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17-11-2017 | Research Article

Dynamic Capabilities of Multinational Enterprises: The Dominant Logics Behind Sensing, Seizing, and Transforming Matter!

Authors: Lars Matysiak, Alan M. Rugman, Andreas Bausch

Published in: Management International Review | Issue 2/2018

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Abstract

The dynamic capabilities approach explains how firms create and sustain competitive advantages in dynamic environments if they exhibit technical and evolutionary fitness. Multinational enterprises (MNEs) are not only exposed to industry dynamism, but also to dynamism in the different country environments in which they operate. Understanding the dynamic capabilities of MNEs thus requires analyzing not only the firm dimension, but also the country dimension and firm–country interactions of international business. Building on the analytical disaggregation of dynamic capabilities into: (1) sensing opportunities (or threats), (2) seizing (or neutralizing) them via expedient investments, and (3) transforming the firm and its resources and capabilities accordingly, we conceptualize the relationships between the dominant logics behind MNEs’ sensing, seizing, and transforming and evolutionary fitness. First, we propose that a dominant logic behind sensing, based on an application of resource-based view thinking to the international business context (which we develop to separately explain the three component parts of MNEs’ competitive advantages, i.e., non-location bound firm-specific advantages, country-specific advantages, and location bound firm-specific advantages), positively moderates the effect of sensing processes and routines on evolutionary fitness. Second, we propose that a dominant logic behind seizing, based on internalization theory thinking, positively moderates the effect of seizing processes and routines on evolutionary fitness. Third, we propose that a dominant logic behind transforming, based on a broad agency perspective extended to the international business context, positively moderates the effect of transforming processes and routines on evolutionary fitness.

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Bettis and Prahalad (1995) explicate that their original definition of the dominant logic (conceptualizations how to be successful in a particular business, cf. Prahalad and Bettis 1986) was built on the assumption of equilibria and organizational stability over some period of time. Transferring their thinking to the dynamic capabilities approach, firms also have a dominant logic of how to be successful in dynamic environments via sensing, seizing, and transforming. In fact, Prahalad and Bettis alluded to this by mentioning “some sort of meta-logic” they deemed necessary to “simultaneously conceptualize different business types” (1986, p. 498). The dominant logic behind dynamic capabilities as defined in this paper may allow firms to sustain a competitive advantage even when dominant business models are turned upside down, as discussed, e.g., for reverse innovation by Govindarajan and Trimble (2012).

The RBV explains competitive advantages to originate from idiosyncratic resources and capabilities (Amit and Schoemaker 1993; Barney 1991; Wernerfelt 1984).

Note that seizing also includes divestments (which is sometimes mistakenly thought of as transforming), as Teece (2007a, p. 1343) writes “the outsourcing of manufacturing and other aspects of seizing.” In accounting terms, seizing mainly involves an exchange of assets, whereas transforming mainly involves expenditures to augment assets.

Country-specific capabilities can be intentionally created by policymakers or firms via, e.g., market co-creation, filling institutional voids and creating related spill-overs, or lobbying with regulators.

In contrast to previous research that assumed CSAs to be exogenous to the firm (e.g., Hennart 2009; Rugman and Verbeke 2003; Shan and Hamilton 1991; Verbeke 2009), we submit that it is country-specific resources and capabilities that are exogenous to a firm and by definition available to all firms in the same country, but advantages conferred by them are necessarily endogenous. For instance, country-specific resources and capabilities like a workforce of highly-skilled engineers may be valuable and hence entail a CSA for a manufacturing firm, whereas they may not be valuable for a service firm. This implies that value is endogenous to the firm and subjective, in contrast to rarity.

We speak of non-location bound firm-specific, country-specific, and location bound firm-specific resources and capabilities instead of advantages for the reasons explicated in the previous section.

Taking these considerations into account may also help to dissolve the inconsistent and partly contradictory findings of multinationality–performance research (e.g., Hennart 2007; Matysiak and Bausch 2012).

Note that correctly sensing this situation later on would result in another change of firm boundaries via divestment (e.g., Benito 2005), which would by definition be another instance of (de-)seizing.

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Title: Dynamic Capabilities of Multinational Enterprises: The Dominant Logics Behind Sensing, Seizing, and Transforming Matter!
Authors: Lars Matysiak
Alan M. Rugman
Andreas Bausch
Publication date: 17-11-2017
Publisher: Springer Berlin Heidelberg
Published in: Management International Review / Issue 2/2018
Print ISSN: 0938-8249
Electronic ISSN: 1861-8901
DOI: https://doi.org/10.1007/s11575-017-0337-8

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