29/5/2023

International Business Strategy

Lecture 1:
FSAs and host country location factors

Assoc. Prof. Dr. Vo Van Dut

Email: vvdut@ctu.edu.vn

Tutorials:
- Discussion of lecture material
- Discussion of the case that you have prepared
- Discussion of HBR article that you have read

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What does IB strategy mean?

• “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” (Verbeke, 2009)

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• IB is concerned with the relation between a firm and its

new host country environment.
Border
Home Host

What determines if this decision to go abroad will be a success?

Unique people with unique capabilities

They all have a “unique core competence”

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Firms also have a core competence. Examples?

Q: Can the firm “Beckham” beat the rivals in the country
“fieldhockey”?
Or even more specific:
Q: Can Schumacher win Wimbledon?
Can a sportsman use its unique core competence in another
setting and sport?
Can a firm use its unique competitive strength that it developed
in one country and take it to another country?

Example: Walmart in Germany, Ikea in US

Q: What is your unique skill?!

Bottom line of this course:

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.

in this course, we teach you how to study this and what language IB
scholars use.

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For example, IB language: 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)

The core of Verbeke’s IB theory starts from the notion that

firms and multinationals should develop unique resources
(Resource based view of the firm): i.e be very good at:

• Physical resources (natural resources, buildings, plant

equipment)

• Financial resources (equity and loan capital)

• Human resources (individuals and teams, entrepreneurial and

operational skills).

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unique resources (Resource based view of the firm):cont’d:

• 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).

Next step in his argument:

• 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.

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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!

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. What?

• Entrepreneurial judgment is at the heart of the MNE’s

recombination capability.

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Hence,
Stand alone resources
+
Routines
+
Recombination skills
=
Firm specific advantages

two types:
- Location bound: i.e. stay in the home country
- Non-location bound or transferable across borders

Figure 1.1. Core concepts

FSAs

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Paradox of transferable FSA:

• If the FSA consist of easily codifiable knowledge (and can be

written down in a handbook), then it can be cheaply transferred, but
it can also easily be imitated by other firms!

• Hence, FSAs that are difficult to imitate and unique for a firm
are the more important FSAs because these cannot be copied
easily.

Some FSAs are location bound because:

- A firm uses stand-alone, immobile resources linked to location advantages
- A firm has a very deep knowledge of local marketing or a local reputation
- A firm has developed a unique way of working that is local ; local best
practices
- A firm has an entrepreneurial potential (recombination capability) which is
difficult to transfer across borders to a different context.

See figure 1.1, middle part.

The key challenge is that internationalizing firms develop

FSAs that can be transferred across borders

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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.

Host country location advantages are related to the reason for

firms going to these countries. Different types of multinational
(MNE) activity:
1. Natural resource seeking
2. Market seeking
3. Efficiency seeking
(4. Strategic resource seeking)
(5. Export platform MNE activity)

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But just having FSAs not always sufficient:

Cultural, economic, institutional and geographic distance between home
and host complicate development of location bound FSAs in host
country.

In those cases complementary resources are needed (eg local partner).

Heuh? Sometimes you need help, ah ok.

Cooperating with a local partner may help if:

- it is not more efficient to do it yourself, and
- the reliance on external partners is not risky (e.g. knowledge leakage)

Figure 1.2: next slide

Figure 1.2

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But if this is it, why do not all firms do it? Failure?

1. Bounded rationality: imperfect assessment
Information is partial and incomplete
Cognitive limitations of managers (limited mental capacity)
Differences in cognitive decision making between home and host

2. Bounded reliability: imperfect effort

Opportunistic behavior
Ex-ante false promises & ex-post reneging on promises
Local prioritization (local success), distance from HQ monitoring

+ (Exogenous factors)

FSAs

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Wrap up Lecture 1:

- Understand the notion of FSAs

- Understand where they come from
- Understand how FSAs relate to host country location
advantages
- Understand the different rationales for engaging in MNE
activity
- Understand why not all firms can develop FSAs

In sum: be able to explain figure 1.2

Assignment next working group and individual:

re-read this lecture and Chapter 1 (Conceptual foundation of
IB strategy, Verbeke - 2009) and study exercise questions (as
shown on next page)

Assignment next lecture:

Hand in reflection of Harvard Business Review article and
the case of Honda.

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Exercise questions that will be discussed in

the first tutorial :
1. What is a firm specific advantage?
2. What is Honda’s FSA?
3. What basic but important distinction does Verbeke make?
4. Why are some FSAs location bound?
5. What does that mean “location bound”?
6. Can you give an example?
7. What part of Honda’s FSAs are location bound?

See next page

Exercise question (continued):

8. What is the broader question that the field of International Business (IB)
is concerned with?
9. What does Verbeke mean when he talks about unique resources?
10. What unique resources does he list?
11. Can you think of an example yourself?
12. Verbeke describes the FSA as a unique resource which gives a firm an
advantage, but an advantage compared to what or whom?
13. What is a routine?
14. Why does a firm need a routine to use its FSAs?
15. Can you give an example?
16. What are recombination skills?
17. Why does a firm need recombination skills?
18. Can you give an example? See next page

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Exercise question (continued):

19. Draw Verbeke’s conceptual model and explain the components in

your own words (tip: try to explain it to your colleague).
20. What is the paradox of transferable FSAs?
21. What are host country location advantages?
22. Can you give an example?
23. How do FSAs relate to host country location advantages?
24. What type of host country location advantages are there?
25. Why do not all firms have FSAs that they can export and take abroad?
26. Why is it so difficult to develop FSAs?
27. What was the bounded rationality problem for Honda?
28. What was the bounded reliability problem for Honda?

Thank you for your attention

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