Week 1 [Rugman & Verbeke, 1992]

Question 1

What does the paper by Rugman & Verbeke (1992) do? –> “It extends…”
[Rugman & Verbeke, 1992]

Answer 1

Extends Transaction Cost Theory (of MNE strategic management) to incorporate some of the complexities of real world.

Question 2

What is transaction cost theory (TCT)?

[Rugman & Verbeke, 1992]

Answer 2

A predictive model that argues that both ‘the form’ and ‘competitiveness’ of the international operations of an MNE depend crucially on the configuration of three elements: OLI - Ownership, Location, Internationalization

Question 3

What are three (3) elements of TCT in the international context?
[Rugman & Verbeke, 1992]

Answer 3

1. ‘FSAs’ include proprietary (property) know-how (-> unique assets) and transaction advantages
2. ‘CSAs’ derive from locating certain activities in certain countries -> E.g. cheap labor
3. ‘Internationalization advantages’ refer to the relative benefits associated w/ diff. entry modes. Market failure as the crucial reason for internalization (= which activities do you take inside your company and which do you leave for the market to take care of)

Question 4

What are two (2) main problems with the TCT framework?

[Rugman & Verbeke, 1992]

Answer 4

1. The assumption that an MNEs core ‘FSAs’ normally originate in the parent company (HQ) and are in principle NLB -> Are the ‘FSAs’ of the parent company?!
2. The assumption that ‘CSAs’ of host countries are mostly exogenous (external) and can only be of use in a local/static sense -> Are host country’s ‘CSAs’ exogenous?!

Question 5

What two (2) types of FSAs are there?
 [Rugman & Verbeke, 1992]

Answer 5

1. Location-bound/Non-transferable (LB - static) , e.g. Stand-alone FSAs, Routines, Recombination capabilities
2. Non Location-bound/Int. transferable (NLB)

Question 6

What is true about NLB-FSAs (3)?

[Rugman & Verbeke, 1992]

Answer 6

1. Can be transferred abroad at low marginal costs
2. Can be used effectively in foreign operations after being transferred
   And thus, 3. Don’t have to originate in the home country

Question 7

From which three (3) considerations was a ‘transnational solution’ derived?
[Rugman & Verbeke, 1992]

Answer 7

1. MNE cannot solely rely on ‘FSAs’ developed in the home country
2. ‘CSAs’ in a specific host country can contribute to the development of new FSAs
3. Internalization advantages depend on a company’s ‘transactional FSAs’ to operate foreign subsidiaries

Question 8

Upon which three sources of competitive advantage does the ‘transnational solution’ build?
[Rugman & Verbeke, 1992]

Answer 8

LB-FSAs, NLB-FSAs and CSAs of both the home and host nations (e.g. CSA - if you hang out in the Silicon Valley cluster as an NL company, you might also pick something up)

Question 9

What is the authors ‘transnational solution’?

[Rugman & Verbeke, 1992]

Answer 9

A firm able to develop both LB and NLB FSAs in the parent and subsidiaries. In addition it makes use of a dual CSAs in the home and host country. –> “Transnational solution as a balanced mix of different functional activities w/in the MNE that need varying degrees of (centralized) hierarchical coordination and control, so as to allow an optimal response to the dual requirements of integration and national responsiveness.”