International Strategic Management – summary of the articles,
pre-recorded lectures and online sessions.
Brenda Giethoorn
06-02-2021
WEEK 1
Article 1: The international transferability of the firm's advantages, Hu, Y.S., 1995.
The firm's advantages and disadvantages are defined as its strengths and weaknesses either relative to
the competition in a specific competitive arena or relative to an alternative to the firm (from the
viewpoint of the other party) in a particular context.
There are two main distinctions in the concept of advantages that are particularly useful:
- The different levels at which advantages can be identified or defined. At the downstream level lies
the interface between the firm and its customers. Upstream, at an intermediate level, are to be found
the advantages associated with what the firm is, what it does, and what it has. At the most upstream
level we find dynamic advantages, such as the superior ability and willingness of the firm to learn
continuously from internal and external sources. In industries characterized by rapid technological
progress, it is the upstream, dynamic advantages that will matter most.
- In the concept of advantages, which is key to the thinking of this article, is that between the firm's
advantages in domestic competition and its advantages in international competition. This can
differ for three reasons:
1. Advantages being always relative.
2. Superiority relative to the firm's domestic rivals need not mean superiority relative to foreign
firms.
3. There are general factors and characteristics—arising at the level of the nation, the industry,
and even the local communities—that confer on the nation's firms powerful advantages
relative to foreign firms in international competition.
Non-transferability of advantages can occur for two reasons:
- The advantage is not mobile internationally;
- The advantage itself loses value in the target country.
What become advantages for the firm's operations in a foreign country are usually one of three things
that are present in the home environment:
- Unique or "firm-specific" advantages at home;
- Assets at home, which, while not superior to those of domestic competitors, can turn into
advantages relative to local competition in a less advanced country.
- General attributes and general access to factors shared by the industry and/or the nation.
Internationally, the differences between national levels of development and between national qualities
are likely to be more important than the differences between firms based in the same country, so that
in international competition the "national" advantages usually outweigh "firm-specific" advantages.
Complementary assets are assets or capabilities that need to be built up or acquired in the target country
in order to fully exploit the firm's advantages in that country. Non-transferability occurs when the
advantage or a key ingredient thereof is not mobile between the home country and the target country.
There are two basic causes of immobility:
- Geographical specificity,
- Tacit (non-codifiable) nature of much of knowledge, skills, and technology.
The difficulty of transferring tacit knowledge helps to explain why dynamic firms are more inclined to
transfer abroad the exploitation of new technology than to transfer its creation.
1
,Even where advantages are transferable, their effective transfer may be neither automatic nor easy.
The two most basic forms of international operations from the point of view of transferability of
advantages are exporting and foreign production.
How would a firm enhance the transferability of its advantages?
1. The firm should take a much broader view than merely looking at its "firm-specific" advantages.
2. If an important advantage is found to be non-transferable, one should consider defining the
advantage at a different level.
3. If the advantage is non-transferable, the firm should contemplate whether a different mode of
operations.
4. Transferability may depend on the choice of target countries.
5. Transferability may necessitate sustained investment in complementary assets.
6. Transfer is neither automatic nor easy but may require creative adaptations and effort.
Article 2: Does imitation reduce the liability of foreignness? Linking distance, isomorphism, and
performance, Wu, Z., and Salomon, R., 2016.
Studies demonstrate that foreign firms are at a disadvantage vis-à-vis indigenous1 competitors. These
disadvantages arise out of differences between the host and home countries. Foreign firms typically
underperform relative to domestic competitors. The literature has described this effect as a “liability
of foreignness”.
One such option is to imitate local, domestic competitors—a strategy referred to as local
isomorphism2 (also called: herding). Foreign firms at a greater informational disadvantage—from
more institutionally distant home countries—tend to rely more on local isomorphism strategies.
Researchers model isomorphism as an endogenous outcome variable, implying that managers
anticipate its performance effects. Performance consequences of isomorphism depend on the nature
of local competition. Most treat isomorphism as an exogenous driver of performance.
One can describe the institutional environment of a nation as comprised of cultural, economic,
political, and regulatory components. We refer to the differences in institutional environments that firms
face across national borders as “institutional distance”.
Baseline Expectation 1 (BE1): All else equal, foreign subsidiary performance decreases as the
institutional distance between the host country and the home country increases.
Baseline Expectation 2 (BE2): All else equal, the greater the institutional distance between the home
country and the host country, the more likely foreign subsidiaries will opt for greater levels of
isomorphism.
1
Inlands
2
het feit dat organisaties na verloop van tijd op elkaar gaan lijken, omdat ze onbewust de geldende normen en waarden in de
omgeving overnemen.
2
, Institutional distance is an important environmental antecedent to isomorphism, because it motivates
foreign entrants to imitate local competitors. The extant literature generally relies upon two mechanisms
to justify isomorphism as a strategic response to distance: uncertainty reduction and legitimacy.
Hypothesis 1 (H1|BE2): All else equal, the greater the institutional distance, the more likely foreign
subsidiaries will opt for strategic isomorphism, and subsequently, the more positive the effect of
strategic isomorphism on performance. Failed to support.
Hypothesis 2 (H2|BE2): All else equal, the positive performance impact of foreign subsidiaries’ initial
local isomorphism choice based on institutional distance decreases as their experience in the host
country increases. Supported.
Research suggests that foreign entrants from distant markets imitate local firms to reduce information
asymmetry, fit the local institutional environment better, acquire legitimacy, and ultimately, offset the
liability of foreignness. The findings indicate that isomorphism partially mediates the relationship
between distance and performance. Isomorphism does not help firms avoid cultural liabilities where a
tacit understanding of the local market is critical.
1. Firms choose a level of local isomorphism commensurate with the institutional distance constraints
they face;
2. Isomorphism can help firms partially offset the liability of foreignness.
The findings demonstrate that the benefits of isomorphism decrease with firm experience.
Lecture 1: Introduction
Strategy is an integrated and coordinated set of commitments and actions, designed to exploit core
competencies, to gain a competitive advantage. The core competencies are the roots of the organization.
Competitive advantages means creating more value than the competitors (in different strategies, higher
prices or lower costs).
Strategic Management is the ongoing process that evaluates the company, its competitors, and sets
goals and strategies to meet all existing and potential competitors; and then reassesses these to determine
whether it has succeeded or needs replacement by a new strategy.
International Strategic Management is a management planning process aimed at developing
strategies to allow an organization to expand abroad and compete internationally.
The four ‘Competitive Configurations’:
1. Domestic Configuration, we operate in one country, source in one country and supply in one
country.
o Labour + Capital = Product.
o Consumers prefer the product to the money (consumer surplus).
o Consumers pay more than the cost of production (producer surplus).
The problems are the fact of a small market, limited growth potential and a high market dependence.
2. Export Configuration, differentials in price (i.e.: they are willing to pay more) and/or demand (i.e.:
they are able to drink more) create opportunities abroad.
If the differential in price and demand are high enough, and the costs of supply (transportation costs)
are low enough, profit can be created.
Transportation costs create an inefficiency.
3. Multinational Configuration, Replicating the firms operations and in doing so, avoid
transportation costs.
o Transportation costs are minimized
o Foreign consumers pay foreign prices for domestic goods
Problems are duplication of functions and inefficient use of resources.
4. Global Configuration, firms split their supply chains across countries, to maximize profits at each
stage, to exploit regional differentials in cost, supply and demand.
3
pre-recorded lectures and online sessions.
Brenda Giethoorn
06-02-2021
WEEK 1
Article 1: The international transferability of the firm's advantages, Hu, Y.S., 1995.
The firm's advantages and disadvantages are defined as its strengths and weaknesses either relative to
the competition in a specific competitive arena or relative to an alternative to the firm (from the
viewpoint of the other party) in a particular context.
There are two main distinctions in the concept of advantages that are particularly useful:
- The different levels at which advantages can be identified or defined. At the downstream level lies
the interface between the firm and its customers. Upstream, at an intermediate level, are to be found
the advantages associated with what the firm is, what it does, and what it has. At the most upstream
level we find dynamic advantages, such as the superior ability and willingness of the firm to learn
continuously from internal and external sources. In industries characterized by rapid technological
progress, it is the upstream, dynamic advantages that will matter most.
- In the concept of advantages, which is key to the thinking of this article, is that between the firm's
advantages in domestic competition and its advantages in international competition. This can
differ for three reasons:
1. Advantages being always relative.
2. Superiority relative to the firm's domestic rivals need not mean superiority relative to foreign
firms.
3. There are general factors and characteristics—arising at the level of the nation, the industry,
and even the local communities—that confer on the nation's firms powerful advantages
relative to foreign firms in international competition.
Non-transferability of advantages can occur for two reasons:
- The advantage is not mobile internationally;
- The advantage itself loses value in the target country.
What become advantages for the firm's operations in a foreign country are usually one of three things
that are present in the home environment:
- Unique or "firm-specific" advantages at home;
- Assets at home, which, while not superior to those of domestic competitors, can turn into
advantages relative to local competition in a less advanced country.
- General attributes and general access to factors shared by the industry and/or the nation.
Internationally, the differences between national levels of development and between national qualities
are likely to be more important than the differences between firms based in the same country, so that
in international competition the "national" advantages usually outweigh "firm-specific" advantages.
Complementary assets are assets or capabilities that need to be built up or acquired in the target country
in order to fully exploit the firm's advantages in that country. Non-transferability occurs when the
advantage or a key ingredient thereof is not mobile between the home country and the target country.
There are two basic causes of immobility:
- Geographical specificity,
- Tacit (non-codifiable) nature of much of knowledge, skills, and technology.
The difficulty of transferring tacit knowledge helps to explain why dynamic firms are more inclined to
transfer abroad the exploitation of new technology than to transfer its creation.
1
,Even where advantages are transferable, their effective transfer may be neither automatic nor easy.
The two most basic forms of international operations from the point of view of transferability of
advantages are exporting and foreign production.
How would a firm enhance the transferability of its advantages?
1. The firm should take a much broader view than merely looking at its "firm-specific" advantages.
2. If an important advantage is found to be non-transferable, one should consider defining the
advantage at a different level.
3. If the advantage is non-transferable, the firm should contemplate whether a different mode of
operations.
4. Transferability may depend on the choice of target countries.
5. Transferability may necessitate sustained investment in complementary assets.
6. Transfer is neither automatic nor easy but may require creative adaptations and effort.
Article 2: Does imitation reduce the liability of foreignness? Linking distance, isomorphism, and
performance, Wu, Z., and Salomon, R., 2016.
Studies demonstrate that foreign firms are at a disadvantage vis-à-vis indigenous1 competitors. These
disadvantages arise out of differences between the host and home countries. Foreign firms typically
underperform relative to domestic competitors. The literature has described this effect as a “liability
of foreignness”.
One such option is to imitate local, domestic competitors—a strategy referred to as local
isomorphism2 (also called: herding). Foreign firms at a greater informational disadvantage—from
more institutionally distant home countries—tend to rely more on local isomorphism strategies.
Researchers model isomorphism as an endogenous outcome variable, implying that managers
anticipate its performance effects. Performance consequences of isomorphism depend on the nature
of local competition. Most treat isomorphism as an exogenous driver of performance.
One can describe the institutional environment of a nation as comprised of cultural, economic,
political, and regulatory components. We refer to the differences in institutional environments that firms
face across national borders as “institutional distance”.
Baseline Expectation 1 (BE1): All else equal, foreign subsidiary performance decreases as the
institutional distance between the host country and the home country increases.
Baseline Expectation 2 (BE2): All else equal, the greater the institutional distance between the home
country and the host country, the more likely foreign subsidiaries will opt for greater levels of
isomorphism.
1
Inlands
2
het feit dat organisaties na verloop van tijd op elkaar gaan lijken, omdat ze onbewust de geldende normen en waarden in de
omgeving overnemen.
2
, Institutional distance is an important environmental antecedent to isomorphism, because it motivates
foreign entrants to imitate local competitors. The extant literature generally relies upon two mechanisms
to justify isomorphism as a strategic response to distance: uncertainty reduction and legitimacy.
Hypothesis 1 (H1|BE2): All else equal, the greater the institutional distance, the more likely foreign
subsidiaries will opt for strategic isomorphism, and subsequently, the more positive the effect of
strategic isomorphism on performance. Failed to support.
Hypothesis 2 (H2|BE2): All else equal, the positive performance impact of foreign subsidiaries’ initial
local isomorphism choice based on institutional distance decreases as their experience in the host
country increases. Supported.
Research suggests that foreign entrants from distant markets imitate local firms to reduce information
asymmetry, fit the local institutional environment better, acquire legitimacy, and ultimately, offset the
liability of foreignness. The findings indicate that isomorphism partially mediates the relationship
between distance and performance. Isomorphism does not help firms avoid cultural liabilities where a
tacit understanding of the local market is critical.
1. Firms choose a level of local isomorphism commensurate with the institutional distance constraints
they face;
2. Isomorphism can help firms partially offset the liability of foreignness.
The findings demonstrate that the benefits of isomorphism decrease with firm experience.
Lecture 1: Introduction
Strategy is an integrated and coordinated set of commitments and actions, designed to exploit core
competencies, to gain a competitive advantage. The core competencies are the roots of the organization.
Competitive advantages means creating more value than the competitors (in different strategies, higher
prices or lower costs).
Strategic Management is the ongoing process that evaluates the company, its competitors, and sets
goals and strategies to meet all existing and potential competitors; and then reassesses these to determine
whether it has succeeded or needs replacement by a new strategy.
International Strategic Management is a management planning process aimed at developing
strategies to allow an organization to expand abroad and compete internationally.
The four ‘Competitive Configurations’:
1. Domestic Configuration, we operate in one country, source in one country and supply in one
country.
o Labour + Capital = Product.
o Consumers prefer the product to the money (consumer surplus).
o Consumers pay more than the cost of production (producer surplus).
The problems are the fact of a small market, limited growth potential and a high market dependence.
2. Export Configuration, differentials in price (i.e.: they are willing to pay more) and/or demand (i.e.:
they are able to drink more) create opportunities abroad.
If the differential in price and demand are high enough, and the costs of supply (transportation costs)
are low enough, profit can be created.
Transportation costs create an inefficiency.
3. Multinational Configuration, Replicating the firms operations and in doing so, avoid
transportation costs.
o Transportation costs are minimized
o Foreign consumers pay foreign prices for domestic goods
Problems are duplication of functions and inefficient use of resources.
4. Global Configuration, firms split their supply chains across countries, to maximize profits at each
stage, to exploit regional differentials in cost, supply and demand.
3
