From Adam Smith to Schumpeterian global firms

Abstract

Porter's generic strategies are true almost by definition. Yet they do not allow us an understanding of the means by which low cost or differentiation can be achieved. This paper deals with the various ways of achieving sustainable competitive advantage or creating firm specific advantages (FSA) by a multinational enterprise (MNE). The paper shows that the means of achieving sustainable competitive advantage are based on different factors in different firms, because of such variables as size, degree of rivalry in the market, and the importance of technology. It analyzes the components of strategy of firms operating in what is termed Heckscher-Ohlin industries, using mining as an example; differentiated industries competing on the basis of achieving brand advantages and Schumpeterian industries, in which competitive advantage is based on innovation. Moreover, the paper distinguishes between external factors impinging on strategy, such as the industry, and internal factors or resources. It argues that one major characteristics of Schumpeterian firms is the creation of the environment and that of the industry in which they operate. The unique abilities, to innovate and to learn, allow major and often sustainable advantages. The paper recognizes the importance of government in creating and sustaining competitive advantage in each one of the three industries—be it by closing markets or by subsidies to R&D. Despite this recognition, the role of government in creating and sustaining competitive advantage is considered beyond the scope of the paper.

Citation

Aharoni, Y. (1994), "From Adam Smith to Schumpeterian global firms", Research in Global Strategic Management (Research in Global Strategic Management, Vol. 4), Emerald Group Publishing Limited, Leeds, pp. 17-39. https://doi.org/10.1016/S1064-4857(93)04003-T