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about how we can think about capabilities in an international expansion context.
A company typically develops some resources and capabilities in its home market.
It will be thinking about whether it can exploit those capabilities in a foreign market,
whether they can create a relevant value proposition in a foreign market.
And what I'm proposing here is there's a very simple test.
The test is, is the capability RAT?
R-A-T. Is it relevant?
Is it appropriable?
Is it transferable?
Relevant. Do our differential capabilities increase customers' willingness to pay?
Do we provide better service?
Do we better tailor the product to the need of the client?
Do we add prestige?
Is there something about what we do that makes
the client willing to pay a bit more for our product,
or on the other hand, do
our differential capabilities decrease the cost of the production or delivery,
or ideally, does it do both?
But it has to be relevant to our customer.
If it's not relevant to our customer, it's born dead.
It also has to be appropriable.
Can you capture the value you create?
Are there sufficient barriers to innovation and imitation?
If you think about this in an international context,
imagine you're going to a second market.
You have a very interesting product or service.
You're going to change what customers can get in that country.
If you don't have sufficient barriers to innovation,
all you're going to be doing is
market development for a local firm because they can look at what you do,
and they can say, "Boy, that's neat",
and they can turn around and deliver it typically at a lower cost.
So for it to be appropriable,
it has to be something that's hard to capture.
Furthermore, in order to be appropriable,
it's important that the necessary value chain partners
are present and that they don't have undue market power.
This if you have to work through a particular distributor,
if you have to work with a particular complementor,
it's quite possible that they could hold you
up and extract most of the profit you're creating.