Lecture 3 - Internal resource analysis of MNE's

  • Created by: Michhell
  • Created on: 18-03-20 18:23

The OLI paradigm/framework for MNE internationalis

Three things an MNE should consider when considering the move overseas:

Ownership-specific advantages (OAs) - something that firm can offer the country they want to conduct business in. For example FDI, skills, expertise or a uniqueness.

Location-specific advantages (LAs). For example natural resources, workforce, knowledge or market.

Internalisation advantages (IAs) (see next week slides) - essentially direct investment rather than indirect investment.

This is proposed by Dunning (find the source)

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Other internationalisaion theories to consider

MNE IB Theory: Part of the OLI Framework (above). Strategic thinking dominated by cost-efficient thinking and best value proposition. You focus internally and what you can't do well, you outsource.

MNE Strategic Management Theory: Resource-based and dynamic capabilities-based theories. Considering the broader elements that make up a strategic decision as a whole, not just costs and profits.

These two can be used together during a strategy or considered as rival strategy.

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The competence-based perspective

Your firm is just better than other firms via your resources and capabilities specific to your industry. You are constantly developing and exploiting your competitive advantage.

This is broken down into three concepts:

  • Resources and Capabilities - tangible and intangible assets, and the latter: skills or tacit knowledge contained by its workforce. Which can also include 
  • Core competencies - a complex bundle of resources and capabilities. Such as: access to a variety of markets, difficult to emulate by competitors and do they contribute to the customer's perception of the end product (Apple = Quality by default).
  • Dynamic Capabilities (Teece, 2014) - how you manage, change and adapt to survive for the long-term. Maintaining a sustainable competitive advantage. Not just having resources, but how you use them, now and later on! (see seminar paper on Gas and Oil companies).

If you are able to capture all of these, you can create a competitive advantage.

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Internal analysis tools

  • Audits and benchmarks - how are we doing compared to others, or how we have improved/declined since last time?
  • The Value Chain Framework (Porter) - activities in the firm as a process that help create value at each stage. Also known as profit margin or ROI. We can see which parts add the most value. Can be used in tandem with Audits and benchmarks, to see how well we do something compared to competitors.
  • The VRIO Framework (Peng, 2009)- assessing the resources and capabilities we have, which allow us to see if they create a competitive advantage. It contains four criteria: valuable, rare, hard-to-imitate and embedded in organisational structures and systems. Valuable, Rare, Hard to Imitate and Exploited by Organisation.
  • Dynamic Capabilities - learning, monitoring, using resources effectively and guided by past, present and future insights. Doing the right things at the right time, not just for the sake of doing it. Sensing, seize, transform.
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Challenges for strategists

  • Strategists need to continuously and consistently focus on when, where, and how resources and capabilities are useful
  • Strategists need to develop and sustain (or renew) their firm-specific (distinctive) competencies to respond to change (i.e. to adapt quickly to change opportunities).
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