VERBEKE BOOK
SUMMARY
International Strategy
Lucas Oude Vrielink
,DEFINITION OF INTERNATIONAL BUSINESS STRATEGY
International business strategy = 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.
Such matching is a precondition to creating value and satisfying stakeholder goals, both
domestically and internationally.
The above definition focuses on the MNE (multinational enterprise), a firm with economic
operations located in at least two countries.
THE SEVEN CONCEPTS OF THE UNIFYING FRAMEWORK
Most complex issues in international business strategy revolve around just seven
concepts. These seven concepts form a unifying framework that constitutes the essence
of international business strategy, and reflects the foundations of global corporate
success:
1. Internationally transferable (or non-location-bound) firm specific advantages
(FSAs)
These FSAs do not stop creating value when the border is crossed between
home and the host country, though their precise value be somewhat
different in the two countries
2. Non-transferable (location-bound) FSAs
These FSA cannot be easily transferred, deployed, and exploited in foreign
markets; there are four main types:
1. Stand-alone resources linked to location advantages (e.g., network
of privileged retail locations leading to a dominant market share in
the home market)
2. Other resources such as local marketing knowledge and
reputational resources (e.g., brand names). These may not have
the same value abroad.
3. Local best practices (routines considered highly effective and
efficient in one country) may not be considered as such abroad by
a variety of stakeholders and may even be deemed illegal.
4. Firm’s domestic recombination capability (while this 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, this domestic capability may not
be adept enough to confront the additional complexities of foreign
markets.
3. Location advantages
The entire set of strengths of other locations. Such strengths are really
stocks of resources accessible to firms operating locally, and not accessible
or less to firms lacking local operations.
4. Investment in – and value creation through – recombination
Means that the firm is able to grow by innovating and diversifying
Some resources used in an initial combination need to be dropped, and
distinct new resources are added
, Combining in novel ways existing resources, often in conjunction with
newly accessed resources.
Recombination is the highest order FSA
5. Complementary resource of external actors
Represents the additional resources, provided by external actors but
accessible to the MNE
1. Market knowledge/access
2. Government connections
3. Complementary technology
1. Reason: cultural, economic, institutional and spatial
distance (meaning: missing success ingredients)
6. Bounded rationality
Implies limits to the capacity of individuals to absorb, process, and act
upon complex and often incomplete information
Scarcity of mind, meaning that the managers responsible for making
decisions and engaging in purposive action in the firm always face
information problems
Information is often incomplete and/or problem in processing this
information, especially in determining its relevance to the firm and its
implications
7. Bounded reliability
Implies insufficient effort to deliver on promised behavior or performance
Scarcity of effort to make good on open-ended promises
Agents do not always carry through on their expressed intentions to try to
achieve a particular outcome or performance level
The first three concepts as a set, reflect the distinct resource base available to the firm,
critical to achieving success in the marketplace.
The firm is viewed as essentially a bundle of resources under common governance, this
resource base has various components, either owned by / or accessible to the firm:
1. Physical resources (including natural resources, buildings, plant equipment etc)
(non-transferable)
2. Financial resources (including access to equity and loan capital) (transferable)
3. Human resources (including both individuals and teams. These individuals and
teams have both entrepreneurial and operational (or efficiency related skills) (non-
transferable)
4. Upstream knowledge (including sourcing knowledge, as well as product- and
process-related technological knowledge) (transferable)
5. Downstream knowledge (critical to the interface with customers, and related to
marketing, sales, distribution, and after-sales service activities) (non-transferable)
6. Administrative (governance-related) (knowledge regarding the functioning of the
organizational structure, organizational culture and organizational systems)
(transferable)
7. Reputational resources (including brand names, a good reputation for honest
business dealings etc) (transferable)
, CHAPTER 1: CONCEPTUAL FOUNDATIONS OF IBS – MNES AND THE
GLOBAL ECONOMY
INTERNATIONALLY TRANSFERABLE FSAS AND THE FOUR MNE
ARCHETYPES
The MNE creates value and satisfies stakeholder needs by operating across national
borders.
The 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.
The paradox of an internationally transferable FSA 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.
MNE ARCHETYPES
1. Centralized exporter (essentially a market seeker)
Home-country-managed firm builds upon a tradition of selling product
internationally, out of highly cost-efficient or exceptional-quality-generating
facilities in the home country.
Only minor, usually customer-oriented, value-creating activities abroad
2. International projector
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.
Firm relies on an extensive cadre of professional managers who can act as
expatriates or repositories/transfer agents of the home country success
recipes
3. International coordinator
Centrally managed firm’s international success does not build primarily on
home country FSAs embodied in products exported internationally, nor
does it simply transfer FSAs to foreign subsidiaries to replicate home
country success
Builds upon a tradition of managing international operation, both upstream
and downstream, through a tightly controlled but still flexible logistics
function.
They search for relevant resources internationally, manufacture in the most
cost-efficient locations, and sell their products wherever there is demand
for them.
4. Multi-centered MNE
Firm’s international success does not build primarily on knowledge-based
FSAs developed in the home country
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.
SUMMARY
International Strategy
Lucas Oude Vrielink
,DEFINITION OF INTERNATIONAL BUSINESS STRATEGY
International business strategy = 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.
Such matching is a precondition to creating value and satisfying stakeholder goals, both
domestically and internationally.
The above definition focuses on the MNE (multinational enterprise), a firm with economic
operations located in at least two countries.
THE SEVEN CONCEPTS OF THE UNIFYING FRAMEWORK
Most complex issues in international business strategy revolve around just seven
concepts. These seven concepts form a unifying framework that constitutes the essence
of international business strategy, and reflects the foundations of global corporate
success:
1. Internationally transferable (or non-location-bound) firm specific advantages
(FSAs)
These FSAs do not stop creating value when the border is crossed between
home and the host country, though their precise value be somewhat
different in the two countries
2. Non-transferable (location-bound) FSAs
These FSA cannot be easily transferred, deployed, and exploited in foreign
markets; there are four main types:
1. Stand-alone resources linked to location advantages (e.g., network
of privileged retail locations leading to a dominant market share in
the home market)
2. Other resources such as local marketing knowledge and
reputational resources (e.g., brand names). These may not have
the same value abroad.
3. Local best practices (routines considered highly effective and
efficient in one country) may not be considered as such abroad by
a variety of stakeholders and may even be deemed illegal.
4. Firm’s domestic recombination capability (while this 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, this domestic capability may not
be adept enough to confront the additional complexities of foreign
markets.
3. Location advantages
The entire set of strengths of other locations. Such strengths are really
stocks of resources accessible to firms operating locally, and not accessible
or less to firms lacking local operations.
4. Investment in – and value creation through – recombination
Means that the firm is able to grow by innovating and diversifying
Some resources used in an initial combination need to be dropped, and
distinct new resources are added
, Combining in novel ways existing resources, often in conjunction with
newly accessed resources.
Recombination is the highest order FSA
5. Complementary resource of external actors
Represents the additional resources, provided by external actors but
accessible to the MNE
1. Market knowledge/access
2. Government connections
3. Complementary technology
1. Reason: cultural, economic, institutional and spatial
distance (meaning: missing success ingredients)
6. Bounded rationality
Implies limits to the capacity of individuals to absorb, process, and act
upon complex and often incomplete information
Scarcity of mind, meaning that the managers responsible for making
decisions and engaging in purposive action in the firm always face
information problems
Information is often incomplete and/or problem in processing this
information, especially in determining its relevance to the firm and its
implications
7. Bounded reliability
Implies insufficient effort to deliver on promised behavior or performance
Scarcity of effort to make good on open-ended promises
Agents do not always carry through on their expressed intentions to try to
achieve a particular outcome or performance level
The first three concepts as a set, reflect the distinct resource base available to the firm,
critical to achieving success in the marketplace.
The firm is viewed as essentially a bundle of resources under common governance, this
resource base has various components, either owned by / or accessible to the firm:
1. Physical resources (including natural resources, buildings, plant equipment etc)
(non-transferable)
2. Financial resources (including access to equity and loan capital) (transferable)
3. Human resources (including both individuals and teams. These individuals and
teams have both entrepreneurial and operational (or efficiency related skills) (non-
transferable)
4. Upstream knowledge (including sourcing knowledge, as well as product- and
process-related technological knowledge) (transferable)
5. Downstream knowledge (critical to the interface with customers, and related to
marketing, sales, distribution, and after-sales service activities) (non-transferable)
6. Administrative (governance-related) (knowledge regarding the functioning of the
organizational structure, organizational culture and organizational systems)
(transferable)
7. Reputational resources (including brand names, a good reputation for honest
business dealings etc) (transferable)
, CHAPTER 1: CONCEPTUAL FOUNDATIONS OF IBS – MNES AND THE
GLOBAL ECONOMY
INTERNATIONALLY TRANSFERABLE FSAS AND THE FOUR MNE
ARCHETYPES
The MNE creates value and satisfies stakeholder needs by operating across national
borders.
The 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.
The paradox of an internationally transferable FSA 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.
MNE ARCHETYPES
1. Centralized exporter (essentially a market seeker)
Home-country-managed firm builds upon a tradition of selling product
internationally, out of highly cost-efficient or exceptional-quality-generating
facilities in the home country.
Only minor, usually customer-oriented, value-creating activities abroad
2. International projector
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.
Firm relies on an extensive cadre of professional managers who can act as
expatriates or repositories/transfer agents of the home country success
recipes
3. International coordinator
Centrally managed firm’s international success does not build primarily on
home country FSAs embodied in products exported internationally, nor
does it simply transfer FSAs to foreign subsidiaries to replicate home
country success
Builds upon a tradition of managing international operation, both upstream
and downstream, through a tightly controlled but still flexible logistics
function.
They search for relevant resources internationally, manufacture in the most
cost-efficient locations, and sell their products wherever there is demand
for them.
4. Multi-centered MNE
Firm’s international success does not build primarily on knowledge-based
FSAs developed in the home country
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.
