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Introduction to International Business summary (IB RUG)

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Course
Introduction to International Business

Institution
RUG - University Of Groningen

Book
International Business Strategy

Summary of the course of Introduction to International Business taught in the BSC of International Business, obtained a 9 overall in the course. A detailed summary of the whole course including definitions, examples and images.

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Uploaded on September 23, 2020
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Type Summary

introduction to international business

Book Title:International Business Strategy

Author(s):Alain; Verbeke

Edition:maart 2013
ISBN:9781107683099
Edition:1

Institution
RUG - University of Groningen
Education
BSC International Business
Course
Introduction to International Business

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RESOURCE BASED VIEW OF THE FIRM
- Physical resources: natural resources, building, plant equipment
- Financial resources: access to equity and loan capital
- Human resources: individual and teams with entrepreneurial and operational skills
- Upstream knowledge: sourcing knowledge, product and process related knowledge
- Downstream knowledge: critical for interaction with customers, and marketing, sales service
- Administrative (governance-related) knowledge: functioning of organisational structure/culture/
systems
- Reputational resources: brand names, a good reputation for honest business dealings

Firms and multinationals should develop unique resources. Building upon its resource base, as well as to
location advantages, the MNE will develop key resources and routines that will also engage in resource
recombination which will create a firm specific advantage (FSA).

FSAs reflect the firm’s distinct strength vis-à-vis rivals, and are the source of its competitive advantage in
the marketplace.

Having resources is not enough, a routine is needed to make use of it, that is the ability to combine
further the firm’s resources in unique ways valued by the stakeholders. Routines provide stable patterns
of decisions that coordinate the productive use of resources and thereby generate value.

In addition to routines, recombination is needed; recombining resources in new ways as a response to
differences between national and foreign environments and to satisfy stakeholder demands.

,CHAPTER 1: CONCEPTUAL FOUNDATIONS OF INTERNATIONAL BUSINESS STRATEGY (13-59)

International business strategy means effectively and efficiently matching an MNE’s internal strengths
with the opportunities and challenges found in geographically dispersed environments that cross
international borders.

7 concepts of framework:
1. Non-location/transferable bound firm-specific
advantages (FSAs)
2. Location-bound/non-transferable FSAs
3. Location advantages
4. Investment in - and value creation through -
recombination
5. Complementary resources of external actors
6. Bounded rationality
7. Bounded reliability

NON-LOCATION BOUND (TRANSFERABLE) FSAs

When MNEs operate across national borders they are at a disadvantage compared to firms from the
host country; they do not possess knowledge of the local stakeholders, they are faced with additional
costs. In order to overcome these costs of doing business abroad, the MNE must have proprietary
internal strengths (such as technological, marketing or administrative knowledge), these set of internal
strengths, the availability of which both allows and constrains the scope of the firm’s expansion across
borders, is called the non-location bound FSAs.

● These consist of codifiable knowledge
● The value of these FSAs might be different in two different countries
● The MNE can transfer, deploy and exploit these FSAs successfully across countries
○ Non-location bound FSAs can be embodied in final products - when the MNE exports
goods that are valued highly by host country customers: Toyota car transported from
Japan to the US embodies outstanding production quality

○ When faced with natural or government-imposed trade barriers, the MNE may transfer
some FSAs abroad directly, as “intermediate” products: Toyota FSAs in manufacturing
and quality control can be deployed and exploited abroad through an affiliate in the
host country, which will product and market the automobiles building upon the
knowledge bundles it received from the parent company

○ Exploitation of FSAs transferred abroad can also be done by external actors (such as
licenses) or by network partners (joint venture or distributors) who may add their own

, complementary resources to foreign operations and thereby strengthen the MNE’s
position in the foreingn market place by filling resource gaps
Non-location bound FSAs paradox:
● Since they are made of codifiable knowledge (can be articulated explicitly on handbook) they
can be cheaply transferred, effectively deployed and exploited abroad but also be easily
imitated
○ Competitors can imitate what the MNE is bet at
● The cost of FSA transfer may be low but the potential value that can be derived from actually
deploying and exploiting the FSA may also be relatively low

TACIT KNOWLEDGE AND THE FOUR MNE ARCHETYPES
On the other hand, FSAs consisting of tacit knowledge cannot be transferred, deployed and exploited.,
hence this tacit knowledge is a key source of competitive advantage since it is difficult to imitate.
● Tacit knowledge cannot be fully replicated through communication channels - technical manuals
● Person-to-person communication is required and it is associated with sending human resources
abroad, building up experience over time, learning by doing…
● If the tacit knowledge is collective knowledge, embedded in a team of individuals it may be
necessary to re-embed this knowledge in a foreign team
● It is more expensive and time consuming

The most important bundle of tacit knowledge is contained in the MNE’s administrative heritage: the
key routines developed by the firm since its inception, usually determined by the vision of the founder.
There are four archetypes of administrative heritage each associated with a specific routine of
international FSA transfer:
Centralized exporter: home-country-managed firm builds
upon a tradition of selling products internationally out of a
limited number of facilities in the home country with minor
value-creating activities abroad (usually consumer oriented:
marketing, distribution logistics operations).
● Standardized products manufactured at home embody
the firm’s FSAs (developed on the basis of a favourable
home country environment) and make the exporting
firm successful in international markets
● Location adva: being market seekers, FSA=final
product
● E.g. motion picture studios
Minimal need to develop location-bound FSA, host country
location factor = customers
International projector: transfers its proprietary knowledge
developed in the home country to foreign subsidiaries which are
essentially clones of the home operations.

, ● Knowledge-based FSAs developed in the home country are transferred to subsidiaries in host
countries. The international projector MNE seeks international expansion by projecting its home
country success recipes abroad.
● Requires systematic and continuous transfer of tacit knowledge to multiple locations. E.g.
Ford, Disney
Host country operations directly access the local customers

International coordinator: it builds upon a tradition of managing
international operations, both upstream and downstream,
through a tightly controlled but still flexible logistics function
● International operations are specialized in specific value-
added activities and form vertical value chains across
borders. The MNE’s key FSAs are in efficiently linking
these geographically dispersed operations through
seamless logistics. Centrally managed
● Use internationally transferable FSAs in each host country
to develop location bound FSAs that fit the host country
location factors.
● Global value chain: international operations are
specialized in specific value added activities and form
vertical value chains across borders
● E.g. BP, large MNEs in natural resources industries - search for relevant resources
internationally, manufacture in the most cost-efficient locations and sell their products
wherever there is demand.
Main transferable FSA is the ability to coordinate the location advantages accessed in multiple host
countries often for efficiency seeking MNE activity

Multi-centred MNE: consists of a set of entrepreneurial subsidiaries abroad, which are key to
knowledge-based FSA development. National responsiveness is the foundation of the international
strategy. The non-location-bound FSAs that hold these firms together are minimal: common financial
governance and the identity and specific business interests of
the founders or main owners.
● Decentralized
● Portfolio of largely independent businesses
● Basically a full fledged replica in each host country
● Typically entrepreneurial families or financial
investors, e.g. older European MNEs, Lafarge, Mc Don

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