Introduction to International Business
Lecture 1
Key question: Where do you locate what type of activity in which way, and what effect does this have on
firm and environment?
Type: Efficiency & natural resource seeking
Market seeking
Strategic asset
Where: Location decision/ geography
Which way: Organizational aspect, (strategic alliance, hq-subsidiary)
What effect: Impact of MNE on home and host country economy and society
Starting point
Each firm has got something unique that makes it competitive and successful. How can this firm use this
unique ‘thing’ and sell to foreigners or go to other countries to sell from there?
Step 1: Firm and multinationals should develop unique resources. For example, physical resources,
financial resources or human resources.
Upstream → Refers to the start of the process, typically resource and development.
Downstream → Refers to the part of the process that you find at the end of the process, marketing and
sales for example.
Step 2: Building upon its resource base, the MNE will develop key resources and routines, and will also
engage in resource recombination.
→ This will create a firm specific advantage
FSAs are the source of its competitive advantage in the marketplace.
Routines:
Stable patterns of decisions and actions that coordinate the productive use of resources, and thereby
generate value, whether domestically or internationally.
Recombination of existing resources in new ones - entrepreneurial skills:
The ability to creatively combine existing resources in order to create new ones.
Firm specific advantages (FSAs) = Stand alone resources + Routines + Recombination skills
Two types of FSAs:
Location bound: stay in the home country
Non-location bound or transferable across borders
Some FSAs are location bound because:
- A firm uses stand-alone resources linked to location advantages
- A firm has a very deep knowledge of local marketing or a local reputation
- A firm has developed a unique way of working that is local; local best practices
- A firm has an entrepreneurial potential (recombination capability) which is difficult to transfer
across borders to a different context
The key challenge is that internationalizing firms develop FSAs that can be transferred across
borders.
1
,Introduction to International Business
Just having FSAs is not always sufficient:
Distance between home and host complicates development of location bound FSAs in host
countries.
→ In those cases complementary resources are needed (local partners).
Cooperating with a local partner may help if:
- It is not more efficient to do it yourself
- The reliance on external partners is not risky
Why do not all firms do it and fail?
1. Bounded rationality: imperfect assessment, information is partial and incomplete, cognitive
limitations of managers and differences in cognitive decision making between home and host.
2. Bounded reliability: imperfect effort, opportunistic behavior, ex-ante false on promises, local
success and distance from HQ monitoring.
Bounded rationality and bounded reliability influence the ability of non-location bound FSAs to be
transferred across the border to the host country.
Lecture 2
Verbeke defines four archetypes: (Some firms don't adapt to one but have aspects of multiple ones)
1. Centralized exporter → Market seeker
FSA = the final product
- Standardized products that are manufactured at home stand for
the firm’s FSAs
- Host country location factor = customers
- Internationally transferable FSAs are used to directly target the
host country location advantages.
- No development of non-location bound FSAs or location bound
FSAs in the host country
> Example: Movies are developed and made in Hollywood and taken all
over the world, the FSA stands for the product itself.
2. International projector → A firm that simply clones home
operations , develops no new FSAs.
- Knowledge-based FSAs from home country are copied.
- Only the internationally transferable FSAs are taken to the host
country.
- No development of location bound FSAs in the host country.
- International expansion by projecting its home country success
abroad.
> Example: Disney that is copied from America to Paris and Tokyo.
2
, Introduction to International Business
3. International coordinator → Transferable FSAs
- Efficiency seeking MNE activity: International coordinator
choose to do activities in the countries where it can be done
the cheapest.
- Global value chain. International operations are specialized
in specific value added activities and form vertical value
chains across borders.
- Use internationally transferable FSAs in each host country
to develop location bound FSAs that fit the host country
location factors.
> Example: Nike
4. Multi-centred MNE
- Each host country develops own location bound FSAs, only
transfer of core routines (like financial management or IT
system).
- Set of entrepreneurial subsidiaries abroad which are key to
knowledge-based FSA development.
- Basically a explicative replica in each host country.
- National responsiveness is the foundation of the
international strategy.
> Example: McDonalds: Mc kroket → new host country location
bound FSA
Two ‘extreme’ perspectives that are building blocks of Verbeke’s theoretical framework:
1. Prahalad and Hamel’s core competence approach
2. Porter’s diamond of country/ industry competitiveness
→ The first is too much focused on firm characteristics, the second is too much focused on country
characteristics.
Prahalad and Hamel → Core competences
❖ Creates products or services that create values for the firm.
❖ Interpreted as higher order FSAs
❖ Core competencies → core products → end products that create value.
❖ Example: Honda in the book with the compact engine
3
Lecture 1
Key question: Where do you locate what type of activity in which way, and what effect does this have on
firm and environment?
Type: Efficiency & natural resource seeking
Market seeking
Strategic asset
Where: Location decision/ geography
Which way: Organizational aspect, (strategic alliance, hq-subsidiary)
What effect: Impact of MNE on home and host country economy and society
Starting point
Each firm has got something unique that makes it competitive and successful. How can this firm use this
unique ‘thing’ and sell to foreigners or go to other countries to sell from there?
Step 1: Firm and multinationals should develop unique resources. For example, physical resources,
financial resources or human resources.
Upstream → Refers to the start of the process, typically resource and development.
Downstream → Refers to the part of the process that you find at the end of the process, marketing and
sales for example.
Step 2: Building upon its resource base, the MNE will develop key resources and routines, and will also
engage in resource recombination.
→ This will create a firm specific advantage
FSAs are the source of its competitive advantage in the marketplace.
Routines:
Stable patterns of decisions and actions that coordinate the productive use of resources, and thereby
generate value, whether domestically or internationally.
Recombination of existing resources in new ones - entrepreneurial skills:
The ability to creatively combine existing resources in order to create new ones.
Firm specific advantages (FSAs) = Stand alone resources + Routines + Recombination skills
Two types of FSAs:
Location bound: stay in the home country
Non-location bound or transferable across borders
Some FSAs are location bound because:
- A firm uses stand-alone resources linked to location advantages
- A firm has a very deep knowledge of local marketing or a local reputation
- A firm has developed a unique way of working that is local; local best practices
- A firm has an entrepreneurial potential (recombination capability) which is difficult to transfer
across borders to a different context
The key challenge is that internationalizing firms develop FSAs that can be transferred across
borders.
1
,Introduction to International Business
Just having FSAs is not always sufficient:
Distance between home and host complicates development of location bound FSAs in host
countries.
→ In those cases complementary resources are needed (local partners).
Cooperating with a local partner may help if:
- It is not more efficient to do it yourself
- The reliance on external partners is not risky
Why do not all firms do it and fail?
1. Bounded rationality: imperfect assessment, information is partial and incomplete, cognitive
limitations of managers and differences in cognitive decision making between home and host.
2. Bounded reliability: imperfect effort, opportunistic behavior, ex-ante false on promises, local
success and distance from HQ monitoring.
Bounded rationality and bounded reliability influence the ability of non-location bound FSAs to be
transferred across the border to the host country.
Lecture 2
Verbeke defines four archetypes: (Some firms don't adapt to one but have aspects of multiple ones)
1. Centralized exporter → Market seeker
FSA = the final product
- Standardized products that are manufactured at home stand for
the firm’s FSAs
- Host country location factor = customers
- Internationally transferable FSAs are used to directly target the
host country location advantages.
- No development of non-location bound FSAs or location bound
FSAs in the host country
> Example: Movies are developed and made in Hollywood and taken all
over the world, the FSA stands for the product itself.
2. International projector → A firm that simply clones home
operations , develops no new FSAs.
- Knowledge-based FSAs from home country are copied.
- Only the internationally transferable FSAs are taken to the host
country.
- No development of location bound FSAs in the host country.
- International expansion by projecting its home country success
abroad.
> Example: Disney that is copied from America to Paris and Tokyo.
2
, Introduction to International Business
3. International coordinator → Transferable FSAs
- Efficiency seeking MNE activity: International coordinator
choose to do activities in the countries where it can be done
the cheapest.
- Global value chain. International operations are specialized
in specific value added activities and form vertical value
chains across borders.
- Use internationally transferable FSAs in each host country
to develop location bound FSAs that fit the host country
location factors.
> Example: Nike
4. Multi-centred MNE
- Each host country develops own location bound FSAs, only
transfer of core routines (like financial management or IT
system).
- Set of entrepreneurial subsidiaries abroad which are key to
knowledge-based FSA development.
- Basically a explicative replica in each host country.
- National responsiveness is the foundation of the
international strategy.
> Example: McDonalds: Mc kroket → new host country location
bound FSA
Two ‘extreme’ perspectives that are building blocks of Verbeke’s theoretical framework:
1. Prahalad and Hamel’s core competence approach
2. Porter’s diamond of country/ industry competitiveness
→ The first is too much focused on firm characteristics, the second is too much focused on country
characteristics.
Prahalad and Hamel → Core competences
❖ Creates products or services that create values for the firm.
❖ Interpreted as higher order FSAs
❖ Core competencies → core products → end products that create value.
❖ Example: Honda in the book with the compact engine
3
