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Pralad and hamel 1990 16 further narrowed this down

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Unformatted text preview: sion must identify and exploit the firm’s core competencies . Core competencies are essentially higher order FSA. The second element of the theory is that there are country specific advantages (CSA) that enable firms to be successful (Rugman, 2009, Verbeke, 2009). The foundations of the theory of CSA are found in Porter’s (2008) Diamond Model, espoused in his classic Harvard Business Review article, ‘The Competitive Advantage of Nations’ ( Verbeke, 2009; Porter, 2008). Porter’s (2008) Diamond Model lists the following conditions as critical for any country’s firms’ competiveness: Factor Conditions – The country’s factors of production, including natural endowments, such as natural resources, but also self-made ones such as skilled labour or infrastructure. Demand Conditions – The nature of the home market, which include the size and sophistication of the market. Related and Supporting Industries – Globally competitive suppliers and related industries. Firm Strategy, Structure and Rivalry – highly competitive domestic market characterised by efficient macro-level policies facilitating ease of doing business. 17 Figure 2: The Diamond Model Firm strategy, structure and rivalry: - A local context that encourages appropriate forms of investment and sustained upgrading - Vigorous competition among locally-based rivals Factor Conditions: - Demand Conditions: Natural resources Human resources Capital resources Physical infrastructure Administrative infrastructure Information infrastructure Scientific & technological infrastructure - Sophisticated & demanding local customer - Customer needs that anticipate those elsewhere - Unusual local demand in specialized segments that can be served globally - Factor quality - Factor specialization Related and supporting industries: - Presence of capable, locally based suppliers - Presence of competitive related industries Source: Adapted from Porter (2008) Internationalisation in most MNEs entails the weighing of, and building upon, the FSA and CSA (Rugman, 2009). The FSA/CSA matrix in Figure 3 can be used in this exercise. A firm is in a stronger position on quadrant 3 of the matrix, when both FSA and CSA are strong. 18 Figure 3: The FSA/CSA matrix Firm Specific Advantages Country Specific Advantages Weak Strong Quadrant one Quadrant three Quadrant two Quadrant four Strong Weak Source: Adapted from Rugman (2009) The modern theory has its foundations in early internationalisation theories, such as Dunning’s eclectic paradigm, and the Uppsala Model or the Nordic Model. The eclectic paradigm, sometimes referred to as OLI, has been used in FDI literature since Dunning first proposed it in 1977 (Fleury & Fleury, 2011; Cuervo-Cazurra, 2008; Stoian & Filippaios, 2008). Essentially, the model posits that firms move abroad to exploit the ownership, location and internationalisation advantages (Demirbag et al, 2008; Canabal & White III, 2008; Stoian & Filippaios, 2008). The eclectic paradigm is concerned with the ‘why’ question of internationalisation, and not so much the how (Fleury & Fleury, 2011). The Incremental Internationalisation Model or Uppsala Model proposed by Johanson and Wiedersheim-Paul (1975, cited in Cuervo-Cazurra, 2008; and Agndal, 2006) posits that because of the unfamiliarity of the foreign markets MNEs grow incrementally, starting with countries that are more familiar. This model is therefore concerned not with ‘why’ firms internationalise, but ‘how’ they do so (Fleury & Fleury, 2011). 19 There is also a considerable body of literature on internationalisation that is behavioural. These studies are concerned with the firms’ attitude s towards foreign markets, referred to as EPRG (ethnocentrism, polycentrism, regiocentrism and geocentrism), and are conveniently summarised by Vida and Fairhurst (1998) in their study, International expansion of retail firms: A theoretical approach for future investigations. From these various frameworks and models, the Dynamic Nordic model and export stages models emerged. The Nordic model posits that the general market knowledge and resource commitment of a firm (state aspect) affect current commitment decisions and business activities (change aspects). The change aspects lead to more knowledge and resource commitment, which, in turn, leads to more commitment decisions and current business activities. As a consequence the firm will incrementally increase its international commitments. In contrast, the export stage model approaches internationalisation as a step-by-step process, where a higher level stage signifies a higher commitment and a lower level stage signifies a lower commitment to internationalisation (Vida & Fairhurst, 1998). Hill (2007) views internationalisation as an extension of the firm ’s strategy, as managers seek value creation for the benefit of their shareholders. Hill’s approach therefore emphasises the incentives or the cause of entering foreign markets. 2.2.2 Retail Internationalisation Although retail inter...
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