International Business Final 2018 Past Paper PDF

lOMoARcPSD|46843353 Introduction to International Business Final 2018-01-22 Second edition of ‘International Business Strategy’ by Alain Verbeke, chapter 1-16 Chapter 1: Conceptual foundations of international business strategy IB is concerned with the relation between a firm and its new host coun...

lOMoARcPSD|46843353 Introduction to International Business Final 2018-01-22 Second edition of ‘International Business Strategy’ by Alain Verbeke, chapter 1-16 Chapter 1: Conceptual foundations of international business strategy IB is concerned with the relation between a firm and its new host country environment. Each firm has got something unique and that makes it competitive and successful. How can this firm use this unique “thing” and sell to foreigners or go to other countries to sell from there? Where do you locate what type of activity in which way, and what effect does this have on firm and environment? Type: Efficiency & natural resource seeking Market seeking Strategic asset (e.g. knowledge seeking) Where: Location decision / geography (distance is multidimensional concept, geographical, institutional, cultural, economic) Which way: Organizational aspect, e.g. entry modes (Strategic alliance, merger and acquisition, but also headquarter- subsidiary relationships) What effect: Impact of MNE on home and host country economy and society (competition effects, spillover effects) Firms and multinationals should develop unique resources - Physical resources (natural resources, buildings, plant equipment) - Financial resources (equity and borrowed capital) - Human resources (individuals and teams, entrepreneurial and operational skills) - Upstream knowledge (product and process-related technological knowledge). - Downstream knowledge (marketing, sales, distribution and after sales service). - Administrative knowledge (organizational structure, culture and systems). - Reputational resources (brand names, reputation for honest business dealings). Building upon its resource base, as well as its access to location advantages, the MNE will develop key resources (e.g., brand names, patents) and routines, and will also engage in resource recombination. This will create a firm specific advantage  FSAs reflect the firm’s distinct strengths vis-à-vis rivals, and are the source of its competitive advantage in the market place. 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. So not just able to develop a resource once, but over and over! Downloaded by Marcus Hallgren ([email protected])  lOMoARcPSD|46843353 Recombination of existing resources in new ones: Constitutes the heart of international business strategy. 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. Stand-alone resources + routines + recombination skills = Firm specific advantages Pyramid: On the broad basis of the location advantages of the home country (LAs) The firm builds a smaller subset of FSAs that are location bound (LB) And then a still smaller subset of FSAs that are non-location bound (NLB) 1. Internationally transferable FSAs and the four MNE archetypes MNE = multinational enterprises When crossing its home country border to create value in a host country, the MNE is at disadvantage as compared to firms from the host country  additional costs of doing business abroad, resulting from cultural, economic, institutional and spatial distance between home and host country environments. In order to overcome these additional costs, the MNE must have proprietary internal strengths  non-location-bound FSAs; don’t stop creating value when the border is crossed, precise value may be somewhat different. When faces with natural of government-imposed trade barriers, the MNE may transfer some FSAs abroad directly, as ‘intermediate’ products. The exploitation of FSAs transferred abroad can also be done by external actors or by network partners  may add their own complementary resources  strengthen the MNE’s position in the foreign marketplace by filling resource gaps. Paradox: if the FSA consists of easily codifiable knowledge, the costs of FSA transfer, deployment and exploitation may be low, but the potential value that can be derived from actually deploying and exploiting the FSA may also be relatively low, namely if competitors can easily imitate what the MNE is best at. Hence, FSAs that are difficult to imitate and unique for a firm are the more important FSAs because these cannot be copied easily. Though it’s expensive and time-consuming to transfer, deploy and exploit tacit knowledge across borders, the benefit to the MNE is that this knowledge is also difficult to imitate  key source of competitive advantage when doing business abroad. The MNE’s administrative heritage: the key routines developed by the firm since its inception. Four archetypes of administrative heritage: 1. Centralized exporter: o Market seeker, FSA = final product o Standardized products manufactured at home embody the firm’s FSAs o Host country location factor = customers o Internationally transferable FSAs are used to directly target the host country location advantages. o No development of NLB FSAs let alone LB FSAs in the host country. 2. International projector: o Clones home operations, develops no new FSAs. Downloaded by Marcus Hallgren ([email protected])  lOMoARcPSD|46843353 o Knowledge-based FSAs from home country are copied. o Only the internationally transferable FSAs are taken to the host country. No development of location bound FSAs in the host country. o International expansion by projecting its home country success recipes abroad 3. International coordinator: o Main transferable FSA = ability to coordinate location advantages present in multiple countries. o Often for efficiency seeking MNE activity. o Global value chain. International operations are specialized in specific value- added activities and form vertical value chains across borders o Use internationally transferable FSAs in each host country to develop LB FSAs that fit the host country location factors. 4. Multi-centered MNE: o Each host country develops own location bound FSAs, only transfer of core routines (like financial management or IT system). o Set of entrepreneurial subsidiaries abroad which are key to knowledge-based FSA development. o Basically a full-fledged replica in each host country. o National responsiveness is the foundation of the international strategy. The commodity among all the archetypes is the transfer of at least some FSAs across borders. There isn’t one best model, depends on FSAs and host country! 2. Non-transferable FSAs These FSAs can’t be easily transferred, deployed and exploited in foreign markets. 1. A firm uses stand-alone, immobile resources linked to location advantages 2. A firm as a very deep knowledge of local marketing or a local reputation 3. A firm had developed a unique way of working that is local; local best practices 4. A firm had an entrepreneurial potential (recombination capability) which is difficult to transfer across border to a different context The corresponding FSA in each host country will need to be created or acquired from third parties operating in these foreign markets. The key challenge is that internationalizing firms develop FSAs that can be transferred across borders. When transferring FSAs across borders, firms need to build on host country location advantages. These are mostly generic, i.e. hold for all firms (e.g. a favorable tax regime), but often also specific for a firm. There should be a fit between FSA and location advantages. Only then the transferable FSA becomes location bound in the host country. Note: The strength of a location is relative to the strengths of other locations. Location advantages help in developing FSAs. 3. Location advantages 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 useable strengths of other locations. The more effective and efficient use of location advantages by some firms may confer to them an additional FSA over other locally operating firms. What motivates a firm to conduct economic activity in that location? Classification focused on host country location advantages: Downloaded by Marcus Hallgren ([email protected])  lOMoARcPSD|46843353 Foreign direct investment (FDI): the 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. Four motivations to perform activities in a host country rather than at home: 1. Natural resource seeking: the search for physical, financial or human resources in host countries (generally accessible) Access to raw materials 2. Market seeking: the search for costumers in host countries Gain access to new markets Follow key customers 3. ( Strategic resource seeking: the desire to gain access to advanced resources (not generally accessible  taking over companies) ) Gain access to advanced resources in the sphere of: - upstream knowledge - downstream knowledge - administrativeknowledge - reputational resources Host country location advantages Not generally accessible Mergers / acquisitions / strategic alliances 4. Efficiency seeking: the desire to capitalize on environmental changes that make specific location in the MNE’s international network of operations more attractive. Reduce sourcing and production costs Locate production near customers Avoid trade barriers 5. ( Export platform MNE activity ) Investment and production in a host country: - where the output is largely sold in third markets - not in the parent or host-country markets. Preferential trade agreements 4. Value creation through recombination Value creation through recombination means that the firm is able to grow by innovating and diversifying. This means combining existing resources with newly accessed resources. Recombination is also about LETTING GO. Three things required: 1. Entrepreneurial skills possessed by managers and other employees that can be deployed in the face of new productive opportunities 2. Slack or unused productive resources 3. The willingness and capacity to let go of some resources and to replace these by resources with higher value creating potential in host environments The MNE’s key strengths are its valuable, often proprietary knowledge, particularly its routines and recombination capabilities. The recombination capability is the MNE’s highest-order FSA. 10 different patterns of FSA development: I. An internationally transferable FSA is developed in the home country and can be utilized across borders without any need for adaptation.  centralized exporter, international projector, international coordinator (only one without recombination) Downloaded by Marcus Hallgren ([email protected])  lOMoARcPSD|46843353 II. A location-bound FSA is developed domestically, in the home country, and is then upgraded so as to become internationally transferable. III. An internationally transferable FSA is developed at home, but in order to exploit it profitably in host countries, location-bound knowledge must be added to it, in the various host countries where the MNE operates. IV. Location-bound FSAs are developed in each host country where the MNE operates, and these FSAs are exploited locally.  multi-centered MNEs V. An internationally transferable FSA is developed autonomously in a host country affiliate and then diffused internationally. VI. The foreign affiliate develops an internationally transferable FSA, guided by corporate headquarters in the home country. VII. A foreign affiliate first develops a locations-bound FSA, but then upgrades this FSA to make it internationally transferable, guided by the home country corporate headquarters. VIII. Several affiliates, located in different countries, develop an internationally transferable FSA together. IX. A set of affiliates develops an internationally transferable FSA, location-bound knowledge is added in the various countries involved. X. A set of affiliates develop a location-bound FSA geared towards one specific host country market. When successful, this FSA is then upgraded into an internationally transferable FSA, under the guidance of the MNE corporate headquarters. 5. Complementary resources of external actors Some ingredients may be missing, and these can then be provided by external actors, if at least two conditions are fulfilled: 1. It’s not more efficient to do it yourself 2. The reliance on external partners is not risky (e.g. knowledge leakage) 6. Bounded rationality Bounded rationality reflects ‘scarcity of mind’, meaning that the managers responsible for making decisions and engaging in purposive action in the firm always face information problems: 1. Incomplete information 2. A problem with processing all the information 7. Bounded reliability Bounded reliability reflects the ‘scarcity of effort to make good on open-ended promises’. A first source of bounded reliability is opportunism (=an intentional effort to cheat prevails, which benefits the cheating party) A second source of bounded reliability is benevolent preference reversal: an actor’s initial promise is made in good faith, but the actor’s preferences then change over time. Bounded reliability is about the imperfect assessment of a present or future state of affairs, thereby leading to incorrect beliefs; bounded reliability is about imperfect effort toward pre- specified goal achievement, thereby leading to incomplete fulfilment of promises. Individual  teams Chapter 2: The critical role of firm-specific advantages Verbeke develops a balanced view of IB activity: The role of the firm firm factor Home and host country country factor Downloaded by Marcus Hallgren ([email protected])