D311 Test 2

Market Controls

uses external market mechanisms to set standards that regulate performance.

Clan Control

uses shared values and ideals to moderate employee behavior.

Franchising

is a specialized form of licensing, the parties act almost as a vertically integrated company because they are interdependent and each creates part of the product or service that ultimately reaches the consumer.

Countertrade

is an umbrella term for several sorts of trade, such as barter or offset, in which the seller accepts goods or services, rather than currency or credit, as payment

Value

is defined as the difference between the cost of making a product and the price that customers are willing to pay for it.

Greenfield Investments

is preferred if host governments prevent acquisitions no suitable company is available for acquisition the acquisition is likely to lead to carry-over problems

capability

is the capacity for resources to perform an activity in an integrated manner.

Importing

is the purchase of a good or service by a buyer in Country X - the importer - from a seller in Country Y - the exporter. Some key import motivations include: Specialization of Labor Input Optimization Local Unavailability Diversification

Exporting

is the sale of goods or services produced by a firm based in one country to customers that reside in another country.

Cybercorp

no geographic boundaries & built for speed

Organizational culture

refers to the ideologies, symbols, and core values that employees, no matter their location in the MNE's worldwide operations, regard as legitimate

Harvesting or divesting

refers to the reduction in the amount of an investment; a firm may choose to simply harvest the earnings of an operation or divest the assets there as well.

Reinvestment

refers to the use of retained earnings to replace depreciated assets or to add to a firm's existing stock of capital.

Coordination by plan

requires interdependent units to meet common deadlines and objectives.

Coordination by mutual adjustment

requires managers to interact with counterparts to enable flexible coordination mechanisms, largely informally.

Metanational

seeks uniqueness to exploit elsewhere (prospect, access, leverage tech & trends)

Global integration

standardizes worldwide activities to maximize efficiency;

Sporadic Exporter

takes a passive approach to assessing international trade options. It fills an unsolicited order from the occasional foreign buyer, but prefers to focus on the domestic market.

Boundaries are

(1) vertical divisions that separate employees into specific slots, each marked by explicit superior-subordinate roles, in the hierarchy (2) horizontal divisions that follow from having specific employees do specific jobs in specific units.

Acquisition

(buying an existing company) gain vital resources that are otherwise hard to develop avoid adding further capacity to the market avoid start-up problems

vision

, a future-oriented declaration of its purpose and aspirations, outlines its broad ambitions

Glorecalization

- Globalization-Regionalization-Localization

Equity alliance

is a collaborative arrangement in which at least one of the companies takes an ownership position (almost always minority) in the other(s).

Appropriability Theory

: The idea of denying rivals access to resources is called the appropriability theory. Companies are reluctant to transfer vital resources—capital, patents, trademarks, and management know-how—to another organization for fear of their competitive position being undermined.

2 Views on Exporting: Incremental Internationalization

A sequential process that leads a company to sell initially from its home market to geographically and psychologically proximate countries. From there, it methodically expands, systematically exporting to more dissimilar and distant countries.

Freedom to Pursue Global Objectives

A wholly owned foreign operation permits a company to more easily participate in a global strategy.

Alternative Strategies for Allocating Resources among Locations

Alternative Gradual Commitments Geographic Diversification versus Concentration Reinvestment and Harvesting

1. Alternative Gradual Commitments

Alternative Gradual commitments simply means to enter markets slowly. Liability of foreignness (LOF) have been broadly defined as all additional costs a firm operating in a market overseas incurs that a local firm would not incur. LOF influences companies to minimize risk by favoring operations in countries similar to their own.

Joint Ventures

Although usually thought of as 50/50 companies, JVs may nonetheless involve more than two companies and ones in which a partner owns more than 50 percent.

Management Contracts

An organization may pay for managerial assistance under a management contract when it believes another can manage its operation more efficiently than it can, usually because the contractor has industry-specific capabilities.

Arbitrageurs

Arbitrage is the simultaneous buying and selling of the same product in different markets in order to exploit differences in price.

2 Views on Exporting: Born Global Phenomenon

Born global firms step onto the world stage immediately upon their founding or soon after.

Neoclassical Structures

Boundaries versus Boundaryless Network Structure Virtual Organization

Compensation

Collaboration also implies sharing revenues and knowledge—an important consideration when profit potentials are high.

Market Failure

Collaboration is appealing as an entry strategy because it is a means whereby a firm may reduce its liability of foreignness. But this works only if management can find an associate knowledgeable about the host country at acceptable terms, which may be impossible since such companies may be inadequately equipped to deal efficiently with the entry company's technology.

Factors to Consider in Analyzing Risk:

Companies and their managers differ in their perceptions of what is risky. One company's risk may be another's opportunity. Companies may reduce their risks by means other than avoiding locations. There are trade-offs among risks. Risks may occur for suppliers and within suppliers' supply chains.

Turnkey operations

Companies handling turnkey operations are usually industrial-equipment manufacturers, construction companies, or consulting firms. Manufacturers also sometimes provide turnkey services when they are disallowed to invest.

Why be concerned with location choices?

Companies lack resources to take advantage of all international opportunities.

Configuration choices of the Value Chain

Concentrated Dispersed Location advantages Economies of scale Experience and learning effects Risks of configuration choices

How to Manage International Organizational Structure?

Coordination Systems Control Systems Organizational Culture

Shortcomings of Comparative Country Information Non comparability

Countries do not necessarily publish reports for the same length of time periods or at the same time as each other. So a company must extrapolate in order to estimate how countries compare.

Prior Company Expansion

Each time a company adds products or businesses that it wishes to internationalize, it must decide on an operating form. If it already has operations (especially wholly owned ones) in a foreign country, some of the advantages of collaboration are no longer as important..

Boundarylessness

Eliminating vertical, horizontal, and external boundaries that hinder the flow of information and formation of relationships.

Exporting helps companies:

Expand sales Increase profitability Improve productivity Diversify activities

Problems and Pitfalls to International Traders

Financial Risk Customer Management International Business Expertise Marketing Challenges Top Management Commitment Government Regulation Trade Documentation

Types of Collaborative Arrangements

Licensing Franchising Management Contracts Turnkey Operations Joint Ventures Equity Alliances

Value chain is dispersed and subsidiaries adapt to local conditions. International Localization Global Transnational

Localization

Shortcomings of Comparative Country Information Inaccuracy

for a variety of reasons, data could be outdated, published results could be misleading, and questionable methodology could be used.

Value activities are coordinated from a global perspective to maximize standardization and control costs. International Localization Global Transnational

Global

Global Strategy

Global strategy make standardized products that are marketed with little adaptation to local conditions exploit location economies and capture scale economies The strategy works well when the MNE is the cost leader there is low pressure for local responsiveness there is high pressure for global integration

Localization Strategy

Localization strategy emphasizes responsiveness to the unique circumstances that prevail in a country's market value added activities are adapted to local markets The strategy works well when the firm's core capabilities provide unity with minimal significant centralized control there is high pressure for local responsiveness there is low pressure for global integration

Internalization Theory

Internalization is control through self-handling of operations. The concept comes from transactions cost theory, which holds that companies should seek the lower cost between self-handling of operations and contracting another party to do so for them.

The company strategy focuses on the transfer of skills and expertise from parent to international unit. It features centralized coordination. International Localization Global Transnational

International

International Strategy

International strategy leverage a company's core competencies into foreign markets critical elements of the value chain are centralized at headquarters The strategy works well when the firm has core competencies that foreign rivals lack there is low pressure for global integration there is low pressure for local responsiveness

Great by Choice

Manager's insight in terms of acquiring resources, organizing capabilities, and developing competencies, rather than the structure of the industry, fundamentally shapes strategic success.

core competency.

Managers bundle resources and capabilities to create a core competency

Step 1: Scanning

Managers gather and analyze information including: Yes or no - "Does the country allow 100 percent ownership of foreign direct investments?" the answer is "yes" or "no." Direct statistics - "What is the highest marginal tax rate on corporate earnings?" direct information is available from tax schedules. Indirect indicators - "What are the potential sales for my product?" estimates must use indirect indicators, such as those based on per capita GDP and population size. Qualitative assessment - "What will be the future political leaders' philosophy about IB?" a qualitative assessment is necessary based on different opinions and indirect Indicators.

What is scanning?

Managers use scanning techniques to examine and compare countries on broad indicators of opportunities and risks.

Step 2: Detailed Analysis

Once narrowing the number of countries, managers need to compare them in greater detail. They almost always need to go on location to collect and evaluate more specific information. The more time and money companies invest in examining an alternative, the more likely they are to accept it regardless of its merits - a phenomenon known as escalation of commitment.

Why Choose FDI over Export?

PTDDGO Peanut Tillman Doesnt Drink Good CocunutOil When production abroad is cheaper than at home When transportation costs are too high for moving goods or services internationally When companies lack domestic capacity When products and services need to be altered substantially to gain sufficient consumer demand abroad When governments inhibit the import of foreign products When buyers or regulations prefer products originating from a particular country.

Types of Risks

Political risk Economic risk Foreign exchange risk Natural disaster risk Competitive risk

Considerations with Global Integration or Local Responsiveness

Potential to standardize Responding to local customers preferences Institutional agents Mapping interaction

Hybrids of the two strategies

for example, moving rapidly to most markets but increasing commitment in only a few.

Opportunities: Sales expansion

Probably the most motivating factor for IB engagement. Economic and demographic factors to consider: Obsolescence and leapfrogging of products Demand for necessities versus discretionary products Substitution Income inequality Cultural factors and taste Existence of trading blocs

Export Assistance

Public Agencies U.S. Commercial Service office Private Agencies Export Management Company (EMC) Export Trading Company (ETC) Freight Forwarders Third-Party Logistics (3PL's) Customs Brokers

Trade-offs and Limitations

Recall from Figure 15.2 that operating modes for foreign operations differ in the amount of resources a company commits and the proportion of the resources it locates abroad. In this respect, keep in mind that there are trade-offs. A decision, let's say, to take no ownership abroad, such as by licensing another company to handle foreign production, may reduce exposure to political risk.

Control Mechanisms

Reports Visiting subsidiaries Information system

Why is scanning important?

Scanning is like seeding widely and then weeding out; It is useful insofar as a company might otherwise consider too few or too many possibilities. However, comparison among countries is not always practical.

Coordination by standardization

Standardization sets universal rules and procedures that apply worldwide and enforces consistency in performance of activities in geographically dispersed units.

Industrial Organizations (IO)

The IO outlook sets the external environment as the primary determinant of an MNE's strategic plan.

draw the grid

grid

Decisions related to location choices

The location of sales, production, R&D, customer service, etc. The sequence for entering different countries. The portion of resources and efforts to allocate to each country where they operate.

Licensing

The rights for use of intangible property may be for an exclusive license (the licensor can give rights to no other company for the specified geographic area for a specified period of time) or a nonexclusive one.

Considerations for Collaborative Success

Things to consider for Collaborative Success Fitting modes to country differences. Finding and evaluating partners. Negotiating agreements: The question of secrecy. Controlling through contracts and trust. Evaluating continually. Adjusting the internal organization.

Opportunistic

This type of importer looks for products around the world that it can import and profitably sell to local citizens.

Input Optimizers

This type of importer uses foreign sourcing to optimize, in terms of price or quality, the inputs fed into its supply chain.

International Motives for Collaboration

To gain location-specific assets. To overcome governmental constraints. To diversify geographically. To minimize risk exposure.

General Motives for Collaboration

To spread and reduce costs To specialize in competencies To avoid or counter competition To secure vertical and horizontal links To gain knowledge

Factors to Consider in Choosing Collaborative Arrangements

Trade offs and Limitations What's the purpose? Alliance types Scale alliances Link alliance Vertical alliance Horizontal alliance Prior company expansion Compensation

Promotion of worldwide learning. Manages the tensions of global integration and local integration, leveraging specialized knowledge. International Localization Global Transnational

Transnational

Transnational Strategy

Transnational strategy simultaneously leverages core competencies worldwide, reduces costs by exploiting location economics, and adapts to local conditions The strategy works well when global learning and knowledge flows are emphasized there is high pressure for local responsiveness there is high pressure for global integration

Organization Structure

Vertical Differentiation Centralization Decentralization Horizontal Differentiation Functional Divisional Global Matrix Mixed Structure

Virtual Organizations

Virtual Organization uses technologies to connect otherwise detached entities (from employees to entire enterprises) Technology "Work across space, time, and organizational boundaries with links strengthened by webs of communication technologies"

Opportunities: Resource acquisition

When undertaking IB to secure resources (e.g., labor, raw materials, knowledge), companies are limited to those locales that likely have what they want. Cost Considerations: Several of the factors affecting a company's total cost: Labor Infrastructure External connections Government incentives

Reasons for Collaborative Failures

Why do collaborative arrangements fail? Relative importance to partners. Divergent objectives. Control problems. Comparative contributions and appropriations. Differences in culture.

Concentration strategy

a firm moves into a limited number of countries and develops a strong competitive position there before moving into others.

Diversification strategy:

a firm moves rapidly into many foreign countries and then gradually builds its presence in each

network structure,

a leading neoclassical format, arranges roles, relationships, and responsibilities in a patterned flow of activity that allocates people and resources to decentralized projects. It t is anchored by a core unit that outsources activities in which it has no core competencies

Local responsiveness

adapts local activities to optimize effectiveness.

Regular Exporter

aggressively pursues export sales as a productive, profitable, strategic activity is a regular exporter.

IB Strategy

an integrated set of choices and commitments that supports and sustains an MNE's competitiveness. It defines and communicates an MNE's plan on how it will use its resources, capabilities, and competencies to compete in different countries.

Resources

are inputs into an MNE production process.

Micro-multinational

born global

go-no-go decisions

by examining one opportunity at a time and pursuing it if it meets some threshold criteria.

Non-Exporter:

commands little to no knowledge about exporting and often has no interest in international trade.

Mission

communicates what the MNE is going to do, why it's going to do that, and the general approach to doing so.

Direct Exporting

company directly sells its products to an independent intermediary, such as an agent, distributor, or retailer outside its home country. The intermediary then sells the product to the local consumer.

Indirect Exporting

company sells its products to an independent intermediary in the domestic market, which then exports the product to its foreign agents, who then sell it to the end consumer.

Bureaucratic Control

emphasizes organizational authority and relies on rules and regulations.

Alliances

vary by objective and by place in the value chain. These variances have led to terms that describe different types. Scale alliances aim to provide efficiency for partners by pooling similar operations, such as airlines have done by combining their lounges. In a link alliance, firms use their partners' complementary resources to expand into a new business. Nokia did this to develop and market cellular phones. A vertical alliance connects firms in different links of their value chains, such as a food franchiser with a franchisee. A horizontal alliance, such as the Mexican joint venture between Mercedes and Infiniti, enables each partner to extend its product offerings.