Chapter 1: Conceptual foundations of
international business strategy
International business strategy means
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. Such matching
is a precondition to creating value and
satisfying stakeholder goals, both
domestically and internationally.
FSA= Firm Specific Advantage
Explicit knowledge => easy to transfer (handbook or blueprint) => no FSA
Tacit knowledge => hard to transfer (technical manual) => FSA
Recombining resources is not the same as combining resources.
Recombination means that some resources used in an initial combination need to be dropped. (e.g.,
recombination could refer to something as simple as changing the packaging of products and as complex
as completely reconfiguring a firm logistics system to meet the requirements of foreign customers.
Non-location-bound FSAs
When crossing it home country border to create value in a host country, the MNE, is, almost by
definition, at a disadvantage as compared to firms from the host country, because these firms possess a
knowledge base that more appropriately matched to local stakeholder requirements. The MNE incurs
additional costs of doing business abroad, resulting from cultural, economic, institutional and spatial
distance between home and host country environments. In order to overcome these additional costs
of doing business abroad, the MNE must have proprietary internal strengths, such as technological,
marketing or administrative (governance-related) knowledge. This set of MNE internal strengths, the
availability of which both allows and constrains the scope of the firm’s expansion across borders, is
called the non-location-bound FSAs
Seven concepts of the unifying framework:
1. Non-location-bound firm-specific
advantages
2. Location-bound FSAs
3. Location advantages
4. Recombination
5. Complementary resources of external
actors
6. Bounded rationality
7. Bounded reliability
,Four MNE archetypes
Centralized exporter:
This home-country-managed firm builds upon a
tradition of selling products internationally, out of a
limited number of (scale efficient) 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 FSA (themselves developed on the
basis of a favourable home country environment,
including local clustering) and make the exporting
firm successful in international markets.
The foreign subsidiaries act largely as facilitators of
efficient home country production. Multinational
activities occur primarily in the downstream end of
the value chain, and are related to marketing, distribution and related logistics operations. Many large
Japanese MNEs have this type of heritage. They became serious about international expansion in the
1960s, in an era of declining trade barriers, communication and transport costs.
International projector:
This firm 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. 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. To the extent
that international projection requires the
systematic and continuous transfer of tacit
knowledge to multiple locations (particularly
when the product offering contains a large
service component), this firm relies on an
extensive cadre of professional managers who can act as expatriates or repositories/transfer agents of
the home country success recipes. Many American MNE’s fit this model, as they expand internationally
based upon a large and sophisticated home country market, as well as proprietary technology and
unique management practices.
, International coordinator:
This centrally managed firm’s international
success does not build primarily on home
country FSAs embodied in products
exported internationally (as was the case
with the centralized exporter), nor does it
simply transfer FSAs to foreign subsidiaries
to replicate home country success (as was
the case with the international projector).
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. Many large
MNEs in natural resources industries fit this archetype. They search for relevant resources
internationally, manufacture in the most cost-efficient locations, and sell their products wherever there
is demand for them.
Multi-centred MNE:
This firm’s international success does not
build primarily on knowledge-based FSAs
developed in the home country. 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.) Ultimately,
the multi-centred MNE should be viewed as a portfolio of largely independent businesses. Many older
European MNEs fit this mould. Unlike many of the large Japanese MNEs, these European MNEs
expanded internationally before the second half of the twentieth century, in an era of trade, transport
and communication barriers. They operated with highly independent local production facilities to satisfy
local market needs, and wealthy financial investors provided the required financial resources in an
environment of poorly functioning financial markets.
international business strategy
International business strategy means
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. Such matching
is a precondition to creating value and
satisfying stakeholder goals, both
domestically and internationally.
FSA= Firm Specific Advantage
Explicit knowledge => easy to transfer (handbook or blueprint) => no FSA
Tacit knowledge => hard to transfer (technical manual) => FSA
Recombining resources is not the same as combining resources.
Recombination means that some resources used in an initial combination need to be dropped. (e.g.,
recombination could refer to something as simple as changing the packaging of products and as complex
as completely reconfiguring a firm logistics system to meet the requirements of foreign customers.
Non-location-bound FSAs
When crossing it home country border to create value in a host country, the MNE, is, almost by
definition, at a disadvantage as compared to firms from the host country, because these firms possess a
knowledge base that more appropriately matched to local stakeholder requirements. The MNE incurs
additional costs of doing business abroad, resulting from cultural, economic, institutional and spatial
distance between home and host country environments. In order to overcome these additional costs
of doing business abroad, the MNE must have proprietary internal strengths, such as technological,
marketing or administrative (governance-related) knowledge. This set of MNE internal strengths, the
availability of which both allows and constrains the scope of the firm’s expansion across borders, is
called the non-location-bound FSAs
Seven concepts of the unifying framework:
1. Non-location-bound firm-specific
advantages
2. Location-bound FSAs
3. Location advantages
4. Recombination
5. Complementary resources of external
actors
6. Bounded rationality
7. Bounded reliability
,Four MNE archetypes
Centralized exporter:
This home-country-managed firm builds upon a
tradition of selling products internationally, out of a
limited number of (scale efficient) 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 FSA (themselves developed on the
basis of a favourable home country environment,
including local clustering) and make the exporting
firm successful in international markets.
The foreign subsidiaries act largely as facilitators of
efficient home country production. Multinational
activities occur primarily in the downstream end of
the value chain, and are related to marketing, distribution and related logistics operations. Many large
Japanese MNEs have this type of heritage. They became serious about international expansion in the
1960s, in an era of declining trade barriers, communication and transport costs.
International projector:
This firm 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. 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. To the extent
that international projection requires the
systematic and continuous transfer of tacit
knowledge to multiple locations (particularly
when the product offering contains a large
service component), this firm relies on an
extensive cadre of professional managers who can act as expatriates or repositories/transfer agents of
the home country success recipes. Many American MNE’s fit this model, as they expand internationally
based upon a large and sophisticated home country market, as well as proprietary technology and
unique management practices.
, International coordinator:
This centrally managed firm’s international
success does not build primarily on home
country FSAs embodied in products
exported internationally (as was the case
with the centralized exporter), nor does it
simply transfer FSAs to foreign subsidiaries
to replicate home country success (as was
the case with the international projector).
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. Many large
MNEs in natural resources industries fit this archetype. They search for relevant resources
internationally, manufacture in the most cost-efficient locations, and sell their products wherever there
is demand for them.
Multi-centred MNE:
This firm’s international success does not
build primarily on knowledge-based FSAs
developed in the home country. 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.) Ultimately,
the multi-centred MNE should be viewed as a portfolio of largely independent businesses. Many older
European MNEs fit this mould. Unlike many of the large Japanese MNEs, these European MNEs
expanded internationally before the second half of the twentieth century, in an era of trade, transport
and communication barriers. They operated with highly independent local production facilities to satisfy
local market needs, and wealthy financial investors provided the required financial resources in an
environment of poorly functioning financial markets.
