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International Strategy Summary
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International Strategy325102-M-6
2021/2022
WEEK 1
Lecture 1-Core Concepts and Firm Specific Advantages
Chapter 1 (pages 13-58)
Most issues in international business strategy revolve around seven concepts:
● Internationally transferable (or non location bound) firm specific advantages (FSAs)
○ Expanding to foreign countries can be costly because MNE don’t know yet the
appropriate knowledge base to match the local stakeholder requirements.
○ To avoid these costs, MNE must have proprietary internal strengths (technological,
marketing or administrative knowledge). This set of internal strengths are called the
internationally transferable, or non location bound, FSAs
○ Both explicit and tacit knowledge can be transferred, tacit knowledge being more
valuable as it is difficult to imitate. A type of tacit knowledge is the MNE
administrative heritage (firms key routines since inception)
○ Administrative heritage archetypes:
■ 1. Centralized exporter: A market seeker where the host country location
advantage is the presence of customers willing and able to purchase the firm’s
products ( most production facilities are located in the home country and
foreign subsidiaries, if any, are functioning largely as facilitators for efficient
home country production)
■ 2. International projector: Knowledge-based FSAs developed in the home
country are transferred to subsidiaries in host countries (basically FSAs is
sent from home country to foreign subsidiaries to replicate the home country
success)
■ 3. International coordinator: where international operations are specialized
in specific value-added activities and forms vertical value chains across
borders. So the main transferable FSA is its ability to coordinate the location
advantages accessed in multiple host countries
■ 4. Multi centered MNE: It consists of a set of entrepreneurial subsidiaries
abroad which are key to knowledge based FSA development. Basically a
portfolio of largely independent businesses because the company recognizes
that each host country operation needs to build upon its own distinct location
bound FSAs, so only core routines (financial governance etc) are transferred.
● Non transferable (or location bound) FSAs
○ There are four main types:
■ 1. Stand alone resources linked to location advantages, such as a network
of privileged retail locations leading to a dominant market share in the home
market are immobile and therefore inherently non-transferable (ex. if you
have good contact with a distributor in your home country and can gain info
on consumer’s shopping habits and make sure your products are well
distributed, it doesn’t mean that the same can happen if you go to foreign
countries)
■ 2. Other resources such as local marketing knowledge and reputational
resources may not have the same value across borders (either because they
1
, are not values to the same extent by foreign stakeholders or because they
don’t have the same value across borders)
■ 3. Local best practices may not be considered as such abroad
■ 4. Even the firm’s domestic recombination capability (ex. product
diversification or innovation) may be be adept enough to confront the
complexities of foreign markets
● Location advantages: whether a local environment is favorable or not (ex. taxes, education,
resources etc). Cross-border location advantages also exists (like trade deals)
○ Home country and host country location advantages. Why perform activities in host
countries rather than at home?
■ 1. Natural resource seeking
■ 2. Market seeking: search for customers in host countries
■ 3. Strategic resource seeking: desire to gain access to advanced resources
when it comes to knowledge and reputational resources (ex. alliances)
■ 4. Efficiency seeking: desire to capitalize on environmental changes that
make specific locations in the MNE’s international network of operations
more attractive than before for the concentration of activities
● Investment in - and value creation through - recombination
○ It means that the firm is able to grow by innovating and diversifying (combining in
new ways existing resources etc, about managers finding profitable ways to use
excess resources). Resource recombination dependent on entrepreneurial skills and
unused productive resources.
○ Recombination capability as the MNE’s highest ordre FSA
○ There are ten patterns in which MNE’s recombination capability can be described
● Complementary resources of external actors
○ The MNE’s domestically owned resources may be insufficient or inappropriate to
operate successfully in host countries so they need to rely on external actors
● Bounded rationality
○ Managers making decisions face two information problems:
■ 1. Incomplete information about environmental complexity may impede
successful international expansion
■ 2. Even if critical information is abundant and accurate, senior managers face
a problem of processing this information and related it to strategy
● Bounded reliability
○ Scarcity of effort to make good on open ended promises basically people not keeping
their words and carrying out their expressed intentions. Two sources of bounded
reliability:
■ 1. Opportunism: self interest seeking behaviour
■ 2. Benevolent preference reversal: making a promise in good faith but then
you change your intention
Chapter 2 (pages 77-88)
● The critical role of firm specific advantages (FSAs)
○ Prahalad and Hamel said that the company’s main strategy should be to build or
acquire core competencies (any company important FSAs)
■ They suggest to managers to their firm should be viewed as a portfolio of
core competencies and that the primary role of management should be to
2
, develop strategic architecture to guide the corporation in building and
acquiring those core competencies
■ Because core competencies (firm’s routines and recombination capabilities)
produce components called core products which are put together to create end
products
■ Core competency identification:
● It should be difficult to imitate
● Provide potential access to a variety of markets
● Makes a significant contribution to the perceived customer benefits
of the end product
● The loss of a core competence would have an important negative
effect on the firm’s performance
○ Andre Bartmess and Keith Cerny they give five criteria to assess whether a company
should proceed on foreign expansion in particular locations:
■ 1. Complexity of communication
■ 2. Required level of interaction
■ 3. Similarity of background and expertise
■ 4. Requirement of a prior relationship
■ 5. Concreteness of information
Benito (2015) - Why and how motives still matter
● Paper that gives reasons for companies’ internationalization
● Reasons being:
○ Market seeking: companies that venture abroad to find customers
○ Efficiency seeking: companies that venture abroad to lower their costs of performing
economic activities and aim at rationalizing their already existing operations in
various locations
○ Resource seeking: companies that venture abroad to access resources that are not
readily available at home or that can be obtained at a lower cost abroad
○ Strategic asset seeking: companies that venture abroad to obtain strategic assets
which may be critical to their long term strategy but that are not available at home
● The findings suggest that motives are relevant when analyzing various aspects of the
internationalization of a firm because the issues differ across different types of motives. So
they don’t provide an overall justification but they can help clarify why, where, how and what
companies try to achieve by going abroad.
Knowledge Clip 1
● What is international (business) strategy?
○ Matching a multinational enterprise’s (MNE’s) internal strengths
■ With the opportunities and challenges found in cross-border environments
■ While overcoming the disadvantages of being a foreign company
■ And/or capitalizing on the advantages of being a foreign company
■ And/or capitalizing on the advantages of having an international network
● Strategy objectives:
○ We assume that the general objective of strategy is:
■ Achieving sustainable competitive advantage leading to above-average
economic performance
3
, ■ This usually involves building upon firm-specific advantages such as core
knowledge, competencies, efficiencies and business models
● Example of Swapfiets
○ Strategy is to build upon its unique resources and capabilities (business model,
service excellence, distinctive branding, partnerships with suppliers)
○ International strategy relies on:
■ Markets outside the Netherlands (focusing on cities)
■ Started with the cities with the biggest cycling infrastructure and culture
■ Local adaptation
● Example of Apple
○ Strategy is to build upon its unique resources and capabilities (technology, brand,
complementary products)
○ International strategy relies on:
■ Global markets for smartphones and electronic products
■ Global opportunities for sourcing and manufacturing - has a global network,
even from the Netherlands -
■ Increasingly - tapping into foreign knowledge and partnering
■ Does Apple change its products much overseas?
■ Apple encounters many difficulties in foreign environments
● Example of IKEA
○ Strategy is to build upon its unique resources and capabilities (design, unique
business model, brand)
○ International strategy relies on:
■ Global opportunities for design, sourcing and manufacturing - has a global
network of suppliers
■ Global customers
■ Does IKEA change its products much overseas?
● Indian furniture can beat the heat and humidity
● Chinese Ikea showrooms get their very own balconies
● Glass size in the USA
● What are some of the elements of international strategy (Benito, 2015)?
○ Why (internationalization motives)
■ Market seeking
■ Efficiency seeking
■ Resource seeking
■ Strategic Asset seeking
○ Where (location choice):
■ Attractiveness of country
■ Distance to home country
○ What
■ Marketing and sales
■ Manufacturing
■ Purchasing, extraction
■ R&D
○ How (what do we do if we go abroad?):
■ Export
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