Mandatory Literature Summary International Strategic Management (EBB628A05)
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Course
International Strategic Management (EBB628A05)
Institution
Rijksuniversiteit Groningen (RuG)
Wu/Salomon (2016) Does imitation reduce the liability of foreignness? Linking distance, isomorphism, and performance
Hu (1995) The International Transferability of the Firm's Advantages
Zhong (2019) Does politician turnover affect foreign subsidiary performance? Evidence in China
Johanson/...
ISM READINGS
1B – HU 1995: THE INTERNATIONAL TRANSFERABILITY OF A FIRM’S
ADVANTAGES
Understand advantages
Understand why success at home ⧣ success abroad
Understand why some advantages are location bound
Understand which advantages can be transferred and why
Concept of the international transfer and transferability of the firm’s advantages, an aspect of the
competitive advantage paradigm
INTERNATIONAL TRANSFER OF ADVANTAGES
CRITICAL IMPORTANCE OF ADVANTAGE TRANSFER
Foreign firm has disadvantages of being foreign and not being as accustomed to the market as native
players needs to possess develop more-than-compensating advantages
By transferring some advantages (ingredients) from outside the target country that are not
available to indigenous players
DIRECTION OF TRANSFER
Focus on transfer from home to foreign countries, because
1. Transfer of advantages from home to foreign subsidies is likely to be predominant BECAUSE
major share of the firm’s operations, people and innovative efforts are located in its home nation,
meaning that the bulk of comp. advantages is created at home
2. Advantage transfer not yet a very researched topic
DEFINITION OF TRANSFER
= process whereby the firms draws, from its home base, on some or all of its unique advantages
(relative to home competitors), its underlying assets and capabilities, or the general qualities enjoyed
by the home nation and/or industry and makes use of these things in order to give its operations in a
foreign country a competitive edge
WHAT TO TRANSFER
1/3 things present in the home environment:
1. Unique/ firm-specific advantages at home (e.g. superior products/ capabilities)
2. Assets at home which are not superior to domestic competitors but can turn into advantages
relative to local competition in a less advanced country
3. General attributes/ general access to factors shared by the industry/ nation
1
,TRANSFERABILITY AND THE NATURE OF THE ADVANTAGE
Non-transferability = advantage/ key ingredient is not mobile between the home country and the target
country
Two causes of immobility
1. Geographical Specificity
a. superior work force
b. monopoly position: limits of the privileged position coincide with the limits of jurisdiction of
the home nation
c. possession/ control of a superior distribution network in the home market
d. reputation BUT how to advertise and to promote a corporate image are transferable
e. close relationships with customers and suppliers
2. Tacit Knowledge
= skills, competences, capabilities, know-how, technology and expertise cannot be reduced
entirely to codified knowledge/ information.
difficult & costly to transfer, because:
a. Complex
b. Acquired through experience/ trial & error
c. Teaching/ learning of tacit knowledge
d. Tacit knowledge that results from organizational learning is collective knowledge
e. Not static, continuously evolving
f. Would potentially require transfer of large number of key individuals of parent company
more likely to transfer exploitation of new technology rather than transfer the creation
THE VALUE OF AN ADVANTAGE
Possible that it loses its value in the target country, either because the advantage is no longer relevant
in a different context, or because it can easily be neutralized by local competitors
Brand names/ TM can be neutralized by piracy/ imitation
Tech advantages can be neutralized by the weakness of intellectual property law/ laxity of
enforcing the law
whether it keeps its value depends on the fit between conditions in the target country and the
nature of the advantage
DIFFERENCE BETWEEN HOME & AWAY
The advantages that a firm possesses relative to firms in its own country need not be identical to
(and may be quite different from) the advantages that it will have relative to firms in another
country in which it undertakes operations.
Reasons for difference:
1. Domestic strengths do not necessarily mean competitive advantages and success in a foreign
country: HSBC
2. The company that operates most successfully abroad may not be the strongest firm in the
industry at home: Honda
3. For the same firm with international operations, the advantage that matters most in the home
nation may not be the same as the advantage that has most value in a foreign country:
Electrolux
THE INTERNATIONAL OPERATIONS OF FIRMS
2
,CHOICE OF MODES OF OPERATIONS
Two basic forms examined exporting & foreign production (in terms of transferability)
Key advantages easily transferable foreign production mode
Key advantages difficult/ costly to transfer exporting mode
MANAGERIAL IMPLICATIONS
Enhancing transferability of its advantages
1. Take broader view than merely looking at its ‘firm-specific’ advantages: advantages may have
to be defined relative to alternatives vs. relative to competition
2. Define a non-transferable advantage of a different level e.g. set up & managing a distribution
vs. owning an existing network/ e.g. knowing how to create a good reputation
3. Do different modes of operations/ combos of these allow transfer? E.g. through wholly owned
subsidiary, JV, strategic alliance
4. Depends on choice of target countries
5. Transferability may need sustained investment in complimentary assets (e.g. training, local
personnel, local facilities)
6. Not automatic/ easy and may require creative adaptations and efforts
3
, 1A – WU & SALOMON 2016: DOES IMITATION REDUCE THE LIABILITY OF
FOREIGNNESS
understand the liability of foreignness
understand how an isomorphic strategy can overcome the liability
understand how this study contributes to our knowledge
understand the managerial implications and the role of experience
Isomorphism strategy = foreign firms from institutionally distant countries imitate the practices of
domestic firms
Paper examines whether imitating local firms improves performance for multinational companies from
institutionally distant markets
RESULTS
BASELINE EXPECTATION 1: INSTITUTIONAL DISTANCE & PERFORMANCE
All else equal, foreign subsidiary performance decreases as the institutional distance between the
host country and the home country increases.
Average performance of local US banks positively correlates with performance of foreign bank
subsidiaries foreign banks perform well in markets where local banks perform well. Competitors
from home country also improve focal subsidiary performance
Cultural distance between home country & US increases performance decreases
Relationship between economic distance & performance is negative
Regulatory distance also negatively relates to ban performance, as a subsidiary from a regulatorily
distant country bears additional costs
Political distance no influence
Foreign bank subsidiaries from institutionally distant countries face a greater liability of
foreignness and perform worse than those from institutionally similar countries
BECAUSE foreigners face additional costs and that negatively impacts performance/ survival
BECAUSE liability of foreignness increases with institutional distance
BASELINE EXPECTATION 2: INSTITUTIONAL DISTANCE & ISOMORPHISM
All else equal, the greater the institutional distance between the home country and the host country,
the more likely foreign subsidiaries will opt for greater levels of isomorphism.
Institutional distance positively relates to isomorphism BECAUSE foreign firms from institutionally
distant countries opt for greater levels of isomorphisms BECAUSE they need to identify relevant
practices (local employees, customers, suppliers, media, professional communities, NGOs, IGOs)
One can view results for cultural distance as indicative of normative isomorphism.
Economic distance findings support the view that firms engage in mimetic isomorphism for efficiency
reason
HYPOTHESIS 1: ISOMORPHISM & PERFORMANCE
All else equal, the greater the institutional distance, the more likely foreign subsidiaries will opt for
strategic isomorphism, and subsequently, the more positive the effect of strategic isomorphism on
performance.
Only cultural distance remains significantly related to performance failing to provide support for H1
4
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