lOMoARcPSD|14840171
Introduction to International Business - IB
Part 1: Firm specific advantages
IB is concerned with the relation between a firm and its new host country environment.
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
(e.g. knowledge seeking)
- Where: Location decision / geography (distance is multidimensional
concept, geographical, institutional, cultural, economic)
- Which way: Organizational aspect, e.g., entry modes (Strategic alliance, merger,
and acquisition, but also headquarter- subsidiary relationships)
- What effect: Impact of MNE on home and host country economy and
society (competition effects, spillover effects, environment)
Starting point:
Each firm has got something unique and 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:
The core of Verbeke’s IB theory starts from the notion that firms and multinationals should
develop unique resources.
› Physical resources (natural resources, buildings, plant equipment)
› Financial resources (equity and borrowed capital)
› Human resources (individuals and teams, entrepreneurial and operational skills)
› Reputational resources (brand names, reputation for honest business dealings).
› Upstream knowledge (product and process-related technological knowledge). = R&D
› Downstream knowledge (marketing, sales, distribution and after sales service).
› Administrative knowledge (organizational structure, culture and systems).
STEP 2:
Building upon its resource base, as well as its access to location advantages, the MNE will
develop key resources (e.g., brand names, patents) and routines, and will also engage in
resource recombination.
➢ This will create a firm specific advantage
1
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FSAs reflect the firm’s distinct strengths vis-à-vis rivals, and are the source of its competitive
advantage in the market place
Element 2: Routines
- The distinct ability to combine further the firm’s resources, in unique ways valued by
the firm’s stakeholders.
- Routines are stable patterns of decisions and actions that coordinate the productive
use of resources, and thereby generate value, whether domestically or
internationally.
Element 3: Recombination of existing resources in new ones – entrepreneurial skills:
- Constitutes the heart of international business strategy.
- “Artful orchestration of resources, especially knowledge bundles, as a response to
differences between national and foreign environments, and to satisfy new
stakeholder demands in these foreign environments.”
- Entrepreneurial judgment is at the heart of the MNE’s recombination capability.
Stand-alone resources
+
Routines
+
Recombination skills
=
Firm specific advantages (FSAs)
Two types of FSAs
Location bound: i.e. stay in the home country
- A firm uses stand-alone, immobile 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.
Non-location bound or transferable across borders
To conclude
Key elements of our theory on
IB are:
1. Firms need to have (1)
resources, (2) routines and (3)
entrepreneurial skills
2. These 3 elements jointly are
a Firm Specific Advantage
2 (FSA)
3. FSAs can be location bound
or non-location bound
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Part 2: From FSAs to a theory on international business
On the broad basis of the location advantages of the home country (LAs)
The firm builds a smaller subset of FSAs that are location bound (LB)
And then a still smaller subset of FSAs that are non-location bound
(NLB) Paradox of transferable FSA
If the FSA consist of easily codifiable knowledge (and can be written down in a handbook),
then it can be cheaply transferred, but it can also easily be imitated by other firms!
Hence, FSAs that are difficult to imitate and unique for a firm are the more important FSAs
because these cannot be copied easily
Different types of multinationals (MNE) activity:
1. Natural resource seeking
2. Market seeking
3. Efficiency seeking
(4. Strategic resource seeking)
(5. Export platform MNE
activity)
3
Introduction to International Business - IB
Part 1: Firm specific advantages
IB is concerned with the relation between a firm and its new host country environment.
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
(e.g. knowledge seeking)
- Where: Location decision / geography (distance is multidimensional
concept, geographical, institutional, cultural, economic)
- Which way: Organizational aspect, e.g., entry modes (Strategic alliance, merger,
and acquisition, but also headquarter- subsidiary relationships)
- What effect: Impact of MNE on home and host country economy and
society (competition effects, spillover effects, environment)
Starting point:
Each firm has got something unique and 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:
The core of Verbeke’s IB theory starts from the notion that firms and multinationals should
develop unique resources.
› Physical resources (natural resources, buildings, plant equipment)
› Financial resources (equity and borrowed capital)
› Human resources (individuals and teams, entrepreneurial and operational skills)
› Reputational resources (brand names, reputation for honest business dealings).
› Upstream knowledge (product and process-related technological knowledge). = R&D
› Downstream knowledge (marketing, sales, distribution and after sales service).
› Administrative knowledge (organizational structure, culture and systems).
STEP 2:
Building upon its resource base, as well as its access to location advantages, the MNE will
develop key resources (e.g., brand names, patents) and routines, and will also engage in
resource recombination.
➢ This will create a firm specific advantage
1
, lOMoARcPSD|14840171
FSAs reflect the firm’s distinct strengths vis-à-vis rivals, and are the source of its competitive
advantage in the market place
Element 2: Routines
- The distinct ability to combine further the firm’s resources, in unique ways valued by
the firm’s stakeholders.
- Routines are stable patterns of decisions and actions that coordinate the productive
use of resources, and thereby generate value, whether domestically or
internationally.
Element 3: Recombination of existing resources in new ones – entrepreneurial skills:
- Constitutes the heart of international business strategy.
- “Artful orchestration of resources, especially knowledge bundles, as a response to
differences between national and foreign environments, and to satisfy new
stakeholder demands in these foreign environments.”
- Entrepreneurial judgment is at the heart of the MNE’s recombination capability.
Stand-alone resources
+
Routines
+
Recombination skills
=
Firm specific advantages (FSAs)
Two types of FSAs
Location bound: i.e. stay in the home country
- A firm uses stand-alone, immobile 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.
Non-location bound or transferable across borders
To conclude
Key elements of our theory on
IB are:
1. Firms need to have (1)
resources, (2) routines and (3)
entrepreneurial skills
2. These 3 elements jointly are
a Firm Specific Advantage
2 (FSA)
3. FSAs can be location bound
or non-location bound
, lOMoARcPSD|14840171
Part 2: From FSAs to a theory on international business
On the broad basis of the location advantages of the home country (LAs)
The firm builds a smaller subset of FSAs that are location bound (LB)
And then a still smaller subset of FSAs that are non-location bound
(NLB) Paradox of transferable FSA
If the FSA consist of easily codifiable knowledge (and can be written down in a handbook),
then it can be cheaply transferred, but it can also easily be imitated by other firms!
Hence, FSAs that are difficult to imitate and unique for a firm are the more important FSAs
because these cannot be copied easily
Different types of multinationals (MNE) activity:
1. Natural resource seeking
2. Market seeking
3. Efficiency seeking
(4. Strategic resource seeking)
(5. Export platform MNE
activity)
3
