CEMS Global Strategy

W4 Internal context its implications

for international strategies

Associate Professor Miklós Stocker, PhD.

Agenda – key points

1.Why the next claim may be true in international business: key resources
and competences are of the number one factor in making use of
competitive advantage across borders.
2.Why is offshore outsourcing different from inshore outsourcing? What
impact offshore outsourcing might have on the strategic behaviour of
MNCs and their suppliers globally?
3.What does dynamic capabilities may mean in operations of the foreign
owned subsidiaries of MNEs?

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The strategy tripod (the IRI framework)

Regulative, normative
and cognitive structures

Industry
Resources
• Drivers of industry •Goals and values
competition
• Resources and
• 5Fs competences
• Structure and systems
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Resource-based view

▪ A leading perspective in global business;

▪ It posits that firm performance is fundamentally driven by firm-
specific resources

▪ Resources = primary resources and capabilities

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 Primary resources

Primary resources Capabilities

Tangible and intangible assets and ▪ Knowledge and associated
human resources that a firm uses routines, practices, processes
to choose and implement its
strategies
▪ Tangible: financial, physical, ▪ Firm-specific abilities to use
▪ Intangible: technological, reputational resources to achieve
▪ Human resources (skills, culture, organizational objectives
communication)
▪ Alternative classification:
▪ Tangible resources,
▪ Relationship capital resource,
▪ Organizational capital resources, and
▪ Human capital resources.

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The Penrosian firm and its theories
1959: The Theory of the Growth of
the Firm – a book
Firm = a collection of resources,
which are used by administrative
decisions; resources, competences,
capabilities

Its goal: seeking profitable solutions

▪ Management – it is key; Penrose
effect
▪ Growth rate – by product of profitable
solutions Edith Penrose
(1914 – 1996.)
Discovering her ideas in the 1980s; resource based view (RBV)
theories
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 A resource-based view by Oliver (1997)

1.of strategic management /…/ examines the resources and capabilities of firms
that enable them to generate above-normal rates of return and a sustainable
competitive advantage.
2.From this perspective, firm heterogeneity in acquiring and deploying
resources and capabilities accounts for a generation of economic rents.
3.The resource-based approach focuses on the characteristics of resources and
the strategic factor markets from which they are obtained to explain firm
heterogeneity and sustainable advantage.
4.Firm decisions about selecting and accumulating resources are characterized
as economically rational within the constraints of limited information, cognitive
biases and casual ambiguity. (Oliver, 1997, p. 697)

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Competitive advantage

Financial return: Strategic advantage: Economic rent:

Above – (industry) improving efficiency and higher returns than
average profits. effectiveness in ways stockholders/owners
that competing firms are expect.
not.

Generic competitive advantage, differentiation and

lower cost: stems from industry structure and results from a
firm’s ability to cope with the 5Fs better than its rivals.

Resources and competences of firms (= impregnable bases)

which are Valuable, Rare, Costly to imitate, Non-substitutable (VRIO)

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Competitive advantage at AMAZON

▪ https://www.youtube.com/watch?v=qWh7nX1f4Pc

▪ Think on what kind of generic strategy AMAZON competes with?

▪ What is it’s outcome?

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Value chain

Value chain: interrelated activities within a firm to produce and market

goods and services with competitive advantage

Capabilities can be identified and analyzed with the Value Chain approach

https://www.youtube.com/watch?v=g8p2H7EvoGM&t=4s

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Value chain for a manufacturing company
/ Porter, 1985

Support activities
Infrastructure activities: Planning,
Finance, MIS, Legal services

Technology, Research & Development, Design

Human resource management and development

Buyers
Dealer
Purchasing, support
Inventory Warehousing Sales and
Suppliers management, Production and and customer
Materials distribution marketing service
handling

Primary activities
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 Value shop and the value network

Infrastructure Infrastructure
Human Resource Management
Human Resource Management
Technology Development
Procurement Technology Development
Procurement

Network promotion & Contract Management

Problem Finding & Service Provision
Problem-solving
Acquisition
Infrastructure operation

Choice

Control/Evaluation Execution

Stabell, Charles B. – Fjeldstad, Øystein D. [1998]: Configuring value for competitive advantage: on chains, shops, and networks. In: Strategic
Management Journal, Vol. 19, 1998, p. 413-437

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 Research article

Hazarbassanova (2016). Value creation logic and

internationalization of Internet Firms. Review of International
Business and Strategy. DOI 10.1108/RIBS-02-2016-0007

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Value creation logic and internationalization of
Internet Firms

▪ Hazarbassanova (2016). DOI 10.1108/RIBS-02-2016-0007

▪ Internet firm: „a for-profit organisation, which conducts its
business exclusively through an internet-based platform, in a
way that if the central servers of the firm are turned off, the
business of the company will be interrupted.”
▪ Passive and/or active internationalization
▪ 3 case studies, each with different value creation configuration

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Case Companies & their value configuarations

▪ Alpha – Value chain

▪ provides access to financial data and analytical applications to
the global investment community by combining third-party and
in-house developed content into a proprietary interface
▪ Beta – Value network
▪ Beta is listed under NAICS: 541513 Computer Facilities
Management Services and classified as online consumer retail
by Forbes.
▪ Gamma – Value Shop
▪ Gamma is a public multinational IT and implementation
(outsourcing) company. It has headquarters in India and USA.
▪ The company defines itself as a digital-born technology
consultancy company

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Company „Alpha”

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Internationalization „Alpha”

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Company „Beta”

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Internationalization „Beta”

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Company „Gamma”

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Internationalization „Gamma”

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Internationalization types of selected companies

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Appraising resources: VRIO framework

Resources and capabilities can be assessed by VRIO framework

in comparison with key competitors
V – valuable: do resources and capabilities create and add
value?
R – rarity: are they rare among our competitors?
I – imitability: are they costly to imitate?
O – organizational aspects: do we exploit them?

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Benchmarking

▪ An examination of resources to perform a particular activity

compared against competitors

▪ Its steps:
1.Choose a benchmark organization
2.Identify the relevant resources
3.Assess the importance of your resources
4.Assess the relative strengths of the resources

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 The Explainer: Disruptive Innovation

Disruptive Innovation theory observes how new innovations create

a new market and a new value network, which in turn disrupts an
existing market. What often happens with companies that stay too
close to their existing customers and invest aggressively to retain
them, rather than investing to serve the needs of their future
customers.

https://www.youtube.com/watch?v=Cu6J6taqOSg

When watching the video think on: Why did the successful example companies fail?

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Dynamic capabilities

▪ Enable an organization to continuously adapt to new

technologies and changes in the external environment
▪ „the firm’s ability to integrate, build, and reconfigure
internal and external competences to address rapidly
changing environments” (Teece et al 2007 p. 516)
▪ Higher level of capabilities, which focus on
▪ Sensing
▪ Seizing, or
▪ Transforming
capabilities to design and implement a business model.
(Teece, 2018)

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Dynamic capabilities

Teece (2018), p. 44
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Value Chain vs. Global Value Chain

Porter (1985)

Sturgeon (2001) 32
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Outsourcing and offshoring

Outsourcing: externalization of activities; turning over an organizational

activity to an outside supplier that will perform it on behalf of the firm
▪ Why Outsource? Give 5 key resons for that!
http://www.youtube.com/watch?v=aqhjNJkvC9w

Offshoring: moving an activity to a location abroad; nearshoring

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Avantages of MNEs

▪ Country-specific advantage: advantages that

are attributed to the operations in given
location (home or host countries)

▪ Firm-specific advantage: advantages that are

Location
attributed to the multinational enterprise as a and non-
cross border entity location
bounded

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In-house versus outsource

Commoditized –
high commoditization
Outsource Outsource
Nature of the activity

Keep in-house ???

Proprietary –
firm-specific

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Consequences of offshoring

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Readings

▪ Oliver (1997): SUSTAINABLE COMPETITIVE ADVANTAGE: COMBINING

INSTITUTIONAL AND RESOURCEBASED VIEWS Strategic Management
Journal, Vol. 18:9, 697–713 (1997)
▪ Teece (2018): Business models and dynamic capabilities. Long Range
Planning 51 (2018) 40-49
▪ Hazarbassanova, D.B. (2016). The value creation logic and the
internationalization of internet firms. Review of International Business and
Strategy, 26(3), 349– 370.

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Key terms
Ambidexterity Original brand manufactures (OBM)
Benchmarking Original design manufacturer (ODM)
Business process outsourcing Original equipment manufacturer (OEM)
Capability Resource
Commoditization Resource-based view
Compelementary assets Social Complexity
Dynamic capabilities Strategic ambidexterity
Hypercompetition Tangible resources and capabilities
Intangible resources and capabilities Value Chan
Offshoring VRIO framework
Onshoring
Outsourcing

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Köszönöm
a figyelmet!

miklos.stocker@uni-corvinus.hu