Department of Business & Management
Subject: Global Strategy
You are expected to discuss different types of strategic
capabilities that influence the success of overseas expansions for a firm.
Credit will be given for:
� Discussions of key issues and their context.
� Reference to literature.
� Case discussions.
� Conclusions and recommendations.
� Overall coherence and consistency.
Do strategic capabilities of a firm influence its overseas operations?
Introduction
Thriving in the highly competitive overseas business world, calls for firms to amass a
considerable level of strategic capabilities. These ensure that a firm is capable of countering
threats and seizing opportunities in the overseas market to elevate its portfolio. According to
(Sea Jin, & Singh, 1999), international business is exceedingly volatile and organizations
must be in a position to successfully identify, interpret and respond to potential opportunities
and threats. In this relation, strategic capabilities are imperative for ensuring effective
strategic direction; because they define an organization’s aptitude towards emerging market
conditions. This paper is a discussion of strategic capabilities and how they influence a firm’s
overseas expansion.
Discussion
Strategic capabilities 2
Strategic capabilities denote an organisation’s proficiencies, essential for ensuring its
competitive advantage and long-term survival. These capabilities may be in the form of
resources or competencies. While resources consist of what the organisation possesses such
as assets, finances, human resources and stakeholders, competencies refer to the
organisation’s strengths including efficiency, flexibility, cash flow management, marketing,
relationships and employee performance. Strategic capabilities can be considered as
insurance against market uncertainties and catalysts of firm survival. Accordingly, a firm’s
strategic capabilities define its propensity for overseas expansion.
Strategic capabilities are categorized into two main groups. The first category is the
dynamic capabilities, which refer to the ability of a firm to respond to changing
environmental needs by recreating its strategic capabilities. The types of dynamic capabilities
include sensing capabilities to constantly explore opportunities, such as market research and
R&D; seizing capabilities which refer to the ability to respond to opportunities by means of
new processes, products and activities; and re-configuring capabilities (Mudambi, 2008;
Johnson et al, 2014). The other category is the threshold and distinctive capabilities.
Threshold capabilities are necessary for the firm to compete effectively while distinct
capabilities are those that provide unique ability and are often difficult to imitate.
Strategic capabilities harness a firm’s competitive advantage, a key prerequisite for
survival in overseas markets (Barney, 1991). The resource-based view affirms that the
distinctiveness of a firm’s capabilities determines its level of performance and competitive
advantage (Johnson et al, 2014). This is re-emphasized by Frost, Birkinshaw & Ensign (2002)
who note that international organisations that have developed unique niches such as centres
of excellence to promote the performance of their international subsidiaries. Cognizant of this
proposition, it can be appropriately asserted that a firm that seeks to survive in the volatile
Strategic capabilities 3
and extremely competitive overseas market must exhibit high level performance and possess
discrete competitive advantages (Barry, 2010). Therefore, a firm that lacks strong strategic
capabilities is likely to capitulate to competition and other market forces (Contractor, Kundu
& Hsu, 2003).
Strategic capabilities ensure that a firm can effectively meet the needs of its
customers. This is achieved through production of quality products, affordability and product
accessibility. H&M’s capabilities such as convenient location, supply chain management,
design and culture for example ensure that their customers are satisfied and this has
contributed to its massive international growth. By combining affordable prices with unique
designs, H&M is a business leader in fashion.
Strategic capabilities determine success in operations. This means that in order for a
firm to effectively execute its business in the international market, it requires a combination
of strategic capabilities that will influence performance (Kolev, 2016). Firstly, venturing
overseas is significantly expensive and the firm must therefore possess adequate finances to
fund its venture. In addition, effective funds management would ensure that return on
investment is achieved. Secondly, having a dedicated and well qualified team is also vital in
promoting business success (Meyer, Wright & Pruthi, 2009)
Strategic capabilities determine the firm’s reach. In essence, the strategic capabilities
determine how much can be invested in overseas expansion and the number of regions that
the firm will operate in. Strong strategic capabilities ensure that a business grows its
international business rapidly, thus expanding its reach (Goodman & Dingli, 2013).
Strategic capabilities create opportunities for firms to expand their overseas business
further. Berry (2010) notes that whenever new opportunities emerge in the market,
Strategic capabilities 4
organisations with robust strategic capabilities are more likely to take up the opportunities.
Furthermore, seizing opportunities depends on whether a firm possesses dynamic capabilities
to enable it respond to the changes in the business environment. An example is Google, an
internet based company which has grown rapidly due to its ability to meet customer needs
through robust and innovative technology solutions. Google is highly dynamic and
responsive to new opportunities, attributable to its team of tech-savvy employees and huge
investment in technology, research and development (Jonathan et al, 2015). Google’s success
can be compared to Yahoo’s slow response to rapid technology changes, which led to the
company’s downfall. Despite being a pace-setter in internet-based business, Yahoo lacked
strategic capabilities to embrace technology advancement and therefore ended up being
overtaken by the robust Google which is now a market leader (Bhatia, Deep & Sachdeva,
2012).
A firm’s ability to expand overseas is influenced by various factors including resource
fit, market share and sales growth (Sea Jin & Singh, 1999). Strategic capabilities determine a
company’s probability of survival in foreign markets. A company with strong strategic
capabilities is more likely to survive the harsh conditions of foreign markets. According to
Shaver, Mitchell and Yeung (1997), overseas business survival is enhanced by a firm’s
experience in the host country. Consequently, repeat overseas investors are more likely to be
successful than first-timers; a factor that can be attributed to greater information on the host
country and the accompanying experience. In addition, companies with exceptional strategic
capabilities create better partnerships and collaborations, thus enhancing their chances of
success in the overseas markets. It is notable that a majority of organisations that venture
overseas do so in collaboration with local companies which already have a stable footing in
the host country (Grant, 2016). Such companies would be interested in the international
company’s strategic capabilities in order to ensure that they will derive considerable benefits
Strategic capabilities 5
from the partnership. This proves that strategic capabilities indeed impact a firm’s overseas
operations.
Strategic capabilities can influence resource accessibility necessary to expand a firm’s
operations overseas. In order to gain credibility, financial organizations consider a variety of
factors, among them the firm’s financial position, asset base, cash flow management and
productivity (Grant, 2012. This insinuates that a company that is well endowed in terms of
strategic capabilities is likely to have greater chances of expanding its overseas business due
to its access to capital.
Conclusion
This discussion establishes that strategic capabilities are a basic prerequisite for firms
that seek to survive in overseas markets. Strategic capabilities ensure that firms can counter
threats and take up opportunities in the host country. They also ensure that the firm can
effectively meet customer needs, that it has the capability to form valuable partnerships, and
that can effectively compete in the markets. In conclusion, strategic capabilities have an
influence on a firm’s overseas business.
Strategic capabilities 6
References
Barney, J 1991, ‘Firm resources and sustained competitive advantage’, Journal of
management, 17(1), 99-120.
Berry, H 2010, ‘Why Do Firms Divest?’, Organization Science, 21, 2, pp. 380-396, Business
Source Complete, EBSCOhost, viewed 26 October 2016.
Bhatia, A., Deep, G. & Sachdeva, A 2012, Strategic Analysis Of Search Engine Giant: A
Case Study Of Google Inc., International Journal of Computing & Business, ISSN
Online), 2229-6166.
Contractor, F. J., Kundu, S. K., & Hsu, C. C 2003, ‘A three-stage theory of international
expansion: The link between multinationality and performance in the service sector’,
Journal of International of Business Studies, 34(1): 5-18.
Frost, T. S., Birkinshaw, J. M., & Ensign, P. C 2002, Centers of excellence in multinational
corporations, Strategic Management Journal, 23(11): 997-1018.
