Multinational strategic planning: EXAM questions summary
Exam contains:
- 5 multiple choice questions (no giscorrection)
- 3 essay type questions: often related to a figure (mostly straightforward)
1
,Chapter 1: conceptual foundations of international business strategy
The 7 concepts of the unifying framework
The 7 concepts are:
1) Internationally transferable (or non-location bound) firm-specific advantages (FSAs)
The board/managers tend to overestimate the FSAs across borders
- They are successful in Belgium and think they can go international
Only 5% (very small fraction) are internationally transferable
- It can’t always be transferred easily without recombination → typically you have to add
local “ingredients”
- Bv. Ferrari, Rolex have intern. transferable advantages
o Person who buys a Ferrari in the Emirates is not that different from a person who
buys a Ferrari in the USA
2) Non-transferable (or location-bound) FSAs
Location-bound in home country
Bv. Banks do not have the same network in another country.
Even though product is highly demanded worldwide, you must adjust it to local circumstances in
host-country in order to be successful there.
3) Location advantages
Why do business in foreign country: there are location advantages in foreign places.
Bv. output side: market is big and fast-growing like USA, India
Bv. input side: energy prices are low, no/little regulation, workforce costs are low.
4) Investment in – and value creation through – resource recombination
Doing business in a different way, bv. labor or the way to approach customers
5) Complementary resources of external actors (not shown explicitly in figure that
follows)
Bv. a local joint venture partner because of difficult regulation. We want some help to navigate
this.
2
, 6) Bounded rationality
Behavioral element
More important and complex when doing it abroad
➔ Bounded rationality problem is amplified when you go abroad!
4 components of bounded rationality:
- Imperfect information
o More pieces of information are missing
o Amplified when going abroad, bv. Belgian entrepreneur knows less about market
in The Netherlands compared to Belgium, so more imperfect information.
- How do we process information?
o Own capacity to process information: what does information mean, how do we
process?
- What aspects of the information should I put most attention to/prioritise?
- How do I interpret the information?
7) Bounded reliability
Behavioral element
More important and complex when doing it abroad
Reliability: trust has no meaning if it’s not supported by safeguards.
- Bv. safeguards: doing business with someone for 20 years
Blind trust is not smart, you don’t want to be blind
➔ You want supported trust, bv. supported by a contact
Thanks to social constraints, people are not dishonest, because they don’t want to be viewed
that way by the community.
Reliability does not have to do with trust.
Unreliability often does not have to do with opportunism.
- Reasons:
o Reprioritization: new priorities
o Overcommitment: agreeing to deliver too much, you have to scale down later on.
▪ Can be due to social pressure, you want to perform good for the firm
o Internal struggle: different groups within the organization start to work against
each other
▪ Bv. you get input at really low price, so you want to buy a lot, but inventory
department wants to keep inventory as low as possible
o Firm agrees but can’t deliver because of their identity
o New CEO that chooses another path, new restruck plan
! To reduce bounded reliability: install safeguards!
3
,Components of the unifying framework
Figure 1
Upon the broad base of home country external location advantages (LAs), i.e. the vertical
rectangle on the left-hand side in the home country space, the MNE selectively builds a
narrower and distinct set of FSAs that are location-bound (LB; the middle space in the
pyramid), and then a typically even narrower initial set of FSAs that are non-location-bound
(NLB; the top of the pyramid pointing to the international border). The circle represents the
actual usage of the company-level FSAs in the home country milieu. Bounded rationality and
bounded reliability constraints will influence the firm’s strategy for transferring, deploying and
exploiting effectively its non-location-bound FSAs across borders (e.g., operating mode choices)
- Stand-alone FSAs: bv. brand name, like coca-cola → has a lot of value on its own, means
something
- Routines: the way we work
Routines
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.
The combination ability expressed in routines is a higher-order FSA
4
, Case example: Federal Express (important)
- Federal Express is like DHL, PostNL
- When you put something in the mail:
o Before: from A → B
o Now: hub and scope model: A → hub → C → B…, it goes through several
bigger/smaller hubs, complex operation
Recombination
Constitutes the heart of international business strategy
Recombination = 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
Precondition to value creation and satisfying stakeholder needs in complex international
settings
You can replicate your home-country success recipe, close to 0% recombination
Entrepreneurial judgement:
- What will it require in a new environment?
- Who will I need to contact?
- …
International transferability of FSAs
Paradox:
Codifiable knowledge = knowledge that can be articulated explicitly, as in a handbook or
blueprint.
- If the FSA consists of easily codifiable knowledge:
o Cheaply transferred abroad
o BUT easily imitated by other firms.
Tacit knowledge
- This knowledge is difficult to imitate. It is often a key source of competitive advantage
when doing business abroad!
- BUT expensive and time-consuming to transfer across borders
- This type of knowledge should never be underestimated!
o Cannot just be imitated by others: bv. you buy a cookbook from a Michelin star
chef, but it will still not be the same, there is that something more: tacit
knowledge.
5
Exam contains:
- 5 multiple choice questions (no giscorrection)
- 3 essay type questions: often related to a figure (mostly straightforward)
1
,Chapter 1: conceptual foundations of international business strategy
The 7 concepts of the unifying framework
The 7 concepts are:
1) Internationally transferable (or non-location bound) firm-specific advantages (FSAs)
The board/managers tend to overestimate the FSAs across borders
- They are successful in Belgium and think they can go international
Only 5% (very small fraction) are internationally transferable
- It can’t always be transferred easily without recombination → typically you have to add
local “ingredients”
- Bv. Ferrari, Rolex have intern. transferable advantages
o Person who buys a Ferrari in the Emirates is not that different from a person who
buys a Ferrari in the USA
2) Non-transferable (or location-bound) FSAs
Location-bound in home country
Bv. Banks do not have the same network in another country.
Even though product is highly demanded worldwide, you must adjust it to local circumstances in
host-country in order to be successful there.
3) Location advantages
Why do business in foreign country: there are location advantages in foreign places.
Bv. output side: market is big and fast-growing like USA, India
Bv. input side: energy prices are low, no/little regulation, workforce costs are low.
4) Investment in – and value creation through – resource recombination
Doing business in a different way, bv. labor or the way to approach customers
5) Complementary resources of external actors (not shown explicitly in figure that
follows)
Bv. a local joint venture partner because of difficult regulation. We want some help to navigate
this.
2
, 6) Bounded rationality
Behavioral element
More important and complex when doing it abroad
➔ Bounded rationality problem is amplified when you go abroad!
4 components of bounded rationality:
- Imperfect information
o More pieces of information are missing
o Amplified when going abroad, bv. Belgian entrepreneur knows less about market
in The Netherlands compared to Belgium, so more imperfect information.
- How do we process information?
o Own capacity to process information: what does information mean, how do we
process?
- What aspects of the information should I put most attention to/prioritise?
- How do I interpret the information?
7) Bounded reliability
Behavioral element
More important and complex when doing it abroad
Reliability: trust has no meaning if it’s not supported by safeguards.
- Bv. safeguards: doing business with someone for 20 years
Blind trust is not smart, you don’t want to be blind
➔ You want supported trust, bv. supported by a contact
Thanks to social constraints, people are not dishonest, because they don’t want to be viewed
that way by the community.
Reliability does not have to do with trust.
Unreliability often does not have to do with opportunism.
- Reasons:
o Reprioritization: new priorities
o Overcommitment: agreeing to deliver too much, you have to scale down later on.
▪ Can be due to social pressure, you want to perform good for the firm
o Internal struggle: different groups within the organization start to work against
each other
▪ Bv. you get input at really low price, so you want to buy a lot, but inventory
department wants to keep inventory as low as possible
o Firm agrees but can’t deliver because of their identity
o New CEO that chooses another path, new restruck plan
! To reduce bounded reliability: install safeguards!
3
,Components of the unifying framework
Figure 1
Upon the broad base of home country external location advantages (LAs), i.e. the vertical
rectangle on the left-hand side in the home country space, the MNE selectively builds a
narrower and distinct set of FSAs that are location-bound (LB; the middle space in the
pyramid), and then a typically even narrower initial set of FSAs that are non-location-bound
(NLB; the top of the pyramid pointing to the international border). The circle represents the
actual usage of the company-level FSAs in the home country milieu. Bounded rationality and
bounded reliability constraints will influence the firm’s strategy for transferring, deploying and
exploiting effectively its non-location-bound FSAs across borders (e.g., operating mode choices)
- Stand-alone FSAs: bv. brand name, like coca-cola → has a lot of value on its own, means
something
- Routines: the way we work
Routines
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.
The combination ability expressed in routines is a higher-order FSA
4
, Case example: Federal Express (important)
- Federal Express is like DHL, PostNL
- When you put something in the mail:
o Before: from A → B
o Now: hub and scope model: A → hub → C → B…, it goes through several
bigger/smaller hubs, complex operation
Recombination
Constitutes the heart of international business strategy
Recombination = 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
Precondition to value creation and satisfying stakeholder needs in complex international
settings
You can replicate your home-country success recipe, close to 0% recombination
Entrepreneurial judgement:
- What will it require in a new environment?
- Who will I need to contact?
- …
International transferability of FSAs
Paradox:
Codifiable knowledge = knowledge that can be articulated explicitly, as in a handbook or
blueprint.
- If the FSA consists of easily codifiable knowledge:
o Cheaply transferred abroad
o BUT easily imitated by other firms.
Tacit knowledge
- This knowledge is difficult to imitate. It is often a key source of competitive advantage
when doing business abroad!
- BUT expensive and time-consuming to transfer across borders
- This type of knowledge should never be underestimated!
o Cannot just be imitated by others: bv. you buy a cookbook from a Michelin star
chef, but it will still not be the same, there is that something more: tacit
knowledge.
5
