Summary final International management
Verbeke book: chapters 1,2,3,4,5,6,7,11,12,13,14,15,16a + lectures
Lecture 1
International business strategy : 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 while overcoming
disadvantages of being a foreign company (or sometimes: while capitalizing on the advantages of
being a foreign company).
As an outsider you are not always in a disadvantage. You must have extra strength but you could also
have advantages.
Firm-specific advantages (FSAs) - C.K. Prahalad and Gary Hamel
• Firm is a portfolio of ‘core competencies’: higher-order FSAs, i.e., the firm’s routines and
recombination capabilities
• A core competence ultimately takes the form of: shared knowledge, organized into routines,
and the ability to integrate multiple technologies, reflecting the recombination of internal
resources
Core competence should
1. provide access to a wide variety of markets, and
This means they should be able to “travel”:
• Products appeal to local consumer taste and comply with local standards (market seeking)
• Production technologies can be transferred to other production locations (efficiency seeking)
• The firm’s technologies are compatible with the local resources (resource seeking)
• The firm’s knowledge is compatible with the local knowledge bases (strategic asset seeking)
2. contribute significantly to the end-product benefits, and
International application of marginal advantages makes no sense:
• Brand name and/or product characteristics should be competitive in local markets (market
seeking)
• Efficiency gains from local production should be considerable (efficiency seeking)
• Local resource endowments should justify the investment (resource seeking)
example: oil reserves (Shell) that will be available
• Local knowledge should be rich and deep enough to justify investment (strategic asset seeking)
3. be difficult for competitors to imitate
International protection needs to be possible:
• Product features, brand name (market seeking)
• Technology, IP protection (efficiency seeking)
• Protection against appropriation (resource seeking)
• IP protection, prevention of tacit knowledge leakage (strategic asset seeking)
Tacit knowledge = everybody knows how to ride a bike. However, when you will be asked to write
down explicitly how you do it, to give this to someone else,
,Three necessary types of advantages for going abroad (FDI) makes sense:
- Ownership advantages (FSAs)
- Location advantages (attractiveness of the host country)
- Internalization advantages (advantages of doing-it-yourself) so it must internalised within the
firm.
Critical analysis Prahalad and Hamel’s view
1. Location advantages? FSA-transfer costs? Location-bound FSA’s? No attention to
international dimension
2. ‘competence carriers’ cannot be moved freely across firm locations. Motivation in needed,
not everyone wants to be transferred abroad.
3. Naïve view of corporate headquarters – subsidiary relationship. In practice, FSA transfer
requires the right capabilities and motivation.
4. Naïve preference for hierarchical control and centralized decision-making (bounded
rationality and reliability). Not everything can be done top-down, top management can’t
know everything
5. Neglect to distinguish between the upstream and downstream parts of the value chain.
Concentration and integration upstream, but responsiveness to customer variety
downstream: P&H advocate concentration which is good upstream, but needs more variety
downstream
Conceptual foundations of international business strategy
1. non-location bound: internationally transferable FSAs that can be transferred, deployed and
exploited abroad.
▪ Systems
▪ Knowledge
▪ Money
▪ Brand (Apple)
2. location bound: non-transferable FSAs
▪ Stand-alone resources linked to the location advantages: network & privileged retail
locations leading to a dominant market share in the home country
▪ Local marketing knowledge and reputational resources. May not have the same value
across borders, because they are not applicable or not values in the same extent by
foreign stakeholders.
▪ Local best practices: routines (examples: incentive systems for highly skilled workers &
buyer-supplier relations)
▪ Domestic recombination capability: the ability to adapt and recombine resources in such
a way that they maintain firm competitiveness over time and across environments,
dynamic capabilities for example. Co-location for example marketing and engineering or
R&D and engineering must be located closely.
3. Location advantages → the entire set of strengths characterizing a specific location and useable
by firms operating in that location. In principle available to all firms but firms must take action to
enjoy these advantages.
Foreign Direct Investment (FDI): allocation of resource bundles (combinations of physical, financial,
human, knowledge and reputational resources) by an MNE in a host country, with the purpose of
performing business activities over which the MNE retains strategic control in that country.
Location advantages based on motivation firm conduct economic activity
▪ Natural resource seeking: physical, financial or HRM in host countries (example: education
system for building on sophisticated HRM skills)
o Industry: extractive industries (minerals and oil)
, o Activities: extraction and production
o Assessment performance: input costs, price costs margins, reliability suppliers
o Motivation internalization: availability inputs (natural resources, land, infrastructure)
▪ Market seeking: customers in host country. Deploying productive activities and selling in
foreign market offers higher value than engaging in alternative projects at home
o Industry: local tastes and preferences
o Activities: marketing & sales
o Assessment performance: volume sold, growth, market share
o Motivation internalization: size & growth market, consumer wealth & taste
▪ Strategic asset seeking: desire to gain access to advanced resources of upstream,
downstream, administrative or reputational knowledge. Key concern: get there first,
identifying and securing assets before competitors.
o Industry: high-tech industries such as pharmaceuticals
o Activities: R&D and other innovation oriented activities
o Assessment performance: new patent, intellectual property rights
o Motivation internalization: availability knowledge-related assets: specialized
▪ Efficiency seeking: 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 advantages. (examples: technological
breakthroughs allowing scale of economies, triggering R&D investments, customer-induced,
short product cycles)
o Industry: manufacturing industry (production abroad to benefit from lower wages)
o Activities: manufacturing
o Assessment performance: cost-profit, margins, productivity
o Motivation internalization: availability production factors at low costs
▪ Export platform: not only to produce cheap, but also to ship it to third countries.
Examples
- Silicon Valley is a location that can give huge advantages due to the availability of knowledge
and the availability of highly educated employees. This is called an economic cluster.
- Cross border: regional trading and investment agreements
4. Investment in – and value creation through – resource recombination of FSAs → constitutes the
hart of international business strategy: international success requires more than just routines.
The highest-order FSA is the ability to recombine resources in novel ways, usually including newly
accessed resources. Ability to adapt and recombine resources in such a way that they maintain
firm competitiveness over time and across environments.
5. Complementary resources of external actors → the additional resources provided by external
actors but accessible to the MNE which may be necessary to fill resource gaps and achieve
success in the market-place → complementary resources provided by external actors that are
critical to the international success.
▪ Market knowledge/access
Example: working with a local marketing agency to gain specific environmental
information of New-Zealand, instead of relying on your own marketing experiences
▪ Government connections
Example: Wal-Mart working with agencies to manipulate and change regulations, make
sure that could locate stores at more beneficial places. However, they didn't succeed
▪ Complementary technology
, Behavioural characteristics
6. Liability of Foreigness (Lof): bounded rationality (capacity) = implies limits to the capacity of
individuals to absorb, process and act upon complex and often incomplete information.
5 criteria to discover
▪ Complexity (higher complexity, need for face-to-face communication)
▪ Required level interaction
▪ Similarity of background & expertise
▪ Requirements prior relationship
▪ Concreteness of information
7. Liability of Foreignness (Lof): bounded reliability (trust) = implies insufficient effort to deliver on
promised behaviour, leading to incomplete fulfilment of promises.
MNE’s resource base
The first three concepts above (internationally transferable FSAs, non-transferable FSAs and location
advantages), as set, reflect the distinct resource base available to the firm, critical to achieving
success in the marketplace. In this book, the firm is viewed essentially a bundle of resources under
common governance.
• Physical resources (natural resources, buildings, plant equipment).
• Financial resources (equity and loan capital)
• Human resources (individuals and teams, entrepreneurial and operational skills).
• Upstream knowledge (sourcing knowledge, product and process-related technological
knowledge): producing
• Downstream knowledge (marketing, sales, distribution and after sales service): having it
already but trying to sell it somewhere.
• Administrative knowledge (organizational structure, culture and systems).
• Reputational resources (reputation for honest business dealings).
Benito, 2015
Elements of international strategies
1. WHY - reason has huge impact on other choices you make. So market faced or lowly paid workers
faced. The motivation is very different here. Resource seeking is strictly natural resources (shell for
example. Go to Nigeria for oil. South Africa for diamonds for example (efficiency is cheap production
so cheap labour). Resource is just oil. Strategic asset. Knowledge is present there and you want to
learn from it. Financial knowledge go to London for example. Place to be. Different products have
different areas. Connectivity: investment banking. Know the right people, human activities.
Motives in the why are categorised in 4 categories: market, efficiency, resource & strategic asset
seeking.
2. WHERE. Location choice. Country could be extremely attractive but could be too distant. Culture
or political or geographical. Attractive -> Distance.
• Attractiveness of country
• ''distance'' to home country: is the cultural distance a barrier or not?
examples: geographical, cultural, bureaucratics, administrative
Example cultural: customers didn't like the customers service of Walmart. The German people
didn't want to be helped in the store.
