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International Strategy lecture notes
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International Strategy lecture notes. Notes of the slides + additional comments.
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Literature International StrategyLecture 1
Strategy objectives
- We assume that the general objective of strategy is achieving sustainable competitive
advantage leading to above-average economic performance
- This usually involves building upon firm-specific advantages such as core knowledge,
competencies, efficiencies and business models
What is international business strategy?
- Matching a multinationals 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
Overall, there is a disadvantage of being foreign, but there can be specific advantages.
Example: Swapfiets
Strategy is to build upon its unique resources and capabilities (business model, service
excellence, distinctive branding, partnerships with suppliers) – the Netflix of bikes – bicycles
as a service
International strategy relies on:
- Markets outside the Netherlands (focusing on cities)
- Started with the cities with the biggest cycling infrastructure and culture
- Local adaption?
Example: 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 devices
- Global opportunities for sourcing and manufacturing – has a global network, even
from the Netherlands
- Increasingly tapping into foreign knowledge and partnering
- Does apple change it products much overseas?
- Apple encounters many difficulties in foreign environments
Example: 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?
o Indian furniture can beat the heat and humidity
o Chinese IKEA showrooms get their very own balconies
o Glass size in the USA
,Foundations of international business strategy
1. Internationally transferable (or non-location bound) firm-specific advantages (FSAs)
2. Non-transferable (or location bound) FSAs
3. Location advantages
4. Investment in – and value creation through – resource combination
5. Complementary resources of external actors
6. Bounded rationality
7. Bounded reliability
+ Advantages of foreignness: cultural attraction and arbitraging
1 and 2 – FSAs (transferable and non-transferable)
The MNE’s unique resource base
- Physical resources
- Financial resources
- Human resources
- Upstream knowledge
- Downstream knowledge
- Administrative knowledge
- Reputational resources
C.K. Prahalad and Gary Hamel: The core competence of the corporation HBR 1990
Firm-specific advantages (= core competencies).
- Firm is a portfolio of ‘core competencies’: higher-order FSAs i.e. the firm’s routines
and recombination capabilities.
- A core competence should:
o Provide access to a wide variety of markets, and
o Contribute significantly to the end-product benefits, and
o Be difficult for competitors to imitate
3 – Location advantages
For example, a mine pit, or a huge market
4 – Recombination capabilities
- Artful orchestration of resources, especially knowledge bundles e.g., Honda
- In the international area, recombination capabilities are built up through international
experience
o Host-country specific experience
o General internationalization experience
5 – Complementary resources of external factors
- Market knowledge/access
- Government connections
- Complementary technology
- …
Reason: Cultural, economic, institutional and spatial ‘distance’ (meaning: missing success
ingredients)
6 and 7 – Liability of Foreignness (LoF)
A foreign form (e.g., a MNE) has an a-priori disadvantage vis-à-vis a local firm, because of
- Geographic, linguistic, economic, political, educational, institutional, cultural etc.
distances
o Bounded rationality <> scarcity of mind – imperfect assessment of a present
or future state of affairs, thereby leading to incorrect beliefs
o Bounded reliability <> scarcity of effort – imperfect effort towards pre-specified
goal achievement, thereby leading to incomplete fulfilment of promises
,Advantage of foreignness
A foreign form (e.g., a MNE) might also have an a-priori disadvantage vis-à-vis a local firm,
because of:
- Cultural attractiveness
o E.g., US fast-food, French wine and luxury goods, Italian styling
- The possibility of arbitraging between different regimes
o E.g., costs of inputs, taxes, environmental and labour standards
Diagrams in Verbeke (Figure)
- LAs: Location advantages. A
company has typical location-
advantages (home country),
which are not firm-specific but
open to all companies (a
good educational system)
- LB FSAs: Location-bound
advantages, but that are firm-
specific (good location in a
shopping street)
- Non-LB FSA’s: Non-location
bound advantages, that are
firm-specific
Then, you cross an international border where you run into problems of liability of
foreignness caused by bounded reliability and bounded rationality. And then you
move to the host country, where the tip of the triangle is the Non-LB FSA’s that you
can ship to the new environment. Then you can start to build up location-bound FSAs
in the host country. On the right are the location advantages that probably induced
you to go there (huge market, cheap labour).
The diagram symbolizes that in many cases you need something in between your
Non-LB FSAs (that can be transferred relatively easily) and your Las: the grey area in
between. There is always some level of adaptation necessary → what works in the
home country almost never works in exactly the same way in the host country.
The complementary resources can be offered by the local companies that can help
you build that bridge.
Four types of MNEs
(1) Centralized exporters:
A company that immediately moves form the
non-LB FSAs in the home country to the LA of
the host country. Very often meaning that you
need some help (some assistance of a local
player). This is the simplest form of
internationalization.
Example: ASML (produce in one location, and
ship worldwide) or garbage bins (produced in
one location and shipped worldwide), Warner
Bros
, (2) International projectors
You transfer non-LB FSAs from your home
country (copy it) literally to the host country and
you do not adapt it at all. This because for
example cultural attractiveness.
Example: Disneyland
(3) International coordinators
There is a transfer of FSAs that are non-LB to
foreign countries, but not all in the same way.
To some host countries they will transfer more
(and maybe different FSAs) than to other. This
because the function of the countries is different
(production location, R&D location, marketing
and sales). It depends on what makes the
location/country attractive. The international
coordinator must make sure that the whole
machinery of activities works smoothly, which is
complicated.
Example: Renault-Nissan (they integrated their
activities and tried to optimize this network)
(4) Multi-centred MNEs
The middle layer becomes very important (the
LB FSAs building up in the host country). Here
is a multinational that brings in some FSAs
from the home country, but these are relatively
unimportant compared to the FSAs that are
built up locally. Here is a decentralized MN
compared to number (3) since the knowledge
is also present in the host country rather than
the home country.
Example: Unilever
Conceptual foundations of international business strategy
- Defined key terms related to the core conceptual foundations of international
business strategy
- Discussed the four main types of multinational enterprises
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