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Summary Midterm Introduction to International Business
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Chapters 1 until 5 for the course 'Introduction to International Business'
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INTRODUCTION TO INTERNATIONAL BUSINESSInternational 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. Such matching is a precondition to creating value and satisfying stakeholder
goals, both domestically and internationally.
Most complex issues in international business strategy revolve around just seven concepts
1. Internationally transferable (non-location-bound) firm-specific advantages (FSAs)
2. Non-transferable (location-bound) FSAs
3. Location advantages
4. Investment in – and value creation through – recombination. Recombination means that some
resources used in an initial combination need to be dropped
5. Complementary resources of external factors
6. Bounded rationality
7. Bounded reliability
The first three reflect the distinct resource base available to the firm, critical to achieving success in
the marketplace. Expressed in practical, managerial terms, this resource base has various component,
either owned by – or accessible to – the firm:
1. Physical resources, including natural resources, buildings, plant equipment, etc.
2. Financial resources, including access to equity and loan capital
3. Human resources, including both individuals and team. These individuals and teams have both
entrepreneurial and operational (or efficiency-related) skills
4. Upstream knowledge, including sourcing knowledge, as well as product- and process-related
technological knowledge
5. Downstream knowledge, critical to the interface with customers, and related to marketing,
sales, distribution and after-sales service activities
6. Administrative (governance-related) knowledge regarding the functioning of the
organizational structure, organizational culture and organizational systems
7. Reputational resources, including brand names, a good reputation for honest business
dealings, etc.
A firm can have FSAs in each of the above research areas. The firm’s particular location may
contribute significantly to this distinct resource base, especially if this location provides privileged
access to specific resources external to the firm itself. FSAs and location advantages can be intimately
related.
Routines reflect the distinct ability to combine further the above resources, in unique ways valued by
the firm’s stakeholders. Routines are stable patterns of decisions and actions that coordinate the
productive use of resources, and thereby generate value, whether domestically or internationally. The
combination ability expressed in routines is a higher-order FSA, because routines are more complex
than an FSA derived from distinct but stand-alone resources. Therefore, rival companies face more
difficulties imitating or otherwise acquiring it.
, Chapter 1 Conceptual foundations of international business strategy
When a MNE is crossing its home country border to create value in a host country, the MNE is, almost
by definition, at a disadvantage as compared to firms from the host country, because the firm possess a
knowledge base that is more appropriately matched to local stakeholder requirements. To gain this
knowledge, a lot of cost will be made. To overcome this additional costs, the MNE must have
proprietary internal strengths, such as technological, marketing or administrative knowledge (non-
location-bound FSAs). The exploitation of FSAs transferred abroad can also be done by external
actors (licensees), or by network partners (joint venture partners or distributors), who may add their
own complementary resources to the foreign operation and thereby strengthen the MNE’s position in
the foreign marketplace by filling resource gaps.
If the FSA consists of easily codifiable knowledge then it can be cheaply transferred, and effectively
deployed and exploited abroad, but it can also be easily imitated by other firms. Tacit knowledge is
difficult to transfer, deploy and exploit abroad because it cannot be fully replicated through simple
communication channels. Therefore, tacit knowledge is often a key source of competitive advantage
when doing business abroad. The key routines developed by the firm since its inception are contained
in the MNE’s administrative heritage, and we can distinguish four archetypes, each associated with a
specific routine of international FSA transfer.
First the centralized exporter: this home country-managed- firm build upon a tradition of selling
products internationally, out of a limited number of (scale-efficient) facilities in the home country, and
with only minor, usually customer-oriented, value-creating activities abroad.
- Standardized products manufactured at home
o Successful in international markets
The second archetype of administrative heritage is the international projector: the firm builds upon a
tradition of transferring 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
o Transferred to subsidiaries in host countries
- Projecting its home country success recipes abroad
The third type of administrative heritage is the international coordinator: this centrally managed firm’s
international success does not build primarily on home country FSAs embodied in products exported
internationally (as was the case with the centralized exporter), nor does it simply transfer FSAs to
foreign subsidiaries to replicate home country success (as for the international projector). The
international coordinator build upon a tradition of managing international operations, both upstream
and downstream, through a tightly controlled but still flexible logistics function.
- Specialized in specific value-added activities
- Forming vertical value chains across borders
- Efficiently linking geographically dispersed operations through seamless logistics
The fourth archetype is the multi-centred MNE: the firm’s international success does not build
primarily on knowledge-based FSAs developed in the home country.
- Set of entrepreneurial subsidiaries abroad
o Key to knowledge-based FSA development
- National responsiveness foundation of the international strategy
- Non-location-bound FSAs are minimal
o Typically entrepreneurial families or financial investors
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