International Strategy
Book summary
Chapter 1 – Conceptual foundations of International Strategy
Non-location bound firm-specific
advantages (FSA’s) = same as
internationally transferable FSAs
Location-bound FSAs are nontransferable
FSA’s and focus on the totality of challenges
facing the company in the realm of technical
transfer, effective deployment and
profitable exploitation of FSAs abroad
A MNE creates value and satisfies
stakeholders by operating across national
borders -> crossing its home country border
to create value in a host country, the MNE is
at a disadvantage compared to the firms from the host country
Firms that are from the host country themselves possess a knowledge base that is more
appropriately matched to the local stakeholder requirements
MNE occurs additional costs of doing business abroad = due to cultural / economic /
institutional / spatial distance between home & host country environments
MNE’s often especially struggle with anticipating the liability of foreignness resulting from the
cultural and institutional differences -> firm can overcome these additional costs of doing business
abroad by having proprietary internal strengths = technological / marketing / administrative
knowledge -> these are the non-location bound FSAs
Non-location bound FSAs do not stop creating value when a border is crossed. The MNE can deploy,
exploit and transfer these FSA successfully. -> when the MNE is faced with natural or government-
imposed trade barriers it can transfer some FSAs abroad directly as intermediate products
Exploitation of FSAs transferred abroad can also be done by;
- external partners = licensee
- Network partners = JV / distributors
When internationally transferable FSA is easily codified knowledge (= articulated explicitly) then it
can be cheaply transferred and effectively deployed and exploited abroad -> but the downside is that
it is also easily imitated by other firms
Costs of FSA transfer, deployment and exploitation may be relatively low, but the potential
value that can be derived from actually deploying and exploiting the FSA can also be low
(when easily imitated)
When a FSA is based upon tacit knowledge, it is highly difficult to transfer, deploy and exploit this FSA
because it cannot be fully replicated through simple communication channels. Employing tacit
knowledge requires person-to-person communication and thus requires sending human resources
abroad
This process is costly and time consuming. But it is difficult to imitate
Tacit knowledge is often a key to sustainable competitive advantage
o Most important tacit knowledge can be found in administrative heritage = key
routines developed by de firm since the start
,There are 4 types of administrative heritage
1) Centralized exporter = home-country managed firm builds upon a tradition of selling product
internationally, out of a limited number of facilities in the home country.
Standardized products manufactured at home embody the firm’s FSAs and make the
exporting firm successful in international markets -> standardized products are
developed by themselves on the basis of a favourable home country environment,
including local clustering.
2) International projector = firms builds upon a tradition of transferring its proprietary
knowledge developed in home country to foreign subsidiaries which are clones of 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
3) International coordinator = centrally managed firm’s international success does not build
primarily on home country FSAs embodied in products exported internationally. It builds
upon a tradition of managing international operations both upstream and downstream via
tightly controlled but flexible logistics
Specialized in specific value-added activities and form vertical value chains across
borders. The MNE’s key FSAs are in efficiency linking these geographically dispersed
operations through seamless logistics
4) Multi-centred MNE = international success does not only build 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. Non-location bound FSAs that hold these firms together are minimal
The multi-centred MNE should be viewed as a portfolio of largely independent
businesses
Commonality among these 4 types is that the transfer of at least some FSAs across borders
Firms that do not fit with the 4 types are;
- Freestanding companies = companies set up abroad by investors in their home country’s
colonies (mainly British + Dutch companies)
- Emerging economy MNEs (EMNEs) = these firms thrive on recombining whatever FSAs they
may possess with resources accessed abroad
Emerging MNEs FSAs include;
- Entrepreneurial quality of management
- Management capabilities in effective strategy execution
- Learned technologies, resulting from a role of licensee or subcontractor for technology-rich
MNEs
- Learned knowledge from early alliance formation with other MNEs
- Privileged access to home country resources
- Cost innovations / operational excellence -> sometimes as a result of functioning in adverse
environmental circumstances and ill-functioning external markets
- Ability to adapt technology / products to emerging economy needs
Non-transferable firm-specific advantage -> location-bound FSAs = cannot be easily transferred,
deployed and exploited in foreign markets. There are 4 main types of location-bound FSAs
1) Stand-alone resources = linked to location advantages such as network of privileged retail
locations leading to a dominant market share. Immobility of domestic networks
, 2) Local marketing knowledge & reputational resources = may not have the same value abroad
as they do at home. Could be because they are not applicable to a host country context or
because they are not valued in the same way
3) Local best practices = routines considered highly effective and efficient, could be incentive
systems and buyer-supplier relationships
4) Firm’s domestic recombinational capability = may not be good enough to confront
additional complexities of foreign markets
The corresponding FSA in each host country will need to be created or acquired from third parties for
all of these types of location-bound FSAs
MNEs economic success does not occur in a spatially homogenous environment, location does
matter. Many firms are successful internationally because they take advantage of favourable local
environments. Location advantages represent the entire set of strengths characterizing a specific
location, and useable by firms operating in that location
These strengths should always be assessed relative to the usable strengths of other locations
o Strengths are ; stocks of resources accessible to firms operating locally. And less
accessible to firms lacking local operations
Location advantages are instrumental to the type of FSA that can be deployed by the locally
operating firms relative to firms operating elsewhere
Location advantages can;
- Superior educational system = support firms that build upon sophisticated human resource
skills
- Local innovation = presence of demanding and sophisticated local market for specific
products
- Location advantage can accrue to all firms operating in a particular country in some cases,
when for instance the government has a favorable tax regime
- Location advantages can also accrue only to firms operating in part of a country. Economic
clusters play a role here
- Location advantages can reach across country borders
- Locations advantages can be classified by what motivates a firm to conduct economic activity
in that location
Foreign direct investment = allocation of resource bundles by an MNE in a host country with the
purpose of performing business activities over which the MNE retains strategic control in that
country
o MNE should only engage in FDI when the host country can offer location advantages
4 motivations to perform activities (FDI) in host country rather than at home
1) Natural resource seeking = search for physical, financial, human resources in host country.
Resources are normally not proprietary and availability in host countries indicate that
investment abroad leads to higher value creation than at home
2) Market seeking= search for customer in host countries. Firms have concluded that deploying
productive activities and selling in foreign market confers higher value to the firm than
engaging in investment at home
3) Strategic resource seeking = desire to gain access to advanced resource I the sphere of
upstream / downstream / administrative knowledge or reputational resources
4) Efficiency seeking = desire to capitalize on environmental changes that make specific
locations in the MNEs international network of operations more attractive than before for
the consolidation or concentration of specific activities
Book summary
Chapter 1 – Conceptual foundations of International Strategy
Non-location bound firm-specific
advantages (FSA’s) = same as
internationally transferable FSAs
Location-bound FSAs are nontransferable
FSA’s and focus on the totality of challenges
facing the company in the realm of technical
transfer, effective deployment and
profitable exploitation of FSAs abroad
A MNE creates value and satisfies
stakeholders by operating across national
borders -> crossing its home country border
to create value in a host country, the MNE is
at a disadvantage compared to the firms from the host country
Firms that are from the host country themselves possess a knowledge base that is more
appropriately matched to the local stakeholder requirements
MNE occurs additional costs of doing business abroad = due to cultural / economic /
institutional / spatial distance between home & host country environments
MNE’s often especially struggle with anticipating the liability of foreignness resulting from the
cultural and institutional differences -> firm can overcome these additional costs of doing business
abroad by having proprietary internal strengths = technological / marketing / administrative
knowledge -> these are the non-location bound FSAs
Non-location bound FSAs do not stop creating value when a border is crossed. The MNE can deploy,
exploit and transfer these FSA successfully. -> when the MNE is faced with natural or government-
imposed trade barriers it can transfer some FSAs abroad directly as intermediate products
Exploitation of FSAs transferred abroad can also be done by;
- external partners = licensee
- Network partners = JV / distributors
When internationally transferable FSA is easily codified knowledge (= articulated explicitly) then it
can be cheaply transferred and effectively deployed and exploited abroad -> but the downside is that
it is also easily imitated by other firms
Costs of FSA transfer, deployment and exploitation may be relatively low, but the potential
value that can be derived from actually deploying and exploiting the FSA can also be low
(when easily imitated)
When a FSA is based upon tacit knowledge, it is highly difficult to transfer, deploy and exploit this FSA
because it cannot be fully replicated through simple communication channels. Employing tacit
knowledge requires person-to-person communication and thus requires sending human resources
abroad
This process is costly and time consuming. But it is difficult to imitate
Tacit knowledge is often a key to sustainable competitive advantage
o Most important tacit knowledge can be found in administrative heritage = key
routines developed by de firm since the start
,There are 4 types of administrative heritage
1) Centralized exporter = home-country managed firm builds upon a tradition of selling product
internationally, out of a limited number of facilities in the home country.
Standardized products manufactured at home embody the firm’s FSAs and make the
exporting firm successful in international markets -> standardized products are
developed by themselves on the basis of a favourable home country environment,
including local clustering.
2) International projector = firms builds upon a tradition of transferring its proprietary
knowledge developed in home country to foreign subsidiaries which are clones of 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
3) International coordinator = centrally managed firm’s international success does not build
primarily on home country FSAs embodied in products exported internationally. It builds
upon a tradition of managing international operations both upstream and downstream via
tightly controlled but flexible logistics
Specialized in specific value-added activities and form vertical value chains across
borders. The MNE’s key FSAs are in efficiency linking these geographically dispersed
operations through seamless logistics
4) Multi-centred MNE = international success does not only build 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. Non-location bound FSAs that hold these firms together are minimal
The multi-centred MNE should be viewed as a portfolio of largely independent
businesses
Commonality among these 4 types is that the transfer of at least some FSAs across borders
Firms that do not fit with the 4 types are;
- Freestanding companies = companies set up abroad by investors in their home country’s
colonies (mainly British + Dutch companies)
- Emerging economy MNEs (EMNEs) = these firms thrive on recombining whatever FSAs they
may possess with resources accessed abroad
Emerging MNEs FSAs include;
- Entrepreneurial quality of management
- Management capabilities in effective strategy execution
- Learned technologies, resulting from a role of licensee or subcontractor for technology-rich
MNEs
- Learned knowledge from early alliance formation with other MNEs
- Privileged access to home country resources
- Cost innovations / operational excellence -> sometimes as a result of functioning in adverse
environmental circumstances and ill-functioning external markets
- Ability to adapt technology / products to emerging economy needs
Non-transferable firm-specific advantage -> location-bound FSAs = cannot be easily transferred,
deployed and exploited in foreign markets. There are 4 main types of location-bound FSAs
1) Stand-alone resources = linked to location advantages such as network of privileged retail
locations leading to a dominant market share. Immobility of domestic networks
, 2) Local marketing knowledge & reputational resources = may not have the same value abroad
as they do at home. Could be because they are not applicable to a host country context or
because they are not valued in the same way
3) Local best practices = routines considered highly effective and efficient, could be incentive
systems and buyer-supplier relationships
4) Firm’s domestic recombinational capability = may not be good enough to confront
additional complexities of foreign markets
The corresponding FSA in each host country will need to be created or acquired from third parties for
all of these types of location-bound FSAs
MNEs economic success does not occur in a spatially homogenous environment, location does
matter. Many firms are successful internationally because they take advantage of favourable local
environments. Location advantages represent the entire set of strengths characterizing a specific
location, and useable by firms operating in that location
These strengths should always be assessed relative to the usable strengths of other locations
o Strengths are ; stocks of resources accessible to firms operating locally. And less
accessible to firms lacking local operations
Location advantages are instrumental to the type of FSA that can be deployed by the locally
operating firms relative to firms operating elsewhere
Location advantages can;
- Superior educational system = support firms that build upon sophisticated human resource
skills
- Local innovation = presence of demanding and sophisticated local market for specific
products
- Location advantage can accrue to all firms operating in a particular country in some cases,
when for instance the government has a favorable tax regime
- Location advantages can also accrue only to firms operating in part of a country. Economic
clusters play a role here
- Location advantages can reach across country borders
- Locations advantages can be classified by what motivates a firm to conduct economic activity
in that location
Foreign direct investment = allocation of resource bundles by an MNE in a host country with the
purpose of performing business activities over which the MNE retains strategic control in that
country
o MNE should only engage in FDI when the host country can offer location advantages
4 motivations to perform activities (FDI) in host country rather than at home
1) Natural resource seeking = search for physical, financial, human resources in host country.
Resources are normally not proprietary and availability in host countries indicate that
investment abroad leads to higher value creation than at home
2) Market seeking= search for customer in host countries. Firms have concluded that deploying
productive activities and selling in foreign market confers higher value to the firm than
engaging in investment at home
3) Strategic resource seeking = desire to gain access to advanced resource I the sphere of
upstream / downstream / administrative knowledge or reputational resources
4) Efficiency seeking = desire to capitalize on environmental changes that make specific
locations in the MNEs international network of operations more attractive than before for
the consolidation or concentration of specific activities
