International strategy
Lecture 1 – introduction
Internationalization 3 questions what where how
Risks internationalization:
exchange rates
Supply chain (needs to be managed)
Managing across cultures (to motivate workers that have different expectations
Host country risk (political changes like new laws)
Home country risk (you invest more in host instead of home country)
International business strategy =
Matching a multinational enterprise’s (MNE’s) international strengths
With the opportunities and challenges found in cross border environments
While overcoming the disadvantages of being foreign company
And/or capitalizing on the advantaged of being a foreign company
And/or capitalizing on the advantages of having an international network
So there is an overall disadvantage but some specific advantaged that need to be
used
Going abroad is not default. You need to think carefully whether go abroad.
Going abroad = setting up activities in another country by investing in that country (foreign
direct investment)
do only if: (need all three)
- ownership advantages ( firm specific advantages FSA)
- location advantages (attractiveness of the host country)
- internalization advantages (advantages of doing it yourself)
Internationalization (all questions are strongly related) (benito 2015)
Why Where What How
Internationalization motives: Location choice:
Market seeking Attractiveness of country Marketing & sales Export
Efficiency seeking ‘Distance’ to home Manufacturing Licensing
Resource seeking country Purchasing, Franchising
Strategic assets seeking Distance: in km or extraction JV/Alliance
(knowledge, connectivity) cultural R&D FDI:
… Acquisition
Brownfield
Greenfield
Lecture 2 – Conceptual foundations
Conceptional foundations of international strategy:
Firm-specific advantages (FSA): transferable and non-transferable
Location advantages: home/host country advantages
Investment in – and value creation through – recombination of FSA
Complementary resource of external actors
Liability of foreignness cause by bounded rationality and bounded reliability
Advantages of foreignness: cultural attraction and arbitraging
1. FSA
Transferable FSA (non locations bound FSA)
Patent document (gives protection)
Capital
Technology
Brand name/image (like apple)
, Non-transferable FSA (location-bound FSA)
Location of store
Supply chain network
Brands that do not transfer easily
Particular skills that are present in specific countries
2. Location advantages
Silicon valley (status, access to newest developments and knowledge)
If a country is for example rich in raw materials
A big market like china
3. Recomnbination capabilities = the ability to adapt and recombine resources in
such a way that they maintain a firm’s competitiveness over time and across
environments.
Meaning: the ability to make combinations of resources and capabilities “at home”
with newly accessed resources and capabilities abroad.
Like: cheap labor
4. Complementary resources of external actors:
Market knowledge/access
Government connections
Complementary technology
5. Liability of foreignness (LOF)
A foreign firm has an a-priori disadvantage vis-à-vis a local firm because of distance
in:
o geographic, linguistic (language), economic, political, educational,
institutional, cultural etc.
bounded rationality
o Discrimination by public authorities, other companies, the public…
bounded reliability
LOF should be distinguished from two other types of disadantages:
Liability of origin (LOO)
Liability of newness
Two basic assumptions that are underlying this idea of liability of foreignness:
Bounded rationality means an imperfect assessment of a present or future state of
affairs, thereby leading to incorrect beliefs
Increases complexity
Is top management able to oversee all relevant factors and to optimize across all
factors?
Bounded reliability is about imperfect effort towards pre-specified goal achievement,
thereby leading to incomplete fulfilment of promises
Aggravates trust issues
Do local managers provide HQ with unbiased information and how can local
managers best be motivated to act upon opportunities?
Leads to tension between centralization/top-down and decentralization/bottom-up
organization
6. Advantages of foreignness
A foreign firm may also have an a-priori advantage via a vis a local firm because of:
Cultural attractiveness
Arbitraging between different regimes (costs of inputs, taxes and labor standards)
, Four types of MNEs:
Centralized exporters = a company that immediately moves from the non-
location bound firm specific advantages in its home country to the location
advantages of the host country (ASML). Most simple form.
International projector = you literally copy non location bound firm specific
advantages from your home country to the host country (Disney land).
International coordinators = transfer of FSA’s that are non-location bound,
but not in the same way, to some host countries you will transfer different
FSA’s as to others (Renault-Nissan collaboration).
Multi-centred MNE’s = the location specific FSA’s are build up in the host
country – much more decentralized organization as knowledge is present in
host and home country (Unilever).
Lecture 3 – Firm specific advantages
Two basic questions we ask ourselves within international strategy are:
1. Wat is the MNE’s resource base providing internationally transferable FSA’s?
2. Which value added activities in which foreign locations will permit the MNE to
exploit and augment in this resource base?
A core competence should: (C.K. Prahalad and Gary Hamel)
Provide access to a wide variety of markets
Contribute significantly to the end-product benefit
Be difficult for competitors to imitate
Core competencies (non-location bound FSAs) should provide access to a wide variety of
international markets. This means they should be able to “travel”:
Products appeal to local consumer taste and comply with local standards
o market seeking
Production technologies can be transferred to other production locations
o efficiency seeking
The firm’s technologies are compatible with the local resources
o resource seeking
The firm’s knowledge is compatible with the local knowledge bases
o strategic asset seeking
Lecture 1 – introduction
Internationalization 3 questions what where how
Risks internationalization:
exchange rates
Supply chain (needs to be managed)
Managing across cultures (to motivate workers that have different expectations
Host country risk (political changes like new laws)
Home country risk (you invest more in host instead of home country)
International business strategy =
Matching a multinational enterprise’s (MNE’s) international strengths
With the opportunities and challenges found in cross border environments
While overcoming the disadvantages of being foreign company
And/or capitalizing on the advantaged of being a foreign company
And/or capitalizing on the advantages of having an international network
So there is an overall disadvantage but some specific advantaged that need to be
used
Going abroad is not default. You need to think carefully whether go abroad.
Going abroad = setting up activities in another country by investing in that country (foreign
direct investment)
do only if: (need all three)
- ownership advantages ( firm specific advantages FSA)
- location advantages (attractiveness of the host country)
- internalization advantages (advantages of doing it yourself)
Internationalization (all questions are strongly related) (benito 2015)
Why Where What How
Internationalization motives: Location choice:
Market seeking Attractiveness of country Marketing & sales Export
Efficiency seeking ‘Distance’ to home Manufacturing Licensing
Resource seeking country Purchasing, Franchising
Strategic assets seeking Distance: in km or extraction JV/Alliance
(knowledge, connectivity) cultural R&D FDI:
… Acquisition
Brownfield
Greenfield
Lecture 2 – Conceptual foundations
Conceptional foundations of international strategy:
Firm-specific advantages (FSA): transferable and non-transferable
Location advantages: home/host country advantages
Investment in – and value creation through – recombination of FSA
Complementary resource of external actors
Liability of foreignness cause by bounded rationality and bounded reliability
Advantages of foreignness: cultural attraction and arbitraging
1. FSA
Transferable FSA (non locations bound FSA)
Patent document (gives protection)
Capital
Technology
Brand name/image (like apple)
, Non-transferable FSA (location-bound FSA)
Location of store
Supply chain network
Brands that do not transfer easily
Particular skills that are present in specific countries
2. Location advantages
Silicon valley (status, access to newest developments and knowledge)
If a country is for example rich in raw materials
A big market like china
3. Recomnbination capabilities = the ability to adapt and recombine resources in
such a way that they maintain a firm’s competitiveness over time and across
environments.
Meaning: the ability to make combinations of resources and capabilities “at home”
with newly accessed resources and capabilities abroad.
Like: cheap labor
4. Complementary resources of external actors:
Market knowledge/access
Government connections
Complementary technology
5. Liability of foreignness (LOF)
A foreign firm has an a-priori disadvantage vis-à-vis a local firm because of distance
in:
o geographic, linguistic (language), economic, political, educational,
institutional, cultural etc.
bounded rationality
o Discrimination by public authorities, other companies, the public…
bounded reliability
LOF should be distinguished from two other types of disadantages:
Liability of origin (LOO)
Liability of newness
Two basic assumptions that are underlying this idea of liability of foreignness:
Bounded rationality means an imperfect assessment of a present or future state of
affairs, thereby leading to incorrect beliefs
Increases complexity
Is top management able to oversee all relevant factors and to optimize across all
factors?
Bounded reliability is about imperfect effort towards pre-specified goal achievement,
thereby leading to incomplete fulfilment of promises
Aggravates trust issues
Do local managers provide HQ with unbiased information and how can local
managers best be motivated to act upon opportunities?
Leads to tension between centralization/top-down and decentralization/bottom-up
organization
6. Advantages of foreignness
A foreign firm may also have an a-priori advantage via a vis a local firm because of:
Cultural attractiveness
Arbitraging between different regimes (costs of inputs, taxes and labor standards)
, Four types of MNEs:
Centralized exporters = a company that immediately moves from the non-
location bound firm specific advantages in its home country to the location
advantages of the host country (ASML). Most simple form.
International projector = you literally copy non location bound firm specific
advantages from your home country to the host country (Disney land).
International coordinators = transfer of FSA’s that are non-location bound,
but not in the same way, to some host countries you will transfer different
FSA’s as to others (Renault-Nissan collaboration).
Multi-centred MNE’s = the location specific FSA’s are build up in the host
country – much more decentralized organization as knowledge is present in
host and home country (Unilever).
Lecture 3 – Firm specific advantages
Two basic questions we ask ourselves within international strategy are:
1. Wat is the MNE’s resource base providing internationally transferable FSA’s?
2. Which value added activities in which foreign locations will permit the MNE to
exploit and augment in this resource base?
A core competence should: (C.K. Prahalad and Gary Hamel)
Provide access to a wide variety of markets
Contribute significantly to the end-product benefit
Be difficult for competitors to imitate
Core competencies (non-location bound FSAs) should provide access to a wide variety of
international markets. This means they should be able to “travel”:
Products appeal to local consumer taste and comply with local standards
o market seeking
Production technologies can be transferred to other production locations
o efficiency seeking
The firm’s technologies are compatible with the local resources
o resource seeking
The firm’s knowledge is compatible with the local knowledge bases
o strategic asset seeking
