Introduction to International Business Lecture 3 Notes


Entrepreneurial process: people combine existing inputs to create new outputs

These skills are required to create new FSAs from the resources


Paradox of transferability

= challenge of IB


Strategic elements that make IB harder: bounded reliability and bounded rationality


Do all firms fit in the framework?

Yes but categorization into 4 types


International projector:

Difficulty: coordination of all activities; high costs= reason organisations fail to outsource. Difficult to measure these costs. 


Challenge of Multi centered MNE: need to familiarize yourself with local host market; international marketing. Need to know the supply chain in order to chose distribution etc

àadaptation costs


Standardize products = keeping products exactly the same in all markets = efficient and cheap at costs of adapting to local markets

àclassic tension in IB


Technology and knowledge are hard to transfer so easier to buy the firm. China buys western technology firms



FDI: foreign direct investment

Is a firm doing something within the firm or within the market

Doing something: allocation resources

By: an MNE in the host country

Purpose: performing business activities


Within the firm: lecturer hired by university and university coordinates that students get teacher

Students simply part of the organisation’s structure

Within market: students have to hire lecturer itself and coordinate every meeting+info

àinefficient (=market exchange)


Which option you chose depends on:

Frequency of transaction

Uncertainty of transaction (how much is his knowledge worth? Is it valuable?)

How much you depend on it (is there a market for an alternative? Other lecturer?)



2 options:

  • Just sell a product on foreign market = market mechanism

àdriving mechanism = price based on customer 

  • Buy into a market in foreign country; integrate activities of host country in firm

àbecome owner. 

àdriving mechanism = you’re the boss so control activities (within constraints)

Want control because these things are critical to your business



Official definition of MNE: Firm which owns and controls value adding activities in more than one country


Efficiency seeking often in combination with market seeking (to avoid trade barriers)

àif you’re producing in China might be more efficient to sell it there as well (or other way around i’m not sure)


Location advantages can be classified by geographical scope, or by reasons to engage in foreign market.

FDI = the allocation of resource bundles by an MNE in a host country, with the porpose of performing business activities over shich the MNE retains strategic control in that country.

Only if foreign country offers LA relative to home country!!

Location advantages are reasons for FDI

  • Natural resource seeking

usually associated with unstable problematic countries

Countries where critical resources are located; acquire access to raw materials

  • Efficiency seeking

Reduce sourcing and production costs

Locate production near customers

Avoid trade barriers

  • Market seeking 

gain access to new markets

follow key customers

  • Strategic resource seeking

What do we need to engage in IB in that specific country? Host country LA’s

Want to have access to some specific knowledge

  • often R&D = upstream knowledge
  • downstream knowledge
  • administrative knowledge
  • reputational resources

This knowledge is not generally accessible, so solution can be:

Acquire or merge or joint venture with firm to get access to that knowledge

  • efficiency seeking

environmental changes might make locations more attractive than before

technological breakthroughs, innovation, higher required R&D, reduction barriers


  • Export platform

In between ‘within the market’ and ‘within the firm’:

Investment and production in a host country:

    • output largely sold in third markets (other countries than the two cooperating)
    • aware of preferential trade agreements


2 organisations from two countries cluster together to enter a certain market to have benefits of local employee pool to work in the industry (benefit production country). Use it as platform to export within the deal/trade agreements (benefit for home country)


Japan chooses a frim where production is cheap and easy to enter EU àCzech Republic

Don’t want to do it outside EU for its good conditions/trade agreements 


Example 2

UK not such a good location anymore because everything favorable except for trade agreements since Brexit


Banks, UK can lower taxation because not bound to EU rules anymore. Do this to keep businesses in UK.



Countries attract one of the 3: relate to excel sheet

  • market seeking MNE activity

= local sales / sales to all destinations

Local is country of production (host country)

  • Efficiency seeking MNE activity

= home country sales / sales to all destinations

Home country is HQ

  • Export Platform MNE activity

=  sales to foreign countries / sales to all destinations

All countries except for home and host



Why would you want to see different structures of sales in different countries?



Multinational described as network of subsidiaries

Critical element of FDI and ..

Subsidiaries actually ‘do’ the activity of IB



All the different brands that for example Nestle owns are subsidiaries. Hard to coordinate

Typology of subsidiaries (observations Bartlett and Ghoshal)

  • Tendency to treat subsidiaries in same way = homogenization
  1. Give complete autonomy
  2. Control everything at HQ àopportunities new FSAs are missed
  • Centralization

General perceiving that HQ is way higher in hierarchy than subsidiary

R&D = upstream knowledge was located in HQ and subsidiary managers just implemented ideas created in HQ

Nowadays its different due to technology, can tap into local technology now and share with HQ in home country 

Us vs them is 2ndclassic tension in IB (HQ – subsidiaries)

Kills all initiative of entrepreneurial skills because may only implement HQ’s ideas

Giving subsidiaries more power and decision making authority may help in building FSA in host country

Leads to bounded rationalityand bounded reliabilitybecause managers do not make sufficient efforts to increase subsidiaries’ potential value.


B&G: giving subsidiaries more power and authority may haelp in building a FSA in host country



Tension: HQ wants control and subsidiaries want independence 


By selectively decentralizing, the MNE could focus on deploying and exploiting their FSAs and develop new FSAs in their subsidiary network.


So, how much autonomy do you give a subsidiary?

  • Depends on resources
  • Depends on strategic importance


Subsidiary classification system

Four subsidiary types

  1. Black hole

Low in specialized resources

High in strategic importance

Maintain presence to keep up-dated about innovations or competition despite lack of resources or profitability.

  1. Implementer

Low in specialized resources

Low strategic importance

Biggest category; generate steady stream of cash flow and help build competitive advantage by contributing to wide scale and scope economies.

  1. Strategic leader

High in specialized resources

High strategic importance

Identifying industry trends and developing new FSAs in response to emerging opportunities and threats

  1. Contributor

High in specialized resources

Low strategic importance 

Develops new FSAs and might benefit other units in the firm if HQ understands its value to the MNE


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