CORE CONCEPTS & FIRM-SPECIFIC ADVANTAGES (FSA)
27 important questions on CORE CONCEPTS & FIRM-SPECIFIC ADVANTAGES (FSA)
How can a company internationalize in terms of entry mode options?
- Export
- Licensing
- Franchising
- Acquisition
- Alliances
- Joint venture
- Brownfield FDI
- Greenfield FDI
What defines a greenfield investment in foreign direct investment (FDI)?
What characterizes a brownfield investment in the context of foreign direct investment (FDI)?
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According to the Internalization Theory, why do companies choose certain modes of operation abroad over others?
- Based on finding the most cost-efficient way of operating abroad
- Preferred choice when joint costs of performing and governing an activity in-house are lower than exporting, licensing, or alliances
What influences the decision-making of market-seeking companies when opting for a subsidiary in a foreign country?
- Ownership of valuable brands or trademarks
- Safeguarding assets against threats of free-riders
Explain the difference between market seeking and efficiency seeking FDI based on key "Where," "How," and "What" factors as identified in BENITO's 2015 paper.
- Market seeking FDI is driven by factors like:
- - Where: Size, purchasing power, level of development, proximity.
- - How: Brands, consumer goods, services.
- - What: Marketing and sales, market share, volume sold, sales growth.
- Efficiency seeking FDI focuses on:
- - Where: Cost level, infrastructure, proximity.
- - How: Specialized investments, production of goods, back-office services.
- - What: Manufacturing, productivity, cost margin, profitability.
Why consider location advantages in business decision-making?
- Market seeking: target large population, expand marketing and sales, build brands
- Efficiency seeking: lower cost levels, focus on manufacturing, make specialized investments
- Resource seeking: access to resources, ensure supply reliability, attain vertical integration
- Strategic asset seeking: foster development in R&D and innovation, engage in high-tech initiatives
What are the components of a 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
- Reputational Resources: reputation for honest business dealings
What is the importance of combining resources in a Multinational Enterprise (MNE)?
- Resources need to be combined to form resource bundles for effectiveness.
- This collaboration of resources helps in creating recourse bundles.
- The resources can be categorized into natural and strategic resources for leveraging location advantages.
Evaluate how location and non-location bound firm specific advantages affect Swapfiets’ internationalization based on their entry mode strategy.
- Location-bound advantages impact internationalization through the need for proximity to customers, leading to a preference for Foreign Distributors and Greenfield investments.
- Non-location bound advantages, such as brand and innovative business model, can be exploited using Licensing & Franchising, and Wholly-owned Subsidiaries (Acquisitions, Brownfield).
What are examples of internationally transferable (or non-location bound) firm-specific advantages (FSAs) that are transferable abroad?
- Patents (knowledge)
- Money
- Machinery
- Technology (sometimes)
- Occasionally, brand names (not always though)
What are the four archetypes of Multinational Enterprises (MNEs) based on their international operations?
- Centralized exporter
- International project operator
- Multinational disseminator
- Transnational solution provider
What characterizes a Centralized Exporter archetype of a Multinational Enterprise (MNE)?
- Home country managed firm
- Tradition of selling products internationally
- Limited facilities in the home country
- Minor, customer-oriented value creating activities abroad
- Products exported without adaptations
What does Figure 1.3 depict about the success of an exporting firm in international markets?
- The figure illustrates the connection between a firm's Non-Location Bound (NLB) Firm-Specific Advantages (FSAs) and Location Advantages (LAs) in the home and host countries.
- It shows that NLB FSAs developed in a favorable home country environment contribute to success in the host country's market.
- A direct link exists between the home country's NLB FSAs and the host country's LAs, without transferring new, Location Bound (LB) FSAs or existing NLB FSAs to the host country.
- Location advantages (LAs) are distinct for the home and host countries, while FSAs are categorized into non-transferable or internationally transferable.
What defines an International Projector firm in terms of knowledge transfer and international expansion?
- Builds on proprietary knowledge from home country.
- Transfers knowledge-based firm-specific advantages (FSAs) to foreign subsidiaries.
- Subsidiaries mimic home operations without necessarily creating location-bound FSAs.
- Seeks international growth by replicating home country success abroad.
- Uses non-location-bound (NLB) FSAs to leverage location advantages (LAs) in host countries.
- Does not focus on developing location-bound FSAs in host countries.
What does the international coordinator focus on in international operations?
- Managing international operations both upstream and downstream
- Specializing in specific value-added activities
- Forming vertical value chains across borders
- Efficiently linking geographically dispersed locations
- Building upon location advantages in each host country
Give an example of how multinational enterprises benefit from the coordination of their international operations.
- Example: Toyota with auto parts production in different countries
- Building upon location advantages in each host country
- Sending non-location-bound aspects to host countries
- Utilizing location advantages for efficiency
- Having a hierarchical governance structure
What does the diagram titled "International coordinator" depict in terms of international business structure?
- The diagram shows a business structure with a central entity, the international coordinator.
- Home country-based local agreements (LAs) and both link-based (LB) and non-link-based (NLB) foreign service agreements (FSAs) are represented.
- The varying sizes of shaded areas in host countries A, B, and C represent different types and levels of the home country NLB FSAs transferred.
- The international coordinator's role includes integrating LAs across borders to access desired LAs in multiple host countries.
What are the characteristics and strategic foundations of a multi-centered MNE?
- Consists of entrepreneurial subsidiaries abroad, essential for developing knowledge-based firm-specific advantages (FSAs).
- Foundation of its international strategy is national responsiveness.
- Non-location bound FSAs that unify these firms are minimal, typically including common financial governance and the founder's identity and specific interests.
- Viewed as a portfolio of largely independent businesses that are decentralized and autonomous.
- Example provided is Unilever, a global company with over 400 brands in more than 190 countries, which must build new location-bound (LB) FSAs in host countries while leveraging local advantages (LAs).
Give examples of more transferable assets and explain the importance of tacit assets.
- Examples: geographic location, reputation, relationships with suppliers
- Importance: More tacit assets are better as they are difficult to imitate
Define Location Advantages and list examples of such strengths for firms.
- Location advantages represent strengths of a specific location usable by firms.
- Examples: abundant natural resources, low labor costs, governance like tax regime
What is Foreign Direct Investment (FDI) and why should an MNE engage in FDI?
- FDI is the allocation of resource bundles by an MNE in a host country.
- Engage in FDI if the host country confers a location advantage compared to the home country.
How can we classify location advantages based on what motivates a firm to conduct economic activity in a particular location?
- Market seeking
- Efficiency seeking
- Natural resource seeking
- Strategic resource seeking
Explain what Stand-alone Resources linked to location advantages are and why they are considered non-transferable.
- Stand-alone resources are immobile assets like privileged retail locations.
- They are non-transferable as they are inherently tied to a specific location.
Describe Local Best Practices as a type of Non-Transferable Firm-Specific Advantage (FSA) and provide an example.
- Local best practices are effective routines in one country not easily transferable.
- Example: incentive systems for highly skilled workers in one country.
What is meant by Domestic Recombination Capability in the context of Non-Transferable Firm-Specific Advantages (FSAs)?
- Domestic recombination capability refers to a firm's ability to diversify or innovate.
- This may lead to a dominant market share in the home country but difficulties in foreign markets.
Explain Market Seeking as a motive for firms to conduct economic activity in a particular location.
- Market seeking reflects firms searching for customers in host countries.
- Firms are motivated to operate in locations where they can reach more customers.
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