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Summary for Introduction to International Business
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A detailed summary of the book for the course of Introduction to IB with some lecture notes included.
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Introduction to International BusinessSummary
Chapter 1: Conceptual foundations of international business strategy
International business strategy: implies effectively
and efficiently matching a 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.
Firms need to have resources, routines and
entrepreneurial skills, and these elements jointly are:
Firm Specific Advantages (FSA): describes an MNE’s
tangible and intangible assets it possesses. Reflect the
firm’s distinct strengths compared to its rivals and are
the source of its competitive advantage in the
marketplace.
Competitive Advantage: lays the very foundation for
any business development strategy.
Core Competencies: A company’s most important firm
specific advantage.
Routines: stable patterns of decisions and actions that coordinate the productive use of resources, and thereby
generate value, whether domestically or internationally.
Internationally transferable FSAs (non-location bound)
Definition: Allow and constrain the scope of a firm’s expansion across borders
Multinational enterprise (MNE): creates value and satisfies stakeholder needs by operating across national boarders
Distances: MNE endures additional costs (in addition to their domestic costs of operation) due to cultural-, economic-,
institutional-, and spatial distances
➔ An MNE can overcome these costs by, for example, obtaining proprietary internal strengths.
Liability of Foreignness: describes the cultural and institutional differences to the home country environments of an
MNE, it may be reduced over time due to an MNE’s strategic decisions.
,Easily codifiable knowledge:
● Can be cheaply transferred and effectively developed/exploited abroad, but can also be easily imitated by
competitors
● Can be developed via communication, applying ‘learning-by-doing’ and experience of the MNE’s managers
and employees
Tacit knowledge: is difficult to transfer/deploy/exploit abroad but hard to imitate by competitor
➔ Paradox of transferable FSAs
The Four Archetypes of Administrative Heritage
1. Centralized Exporter
● Home country managed
● Sells internationally, scale efficient, minor customer orientation
● Standardized products manufactured at home
● Foreign subsidiaries as facilitators
● Downstream end of value chain
2. International Projector
● Transferring proprietary knowledge developed in home country to forgein subsidiaries
● Clones of home operations
● Systematic and continuous transfer
● Requires: professional managers as expatriates or repositories/transfer agents
3. International Coordinator
● Centrally managed
● Specialized in value-added activities forming vertical value chains across borders
● FSA’s: efficiently linked logistics
● Most cost-efficient locations, sell wherever there is demand
4. Multi-centered MNE
● Set of entrepreneurial subsidiaries, knowledge-based FSA development
● National Responsiveness
● Largely independent businesses
● Common financial governance + identity specific interests of founders
Two examples which are not included in any of the four archetypes:
1. Freestanding companies: companies that were set up abroad (mainly British and Dutch investors often in
their home country’s colonies) without a prior domestic base
2. Emerging economy MNEs (EMNEs): These firms thrive on with combining whatever FSAs they possess with
resources accessed abroad, they build upon generally available resources in their home countries such as
low-cost labor and various forms of government support
, Non-transferable (location-bound) FSA’s
Definition: these firm specific advantages cannot be easily transferred, deployed or exploited in foreign markets.
Types of location-bound FSA’s
1. Stand-alone resources: Network of privileged retail location
2. Other resources: local marketing knowledge or reputation
3. Local best practices (routines considered highly effective and efficient in one country): incentive systems for
high-skilled workers
4. Domestic recombination capability: this may have led to a dominant market share in the home country but
may not be adept enough to confront the additional complexities of foreign markets
One of the most interesting aspects of all four of these kinds of location-bound FSAs is that the corresponding FSA in
each host country will need to be created or acquired from third parties operating in these foreign markets. Linking
investments may be required to allow the matching of the MNE’s internationally transferable FSAs with the relevant
characteristics in host countries and regions.
Location Advantages
Definition: a set or sets of strengths of a specific location assessed in relatively to the strengths of the locations, for
example, abundant natural resources or a superior educational system or, a favorable tax regime
Economic clusters: Location advantages might reach even across national borders due to investment agreements
Foreign Direct Investments (FDI)
Definition: allocation of resource bundles by MNE in a host country. The purpose is to perform business activities over
which the MNE retains strategic control.
MNEs engaging in FDI do so according to four underlying motivations:
1. Natural resource seeking
Entails the search for physical, financial or human resources in host countries. These resources are in principle not
proprietary, and their availability in host countries (which constitutes the location advantage of those countries) means
that investment abroad leads to higher value creation than investment at home.
Example: Oil, minerals
2. Market seeking
Reflects the search for customers in host countries. The host country location advantage is the presence of customers
willing and able to purchase the firm’s products. Market seeking involves business activities in the host country, based
on resource bundles transferred there over which the MNE retains strategic control.
3. Efficiency seeking
The desire to capitalize on environmental changes that make specific locations in the MNE’s international network of
operations more attractive than before for the consolidation or concentration of specific activities.
Cheaper and more efficient to produce in another country than the home country. May produce in a host country and
then ship back home.
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