integrated, development of such capabili-

ties becomes increasingly critical to leverage effectively thespatial configuration of the firms assets and resources inglobal markets.

Building a configural advantage in global markets and devel-oping an effective strategy to beat competition is, however,not enough in and of itself. In addition, the firm needs to de-velop management systems and capabilities to build and sus-tain that advantage and provide strategic flexibility in thelight of changing market dynamics, resource conditions, andcompetitor configurations. In particular, development ofmechanisms to facilitate transfer of information, experience,

and ideas from one market to another becomes essential tostimulate organizational learning. Only then can the firm usethe diversity of its experience and exposure and the rich baseof its resources to build a strong configural advantage in in-ternational markets.

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Documents

Configural Advantage