INTERNATIONAL STRATEGY

INTERNATIONAL STRATEGY

SUMMARY

After completion of the course, students are able to:

• Explain, exemplify, and give the limitations of core concepts and frameworks

of the field of international strategy (e.g., firm-specific and country-specific factors; international sourcing and production; institutional and cultural distance).

• Analyse real-life international business cases using pertinent theoretical

concepts covered in the class.

• Evaluate solutions to strategic issues faced by firms in an international

business context, using theoretical concepts and frameworks covered in class.

• Develop their own solutions to strategic issues firms in international business

contexts are often confronted with, by recombining the concepts and frameworks covered in class.

WEEK 1

CHAPTER 1: CONCEPTUAL FOUNDATIONS OF INTERNATIONAL BUSINESS

STRATEGY

FSA = Firm Specific Advantage

FOUNDATIONS OF INTERNATIONAL BUSINESS STRATEGY:

1.Internationally transferable; (or non-location bound) firm-specific advantages (FSAs)  patents (knowledge), money, machinery or technology (sometimes) and occasionally brand names (not always though) 2.Non-transferable (or location-bound) FSAs  Stand-alone resources linked to location advantages / Immobile 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. - - -  Local marketing knowledge and reputational resources (e.g., brand names)  Local best practices (i.e., routines considered highly effective and efficient in one country, such as incentive systems for highly skilled workers or buyer- supplier relations). (e.g., Lincoln Electrics)  Domestic recombination capability, which may have 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.

3.Location advantages  Many firms are successful internationally because they take advantage of a favourable local environment. Location advantages represent the entire set of strengths characterizing a specific location, and useable by firms’ operation in that location. These strengths should always be assessed relative to the useable 1 / 4

strengths of other locations. These rely on the motives to internationalize Benito (2015); Why and how motives (still) matter oMarket seeking  Market size & growth, consumer wealth & taste, availability of sales channels, availability of marketing and sales professionals oEfficiency seeking  Availability of production factors at low cost (labour, energy) oResource seeking  Availability of inputs oStrategic asset seeking Availability of knowledge related assets; availability of specialized intermediaries and service providers oExport platform  The goal of MNE activity is not only to produce cheap, but also to ship it to third countries, so infrastructure is very important

• Investment in – and value creation through resource recombination

5.Complementary resources of external actors 6.Bounded rationality 7.Bounded reliability 8.Extra: Advantages of foreignness: cultural attraction and arbitraging

THE MNE’S (MULTINATIONAL ENTERPRISE) UNIQUE RESOURCE BASE

(1&2; FSAs - Transferable & Non-transferable) (trick: HAFDRUP)

Human resources : individuals and teams, entrepreneurial and operational skills

Administrative knowledge : organizational structure, culture and systems

Financial resources: equity and loan capital

Downstream knowledge : marketing, sales, distribution and after sales service

Reputational resources : reputation for honest business dealings

Upstream knowledge : sourcing knowledge, product and process related

technological knowledge

Physical resources: natural resources, buildings, plant equipment

The resources need to be combined / work together what is called: recourse bundles.These resources can be divided into natural and strategic resources which is explained in

section: ‘locations advantages

FOUR ARCHETYPES OF MNE’S:

1.Centralized exporter: this home country managed firm builds upon a tradition

of selling products internationally,  exporting products without adaptations 2 / 4

2.International projector: this firms builds upon a tradition of transferring its proprietary knowledge developed in the home country to foreign subsidiaries, which are essentially clones of the home operations. projecting its home country success recipes abroad.

3.International coordinator: the international coordinator builds upon a tradition of managing international operations, both upstream and downstream, through a tightly controlled but still flexible logistics function. The MNEs key FSAs are efficiently linking these geographically dispersed locations through seamless logistics 4.Multi-centered MNE ; the multi-centered MNE consists of a set of entrepreneurial subsidiaries abroad, which are key to knowledge-based FSA development. multi-centered MNE should be viewed as a portfolio of largely independent businesses 3 / 4

RECOMBINATION CAPABILITIES

Recombination means that some resources used in an initial combination need to be dropped.The ability to adapt and recombine resources in such a way that they maintain firm competitiveness over time and across environments. It is an art to have knowledge bundles to bring tools together and make harmony to satisfy new stakeholders, called Artful orchestration of resources. The way you combine them makes you successful or not.Recombination of capabilities in the international area are built up through

international experience:

Host-country specific experiences; reduce liability of foreignness in that specific country by for example a customer base. (Walmart missed these experiences) General internationalization experiences; increase capability to recombine resources and capabilities across borders. For example, you might know how to transfer money so you will know how it works in another country.

Recombination requires 3 things:

1.Entrepreneurial skills of managers 2.Slack or unused productive resources 3.Willingness and capacity to let go of some resources

COMPLEMENTARY RESOURCES OF EXTERNAL ACTORS

MNE’s need complementary resources of external factors to be successful abroad. The firm’s domestically successful stand-alone FSAs, its routines and even its recombination capabilities may be insufficient or inappropriate to operate successfully in host countries and regions. You cannot do everything on your own because of cultural, economic, institutional and spatial ‘distance’

Market knowledge/ access: working with a local marketing agency because they

know the market more than you do. If there is not an agency in the host market, there is a problem: avoid going there or do it yourself (which is more challenging).(This was the missing ingredient for Walmart, as they did not know the customer preferences concerning excellence service)

Government connection: company which will do lobbying action for you for

example.

Complementary technology: when it is very expensive to move your resources,

you might try to find them in the host market.

Conditions:

1.Attempts at internal development would lead to lower NPV (net present value) or are not feasible.

2.external factors are able and willing to provide the resources.

LIABILITY OF FOREIGNNESS (LOF)

A foreign firm has an a-priori disadvantage vis-à-vis a local firm, because of: Geographic, linguistic, economic, political, educational, institutional, or cultural distances.

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