SUMMARY INTERNATIONAL BUSINESS STRATEGY - VERBEKE
Introduction and overview of the book’s framework
Senior managers in MNEs have a healthy appetite for knowledge that will improve their
firm’s performance. Therefore they want to know which models can be applied in their
own firm.
The framework suggests how to improve MNE performance in two areas: value creation
and satisfying stakeholder goals across borders.
International business strategy: means effectively and efficiently matching an MNE’s
internal strengths (relative to competitors) with the opportunities and challenges found in
geographically dispersed environments that cross international borders. Such matching is
a precondition to creating value and satisfying stakeholder goals, both domestically and
internationally.
MNE: a firm with economic operations located in at least two countries.
NAFTA: North American Free Trade Agreement
The three main stakeholder groups are: shareholders, employees and customers.
Shareholders and employees provide the inputs most critical to the MNE’s functioning,
and success can ultimately only be achieved if customers purchase the firm’s products.
The first three: physical, human and financial resources reflect the distinct resource base
available to the firm.
The firm is viewed as a bundle of resources under common governance. Resources:
1. Physical (natural resources, plan, buildings, equipment)
2. Financial (access to equity/loan capital)
3. Human resources (individuals and teams with skills),
4. Upstream knowledge (including sourcing knowledge as well as product-
and process-related technological knowledge). Example: patents
5. Downstream knowledge, (critical to the interface with customers, and
related to marketing, sales, distribution and after-sales service activities)
6. Administrative (governance-related) knowledge regarding the functioning
of the organizational structure, organizational culture and organizational
systems
7. Reputational resources, including brand names, a good reputation for
honest business dealings, etc.
1
,Firm specific advantages (FSAs): strengths (superior resources above) relative to rival
companies. They are not always fully understood by outsiders, but should be identifiable.
Compared with an FSA derived from a single, stand-alone resource, a capability to
combine resources may be more flexible and durable, because it often involves
substituting one resource (such as a high-quality human resource or a type of equipment)
for another, similar one, without loss of long-term productive value.
The combination capability may also guarantee the continued control over distinct, stand-
alone resources.
Transferring and exploiting a routine across borders may pose problems since the routine
is not fully understood by the source in the home country or the recipient in the host
country > could be out of cultural distance. This requires adaptation and a recombination
capability.
Recombination: is at the heart of international business strategy. The highest-order FSA
is the ability, not just to combine reliably the MNE’s existing resources, but to recombine
its resources in novel ways, usually including newly accessed resources, whether in a
limited geographic space (in which case the firm engages in domestic product
diversification or innovation) or internationally.
In the international context, MNEs must engage in the 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.
Complementary resources of external actors: additional resources provided by
external actors but accessible to the MNE, to fill resource gaps and achieve success in the
market.
Bounded rationality and bounded reliability: behavioral characteristics that may
impede international success. Bounded rationality: incomplete information, satisfice, so
try to make the best solution based on the information you have. Bounded reliability:
made a promise but along the way may see new opportunities that you want to follow.
2
,CHAPTER I – Conceptual foundations of international business strategy
International business strategy is effectively and efficiently matching an MNE’s
internal strengths (relative to competitors) with the opportunities and challenges found in
geographically dispersed environments that cross international borders
International transferable FSA’s
Local firms are almost by definition at the advantage over MNE’s as they possess the
required knowledge base to address local stakeholder needs. MNE will incur more costs
from dealing with the liability of foreignness. This is: the extra costs from doing
business abroad resulting from: cultural, economic, institutional and spatial distances.
These extra costs are reduced over time as the firm gains experience, learns and gains
legitimacy.
International transferable FSA’s
Local firms are almost by definition at the advantage over MNE’s as they possess the
required knowledge base to address local stakeholder needs. MNE will incur more costs
from dealing with the liability of foreignness. This is: the extra costs from doing
business abroad resulting from: cultural, economic, institutional and spatial distances.
These extra costs are reduced over time as the firm gains experience, learns and gains
legitimacy.
Non-location bound FSA’s
In order to overcome additional costs of doing business abroad, the MNE must have
proprietary internal strengths, such as technological, marketing or administrative
(governance-related) knowledge. This set of MNE internal strengths, the availability of
which both allows and constrains the scope of the firm’s expansion across borders, is
called the non-location-bound FSAs. These FSAs do not stop creating value when the
border is crossed between the home and the host country, though their precise value may
be somewhat different in the two countries. In principle, the MNE can transfer, deploy
and exploit these FSAs successfully across borders. Non-location-bound FSAs can be
embodied in final products, for example when the MNE exports goods and services that
are valued highly by host country customers.
In sum: Non-location bound FSA’s are the internal MNE strengths (vis-à-vis rivals) that
can be transferred to other countries... – either embedded in final products– or as
intermediate inputs (i.e. separately) and that can be profitably exploited there
3
, Location Bound FSA’s
These FSA’s are not easily transferred, deployed or exploited abroad.
There are four kinds (4):
1. Stand alone resources: these resources are immobile, for example a network of
privileged retail locations which led to dominance in market share. You can’t
bring this advantage abroad.
2. Other resources: such as local marketing knowledge or local brand name
(reputational resources) does not have the same value abroad.
3. Local best practices-routines: routines that are highly effective and efficient in
one country may not be abroad. They can even be illegal. Like incentive systems
for skilled workers or buyer-supplier relations.
4. Domestic recombination capability: the recombination ability trough which
expansion happened abroad may not work abroad due to the additional
complexity in abroad markets.
Location Advantages
These represent a set of strengths characterizing a specific location and useable by firms
operating in this location. Can compare strengths to other locations for assessment
reasons. Basically resources available to the firm operating there, for example an
abundance of natural resources can help for example a steel company operating locally.
Another local advantage can be the superior educational system in a country leading to a
high skilled workforce. Cluster effects; Silicon Valley; leading to Spillovers. Last
example: a demanding and sophisticated local market for specialized innovative products.
Using these local advantages more efficient or effective can also lead to an extra FSA
over other local operating firms. Sometimes the advantage is for all firms, like
government tax rates.
Administrative heritage: the key routines developed by the firm created since inception.
There are 4 archetypes of administrative heritage, each with a specific routine of
international FSA transfer (4):
1. Centralized exporter:
This home-country-managed firm builds upon a tradition of selling products
internationally, out of a limited number of (scale- efficient) facilities in the
home country, and with only minor, usually customer-oriented, value-creating
activities abroad. Standardized products manufactured at home embody the
firm’s FSAs (themselves developed on the basis of a favorable home country
environment, including local clustering) and make the exporting firm
successful in international markets (e.g. NEC à The domestic facilities
4
Introduction and overview of the book’s framework
Senior managers in MNEs have a healthy appetite for knowledge that will improve their
firm’s performance. Therefore they want to know which models can be applied in their
own firm.
The framework suggests how to improve MNE performance in two areas: value creation
and satisfying stakeholder goals across borders.
International business strategy: means effectively and efficiently matching an MNE’s
internal strengths (relative to competitors) with the opportunities and challenges found in
geographically dispersed environments that cross international borders. Such matching is
a precondition to creating value and satisfying stakeholder goals, both domestically and
internationally.
MNE: a firm with economic operations located in at least two countries.
NAFTA: North American Free Trade Agreement
The three main stakeholder groups are: shareholders, employees and customers.
Shareholders and employees provide the inputs most critical to the MNE’s functioning,
and success can ultimately only be achieved if customers purchase the firm’s products.
The first three: physical, human and financial resources reflect the distinct resource base
available to the firm.
The firm is viewed as a bundle of resources under common governance. Resources:
1. Physical (natural resources, plan, buildings, equipment)
2. Financial (access to equity/loan capital)
3. Human resources (individuals and teams with skills),
4. Upstream knowledge (including sourcing knowledge as well as product-
and process-related technological knowledge). Example: patents
5. Downstream knowledge, (critical to the interface with customers, and
related to marketing, sales, distribution and after-sales service activities)
6. Administrative (governance-related) knowledge regarding the functioning
of the organizational structure, organizational culture and organizational
systems
7. Reputational resources, including brand names, a good reputation for
honest business dealings, etc.
1
,Firm specific advantages (FSAs): strengths (superior resources above) relative to rival
companies. They are not always fully understood by outsiders, but should be identifiable.
Compared with an FSA derived from a single, stand-alone resource, a capability to
combine resources may be more flexible and durable, because it often involves
substituting one resource (such as a high-quality human resource or a type of equipment)
for another, similar one, without loss of long-term productive value.
The combination capability may also guarantee the continued control over distinct, stand-
alone resources.
Transferring and exploiting a routine across borders may pose problems since the routine
is not fully understood by the source in the home country or the recipient in the host
country > could be out of cultural distance. This requires adaptation and a recombination
capability.
Recombination: is at the heart of international business strategy. The highest-order FSA
is the ability, not just to combine reliably the MNE’s existing resources, but to recombine
its resources in novel ways, usually including newly accessed resources, whether in a
limited geographic space (in which case the firm engages in domestic product
diversification or innovation) or internationally.
In the international context, MNEs must engage in the 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.
Complementary resources of external actors: additional resources provided by
external actors but accessible to the MNE, to fill resource gaps and achieve success in the
market.
Bounded rationality and bounded reliability: behavioral characteristics that may
impede international success. Bounded rationality: incomplete information, satisfice, so
try to make the best solution based on the information you have. Bounded reliability:
made a promise but along the way may see new opportunities that you want to follow.
2
,CHAPTER I – Conceptual foundations of international business strategy
International business strategy is effectively and efficiently matching an MNE’s
internal strengths (relative to competitors) with the opportunities and challenges found in
geographically dispersed environments that cross international borders
International transferable FSA’s
Local firms are almost by definition at the advantage over MNE’s as they possess the
required knowledge base to address local stakeholder needs. MNE will incur more costs
from dealing with the liability of foreignness. This is: the extra costs from doing
business abroad resulting from: cultural, economic, institutional and spatial distances.
These extra costs are reduced over time as the firm gains experience, learns and gains
legitimacy.
International transferable FSA’s
Local firms are almost by definition at the advantage over MNE’s as they possess the
required knowledge base to address local stakeholder needs. MNE will incur more costs
from dealing with the liability of foreignness. This is: the extra costs from doing
business abroad resulting from: cultural, economic, institutional and spatial distances.
These extra costs are reduced over time as the firm gains experience, learns and gains
legitimacy.
Non-location bound FSA’s
In order to overcome additional costs of doing business abroad, the MNE must have
proprietary internal strengths, such as technological, marketing or administrative
(governance-related) knowledge. This set of MNE internal strengths, the availability of
which both allows and constrains the scope of the firm’s expansion across borders, is
called the non-location-bound FSAs. These FSAs do not stop creating value when the
border is crossed between the home and the host country, though their precise value may
be somewhat different in the two countries. In principle, the MNE can transfer, deploy
and exploit these FSAs successfully across borders. Non-location-bound FSAs can be
embodied in final products, for example when the MNE exports goods and services that
are valued highly by host country customers.
In sum: Non-location bound FSA’s are the internal MNE strengths (vis-à-vis rivals) that
can be transferred to other countries... – either embedded in final products– or as
intermediate inputs (i.e. separately) and that can be profitably exploited there
3
, Location Bound FSA’s
These FSA’s are not easily transferred, deployed or exploited abroad.
There are four kinds (4):
1. Stand alone resources: these resources are immobile, for example a network of
privileged retail locations which led to dominance in market share. You can’t
bring this advantage abroad.
2. Other resources: such as local marketing knowledge or local brand name
(reputational resources) does not have the same value abroad.
3. Local best practices-routines: routines that are highly effective and efficient in
one country may not be abroad. They can even be illegal. Like incentive systems
for skilled workers or buyer-supplier relations.
4. Domestic recombination capability: the recombination ability trough which
expansion happened abroad may not work abroad due to the additional
complexity in abroad markets.
Location Advantages
These represent a set of strengths characterizing a specific location and useable by firms
operating in this location. Can compare strengths to other locations for assessment
reasons. Basically resources available to the firm operating there, for example an
abundance of natural resources can help for example a steel company operating locally.
Another local advantage can be the superior educational system in a country leading to a
high skilled workforce. Cluster effects; Silicon Valley; leading to Spillovers. Last
example: a demanding and sophisticated local market for specialized innovative products.
Using these local advantages more efficient or effective can also lead to an extra FSA
over other local operating firms. Sometimes the advantage is for all firms, like
government tax rates.
Administrative heritage: the key routines developed by the firm created since inception.
There are 4 archetypes of administrative heritage, each with a specific routine of
international FSA transfer (4):
1. Centralized exporter:
This home-country-managed firm builds upon a tradition of selling products
internationally, out of a limited number of (scale- efficient) facilities in the
home country, and with only minor, usually customer-oriented, value-creating
activities abroad. Standardized products manufactured at home embody the
firm’s FSAs (themselves developed on the basis of a favorable home country
environment, including local clustering) and make the exporting firm
successful in international markets (e.g. NEC à The domestic facilities
4
