Internatiional
Business
strategy:
rethinking
the
foundations
of
global
corporate
succes
Part
1:
Core
concepts
Chapter
1:
conceptuel
foundations
of
international
business
strategies
1.1 Definition
of
internatonal
business
strategy
• International
business
strategy
means
effectively
and
efficiently
matching
a
multinational
enterprise’s
(MNE’s)
internal
strengths
(relative
to
competitors)
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.
1.2 The
seven
concepts
of
the
unifying
framework
• Internationally
transferable
(or
non-‐location
bound)
firm-‐specific
advantages
(FSAs)
• Non-‐transferable
(or
location-‐bound)
FSAs
• Location
advantages
•
Investment
in
–
and
value
creation
through
–
resource
recombination
•
Complementary
resources
of
external
actors
(not
shown
explicitly
in
Figure
1.1)
• Bounded
rationality
• Bounded
reliability
Figure 1.1 Core concepts
Bounded
rationality
Stand-alone
FSAs
The triangular shape in the model represents
the pyramidal nature of the firm’s advantages:
on the broad base of the location advantages
Home International Host
Country Routines
border Country (LAs) of its home country (left) it builds a
smaller subset of FSAs that are location-
bound (LB; middle), and then a still smaller
Re-combination subset that are non-location bound (NLB;
capabilities right). Bounded rationality and bounded
reliability influence the ability of these non-
location bound FSAs to be transferred across
the international border to the host country.
Bounded
reliability
Non-transferable (or
Internationally transferable (or
Location advantages
location-bound) FSAs
home country non-location bound) FSAs
home country
10
1/162
,
1.2.1 internationally
transferable
FSAs
and
the
four
MNE
archetypes
• MNE=
creates
value
and
satisfies
stakeholder
needs
by
operating
across
national
borders
o Incurs
additional
costs
of
doing
business
abroad,
resulting
from
cultural,
economic,
institutional
and
spatial
distance
between
home
and
host
country
environments
o To
overcome
those
costs,
the
MNE
must
have
proprietary
internal
strengths
such
as
=
NON-‐LOCATION
BOUND
FSA’s
(set
of
MNE
internal
strength,
the
availability
of
which
both
allows
and
constrains
the
scope
of
the
firm’s
expansion
across
borders)
§ Technological
§ Marketing
§ Administrative
knowledge
o Non-‐location
bound
FSA’s
do
not
stop
creating
value
when
the
border
is
crossed
between
home
and
host
country
§ Can
be
embodied
in
final
products
§ Eg.
Toyota
Case
(exported
from
Japan
to
US)
o When
faced
with
natural
or
government-‐imposed
trade
barriers
§ Mne
may
transfer
some
FSAS
abroad
directly,
as
intermediate
prodcuts
§ Eg.
Toyota
case
(
the
fsa’s
in
manufacturing
and
quality
control
will
then
be
deployed
and
exploited
abroad
trought
an
affiliate
in
the
host
country)
• PARADOX:
of
an
internationally
transferable
FSA
o If
the
FSA
consists
of
easily
codifiable
knowledge
(i.e.,
if
it
can
be
articulated
explicitly,
as
in
a
handbook
or
blueprint),
then
it
can
be
cheaply
transferred
abroad,
but
it
can
also
be
easily
imitated
by
other
firms.
o Though
expensive
and
time-‐consuming
to
transfer
tacit
knowledge
across
borders,
the
benefit
to
the
MNE
is
that
this
knowledge
is
also
difficult
to
imitate.
It
is
often
a
key
source
of
competitive
advantage
when
doing
business
abroad.
o In
other
words
§ The
cost
of
FSA
is
low
but
the
potential
value
that
can
be
derived
from
actually
deploying
and
exploiting
the
FSA
may
also
be
relatively
low
(if
competitors
can
easily
initate
what
the
MNE
is
best
at)
o easily
be
immitated:
in
countries
who
have
not
a
good
protection
of
patents
(eigendomsrechten).
Tention
between
one
thing
of
codified
and
others
can
easily
caption
your
note
at
low
costs
2/162
, • Four
archetypes
of
administrative
heritage
(each
associated
with
a
specific
routine
of
international
FSA
transfer)
1. Centralized
exporter
§ Standardized
products
manufactured
at
home
embody
the
firm’s
FSAs
(themselves
developed
on
the
basis
of
a
favourable
home
country
environment,
including
local
clustering)
and
make
the
exporting
firm
successful
in
international
markets.
§ Multinational
activities
occur
primarily
in
the
downstream
and
of
the
value
chain
and
are
related
to
marketing,
distribution
and
related
logistics
operations
§ Case
example:
motion
picture
studios.
NEC
Figuur
1:
centralized
exporter
Figure 1.3 Centralized exporter
Home Country International Host Country
border
The arrow cutting through dotted
areas represents the direct link
between home country NLB
FSAs, and the host country’s
LAs (i.e. the foreign market),
without development of new, LB
FSAs in the host country, or
formal transfer of existing NLB
FSAs to the host country (the
NLB FSAs are embodied in the
centralized exporter’s products).
Location advantages Non-transferable (or Internationally Internationally Non-transferable (or Location advantages
home country location-bound) FSAs transferable (or non- transferable (or non- location-bound) FSAs host country
home country location bound) FSAs location bound) FSAs host country
•
22
2. International
projector
§ 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.
§ The
firms
relies
on
an
extensive
cadre
of
professional
managers
who
can
act
as
expatriates
or
repositories/transfer
agents
of
the
home
country
succes
recipes
§ Case
examples:
Ford,
Disney.
Figuur
2:
International
projector
3/162
, Figure 1.4 International projector
International
Home Country Host Country
border
The dotted area of LB FSAs in
the middle of the host country
triangle reflects the international
projector’s lack of development
of LB FSAs in the host country,
where operations simply clone
those prevailing in the home
country. Extant NLB FSAs
suffice to access and benefit
from host country LAs.
Internationally Internationally Non-transferable (or Location advantages
Location advantages Non-transferable (or transferable (or non-
location-bound) FSAs transferable (or non- location-bound) FSAs host country
home country location bound) FSAs
home country location bound) FSAs host country
24
3. International
coordinator
§ The
coordinator
builds
upon
a
tradition
of
managing
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.
§ Case
example:
BP.,
logitech
Figuur
3:
International
coordinator
Figure 1.5 International coordinator
Host
International Country A
border
The different sizes of the shaded
areas in the various host countries
reflect the different types and levels
of home country NLB FSAs to be
transferred to different host
environments in function of the LAs
Home Host
Country
the firm wishes to access. The circle
Country B
linking the various countries reflects
the international coordinator’s
strengths in putting together a value
chain based upon access to the
coveted LAs of each country where
the firm operates.
Host
Country C
4. Multi-‐centred
MNE
26
§ The
multi-‐centred
MNE
consists
of
a
set
of
entrepreneurial
subsidiaries
abroad
which
are
key
to
knowledge-‐based
FSA
4/162
, 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.
§ Should
be
viewed
as
a
portfolio
of
largely
independent
businesses
§ Case
examples:
Philips,
Lafarge.
Figuur
4:
Multi-‐
centred
MNE
Figure 1.6 Multi-centered MNE
Host
Country A
International
border
The multi-centered MNE
transfers only key routines
Stand-alone from the home country to host
FSAs
countries. The large, shaded
middle areas in the host
Home Host countries represent the
Country Routines Country B
necessity to build new, LB
FSAs in each host country. The
Re-combination double-headed arrows reflect
capabilities
the close alignment the host
country operations must
develop between their own LB
FSAs and the host’s LAs.
Host
Country C
1.2.1.1 Conclusion
28
• However
the
commonality
among
all
these
types
is
the
transfer
of
at
least
some
FSA
across
borders
(passen
niet
bij
bovenstande
archetypes)
o Eg.
Freestanding
companies
§ Companies
who
are
set
abroad
often
in
their
home
country
colonies
without
a
prior
domestic
production
base
• Harrisons
&
Crosfield
§ Building
upon
generally
available
resources
in
their
home
country
such
as
low
cost
labour
and
various
forms
of
government
support
• Many
of
these
firms
initial
fsa
when
corssing
borders
revolve
around
,
…
• History
suggest
that
the
MNE
will
usually
overestimate
the
international
transferability
from
a
mere
technical
standpoint,
the
potential
for
foreign
deployment
and
the
profigable
exploitation
of
its
fsa’s
• Even
when
knowledge
transfer
across
borders
is
achieved
rather
easily,
contextual
variables
change
o Forces
that
reflect
extended
rivalry
o Government
regulation
and
other
non
market
forces
o The
other
relevant
stakeholders
in
the
broader
business
1.2.2 non-‐transferable
(or
location
bound)
firm
specific
advantage
• cannot
be
easily
transferred
,
deployed
and
exploited
in
foreign
markets
• Some
FSAs
are
not
transferable
abroad:
location-‐
bound
FSAs
o Four
main
types:
§ Stand-‐alone
resources
linked
to
location
advantages
(privileged
retail
locations)
leading
to
a
dominant
market
share
in
the
home
market
5/162
, • Eg.
KAO,
Citibank
§ Local
marketing
knowledge
and
reputational
resources,
such
as
brand
names
(may
not
be
applicable
to
a
host
country
context,
or
valued
to
the
same
extent).
• May
not
have
the
same
value
across
borders,
either
they
are
not
applicable
to
a
host
country
context
• Eg.
Ralph
Lauren
§ Local
best
practices
(i.e.
routines),
such
as
incentive
systems
or
buyer-‐supplier
relations
(may
not
work
abroad).
• Eg.
Hotels
in
hongkong
versus
US
§ Domestic
recombination
capability
(may
not
work
in
foreign
markets).
• Even
if
transferability
of
the
relevant
resources
were
technically
possible,
this
does
not
mean
the
transfer
of
the
potential
for
profitable
deployment,
i.e.,
the
resource
bundles
that
may
be
transferable
from
a
technical
perspective
(e.g.,
the
way
in
which
a
product
is
marketed
at
home),
do
not
constitute
an
FSA
abroad.
• Eg.
Office
depot
• Interesting
point
o The
corresponding
fsa
in
each
host
country
will
need
to
be
created
or
acquired
from
third
parties
operating
in
these
foreign
markets
o Eg.
Acer
• Non-‐transferable:
big
banks,
retail
banks
are
powerfull
but
at
the
moment
you
cross
the
border
you
don’t
see
them
any
more
o Can
not
be
transferred
easely
accros
the
borders
o Biggest
problem:
managers
overestimed
,
they
think
they
are
strong
international
o Overestimate
to
extend
what
they
do
local
i
twill
also
succesfully
abroad,
it
is
not
always
the
case.
1.2.3 location
advantages
• Entire
set
of
strengths
of
a
location,
and
accessible
by
firms
in
that
location.
o Should
always
be
assessed
relative
to
the
strengths
of
other
locations.
• location
advantages
are
often
Instrumental
to
FSAs
tgat
can
be
developed
by
locally
operating
firms
relative
to
firm
operating
elsewhere
o eg.
Natural
resources
in
Canada,
Germany
and
VET,
parfume
in
france,
India,
US
leding
country
for
biotechnologie
innovation
,
NAFTA,
• foreign
direct
investment
o the
allocation
of
resources
bundles
by
an
MNE
in
a
host
country,
with
the
purpose
of
performing
buisness
activities
over
which
the
MNE
retains
strategic
control
in
that
country
o a
MNE
should
engage
in
a
FDI
only
if
the
host
country
confers
a
location
advantages
relative
to
the
home
country
6/162
, • Motivation
for
foreign
expansion
o Natural
resource
seeking.
§ Not
proprietary
§ Their
avaibility
in
host
countries
means
that
investments
abroad
leads
to
higher
value
creation
than
investment
at
home
§ Eg.
Exxonmobil
o Market
seeking.
§ Reflect
the
searchf
or
customers
in
host
countries
§ Not
the
same
as
merexporting
§ Eg.
KFC
o Strategic
resource
seeking.
§ The
desire
to
gain
access
to
advanced
resources
in
the
sphere
of
upstream
knowledge,
downstream
knowledge
or
reputational
resources,…
§ In
generally
not
accesible
§ Therefore
this
type
of
FDI
typically
involves
taking
over
other
companies,
engaging
in
alliance
activity
o Efficiency
seeking.
§ A
firm’s
desire
to
capitalize
on
environmental
changes
that
make
specific
locations
in
the
MNEs
international
network
of
operations
more
attractive
than
before
for
the
consolidation
or
concentration
of
specific
activities
Figure 1.2 The essence of international business strategy
The shading of the middle of the
Home Country
International
Host Country host country triangle emphasizes the
border
importance of developing new, LB
y FSAs in the host country. These LB
tar
en
lem es FSAs complement the FSAs the
Stand-alone
mp urc
FSAs Co reso firm has transferred from the home
country, and are critical to achieve
the firm’s goals, in terms of
Routines accessing and benefiting from the
location advantages (LAs) of the
host country. If the firm commands
Re-combination insufficient FSAs internally to
capabilities access and benefit from these LAs,
it may draw upon complementary
resources of external economic
actors to achieve its goals in the
host country.
Internationally Internationally Non-transferable (or
Location advantages Non-transferable (or Location advantages
location-bound) FSAs transferable (or non- transferable (or non- location-bound) FSAs
home country host country
home country location bound) FSAs location bound) FSAs host country
20
• the
figure
shows
basic
linkages
among
internationally
transferable
fsas
location
bound
fsas
and
location
advantages
• the
shaded
area
o a
firms
succes
abroad
depends
on
its
ability
to
link
its
internationally
transferable
fsa’s
with
location
advantages
in
host
countries,
which
are
the
reasons
why
the
MNMNE
expanded
there
in
the
first
place
• Location
advantages:
working
in
many
different
ways
o Nice
location:
conduisive
to
create
a
competitive
advantage
(what
you
7/162
, derive
from
the
home
country)
o Host
country
location
advantage
–
eg
high
demand,
cheap
input
costs
1.2.4 Value
creation
through
Recombination
• Constitutes
the
heart
of
international
business
strategy.
• Artful
orchestration
of
resources,
especially
knowledge
bundles,
as
a
response
to
differences
between
national
and
foreign
environments,
and
to
satisfy
new
stakeholder
demands
in
these
foreign
environments.
• Entrepreneurial
judgment
is
at
the
heart
of
the
MNE’s
recombination
capability.
•
Precondition
to
value
creation
and
satisfying
stakeholder
needs
in
complex
international
settings.
• Value
creation
through
recombination
o Combining
in
novel
ways
existing
resources,
often
in
conjunction
with
newly
accessed
resources
o Managers
find
new
profitable
ways
to
use
excess
resources
at
a
relatively
low
marginal
cost
and
to
meld
these
with
newly
accessed
resources
• Resources
recombination
requires
three
things
o Entrepreneurial
skills
possessed
by
managers
and
other
employees
that
can
be
deployed
in
the
face
of
new
productive
opportunities
o Unused
productive
resources
,
o Willingness
and
capacity
to
let
go
of
some
resources
embedded
in
extant
fsa’s
and
to
replace
these
by
resources
with
higher
value
creating
potential
in
host
environments
o Eg.
Carrefour
• Recombination
capability
is
the
MNE’s
highest
order
FSA
o It
means
that
the
firm
can
not
only
transfer
abroad
its
existing
set
of
FSAs
but
also
create
new
knowledge,
integrate
it
wiht
the
existing
knowledge
base
and
exploit
the
resulting,
new
knowledge
bundles
across
geographic
space,
in
ways
that
satisfy
stakeholders
needs
• The
MNE’s
unique
resource
base
o Physical
resources
(natural
resources,
buildings,
plant
equipment).
o Financial
resources
(equity
and
loan
capital)
o Human
resources
(individuals
and
teams,
entrepreneurial
and
operational
skills).
o
Upstream
knowledge
(sourcing
knowledge,
product
and
process-‐related
technological
knowledge).
o Downstream
knowledge
(marketing,
sales,
distribution
and
after
sales
service).
o Administrative
knowledge
(organizational
structure,
culture
and
systems)
o Reputational
resources
(reputation
for
honest
business
dealings).
o Building
upon
its
resource
base,
as
well
as
its
access
to
location
advantages,
the
MNE
will
develop
stand-‐
alone
FSAs
(e.g.,
brand
names,
patents)
and
routines,
and
will
also
engage
in
resources
recombination.
o FSAs
reflect
the
firm’s
distinct
strengths
vis-‐à-‐vis
rivals,
and
are
the
source
of
competitive
advantage
in
the
marketplace.
• It
needs
more
than
the
MNEs
unique
resources,
it
needs
also
8/162
