Are We All Global Now? Local versus Foreign Sources of Corporate Competence: The Case of the Japanese Pharmaceutical Industry

This study links the highly distinctive national contexts of the pharmaceutical industry to the evolution of innovative capabilities for Japanese drug firms from 1975 to 1995. During these two decades, the Japanese domestic environment for pharmaceuticals changed radically, encouraging a “bubble” of trivial innovations. Experience by Japanese firms in their domestic market predominantly determined their innovative capabilities, pushing these firms towards trivial innovation. Corporate experience in the socially “proximate” markets of Southern Europe served as a strategic complement for significant innovation by Japanese drug firms, and thus as a partial counterweight to the home market. Unfortunately, corporate diversification was a strategic substitute for significant innovation, and many Japanese drug firms are significantly diversified. The resulting degradation of innovative capability for Japanese drug firms has locked most of them into an increasingly unattractive home market. A great paradox of contemporary economies is that as markets steadily globalize, many firms retain their distinct national identities. Indeed, the bulk of empirical evidence is that most multinational firms remain “national firms with international operations” (Doremus, et al., 1999; Dunning, 1996; Hu, 1992; Porter, 1990a, 1990b, 1998). Despite this historical evidence, another prominent group of scholars has contended that strong national identities are becoming a competitive liability in globalizing markets. These scholars argue that successful multinational firms will increasingly tap the advantages of multiple national locations, and integrate those advantages into truly global capabilities (Bartlett & Ghoshal, 1989; Bryan, et al., 1999; Galbraith, 2000; Doz, et al., 2001). At the heart of differences between these two scholarly views is the role of national context in determining corporate capabilities. Most large firms in the global economy sell products in and draw resources from multiple nations. Thus, large firms are simultaneously active in multiple and competing national contexts, which often differ quite radically. For Porter and others, experiences in the “home” national context predominate. These local experiences deterministically shape corporate capabilities. In contrast, for the globalists, well-organized multinational firms can opportunistically pick and choose how to assemble their corporate