Exam questions Multinational Strategic Planning by A. Verbeke (VUB)
Chapter 1: Conceptual foundations of international Business strategy
Q1: Explain the seven basic concepts of unifying framework ? + give the full model with the two
triangles.
1. Internationally transferable (or non-location bound) firm-specific advantages (FSAs): You
can only become a multinational firm if you have FSA’s (patents, brand names, …). They
have to be better than competitors. They need a strength (FSA’s) to overcome the
disadvantages of the costs of going abroad. Many FSA’s are location bound, it’s almost
impossible to emulate that in another country. The distinction between location-bound
and non-location-bound FSA’s are important.
Managers often overestimate the non-location bound nature of their firm specific
advantages! It is important to know what is actually transferable and profitable, and
what is a superior home country practice and can not be deployed internationally.
Example: large banks in Belgium (ING, KBC, …) ; Over the border these banks have no
power. They are very location bound and are non-transferable.
2. Non-transferable (or location-bound) FSAs
3. Location advantages: A firm is not created in a vacuum. American firms have location
advantages that are very different from Japanese and European firms. So firms are
embedded in their locations. They have a administrative heritage which depend on
where they come from.
4. Investment in – and value creation through – resource recombination: Logical outcome
of the second and third concept. You need to recreate the advantages. This can be done
by hiring local employees, acquiring a local firm, … Resource recombination is key! You
need to recombine resources of your existing reservoir of resources.
5. Complementary resources of external actors (not shown explicitly in Figure 1.1): Often
not resources you can buy on open markets. They are held by economic actors. There is
no accessibility.
6. Bounded rationality: ‘Scarcity of mind’. We have imperfect information. We only get
information when time goes by = The unavailability of information in a particular part of
time + the limitations of the human mind to consider all information. Managers are
limited in processing and understand all information of all kind of sources. The third
dimension is that even when there is a lot of information available, employees over
every country will choose other facets of this information and think of them as
important. Which will lead to different judgements and decisions.
Use geographical divisions to overcome bounded rationality (division for Asia,
Europe, …) One head office is not an option.
7. Bounded reliability: ‘Strong form self-interest’ is not a good concept because it leads to
many problems. Also trust in companies is useless. Trust is only used in private
environments. Trust should be safeguarded. That’s why the professor uses the term
‘bounded reliability’.
Example: overcommitment by employees (big source of unreliability).
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, Identity based discordance: going back to old patterns. U used to do things in a
particular way. Now you will do things differently, but in the end you will go back to
the old practices. ‘Commitment non-fulfillment’.
Visually (p.2 cursus): The main framework of the book. The small triangular is the reservoir of what is
internationally transferable. When you cross the border, you access the host country.
Q2: Four MNE archetypes? How does this work with a particular archetype of MNE’s?
(p. 5-7 cursus)
1. Centralized exporter: Standardized products are being manufactured at home. There are
minimal adjustments made for every other country where it is being exported to. The FSA’s
are staying in the home country.
2. International projector: You will not only just export your products, you will also set up
subsidiaries abroad. The FSA’s that were developed in the home country are being
transferred to the host countries. There are also small differences in the products.
3. International coordinator: International operations that form vertical value chains across
borders. They do this through seamless logistics (oil, gas, mining, …)
4. Multi-centered MNE: Typically large MNE’s. They set up subsidiaries abroad which are key to
FSA development. Every manager in the subsidiaries has autonomy to response on customer
preferences in that country => National responsiveness.
Q3: Describe the patterns of developments of FSA’s. Explain the diagram: where was this firm
specific advantage created (vertical ex); is it internationally transferable or non-transferable
(horizontal ax)? (10 patterns of competence building)
Figure 1.7 Ten patterns of FSA development in MNEs
Generic FSA-type
Internationally transferable Non-transferable
(Non location-bound) FSAs (location-bound) FSAs
Geographic
source
II
I
Home country
operation
III
VI
+ IV
Host country V
operation
VII
+
IX
Network VIII
X
Key:
Non-transferable (location-bound) FSAs
Internationally transferable (Non
location-bound) FSAs
Explicit headquarters’ control
Reflects FSA upgrading from LB to NLB
Reflects NLB FSA transfer
Reflects corporate headquarters’ control
(p. 8-9 cursus)
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,Chapter 2: The critical role of FSA’s
Q4: What is the core competence of the corporation? And what are the problems associated with
the core competence approach?
Prahalad and Hamel: paper
Core competencies are the resources and/or strategic advantages of a business, including the
combination of pooled knowledge and technical capacities, that allow it to be competitive in the
marketplace. In other words, core competencies are what the company does best and consist of the
combined activities, operations, and resources that distinguish the company from competitors.
A core competence is much more than a product, it’s an underlying technology. The customer is
willing to pay for it. The bundling of all resources.
Core competencies are hard to imitate, it gives access to a wide variety of markets, it gives customer
benefits and the loss of competencies have a negative effect on the present and future value of the
firm (4 characteristics of competencies).
• There are “stand alone” competences: These can be transferred like knowledge,
physical assets, marketing, branding, …
• And there are “high order” competences: These can not easily be transferred like
routines, managerial practices, etc.
➔ The loss of a core competence would have a negative effect on the firm’s present and future
performance.
➔ ‘Strategic architecture’: a road map to acquire and develop core competencies.
Problems ? (p.15)
1)Location advantages? FSA-transfer costs Location-bound FSA s ? A strategic architecture alone will
not lead to successful exploitation of core competences abroad.
2)Geographical embeddedness of competence carriers? Co-location matters here too. Competence
carriers can not operate anywhere. There is an element of embeddedness.
3)Naïve view of corporate headquarters versus SBU relationships(idem versus subsidiaries). In
practice, FSA transfer is very difficult (cf. concept of subsidiary-specific advantage in Chapter 1).
4)Naïve preference for hierarchical control and centralized decision-making. In practice,
multidivisional governance economizes on bounded rationality and bounded reliability.
5)Neglect to distinguish between the back end and customer end of the value chain. Especially the
latter needs adaptation in function of location; if not core competences will become core rigidities.
It’s going to be very bad for you ultimately.
(no questions about the complementary papers in this chapter)
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, Chapter 3: The nature of Home country location advantages
Q5: Explain Porter’s diamond?
Diamond: to evaluate the sectoral strengths and weaknesses of your domestic industry (not a nation
as a whole).
Your global competitiveness is determined by the location advantages in the home
country!
Porter’s Diamond is a 180 degree turn from what he said in the Five forces framework in 1980. There
Porter said that firms want their competitors to be as weak as possible, you want monopoly.
In the Diamond model he says that firms need competitors to become better yourself (the opposite).
He says that “Location is everything”. Pressure in the home base pushes innovation, upgrading and
production improvements, which results in FSA creation. Firms derive their competitive advantage
from the location where they ultimately start functioning.
The four factors interact with each other in the diamond model.
1. Factor conditions: focus on created conditions that are specialized (skilled labour,
scientific knowledge, …) -> Not cheap labor etc.
2. Demand conditions: size and sophistication of domestic demand. You want a
demanding customer, someone who pushes you to do better.
3. Related and supporting industries: World class suppliers. They will help you to do
better yourself.
4. Firm strategy, structure and rivalry: highly competitive domestic industry helps
international competitiveness.
The ability to compete internationally is based on location advantages in it’s home
country! (only for industries, not an economy as a whole)
Q6: What are the limits of the framework? Why the double diamond?
PORTER: Yes it’s true, but competitive advantage depends on internal management, not only
location! There are always linkages with other countries( for example in the logistic chain) which are
the key to success. Linkages with other countries make the firm successful.
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