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Summary International strategy
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- Tilburg University (UVT)
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Samenvatting artikelen International Management (2020-2021)Book: International Business Strategy, Verbeke; Introduction
International business strategy means effectively and efficiently matching an MNE’s internal
strengths (relative to competitors) with the opportunities and challenges found in geographically
dispersed environments that cross international borders. Most problems in international business
strategy revolve around just seven concepts (see figure 1.1 on page 5):
1. Internationally transferable (AKA non-location-bound) firm-specific advantages (FSAs);
2. Non-transferable FSAs;
3. Location advantages;
4. Investment in – and value creation through – recombination
5. Complementary resources of external actors;
6. Bounded rationality;
7. Bounded reliability.
1,2 & 3 together, reflect the distinct resource base available to the firm. This resource base has
various components, either owned by – or accessible to – the firm: physical resources (buildings etc),
financial resources, human resources (skills), upstream knowledge, downstream knowledge (think
about the value chain), administrative knowledge (structure, culture etc) and reputational resources.
A firm can have FSAs – strengths relative to rival companies – in each of these resources areas. You
will know this by benchmarking. Location may contribute to finding a resource base.
Routines reflect the distinct ability to combine further the seven resources, in unique ways in how
the stakeholders want it. Cultural differences require adaption and a recombination capability to
make a transfer possible. Also, abroad they often miss the experience.
4 (recombination) is the heart of international business strategy: international corporate success
requires more than just routines, whether internationally transferable or location-bound ones, that
allow for stable and predictable patters in combining resources. The highest-order FSA is the ability
to recombine the MNE’s/firm’s resources in novel ways, usually including newly accessed resources,
whether in a limited geographic space or internationally. It just means that you have to be able to
broaden your concept so that it fits in the international market. It might for instance be necessary to
change the brand name or changing the entire system.
5 represents 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 marketplace.
6 & 7 reflect the behavioral characteristics (of MNE managers and other relevant economic actors)
that my impede (verminderen) international success. Bounded rationality implies limits to the
capacity of individuals to absorb, process and act upon complex and often incomplete information.
Bounded reliability implies insufficient effort to deliver on promised behavior or performance.
Chapter 1: Conceptual foundations of international business strategy (week 1)
Let’s look back at the 7 mentioned concepts. Location bound FSAs refers to the challenges of facing
the company in the realm of technical transfer, effective deployment and profitable exploitation of
FSAs abroad.
Internationally transferable FSAs and the four MNE archetypes
The MNE creates value and satisfies stakeholder needs by operating across national borders. Local
firms have knowledge of the host country (host country = land you want your business to move to).
The MNE has additional costs when operating abroad. These can be overcome by the MNE’s internal
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,strengths, which are the non-location-bound FSAs. These FSAs do not stop creating value when the
border is crossed between the home and the host country (though their precise value may be
somewhat different in the two countries). When there are natural or government-imposed trade
barriers, the MNE may transfer FSAs abroad directly, as ‘intermediate’ products (halffabrikaat). The
exploitation of FSAs transferred abroad can also be done by external actors (such as licensees), or by
network partners (e.g. joint ventures or distributors), who may add their own complementary
resources to the foreign operation and thereby strengthen the MNE’s position in the foreign
marketplace by filling resource gaps. The paradox of internationally transferable FSA’s is the
following: if the FSA consists of easily codifiable knowledge (if it can be articulated explicitly, as in a
handbook or blueprint), then it can be cheaply transferred, and effectively deployed and exploited
abroad, but it can be easily imitated by other firms. If imitation is easy, value of transferring the FSA
is low. Also, MNEs face great difficulty transferring FSAs that consist of tacit knowledge (tacit
knowledge = difficult knowledge to transfer, because it cannot be fully replicated through simple
communication channels; it takes time to learn the resource). Transferring tacit knowledge is
expensive and time consuming, but is difficult to imitate. The most important tacit knowledge is the
key routines developed by the firm (comes from the vision; ‘this is the way we do things here’).
There are four types of administrative heritage, each associated with a specific routine of
international FSA transfer:
1. The centralized exporter: a firm that sells products internationally, out of a limited number
of (the most efficient amount) facilities in the home country, and with only minor, usually customer-
oriented, value-creating activities abroad. Standardized products manufactured at home, embody
the firm’s FSAs (themselves developed on the basis of a favorable home country environment,
including local clustering) and make the exporting firm successful in international markets.
Multinational activities occur primarily in the downstream end of the value chain, and are related to
marketing, distribution and related logistics operation. Samsung/Apple?
2. The 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. Ford
3. The international coordinator: builds upon a 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. MNEs in natural resources industries fit this type;
they search for relevant resources internationally, manufacture in the most cost-efficient locations,
and sell their products wherever there is demand for them. Nike
4. Multi-centred MNE: The multi-centred MNE consists of a set of entrepreneurial
subsidiaries abroad, which are key to knowledge-based FSA 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 (typically entrepreneurial families or financial investors). Basically; all
the subsidiaries are doing it different, but they belong to the same firm. The multi-centred MNE
should be viewed as a portfolio of largely independent businesses.
Many companies are hybrids of these types. However, the commonality among the above types is
that they transfer at least some FSAs across borders. EMNE = emerging economy MNEs.
The MNE usually overestimates the international transferability from a mere technical standpoint,
the potential for foreign deployment and the profitable exploitation of its FSAs. Even when this is
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,achieved relatively easy, contextual variables cause change: rivalry (competitors e.g.), external forces
(government, pressure-groups) and other relevant stakeholders in the broader business and
economic environment. What works in the home country might not work in the host country.
Non-transferable (or location-bound) firm-specific advantages
These FSAs can not be easily transferred, deployed and exploited in foreign markets. There are four
main types of location-bound FSAs:
1. Stand-alone resources linked to location advantages, such as a network of privileged retail
locations leading to a dominant market share in the home market (are immobile and therefore
inherently non-transferable).
2. Other resources such as local marketing knowledge and reputational resources, may not
have the same value across borders, either because they are not applicable to a host country
context, or because they are simply not valued to the same extent by foreign stakeholders;
consumers just see you differently (higher/lower perceived) in different countries.
3. Local best practices may not be considered as such abroad by a variety of stakeholders,
and may even be deemed illegal. Because of cultural differences; things can be different abroad, e.g.
an incentive system can work in A but not in B.
4. Even the firm’s domestic recombination capability, which may led to a dominant market
share and superior expansion rate in the home country market, as the firm engaged in product
diversification or innovation, and thereby increased its geographic market coverage domestically,
may not be adept enough to confront the additional complexities of foreign markets.
These location bound FSAs in each host country will need to be created or acquired from third parties
operating in these 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
Firms may be successful internationally because they take advantage of a favorable local
environment. Location advantages represent the entire set of strengths characterizing a specific
location, and useable by firms operating in that location. Think about abundant (rijkelijke
hoeveelheid aan) resources in a place or a superior educational system (which is an advantage
because it supports firms that build upon sophisticated HR skills) or the presence of a demanding
local market for specific products (advantage because it will likely foster local innovation). Location
advantages can vary widely in their geographical scope; it can for instance be a countrywide
advantage like low taxes, but also just a part of a country (e.g. oil resources). Location advantages
can reach across boarders.
Local advantages can also be classified (opposed to classifying by geographical scope) by what
motivates a firm to conduct economic activity in that location; Why would an MNE want to engage in
foreign direct investment in a host country? Foreign direct investment (FDI) is the 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. The answer is that an MNE should engage in FDI only if the
host country confers (toekennen) a location advantage relative (the same as) to the home country. In
each case, the value proposition of foreign activity must be more attractive than alternative value
propositions at home. We can distinguish among four motivations to perform activities in a host
country rather than at home:
1- Natural resource seeking: the search for physical, financial or human resources in host
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, countries. The availability in host countries means that investment abroad leads to higher value
creation than investment at home. (However, MNE must be welcome in the host country).
2- Market seeking: the search for customer in host countries. Deploying productive activities
and selling in the foreign market confers higher value to the firm than engaging in alternative
investment projects at home. Market seeking involves business activities in the host country, export
does not!
3- Strategic resource seeking: the desire to gain access to advanced resources in the sphere
of upstream knowledge, downstream knowledge, administrative knowledge or reputational
resources. These are not generally accessible (as 1&2). This involves often take-overs, alliances.
Reason for this can be that you want to become a larger player.
4- Efficiency seeking: a firm’s 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; other locations might just be more
attractive/beneficial due to environmental changes (e.g. technological breakthroughs etc). Location
advantages might change relative to each other, making one country more attractive than another
and therefore more likely to receive new FDI.
See figure 1.2 page 35. Location bound FSAs in the home country often result from privileged access
to location advantages, or from a more efficient and effective use thereof as compared to other
companies. Location advantages are generally available to all firms in the location and therefore only
reflect advantage when compared to firms operating on another location. A firm’s success abroad
depends on its ability to link its internationally transferable FSAs with location advantages in host
countries (which of course is the reason why the firm went their in the first place). This linking
process often requires developing new, location-bound FSAs in the host country. This improves
access to the location advantages of the host country.
See pages 36 & 37 and the text. It visualizes how they typically address the problem of partial rather
than full usability at an international level of its routines and recombination capabilities. The shaded
area identifies the most critical linkages required with the shaded area on the left-hand side. The
shaded area on the left-hand side represents the relevant bundle of internationally transferable FSAs
in the home country (whether as a final product or as a intermediate).
The centralized exporter is essentially a market seeker and in the ideal situation is no/few need to
develop location-bound FSAs in the host country.. The International projector clones its home
operations in the host country replicating its internationally transferable FSAs. The international
coordinator’s main transferable FSA is its ability to coordinate the location advantages accessed in
multiple host countries. In some host countries, it may be necessary to transfer substantial resources
bundles to the host country operations, so as to gain access to the host’s location advantages (e.g.
production capacity to access abundant natural resources). The multi-centred MNE transfers only
core routines to each host country operation.
Value creation through recombination
Value creation through recombination means that the firm is able to grow by innovating and
diversifying. For instance: combining in new ways the existing resources in conjunction with newly
accessed resources. Resource recombination requires: entrepreneurial skills possessed by managers
and other employees (for new productive opportunities), slack (trage) or unused productive
resources (beyond those needed for the efficient functioning of current operations) and the
willingness and capacity to let go of some resources embedded in extant (gemengd met bestaande)
FSAs (and to replace these with higher potential resources in host environment). Resource
recombination is critical to crating value and satisfying customer demand. Continuous innovation and
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