This is a complete summary of the Course International Strategy. It includes the lectures, in-class remarks, as well as additional teacher notes. With this summary, you should easily pass the course.
General information:
- 75% open test
- 25% case participation, 3 cases total.
- Minimum test grade: 5.5
,Lecture 1:
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 such as
- Core Knowledge
- Competencies
- Efficiencies
- Business models
What is international strategy?
Matching a multinational enterprise’s (MNE’s) internal strengths;
- With the opportunities and challenges found in cross-border environments
- While overcoming the disadvantages of being a foreign company
- And/or capitalizing on the advantages of being a foreign company
- And/or capitalizing on the advantages of having an international network
Strategy for Apple
Their strategy is build upon its unique resources and capabilities (technology, brand name,
complementary products).
Their international strategy relies on;
- Global markets for smartphones and products.
- Global opportunities for sourcing and manufacturing due to having a global
network.
- Increasingly tapping into foreign knowledge - and partnering.
- Does Apple change its products much overseas? No.
- Apple encounters many difficulties in foreign environments.
Elements of international strategy
→ The Why, Where, What and How of the internationalization.
How
- Export
- Licensing
- Franchising
- JV / Alliance
- Foreign Direct Investment (Brownfield = purchasing / leasing existing facilities,
Greenfield = new facilities)
Foundations of international business strategy
1. Internationally transferable firm-specific advantages (FSAs)
2. Non-transferable (or location-bound) FSAs
3. Location advantages
4. Investment in - and value creation through - resource recombination
5. Complementary resources of external actors
6. Bounded rationality
7. Bounded reliability
→ Advantages of foreignness: cultural attraction and arbitraging.
1 & 2; Firm-Specific Advantages (transferable & non-transferable)
- Physical resources
- Financial resources
- Human resources
- Upstream & downstream knowledge
- Administrative knowledge
- Reputational resources
→ Firm-Specific Advantage = Core Competencies.
→ Firm is a portfolio of Core Competencies; the higher-order FSA, i.e. the firm’s
routines and recombination capabilities.
,→ A core competence should:
1. Provide access to a wide variety of markets, and
2. Contribute significantly to the end-product benefits,
3. And be difficult for competitors to imitate
3; Location advantage
- Area with specific advantage for a firm.
- Could be as simple as a mine, or a forest.
- Location advantage could also be an area with workers / with high demand for
specific things / jobs; e.g. silicon valley.
4; Resource recombination
- Artful orchestration of resources, especially knowledge bundles.
- The ability to combine existing resources with new resources sparking innovation and
diversification.
- In the international arena, recombination capabilities are built up through
international experience.
- Host-country specific experience
- General internationalization experience
5; Complementary resources of external actors
- Market knowledge/access
- Government connections
- Complementary technology
→ Reason: cultural, economic, institutional and spatial ‘distance’, the missing ingredients
are the reason.
6&7; Liability of Foreignness (LoF)
A foreign firm has an apriori disadvantage vis-à-vis a local firm. Describes the additional
costs that multinational enterprises have to face relative to their indigenous
competitors when operating in foreign markets.
→ Bounded rationality - Scarcity of the mind - Imperfect assessment of a present or future
state of affairs, thereby leading to incorrect beliefs. We don’t have all the information out
there.
→ Bounded reliability - Scarcity of effort - Imperfect effort towards pre-specified goal
achievement, thereby leading to incomplete fulfillment of promises. We don’t know if
everyone is aligned in their mindset to achieve the same goal, which could lead to imperfect
effort.
Advantages of foreignness
A foreign firm may also have an apriori advantage vis-à-vis a local firm, because of;
- Cultural attractiveness
- E.g. US fastfood, French Wine, Swiss watches.
- The possibility of arbitraging between different regimes
- E.g. costs of inputs, taxes, environmental and labor standards.
, Four types of MNEs
1. Centralized exporters: exporting the same services again and again, not adjusting it
for a new market. A firm-specific advantages and applying it to a location that plays
into that advantage. Simply exports its products to the host country, doesn’t recreate
operations.
2. International projector: We’re good at something at home and we are going to
recreate that in the host-country. Setting up operations at a host country, not just
exporting products to it. E.g. setting up subsidiaries. Projecting the brand to the new
location.
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