MGMT 4860 Test 3

Sustainable business practices

are those that meet the needs of the present without compromising the ability to meet the needs of the future.

Joint ventures are generally the ____________ durable of the entry options, usually lasting only until the partners decide to go their own ways.

least

international strategy

strategy for competing in two or more countries simultaneously.

Which of the following is the biggest strategic issue when competing in international markets?

Whether to offer a mostly standardized product worldwide or whether to customize the company's offerings in each different country market.

Which of the following makes acquisition an attractive approach to diversifying into another industry?

It is quicker than trying to launch a new operation, offers an effective way to hurdle entry barriers, and allows the acquirer to move directly to the task of building a strong position in the target industry.

Licensing Strategies

Licensing as an entry strategy makes sense when a firm with valuable technical know-how or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets.

Ethical principles in business are _______ materially different from ethical principles in general because business actions have to be judged in the context of society's standards of right and wrong.

Not

Entering a new business via a joint venture can be useful in which of the following situations?

When the opportunity is too complex, uneconomical, or risky for one company to pursue alone, a company needs a local partner to enter a foreign company, and/or a company lacks important resources or competencies that can be supplied by a partner.

transnational strategy

approach to strategy making that involves employing essentially the same strategic theme (low-cost, differentiation, focused, best-cost) in all country markets, while allowing some country-to-country customization to fit local market conditions. THINK GLOBAL, ACT LOCAL

Focusing corporate resources on a few core and mostly related businesses ____________ the mistake of diversifying so broadly that resources and management attention are stretched too thin.

avoids

multidomestic strategy

calls for varying a company's product offering and competitive approach from country to country in an effort to be responsive to significant cross-country differences in customer preferences, buyer purchasing habits, distribution channels, or marketing methods. THINK LOCAL, ACT LOCAL

A _______ _________ generates operating cash flows over and above its internal requirements, thereby providing financial resources that may be used to invest in cash hogs, finance new acquisitions, fund share buyback programs, or pay dividends.

cash cow

Shareholders suffer major damage when a company's unethical behavior is discovered and punished. Making amends for unethical business conduct is

costly, and it takes years to rehabilitate a tarnished company reputation.

An internal development strategy involves _______________

creating a subsidiary business in the foreign market by setting up all aspects of the operation from the ground up.

unrelated businesses

have dissimilar value chains and resources requirements, with no competitively important cross-business value chain relationships

A strong ____________ _____________ __________ allows a diversified company to add value by shifting capital from business units generating free cash flow to those needing additional capital to expand and realize their growth potential.

internal capital market

Corporate restructuring strategies

involve making radical changes in a diversified company's business lineup, divesting some businesses and acquiring new ones so as to put a new face on the company's business lineup.

Environmental sustainability

involves deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against the ultimate endangerment of the planet.

A company's corporate social responsibility strategy

is defined by the specific combination of socially beneficial activities it opts to support with its contributions of time, money, and other resources.

dominant-business enterprises

one major "core" business accounts for 50 to 80 percent of total revenues and a collection of small related or unrelated businesses accounts for the remainder

Related businesses

possess competitively valuable cross-business value chain and resource matchups

To produce added long-term shareholder value, a move to diversify into a new business must pass three tests:_______________________

the better-off test, the cost-of-entry test, and the industry attractiveness test.

The global strategy that emphasizes a "think global, act global" strategic theme focuses on ________

the same basic competitive approach (low-cost, differentiation, best-cost, focused) in all countries where the firm does business.

According to the school of ethical universalism ...

the same standards of what's ethical and what's unethical resonate with peoples of most societies regardless of local traditions and cultural norms; hence, common ethical standards can be used to judge employee conduct in a variety of country markets and cultural circumstances.

According to integrative social contracts theory

universal ethical principles based on collective views of multiple cultures combine to form a "social contract" that all employees in all country markets have a duty to observe.

The drawbacks of an unrelated diversification strategy include ___________

very demanding managerial requirements and limited competitive advantage potential.

resource fit

when its businesses add to a company's overall mix of resources and capabilities and when the parent company has sufficient resources to support its entire group of businesses without spreading itself too thin.

Franchising Strategies

franchising is often better suited to the global expansion efforts of service and retailing enterprises

"triple bottom line"—a reference to three types of performance metrics:

economic, social, environmental. OR (people, planet, profit)

To be successful in foreign markets, companies have to decide ______________

All of these are correct. -whether to follow a multidomestic, transnational, or global strategy approach. -whether to pursue a strategy of offering a mostly standardized product worldwide. -whether to customize their offerings in each different country market to match the tastes and preferences of local buyers.

economic risks

stem from the stability of a country's monetary system, economic and regulatory policies, and the lack of property rights protections

Which of the following is a prime benefit of a strategy keyed to related diversification?

Related diversification offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present competitively valuable cross-business relationships.

Which one of the following is not a factor that influences a company's strategic approach to competing across national borders?

The difficulty in achieving strategic fit in sales and marketing activities

The financial options for allocating a diversified company's financial resources include _______________________

repurchasing shares of the company's common stock.

Unrelated diversification

requires that corporate executives rely on the skills and expertise of business-level managers to build competitive advantage and boost the performance of individual businesses.

Achieving diversification through internal development involves

starting a new business subsidiary from scratch

Related diversification/delivering competitive advantage/ and gaining shareholder value

(1) Capturing cross-business strategic fit via related diversification builds shareholder value in ways that shareholders cannot replicate by simply owning a diversified portfolio of stocks (2) the capture of cross-business strategic-fit benefits is possible only through related diversification (3) the benefits of cross-business strategic fit are not automatically realized—the benefits materialize only after management has successfully pursued internal actions to capture them.

Codes of conduct based upon ethical relativism can be _________ ____________ by creating a maze of conflicting ethical standards for multinational companies.

ethically dangerous

Strategic fit

exists when value chains of different businesses present opportunities for cross-business skills transfer, cost sharing, or brand sharing.

Resource fit ___________ _____________ financial resources to include a good fit between the company's resources and core competencies and the key success factors of each industry it has diversified into.

extends beyond

The main disadvantage of using a franchising strategy to pursue opportunities in foreign markets is __________________

maintaining quality control.

think local, act local strategies have two big drawbacks

(1) They hinder transfer of a company's competencies and resources across country boundaries because the strategies in different host countries can be grounded in varying competencies and capabilities (2) they do not promote building a single, unified competitive advantage, especially one based on low cost.

An export strategy is vulnerable when

(1) manufacturing costs in the home country are substantially higher than in foreign countries where rivals have plants (2) the costs of shipping the product to distant foreign markets are relatively high (3) adverse shifts occur in currency exchange rates.

To succeed with a corporate strategy keyed to unrelated diversification, corporate executives must:

-Do a superior job of identifying and acquiring new businesses that can produce consistently good earnings and returns on investment. -Do an excellent job of negotiating favorable acquisition prices. -Do such a good job overseeing and parenting the firm's businesses that they perform at a higher level than they would otherwise be able to do through their own efforts alone

Corporate social responsibility programs commonly involve:

-Efforts to employ an ethical strategy and observe ethical principles in operating the business -Making charitable contributions, supporting community service endeavors, engaging in broader philanthropic initiatives, and reaching out to make a difference in the lives of the disadvantaged -Actions to protect the environment and, in particular, to minimize or eliminate any adverse impact on the environment stemming from the company's own business activities. -Actions to create a work environment that enhances the quality of life for employees -Actions to build a workforce that is diverse with respect to gender, race, national origin, and other aspects that different people bring to the workplace.

Apart from "the business of business is business, not ethics" kind of thinking apparent in recent high-profile business scandals, three other main drivers of unethical business behavior also stand out

-Overzealous or obsessive pursuit of wealth and other selfish interests -Heavy pressures on company managers to meet or beat performance targets. -A company culture that puts profitability and good business performance ahead of ethical behavior.

the task of crafting a diversified company's overall corporate strategy falls squarely in the lap of top-level executives and involves four distinct facets:

-Picking new industries to enter and deciding on the means of entry. -Pursuing opportunities to leverage cross-business value chain relationships into competitive advantage -Establishing investment priorities and steering corporate resources into the most attractive business units. -Initiating actions to boost the combined performance of the corporation's collection of businesses

Strategy Options for Competing in Developing-Country Markets

-Prepare to compete on the basis of low price -Modify aspects of the company's business model or strategy to accommodate local circumstances (but not so much that the company loses the advantage of global scale and global branding) -Try to change the local market to better match the way the company does business elsewhere -Stay away from those emerging markets where it is impractical or uneconomical to modify the company's business model to accommodate local circumstances

reasons the exercise of corporate social responsibility is good business:

-Such actions can lead to increased buyer patronage -A strong commitment to socially responsible behavior reduces the risk of reputation-damaging incidents. -Socially responsible actions yield internal benefits (particularly for employee recruiting, workforce retention, and training costs) and can improve operational efficiency. -Well-conceived social responsibility strategies work to the advantage of shareholders

A company may opt to expand outside its domestic market for any of five major reasons:

-To gain access to new customers -To achieve lower costs and enhance the firm's competitiveness. -To further exploit its core competencies -To gain access to resources and capabilities located in foreign markets -To spread its business risk across a wider market base

Four other conditions make an internal start-up strategy appealing:

-When creating an internal start-up is cheaper than making an acquisition. -When adding new production capacity will not adversely impact the supply-demand balance in the local market. -When a start-up subsidiary has the ability to gain good distribution access (perhaps because of the company's recognized brand name). -When a start-up subsidiary will have the size, cost structure, and resources to compete head-to-head against local rivals.

Examples of intangible costs

-customer defections -lost employee morale -high employee turnover -difficulty in attracting employees

There are two general ways in which a firm can gain competitive advantage (or offset domestic disadvantages) in global markets

1- locating various value chain activities among nations in a manner that lowers costs or achieves greater product differentiation 2- drawing on a multinational or global competitor's ability to deepen or broaden its resources and capabilities and to coordinate its dispersed activities in ways that a domestic-only competitor cannot

Business diversification stands little chance of building shareholder value without passing the following three tests:

1-The industry attractiveness test 2-The cost-of-entry test 3-The better-off test.

forming a start-up subsidiary to enter a new business has appeal only when

1-parent company already has in-house most or all of the skills and resources needed to compete effectively 2-there is ample time to launch the business 3- internal entry has lower costs than entry via acquisition 4-the targeted industry is populated with many relatively small firms such that the new start-up does not have to compete against large, powerful rivals 5-adding new production capacity will not adversely impact the supply-demand balance in the industry 6- incumbent firms are likely to be slow or ineffective in responding to a new entrant's efforts to crack the market.

The procedure for evaluating the pluses and minuses of a diversified company's strategy and deciding what actions to take to improve the company's performance involves six steps:

1.Assessing the attractiveness of the industries the company has diversified into. 2.Assessing the competitive strength of the company's business units. 3.Evaluating the extent of cross-business strategic fit along the value chains of the company's various business units. 4.Checking whether the firm's resources fit the requirements of its present business lineup. 5.Ranking the performance prospects of the businesses from best to worst and determining a priority for allocating resources. 6.Crafting new strategic moves to improve overall corporate performance.

A company choosing to expand outside its domestic market may elect one of the following five general modes of entry into a foreign market:

1.Maintain a national (one-country) production base and export goods to foreign markets. 2.License foreign firms to produce and distribute the company's products abroad. 3.Employ a franchising strategy. 4.Establish a subsidiary in a foreign market via acquisition or internal development. 5.Rely on strategic alliances or joint ventures with foreign partners to enter new country markets.

The greater the number of businesses a company is in and the more diverse they are, the more difficult it is for corporate managers to:

1.Stay abreast of what's happening in each industry and each subsidiary. 2.Pick business-unit heads having the requisite combination of managerial skills and know-how to drive gains in performance. 3.Tell the difference between those strategic proposals of business-unit managers that are prudent and those that are risky or unlikely to succeed. 4.Know what to do if a business unit stumbles and its results suddenly head downhill

Which statement points out the main difference between the global strategy and the transnational strategy?

A transnational strategy gives local managers more room to make minor strategy changes to better satisfy local buyers and to better match local market conditions.

Which of the following is an advantage of an export strategy?

All of these are correct. -Export strategies minimize risks and capital requirements. -Export strategies are an excellent initial strategy for entering a foreign market. -Export strategies are a conservative way to test the international waters. -With an export strategy, a manufacturer can limit involvement in a foreign market by contracting with experienced foreign wholesalers.

Evaluating industry attractiveness involves ___________________________________

All of these are correct. -calculating industry attractiveness scores for each industry into which the company has diversified. -considering whether each industry the company has diversified into represents a good business for the company to be in. -considering social, political, regulatory, and environmental factors within the industry. -considering the presence of cross-industry strategic fit.

Political risks

stem from instability or weakness in national governments and hostility to foreign business

Government policies and regulations in host countries have a major effect on the operations of foreign companies. Which of the following does not reflect a typical regulation?

Obliging foreign companies to support operations of local companies by increasing vertical integration.

Export Strategies

Using domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales. It is a conservative way to test the international waters.

A _________ ____________ generates operating cash flows that are too small to fully fund its operations and growth; a cash hog must receive cash infusions from outside sources to cover its working capital and investment requirements.

cash hog

Foreign Subsidiary Strategies

companies pursuing international expansion may elect to take responsibility for the performance of all essential value chain activities in foreign markets. Companies that prefer direct control over all aspects of operating in a foreign market can establish a wholly owned subsidiary, either by acquiring a foreign company or by establishing operations from the ground up via internal development.

Economies of scope

cost reductions stemming from strategic fit along the value chains of related businesses (thereby, a larger scope of operations), whereas economies of scale accrue from a larger operation.

According to the school of ethical relativism ...

different societal cultures and customs create divergent standards of right and wrong—thus, what is ethical or unethical must be judged in the light of local customs and social mores and can vary from one culture or nation to another.

Global strategies

employ the same basic competitive approach in all countries where a company operates and are best suited to industries that are globally standardized in terms of customer preferences, buyer purchasing habits, distribution channels, or marketing methods. THINK GLOBAL ACT GLOBAL

A company expands outside its home market in order to _____________________

gain access to new customers for the company's products/services.

A "cash cow" business __________

generates substantial cash surpluses over what is needed to adequately fund its operations

Creating added value for shareholders via diversification requires building a multibusiness company where the whole is ___________ than the sum of its parts.

greater

Converting the competitive advantage potential into ________ _____________ is what fuels 1 + 1 = 3 gains in shareholder value—the necessary outcome for satisfying the better-off test.

greater profitability

Business ethics

involves the application of general ethical principles to the actions and decisions of businesses and the conduct of their personnel

Shareholder value

is not created by diversification unless it produces a 1 + 1 = 3 effect

Acquisition

is the quicker of the two options, and it may be the least risky and cost-efficient means of hurdling such entry barriers as gaining access to local distribution channels, building supplier relationships, and establishing working relationships with key government officials and other constituencies.

Companies that compete ____________________ can pursue competitive advantage in world markets by locating their value chain activities in whichever nations prove most advantageous.

multinationally

The greater the value of cross-business strategic fit in enhancing a company's performance in the marketplace or the bottom line, the more _____________ is its strategy of related diversification.

powerful

Profitability in emerging markets rarely comes _____________ _______ _____________________ —new entrants have to adapt their business models and strategies to local conditions and be patient in earning a profit.

quickly or easily

Corporate social responsibility (CSR)

refers to a company's duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates and in society at large.

Think local, act local

strategy-making approaches are also essential when host-government regulations or trade policies preclude a uniform, coordinated worldwide market approach.

Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when__________________

there is ample time to launch the new business from the ground up.

CSR strategies that have the effect of both providing ____________ ____________ __________ and ____________ ____________ ___________ in a superior fashion can lead to competitive advantage. Corporate social agendas that address generic social issues may help boost a company's reputation, but are unlikely to improve its competitive strength in the marketplace.

valuable social benefits; fulfilling customer needs

Unrelated diversification strategies have two important negatives that undercut the pluses:

very demanding managerial requirements and limited competitive advantage potential.