INTERNATIONAL STRATEGY
Lecture 1
Webclip 1
Strategy objectives
The general objective of strategy is achieving sustainable competitive advantage leading to above average economic performance.
This usually involves building upon firm-specific advantages such as core knowledge, competencies, efficiencies and business
models.
What is international strategy?
Matching a multinational enterprises’ (MNEs) internal strengths
• With the opportunities and challenges found in cross-border environments
• While overcoming the disadvantages of being a foreign company
• And/or capitalizing on the advantages of being a foreign company
• And/or capitalizing on the advantages of having an international network
Elements of international strategy (Benito, 2015) – The WHY, WHERE, WHAT and HOW of internationalization
Why – internationalization Where – location choice → What How
motives very related to the why
• Market seeking • Attractiveness of • Marketing & sales • Export
• Efficiency seeking country • Manufacturing • Licensing
• Resource seeking • “Distance” to home • Purchasing, • Franchising
• Strategic asset country extraction • JV/ Alliance
seeking (key • R&D • FDI:
knowledge) - Brownfield
- Greenfield
Webclip 2
Foundations of international business strategy
1. Internationally transferable (or non-location bound) firm specific advantages (FSAs)
2. Non-transferable (or location bound) FSAs
3. Location advantages
4. Investment in – and value creation through – resource recombination
5. Complementary resources of external actors
6. Bounded rationality
7. Bounded reliability
8. Advantages of foreignness: cultural attraction and arbitraging
FSAs (transferable & non-transferable) (#1&2)
The MNEs unique resource base
• Physical resources (land, machinery, location)
• Financial resources (money)
• Human resources (talent, knowledge)
• Upstream knowledge (knowledge of products, product creation etc.)
• Downstream knowledge (knowledge of sales, marketing, distribution etc.)
• Administrative knowledge (related to organizational structures, systems, culture etc.)
• Reputational resources (intangible assets)
FSAs that are transferable abroad: non location bound FSAs → patents (knowledge), money, machinery or technology (sometimes)
and occasionally brand names (not always though)
FSAs that are not transferable abroad: location bound FSAs → immobile resources linked to location advantages (unique locations/
network), local marketing knowledge and reputational resources (brand names), local best practices in the form of routines and
a domestic recombination ability
,Firm specific advantages (=core competencies)
A firm is a portfolio of ‘core competencies’: higher-order FSAs, i.e. the firm’s routines and recombination capabilities. A core
competence should: (1) Provide access to a wide variety of markets, (2) Contribute significantly to the end-product benefits, and
(3) Be difficult for competitors to imitate. Finally, especially in the case of large MNEs; the loss of a core competence would have
an important negative effect on the firm’s present and future performance.
Location advantages (#3)
Factors of a specific location that make it attractive (either in the home or a host country)
• Natural resource seeking
• Market seeking (rising income, larger market)
• Strategic resource seeking (knowledge, Silicon Valley)
• Efficiency seeking
Recombination capabilities (#4) (value creation through recombination means that the firm is able to grow by innovating and
diversifying: an entrepreneurial attitude critical to identifying and pursuing new market opportunities, uncovering resources that
are not yet fully utilized and an organizational ability to meld extant and new resources in novel ways)
• Artful orchestration of resources, especially knowledge bundles
• In the international arena, recombination capabilities are built up through international experience
o Host country specific experience
o General internationalization experience
Complementary resources of external actors (#5)
• Market knowledge/ access
• Government connections
• Complementary technology
The reason why you may need external actors: cultural, economic, institutional and spatial ‘distance’ (meaning: missing success
ingredients)
Liability of foreignness (Lof) (#6&7)
A foreign firm (e.g. a MNE) has an a-priori disadvantage vis-à-vis a local firm, because of:
• Geographic, linguistic, economic, political, educational, institutional, or cultural distances
o Bounded rationality → “scarcity of mind” – imperfect assessment of a present or future state of affairs, thereby
leading to incorrect beliefs
▪ Managers may be limited/ unable to assess particular locations or may not have all the complete/
available information
o Bounded reliability → “scarcity of effort” – imperfect effort towards pre-specified goal achievement, thereby
leading to incomplete fulfillment of promises
▪ Managers can behave opportunistically → can they provide HQ with unbiased information about the
operations of the firm?
Advantage of foreignness (#8)
A foreign firm (e.g., an MNE) may also have an a-priori advantage vis-à-vis a local firm, because of:
• Cultural attractiveness (E.g., US fast-food; French wine & luxury goods; Italian styling)
• The possibility of arbitraging between different regimes (E.g., costs of inputs, taxes, environmental and labor standards)
,Four types of MNEs (internationally transferable FSAs/ non-location bound FSAs)
• Centralized exporter – This home country managed firm builds upon a tradition of selling products internationally, out
of a limited number of facilities in the home country, and with only minor, usually customer-oriented, value creating
activities abroad (marketing, distribution and related logistics operations) → exporting products without adaptations;
example: movie studios (movies)
The arrow cutting through dotted areas represents the direct link between home country NLB FSAs, and the host country’s LAs
(i.e., the foreign market), without development of new, LB FSAs in the host country, or formal transfer of existing NLB FSAs to the
host country (the NLB FSAs are embodied in the centralized exporter’s products).
• 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. 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 (but it is not necessarily building up any
LB FSAs) → example: Disneyland
The dotted area of LB FSAs in the middle of the host country triangle reflects the international projector’s lack of development of
LB FSAs in the host country, where operations simply clone those prevailing in the home country. Extant NLB FSAs suffice to
access and benefit from host country LAs.
• 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. International operations
are specialized in specific value-added activities and form vertical value chains across borders. The MNEs key FSAs are
efficiently linking these geographically dispersed locations through seamless logistics (and build upon the location
advantages in each host country location)
, The different sizes of the shaded areas in the various host countries reflect the different types and levels of home country NLB
FSAs to be transferred to different host environments in function of the LAs the firm wishes to access. The circle linking the
various countries reflects the international coordinator’s strengths in putting together a value chain based upon access to the
coveted LAs of each country where the firm operates.
• Multi-centered MNE –The multi-centered 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. Ultimately, the multi-centered MNE should be viewed as a
portfolio of largely independent businesses (decentralized and autonomous) → example: Unilever
The multi-centered MNE transfers only key routines from the home country to the host countries. The large, shaded middle areas
in the host countries represent the necessity to build new, LB FSAs in each host country. The double-headed arrows reflect the close
alignment the host country operations must develop between their own LB FSAs and the host’s LAs.
Lecture 2
Webclip 1
Location advantages
• Entire set of strengths of a location, and accessible by firms in that location
• Should always be assessed relative to the strengths of other locations
• Instrumental to FSAs
• Location advantages can be in the firm’s home country or in a host country
Home country location advantages
A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against
the world’s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive
home-based suppliers, and demanding local customers. Long-term competitiveness results from innovation and firm-level
productivity improvements. The nature of home country location advantages can thus shape firm specific advantages → porter’s
diamond.
• Factor conditions – factors that can provide the firm with an opportunity to innovate and to create firm specific
advantages. These can be basic factors such as natural resources, but also more advanced such as skilled labor, scientific
knowledge or infrastructure. These factors are particularly valuable if they are specialized, meaning customized towards
effective deployment in very specific economy activities and companies (this will enable firms to create those FSAs which
means internationalization is more likely).
• Demand conditions – 3 broad attributes of home demand conditions:
o Nature of buyer needs
o Size and pattern of growth of the home demand
o Internationalization of domestic demand
The focus of these three factors has to do with the sophistication of buyers, because the more sophisticated the demand,
the more pressure from buyers and the higher the competitiveness of firms, forcing them to create FSAs. Which can later
be transferred to other countries as well.
Lecture 1
Webclip 1
Strategy objectives
The general objective of strategy is achieving sustainable competitive advantage leading to above average economic performance.
This usually involves building upon firm-specific advantages such as core knowledge, competencies, efficiencies and business
models.
What is international strategy?
Matching a multinational enterprises’ (MNEs) internal strengths
• With the opportunities and challenges found in cross-border environments
• While overcoming the disadvantages of being a foreign company
• And/or capitalizing on the advantages of being a foreign company
• And/or capitalizing on the advantages of having an international network
Elements of international strategy (Benito, 2015) – The WHY, WHERE, WHAT and HOW of internationalization
Why – internationalization Where – location choice → What How
motives very related to the why
• Market seeking • Attractiveness of • Marketing & sales • Export
• Efficiency seeking country • Manufacturing • Licensing
• Resource seeking • “Distance” to home • Purchasing, • Franchising
• Strategic asset country extraction • JV/ Alliance
seeking (key • R&D • FDI:
knowledge) - Brownfield
- Greenfield
Webclip 2
Foundations of international business strategy
1. Internationally transferable (or non-location bound) firm specific advantages (FSAs)
2. Non-transferable (or location bound) FSAs
3. Location advantages
4. Investment in – and value creation through – resource recombination
5. Complementary resources of external actors
6. Bounded rationality
7. Bounded reliability
8. Advantages of foreignness: cultural attraction and arbitraging
FSAs (transferable & non-transferable) (#1&2)
The MNEs unique resource base
• Physical resources (land, machinery, location)
• Financial resources (money)
• Human resources (talent, knowledge)
• Upstream knowledge (knowledge of products, product creation etc.)
• Downstream knowledge (knowledge of sales, marketing, distribution etc.)
• Administrative knowledge (related to organizational structures, systems, culture etc.)
• Reputational resources (intangible assets)
FSAs that are transferable abroad: non location bound FSAs → patents (knowledge), money, machinery or technology (sometimes)
and occasionally brand names (not always though)
FSAs that are not transferable abroad: location bound FSAs → immobile resources linked to location advantages (unique locations/
network), local marketing knowledge and reputational resources (brand names), local best practices in the form of routines and
a domestic recombination ability
,Firm specific advantages (=core competencies)
A firm is a portfolio of ‘core competencies’: higher-order FSAs, i.e. the firm’s routines and recombination capabilities. A core
competence should: (1) Provide access to a wide variety of markets, (2) Contribute significantly to the end-product benefits, and
(3) Be difficult for competitors to imitate. Finally, especially in the case of large MNEs; the loss of a core competence would have
an important negative effect on the firm’s present and future performance.
Location advantages (#3)
Factors of a specific location that make it attractive (either in the home or a host country)
• Natural resource seeking
• Market seeking (rising income, larger market)
• Strategic resource seeking (knowledge, Silicon Valley)
• Efficiency seeking
Recombination capabilities (#4) (value creation through recombination means that the firm is able to grow by innovating and
diversifying: an entrepreneurial attitude critical to identifying and pursuing new market opportunities, uncovering resources that
are not yet fully utilized and an organizational ability to meld extant and new resources in novel ways)
• Artful orchestration of resources, especially knowledge bundles
• In the international arena, recombination capabilities are built up through international experience
o Host country specific experience
o General internationalization experience
Complementary resources of external actors (#5)
• Market knowledge/ access
• Government connections
• Complementary technology
The reason why you may need external actors: cultural, economic, institutional and spatial ‘distance’ (meaning: missing success
ingredients)
Liability of foreignness (Lof) (#6&7)
A foreign firm (e.g. a MNE) has an a-priori disadvantage vis-à-vis a local firm, because of:
• Geographic, linguistic, economic, political, educational, institutional, or cultural distances
o Bounded rationality → “scarcity of mind” – imperfect assessment of a present or future state of affairs, thereby
leading to incorrect beliefs
▪ Managers may be limited/ unable to assess particular locations or may not have all the complete/
available information
o Bounded reliability → “scarcity of effort” – imperfect effort towards pre-specified goal achievement, thereby
leading to incomplete fulfillment of promises
▪ Managers can behave opportunistically → can they provide HQ with unbiased information about the
operations of the firm?
Advantage of foreignness (#8)
A foreign firm (e.g., an MNE) may also have an a-priori advantage vis-à-vis a local firm, because of:
• Cultural attractiveness (E.g., US fast-food; French wine & luxury goods; Italian styling)
• The possibility of arbitraging between different regimes (E.g., costs of inputs, taxes, environmental and labor standards)
,Four types of MNEs (internationally transferable FSAs/ non-location bound FSAs)
• Centralized exporter – This home country managed firm builds upon a tradition of selling products internationally, out
of a limited number of facilities in the home country, and with only minor, usually customer-oriented, value creating
activities abroad (marketing, distribution and related logistics operations) → exporting products without adaptations;
example: movie studios (movies)
The arrow cutting through dotted areas represents the direct link between home country NLB FSAs, and the host country’s LAs
(i.e., the foreign market), without development of new, LB FSAs in the host country, or formal transfer of existing NLB FSAs to the
host country (the NLB FSAs are embodied in the centralized exporter’s products).
• 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. 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 (but it is not necessarily building up any
LB FSAs) → example: Disneyland
The dotted area of LB FSAs in the middle of the host country triangle reflects the international projector’s lack of development of
LB FSAs in the host country, where operations simply clone those prevailing in the home country. Extant NLB FSAs suffice to
access and benefit from host country LAs.
• 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. International operations
are specialized in specific value-added activities and form vertical value chains across borders. The MNEs key FSAs are
efficiently linking these geographically dispersed locations through seamless logistics (and build upon the location
advantages in each host country location)
, The different sizes of the shaded areas in the various host countries reflect the different types and levels of home country NLB
FSAs to be transferred to different host environments in function of the LAs the firm wishes to access. The circle linking the
various countries reflects the international coordinator’s strengths in putting together a value chain based upon access to the
coveted LAs of each country where the firm operates.
• Multi-centered MNE –The multi-centered 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. Ultimately, the multi-centered MNE should be viewed as a
portfolio of largely independent businesses (decentralized and autonomous) → example: Unilever
The multi-centered MNE transfers only key routines from the home country to the host countries. The large, shaded middle areas
in the host countries represent the necessity to build new, LB FSAs in each host country. The double-headed arrows reflect the close
alignment the host country operations must develop between their own LB FSAs and the host’s LAs.
Lecture 2
Webclip 1
Location advantages
• Entire set of strengths of a location, and accessible by firms in that location
• Should always be assessed relative to the strengths of other locations
• Instrumental to FSAs
• Location advantages can be in the firm’s home country or in a host country
Home country location advantages
A nation’s competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against
the world’s best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive
home-based suppliers, and demanding local customers. Long-term competitiveness results from innovation and firm-level
productivity improvements. The nature of home country location advantages can thus shape firm specific advantages → porter’s
diamond.
• Factor conditions – factors that can provide the firm with an opportunity to innovate and to create firm specific
advantages. These can be basic factors such as natural resources, but also more advanced such as skilled labor, scientific
knowledge or infrastructure. These factors are particularly valuable if they are specialized, meaning customized towards
effective deployment in very specific economy activities and companies (this will enable firms to create those FSAs which
means internationalization is more likely).
• Demand conditions – 3 broad attributes of home demand conditions:
o Nature of buyer needs
o Size and pattern of growth of the home demand
o Internationalization of domestic demand
The focus of these three factors has to do with the sophistication of buyers, because the more sophisticated the demand,
the more pressure from buyers and the higher the competitiveness of firms, forcing them to create FSAs. Which can later
be transferred to other countries as well.
