Chapter 1: Conceptual Foundations of International Business Strategy
1. Definition of International Business Strategy
International business strategy =
E$ectively and e$iciently matching a multinational enterprise’s (MNE’s) internal
strengths (relative to relevant competitors) with the opportunities and
challenges found in geographically dispersed environments that cross
international borders.
è Such matching is a precondition to creating value and satisfying stakeholder
goals, both domestically and internationally.
2. The Seven concepts of the Unifying Framework
Internationally transferable (or non-location bound) firm-specific advantages
(FSAs)
Non-transferable (or location-bound) firm-specific advantages (FSAs)
Location advantages
Investment in - and value creation through - resource recombination
Complementary resources of external actors
Bounded rationality
Bounded reliability
,The triangle in the model
represents the pyramidal nature
of the firm’s advantages.
Upon the broad base of home
country external location
advantages (LAs), i.e. the vertical
rectangle of 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 of 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 e$ectively its non-location-bound
FSAs across borders (ex. operating mode choices).
3. IB, MNEs and Their Activities in the Global Economy
3.1. Some Numbers
2003 2017
World merchandise $7,4 trillion $17,2 trillion
exports
World exports in $1,8 trillion $5,3 trillion
commercial services
World FDI outflow $0,6 trillion $1,4 trillion
World FDI outbound $8,2 trillion $30,8 trillion
stocks
(The exports and outbound FDI data from the countries of origin can also be given a
‘mirror-image’ interpretation, taking the form of imports and inbound FDI by the
destination or recipient countries respectively)
, Top 5 exporting countries in world Top 5 importing countries in world
merchandise trade (2017) merchandise trade (2017)
• China: $2,3 trillion. • The United States: $2,4 trillion.
• The United States: $1,5 trillion. • China: $1,8 trillion.
• Germany: $1,4 trillion. • Germany: $1,2 trillion.
• Japan: $0,7 trillion. • Japan: $0,7 trillion.
• The Netherlands: $0,7 trillion. • The United Kingdom: $0,6 trillion.
Top 5 exporting countries for Top 5 importing countries for
commercial services (2017) commercial services (2017)
• The United States: $0,8 trillion. • The United States: $0,5 trillion.
• The United Kingdom: $0,3 trillion. • China: $0,5 trillion.
• Germany: $0,3 trillion. • Germany: $0,3 trillion.
• France: $0,2 trillion. • France: $0,2 trillion.
• China: $0,2 trillion. • The Netherlands: $0,2 trillion.
Top 5 home countries of FDI outflows Top 5 host countries of FDI inflows
• The United States: $0,3 trillion. • The United States: $0,3 trillion.
• Japan: $0.2 trillion. • China: $0.1 trillion.
• China: $0.1 trillion. • Hong Kong: $0.1 trillion.
• The United Kingdom: $0.1 trillion. • Brazil: $0.1 trillion.
• Hong Kong: $0.1 trillion. • Singapore: $0.1 trillion.
3.2. International Integration
3.2.1. Shallow International Integration
When MNEs choose to export products or services, as entry mode to enter a foreign
market, the physical production process takes place within the boundaries of their
home country.
3.2.2. Deep International Integration
When MNEs choose outbound FDI to enter a foreign market, they typically first
transfer abroad intermediary resources (know-how) from their home country, and then
conduct the physical production process of goods and services inside the foreign
market.
, 3.3. A Study of the MNEs
A 2015 study suggested that 85.000 MNEs are operating in the world economy. The
world’s 500 largest MNEs have been responsible for over 50% of the world’s trade and
over 90% of the world’s stock of FDI in the past decade.
The 2018 Fortune Global 500 list contributed $30 trillion of revenues and $1,9 trillion of
profits to the global economy in the previous year (2017).
The world’s 500 largest MNEs are not spread equally around the world. Instead, they
are highly clustered around the triad of North America, Europe and Asia.
è The concept of regional MNEs.
4. MNE’s Unique Resource Base
Physical resources
•Natural resources, buildings, plant equipment
Financial resources
•Equity and loan capital
Human resources
•Individuals and teams, entrepreneurial and operational skills
Upstream knowledge
•Sourcing knowledge, product and process-related technological knowledge
Downstream knowledge
•Marketing, sales, distribution and after sales service
Administrative knowledge
•Organizational structure, culture and systems
•Governance and digital system knowledge could be added here
Reputational resources
•Reputation for honest business dealing
1. Definition of International Business Strategy
International business strategy =
E$ectively and e$iciently matching a multinational enterprise’s (MNE’s) internal
strengths (relative to relevant competitors) with the opportunities and
challenges found in geographically dispersed environments that cross
international borders.
è Such matching is a precondition to creating value and satisfying stakeholder
goals, both domestically and internationally.
2. The Seven concepts of the Unifying Framework
Internationally transferable (or non-location bound) firm-specific advantages
(FSAs)
Non-transferable (or location-bound) firm-specific advantages (FSAs)
Location advantages
Investment in - and value creation through - resource recombination
Complementary resources of external actors
Bounded rationality
Bounded reliability
,The triangle in the model
represents the pyramidal nature
of the firm’s advantages.
Upon the broad base of home
country external location
advantages (LAs), i.e. the vertical
rectangle of the left-hand side in
the home country space, the MNE
selectively builds a narrower and
distinct set of FSAs that are
location-bound (LB; the middle
space of the pyramid), and then a
typically even narrower initial set
of FSAs that are non-location
bound (NLB; the top of the
pyramid pointing to the international border).
The circle represents the actual usage of the company-level FSAs in the home
country milieu.
Bounded rationality and bounded reliability constraints will influence the firm’s
strategy for transferring, deploying and exploiting e$ectively its non-location-bound
FSAs across borders (ex. operating mode choices).
3. IB, MNEs and Their Activities in the Global Economy
3.1. Some Numbers
2003 2017
World merchandise $7,4 trillion $17,2 trillion
exports
World exports in $1,8 trillion $5,3 trillion
commercial services
World FDI outflow $0,6 trillion $1,4 trillion
World FDI outbound $8,2 trillion $30,8 trillion
stocks
(The exports and outbound FDI data from the countries of origin can also be given a
‘mirror-image’ interpretation, taking the form of imports and inbound FDI by the
destination or recipient countries respectively)
, Top 5 exporting countries in world Top 5 importing countries in world
merchandise trade (2017) merchandise trade (2017)
• China: $2,3 trillion. • The United States: $2,4 trillion.
• The United States: $1,5 trillion. • China: $1,8 trillion.
• Germany: $1,4 trillion. • Germany: $1,2 trillion.
• Japan: $0,7 trillion. • Japan: $0,7 trillion.
• The Netherlands: $0,7 trillion. • The United Kingdom: $0,6 trillion.
Top 5 exporting countries for Top 5 importing countries for
commercial services (2017) commercial services (2017)
• The United States: $0,8 trillion. • The United States: $0,5 trillion.
• The United Kingdom: $0,3 trillion. • China: $0,5 trillion.
• Germany: $0,3 trillion. • Germany: $0,3 trillion.
• France: $0,2 trillion. • France: $0,2 trillion.
• China: $0,2 trillion. • The Netherlands: $0,2 trillion.
Top 5 home countries of FDI outflows Top 5 host countries of FDI inflows
• The United States: $0,3 trillion. • The United States: $0,3 trillion.
• Japan: $0.2 trillion. • China: $0.1 trillion.
• China: $0.1 trillion. • Hong Kong: $0.1 trillion.
• The United Kingdom: $0.1 trillion. • Brazil: $0.1 trillion.
• Hong Kong: $0.1 trillion. • Singapore: $0.1 trillion.
3.2. International Integration
3.2.1. Shallow International Integration
When MNEs choose to export products or services, as entry mode to enter a foreign
market, the physical production process takes place within the boundaries of their
home country.
3.2.2. Deep International Integration
When MNEs choose outbound FDI to enter a foreign market, they typically first
transfer abroad intermediary resources (know-how) from their home country, and then
conduct the physical production process of goods and services inside the foreign
market.
, 3.3. A Study of the MNEs
A 2015 study suggested that 85.000 MNEs are operating in the world economy. The
world’s 500 largest MNEs have been responsible for over 50% of the world’s trade and
over 90% of the world’s stock of FDI in the past decade.
The 2018 Fortune Global 500 list contributed $30 trillion of revenues and $1,9 trillion of
profits to the global economy in the previous year (2017).
The world’s 500 largest MNEs are not spread equally around the world. Instead, they
are highly clustered around the triad of North America, Europe and Asia.
è The concept of regional MNEs.
4. MNE’s Unique Resource Base
Physical resources
•Natural resources, buildings, plant equipment
Financial resources
•Equity and loan capital
Human resources
•Individuals and teams, entrepreneurial and operational skills
Upstream knowledge
•Sourcing knowledge, product and process-related technological knowledge
Downstream knowledge
•Marketing, sales, distribution and after sales service
Administrative knowledge
•Organizational structure, culture and systems
•Governance and digital system knowledge could be added here
Reputational resources
•Reputation for honest business dealing
