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International Strategy - summary of the mandatory articles, book chapters, and lectures - by Michel Dagli
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SUMMARY INTERNATIONAL STRATEGYALL ARTICLES, BOOK CHAPTERS AND LECTURES
BY MICHEL DAGLI
,
,INHOUD
Lecture 1 Core concepts & firm-specific advantages (FSA) ...............................................................................................................................................................4
Why and how motives (still) matter (Benito, 2015) ....................................................................................................................................................................4
Conceptual foundations of international business strategy (chapter 1) ......................................................................................................................................7
The critical role of firm-specific advantages (chapter 2) ............................................................................................................................................................ 15
Lecture 2 Host and home country factors in international strategy ................................................................................................................................................ 16
The nature of home country location advantages (chapter 3) .................................................................................................................................................. 16
Host country location advantages ............................................................................................................................................................................................. 20
Guler and Guillén (2010) Institutions and the internationalization of US venture capital firms – Strategic asset seeking FDI ................................................... 20
The problem with host country location advantages (chapter 4) .............................................................................................................................................. 22
Wal-Mart case........................................................................................................................................................................................................................... 24
Lectrure 3 culture, institutions and international strategy ............................................................................................................................................................. 25
National culture, cultural distance and international business.................................................................................................................................................. 25
Institutions and Institutional Distance ...................................................................................................................................................................................... 31
Lecture 4 International entry mode strategies ............................................................................................................................................................................... 35
Entry modes (I) – foreign distributors – exporting (chapter 11) ................................................................................................................................................ 36
Case: DELL in China (case 11.1 p.299) → The direct sales or a ‘dual system’ model: dell’s distribution strategy in China. .................................................. 37
Entry mode (II) – Licensing & Franchising (non-equity) ............................................................................................................................................................. 38
Entry mode (III) – Alliances/ Joint ventures (chapter 12)........................................................................................................................................................... 39
Entry mode (IV) – Wholly owned subsidiaries (chapter 13) ....................................................................................................................................................... 43
Schellenberg, Harker & Jafari (2018) International market entry mode – a systematic literature review ................................................................................. 46
Hollander et al. (2017) – A resource based view on entry mode ............................................................................................................................................... 49
lecture 5 Building a multinational network 1: subsidiary roles and innovation (R&D) .................................................................................................................... 51
Roles of subsidiaries (chapter 5) ............................................................................................................................................................................................... 51
International innovation (chapter 6) ......................................................................................................................................................................................... 56
Example: General Motors .................................................................................................................................................................................................... 58
Multinational subsidiary evolution – Birkinshaw & Hood.......................................................................................................................................................... 60
Lecture 6 Building a multinational network 2: international sourcing and production ................................................................................................................... 63
International sourcing and production (chapter 7) ................................................................................................................................................................... 63
Kedia & Mukherjee, 2009. Understanding offshoring: A research framework based on disintegration, location and externalization advantages. .................. 66
Case Flextronic → Page 231 in the book ................................................................................................................................................................................... 71
Lecture 7 Emerging economies & international CSR ....................................................................................................................................................................... 72
Emerging economies (Chapter 14) ............................................................................................................................................................................................ 72
emerging economy MNEs (chapter 15) ..................................................................................................................................................................................... 75
international corporate social responsibility (chapter 16) ......................................................................................................................................................... 78
Lecture 8 Corporate Governance & Business Ethics from a cross cultural perspective ................................................................................................................... 81
Business ethics from a cross-cultural perspective ..................................................................................................................................................................... 81
John Hooker (2009), Corruption from a cross‐cultural perspective ..................................................................................................................................... 81
Cross-cultural aspects of corporate governance ....................................................................................................................................................................... 83
Ruth V. Aguilera & Gregory Jackson (2010) Comparative and International Corporate Governance ................................................................................... 83
Lecture 9 Trust, Growth, and Well Being across the World ............................................................................................................................................................ 88
Trust, Growth and Well-Being ................................................................................................................................................................................................... 88
Yann Algan & Plerre Cahuc (2014) Trust, Growth, and Well Being: New Evidence and Policy Implications ............................................................. 89
,LECTURE 1 CORE CONCEPTS & FIRM-SPECIFIC ADVANTAGES (FSA)
- Benito (2015), Why and how motives (still) matter
- Verbeke Chp. 1, Book (2nd ed., pp. 13-77)
- Verbeke Chp. 2, Book (2nd ed., pp. 77-102)
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 (FSAs)
such as: core knowledge, competencies, efficiencies, and business models.
What is international strategy?
- Matching a multinational enterprise’s (MNE’s) internal strengths
o With the opportunities and challenges found in cross-border environments
o While overcoming the disadvantages of being a foreign company
o And/or capitalizing on the advantages of being a foreign company
o And/or capitalizing on the advantages of having an international network
- For practical examples from lecture see summary 3.
WHY AND HOW MOTIVES (STILL) MATTER (BENITO, 2015)
Elements of international strategy
John H Dunning (Gabriel R.G. Benito) distinguished 4 main motives: WHY, WHERE, WHAT and HOW of
internationalization:
Why – Where – What How
internationalization location choice: → → dependent on why
motives: (MERS) dependent on why
- Market seeking - Attractiveness of - Marketing & sales - Export
- Efficiency seeking country - Manufacturing - Licensing
- Resource seeking - “Distance” to home - Purchasing, - Franchising
- Strategic asset country extraction - JV/ Alliance
seeking (key - - R&D - FDI: (subsidiary)
knowledge) Brownfield
Greenfield
Why (trick: MERS)
- Marketing seeking: to find customers.
o Industry: consumer goods and services
o Core activity: marketing and sales
- Efficiency seeking: to lower costs of performing economic activities, and/or that aim at rationalizing
their already existing operations in various locations.
o Industry: manufacturing
o Core activity: manufacturing
- Resource seeking: to access resources that are not readily available at home or that can be obtained
at a lower cost abroad.
o Industry: Extractive industry, other primary sectors or companies with vertical supply chains.
o Core activity: Extraction and production
, - Strategic asset seeking: to obtain strategic assets (tangible or intangible), which may be critical to
their long term strategy, but that are not available at home. (e.g. patents or Silicon Valley to have
connections which will help you boost your competition).
o Industry: High tech
o Core activity: R&D, innovation
Where
This has to do with the attractiveness of a country when looking at the ‘distance’ to home country. Distance
describes cultural, economic, institutional and geographic distance (like CAGE framework). Distance is
particularly significant for B2B companies, because closeness is crucial in B2B relationships.
The location decision factors differ for different reasons, and are dependent on the why:
- Market seeking seek location with: large population, densely populated, high purchasing power.
- Efficiency seeking: cost levels, availability of human resources, well developed infrastructure and
proximity to home country.
- Resource seeking companies: are often more constrained in their choices; resources not evenly
distributed geographically. Thus reason to enter becomes imperative.
- Strategic asset seeking: existence of vibrant clusters, high level of development, urban centres. They
are forward looking, not looking to exploit existing resources thus seek diverse and dynamic
environments that are simultaneously able to both continually produce high innovation rates and to
absorb failures
What
The reason behind the internationalization. This could be: marketing and sales (Walmart), manufacturing
(Apple going to China), purchasing, extraction, Research and Development etc.
How
The way the company wants to internationalize: export, licensing, franchising, acquisition, alliances, joint
venture, Brownfield FDI or a Greenfield FDI.
Greenfield and brownfield investments are two types of foreign direct investment.
- With greenfield investing, a company will build its own, brand new facilities from the ground up.
- Brownfield investment happens when a company purchases or leases an existing facility.
According to internalization theory (Buckley and Casson, 1976), these choices are fundamentally about finding
the most efficient (cost minimizing) way of operating abroad. For example, establishing a subsidiary in a foreign
country, often referred to as FDI (foreign direct investment), would be the preferred choice of operating when
the joint costs of performing and governing an activity –or a set of activities –in-house are lower than the
equivalent costs of other options, such as exports, licensing or alliances.
Again this decision is dependent on the why:
- Market seeking: they own brand or trademarks that are or can be valuable when expanding in new
markets. There is a threat of free-riders, to safeguard your assets setting up own subsidiary would be
most advisable.
- Efficiency seeking: often make substantial investments in production and logistical systems and
hardware to gain economies of scale, scope and time. This often results in much tailored assets, which
have little reduced value in alternative uses - threat of hold-up & underinvestment. The article speaks
, of feasibility of capturing benefits by shedding off activities and operations that might previously have
been performed In house or at home
- Resource seeking: also experience hold-up and underinvestment challenges. Companies are often
existed to contract breaches or extortionate behaviour from other parties. They also face risks from
government or political actions, which even makes ownership less attractive as assets could be seized.
- Strategic asset seeking: key concern is to get there first. They are likely to prioritize control over
foreign operations over all other (relevant) concerns.
How to measure performance:
- Market seeking: Volumes sold, sales growth, market share.
- Efficiency seeking: cost-profit margins, productivity.
- Resource seeking companies: input costs, price-cost margins, stability and reliability of supplies
- Strategic asset seeking: new patens or other intellectual property, introduction of new products or
new processes.
Companies can move from one motive from another but can also do a variety of activities abroad for different
motives. Companies that aspire to compete globally are often inclined to pursue several motives at the same
time, and such companies have to calibrate their internationalization strategies accordingly.
Example exam question: Using the paper “Why and how motives (still) matter” by Benito (2015), explain the
difference between market seeking and efficiency seeking FDI in terms of the key “Where” “How” and What”
factors. Answer: (see also picture above)
Why (Location advantages) Where (LA) What How
Market seeking Large population Marketing and sales Brands
Efficiency seeking Low cost levels Manufacturing Specialized
investments
Resource seeking Resource availability Extraction and production Supply security –
/ supply reliability vertical integration
Strategic asset seeking Level of development R&D and innovation High-tech
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