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A company's competitiveness derives from its core competencies and core products. Core competence is the collective learning in the organization, especially the capacity to coordinate diverse production skills and integrate streams of technologies. First companies must identify core competencies, which provide potential access to a wide variety of markets, make a contribution to the customer benefits of the product, and are difficult for competitors to imitate. Next companies must reorganize to learn from alliances and focus on internal development. McKinsey Award Winner.

Collaboration between competitors is in fashion. But the rise of competitive collaboration has triggered unease about its long-term effects. Companies that benefit most from competitive collaboration never forget that their partners may be out to disarm them. They know that harmony is not the most important measure of success; indeed, occasional conflict may be the best evidence of mutually beneficial collaboration. Successful companies also guard against competitive compromise by informing employees at all levels what skills and technologies are off-limits to the partner. Finally, they learn from their partners, viewing each alliance as a window on their partners' broad capabilities.

Corporate response to the threat of foreign competition is often misdirected and ill timed--in part because many executives don't fully understand what global competition is. Executives must anticipate competitive moves by starting from new strategic intentions rather than from old strategies. They must think and act in complex ways. They may slice the company in one way for distribution investments, in another for technology, and in still another for manufacturing. In addition, global competitors must develop varied criteria and analytical tools to justify these investments. Even when its manufacturing is not on a global scale, a company must be sensitive to the potential of global competitive interaction.

The efforts of host governments to maintain control over their own national economies have restricted the freedom of multinational company (MNC) managers in deploying economic resources. Regulation interferes with product/market choice, use of technology, level of employment, and national trade balance. Compromise is an alternative to the choices of adaptation to or withdrawal from a national market.