man 4723 exam 2
Launching a new venture requires a special kind of leadership. It involves courage, belief in one's convictions, and the energy to work hard under difficult circumstances. The three entrepreneurial leadership characteristics are vision, dedication and drive, and commitment to excellence.
Entrepreneurial Leadership
At times, an acquiring firm and its target may attain a higher level of sales growth together than either company could do on its own.
Enhancing Revenue and Differentiation through Sharing Activities
involves one firm acquiring the best of the surviving firms in an industry at a reasonable price.
consolidating
requires a tight set of interrelated tactics such as aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of managerial customer accounts, and cost minimization in all activities in a firm's value chain.
cost leadership
Sharing activities provide two potential benefits:
cost savings and revenue enhancements.
can pose substantial risks. A company with operations in several countries must constantly monitor the exchange rate between its own currency and that of the host country.
currency fluctuations
Core competencies—to create synergy for a corporation—must satisfy three conditions:
-must enhance competitive advantage(s) by creating superior customer value -Different businesses in the corporation must be similar in at least one important way to benefit from the core competence. -must be difficult for competitors to imitate or find substitutes for
Cost savings come from many sources such as eliminating jobs, facilities, and related expenses that are no longer needed when functions are consolidated.
Deriving Cost Savings through Sharing Activities
are an essential element of a successful entrepreneurial launch. For start-ups, the most important resource is usually money. However, human and social capital are also important during the early days of a new venture and throughout the life of a small business.
Entrepreneurial Resources
Firms develop strategies and structures to compete with other firms in the same country that are trying to capture the same customer market. Rivalry is particularly intense in nations with strong consumer demand conditions, strong supplier bases, and high new entrant potential from related industries. Such rivalry provides a strong impetus for firms to innovate and find new sources of competitive advantage.
Firm Strategy, Structure, and Rivalry
have become an increasingly popular way for firms to enter and succeed in foreign markets in recent years. These two forms of partnerships differ in that joint ventures entail the creation of a third-party legal entity, whereas strategic alliances do not. In addition, strategic alliances generally focus on initiatives that are smaller in scope than joint ventures.
Joint ventures and strategic alliances
whether or not competitors are vying for the same customers and how many markets they share in common.
Market Commonality
Entrepreneurial firms achieve success by doing more with less. By holding down costs or making more efficient use of resources than larger competitors, new ventures can often offer lower prices and still be profitable. New ventures often have simple organizational structures that make decision making both easier and faster. The smaller size also helps young firms change more quickly when upgrades in technology or feedback from the marketplace indicate that improvements are needed.
Overall Cost Leadership
Two Opposing Pressures exist in international strategy:
Reducing Costs and Adapting to Local markets
the degree to which rivals draw on the same types of resources to compete.
Resource Similarity
Increase at an accelerating rate because (1) new consumers are trying the product, and (2) a growing proportion of satisfied consumers are making repeat purchases. In general, new products and services often fail if there are relatively few repeat purchases.
Revenues in the growth stage
this is among the best known of these approaches. Each of the firm's strategic business units (SBUs) is plotted on a two-dimensional grid, in which the axes are relative market share and industry growth rate.
The Boston Consulting Group's growth/share matrix
Most new entrants are somewhere between "pure" imitation and "pure" pioneering—they offer a product or service that is somewhat new and sufficiently different to create new value for customers and capture market share. Such firms are adaptive because they are aware of marketplace conditions and conceive entry strategies to capitalize on current trends.
adaptive new entry
better understanding of the market, product and customer and can build on the investments made by first movers.
benefits to being a "late mover"
a break in industry tendencies to incrementally improve by offering products that are still in the industry but are perceived by customers as being different.
breakaway positioning
Decisions in this phase of the industry life cycle become particularly important. Hard choices must be made, and firms must face up to the fundamental strategic choices of either exiting or staying and attempting to consolidate the industry.
decline phase
refer to the demands that consumers place on an industry for goods and services. Consumers who demand highly specific, sophisticated products and services force firms to be more innovative to meet such demand. Such consumer pressure presents challenges to a country's industries to also make it more competitive in international markets.
demand conditions
Both pioneering and adaptive entry strategies involve some degree of this. In the case of pioneers, the new venture is attempting to do something strikingly different either by using a new technology or deploying resources in a way that changes the way business is conducted. Offering something that is different enough to be better is an aspect of an adaptive entry as well. A differentiation strategy is generally thought to be expensive to enact. Yet those activities that tend to be expensive—innovation, technology, customer service, distinctive branding—are also areas where new ventures can make a name for themselves.
differentiation
consists of creating differences in the firm's products or service offerings by creating something that is perceived industry-wide as being unique and valued by customers. Differentiation can take many forms, such as prestige or brand image, technology, innovation, features, customer service, or dealer networks.
differentiation
opportunities often come from past work experience, hobbies, or chance encounters. Established firms get ideas from customers, suppliers, or advances in technology. Most opportunities emerge due to some change in the business environment.
entrepreneurial start-ups
involves dropping the product from a firm's portfolio.
exiting
consists of producing goods in one country and selling them in another. This mode enables a firm to invest the least amount of resources in terms of product, its organization, and its overall corporate strategy. Not surprisingly, many host countries dislike this entry strategy because it provides limited opportunities for local employment.
exporting
Modes of Internationalization:
exporting, licensing and franchising, strategic alliances and joint ventures, wholly owned subsidiaries
include not only labor, capital, and natural resources (e.g., land and minerals) but also factors that can be created. The latter are more relevant to developed nations that are seeking competitive advantage over firms in other countries. These include a skilled human resource pool, in addition to the supporting infrastructure of a country, e.g., communication and transportation systems, as well as a stable banking system.
factors of production
The level of available financing is often a strong determinant of how the business is launched and its eventual success. The majority of new firms are low-budget start-ups launched with personal savings and the contributions of family and friends. Bank financing, public financing, and venture capital are often available only after a company has started to conduct business and generate sales. Crowdfunding, the funding of a venture by pooling small investments from a large number of investors, has emerged in recent years as a means to fund entrepreneurial firms. Funds are typically raised on websites that invite and list funding opportunities, such as Kickstarter.
financial resources
The third generic strategy is based on the choice of a narrow competitive scope within an industry. The focuser attains competitive advantages by dedicating itself to a segment or group of segments and tailors its strategy to serving them.
focus
or "niche" strategies provide an effective entry strategy for many new firms. A niche represents a small segment within a market. A young or small firm can play an important role in such a market space if there is an opportunity to thrive in that environment. Typically, a focus strategy is used to pursue a niche. Here's why: If a start-up wants to enter a mature industry, it often has to take business away from an existing competitor. Thus, young firms can often succeed best by finding a market niche where they can get a foothold and make small advances that erode the position of existing competitors. By contrast, if a start-up enters a market with a broad or aggressive strategy, it is very likely to evoke retaliation from a more powerful competitor.
focus
an advantage to being a "first mover" in the market
gain market share and developing brand name product.
A firm whose emphasis is on lowering costs tends to follow this strategy. It emphasizes economies of scale—due to the standardization of products and services as well as the centralization of operations in a few locations.
global strategy
The U.S. government is an important resource for many young and small businesses. It provides support for entrepreneurial firms in two key arenas—financing and government contracting.
government resources
The second stage of the industry life cycle
growth
is characterized by strong increases in sales. The potential for strong sales (and profits) attracts other rivals who also want to benefit. Whereas marketing and sales initiatives were mainly directed at spurring aggregate demand, defined as demand for all such products in the introduction stage, efforts in the growth stage are directed toward stimulating selective demand, in which a firm's product offerings are chosen with those of its rivals.
growth stage
involves obtaining as much profit as possible and requires that costs in the decline stage be decreased quickly.
harvesting
look for opportunities to capitalize on proven market successes. An imitation strategy is used when products or services that have been successful in one market niche or physical locale can be effectively introduced in another segment of the market. If a strategy is easy to imitate, then a major pitfall is that it may be difficult to ever build a sustainable competitive advantage. On the other hand, franchises are built on the concept of imitation—and duplication. Franchising is a type of imitation strategy that often works very well because customers value reliable products that they can trust.
imitative new entry
A firm without a strong emphasis on either differentiating their product and service offerings in order to adapt to local markets or on lowering costs is following this strategy. it is based on diffusion and adaptation of the parent company's knowledge and expertise to foreign markets. Although country units are allowed to make minor adaptations to local markets, they have far less autonomy than local managers who operate under a multidomestic strategy
international strategy
products are unfamiliar to consumers. Market segments are not well defined and product features are not clearly specified.
introduction stage
Going global also allows firms to learn about different market conditions, R&D skills, marketing skills, organizational processes, and managerial practices. Firms can then translate that knowledge back into their home markets.
learning opportunities
two means for accomplishing related diversification
leveraging core competencies and sharing activities
are both forms of contractual arrangements. Franchise contracts typically include a broader range of factors in an operation and have a longer period during which the agreement is in effect. Franchising has the advantage of limiting the risk exposure that a firm has in overseas markets while expanding the revenue base of the parent company.
licensing and franchising
refers to keeping a product going without significantly reducing marketing support, technological development, or other investments in the hope that competitors will eventually leave the market.
maintaining
There are four basic strategies available in the decline phase
maintaining, harvesting, exiting, and consolidating
may be considered the challenges and risks that managers face when they must respond to the inevitable differences that they encounter in foreign markets. These take a variety of forms: culture, language, income levels, customer preferences, distribution systems, and so on.
management risks
Two factors are used to assess whether or not companies are close competitors:
market commonality and resource similarity
The third stage of the industry life cycle
maturity
aggregate industry demand begins to slow. Since markets are becoming saturated, there are few opportunities to attract new adopters. Because it is no longer possible to "grow around" competition, direct competition becomes more predominant—and competition intensifies (often on the basis of price).
maturity stage
Obtaining valuable resources that can help an organization to expand its product offerings and services (examples: Google and Apple), Provide the opportunity for firms to attain the three bases of synergy—leveraging core competencies, sharing activities, and building market power (examples: eBay's acquisition of GSI Commerce), Lead to consolidation within an industry and can force other players to merge (example: the airline industry), Enter new segments
motives and benefits
A firm whose emphasis is on differentiating their product and service offerings in order to adapt to local markets follows this strategy. In contrast to a global strategy, which tends to be highly centralized, decisions are more decentralized to enable the firm to tailor its products and services to rapidly respond to changes in demand.
multidomestic strategy
takes place when a firm decides to shift an activity that they were previously performing in a domestic location to a foreign location.
offshoring
occurs when a firm decides to utilize other firms to perform value-creating activities that were previously performed in-house.
outsourcing
A young firm with a radical new product or highly innovative service may engage in pioneering—creating new ways to solve old problems or meeting customers' needs in a unique new way. If the product or service is unique enough, a pioneering new entrant may actually have little direct competition.
pioneering new entry
Countries vary significantly in their level of this. Such risk can lead to such problems as the destruction of property, nonpayment of goods and services, and the appropriation of a firm's assets in a country.
political risk
the key concept is the idea of a balanced portfolio of businesses. This consists of businesses whose profitability, growth, and cash flow characteristics complement each other and add up to satisfactory overall corporate performance.
portfolio management
Increased market size (Boeing's commercial aircraft; Microsoft; Hollywood films), Take advantage of arbitrage opportunities (financial services firms), Enhance a product's growth potential (soft drink producers PepsiCo and Coca-Cola; Procter & Gamble's personal care products), Optimize the location of every value chain activity (Microsoft)
potential benefits of international expansion
The takeover premium can be very high, Competing firms can often imitate any advantages realized or copy synergies that result from the M&A, Managers' credibility and ego can sometimes get in the way of sound business decisions, Cultural issues can doom the intended benefits from M&A endeavors
potential limitations
uniqueness that is not valuable, Too much differentiation, Too high a price premium, Differentiation that is easily imitated, Dilution of brand identification through product-line extensions, Perceptions of differentiation may vary between buyers and sellers
potential pitfalls of differentiation strategies
Erosion of cost advantages within the narrow segment, Even product and service offerings that are highly focused are subject to competition from new entrants and imitators, can become too focused to satisfy buyer needs
potential pitfalls of focus strategies
Too much focus on one or a few value-chain activities, Increase in the cost of the inputs on which the advantage is based, The strategy is imitated too easily, A lack of parity on differentiation, Reduced flexibility, Obsolescence of the basis of cost advantage
potential pitfalls of overall cost leadership strategies
enable firms to more effectively manage inputs. For example, countries with a strong supplier base benefit by adding efficiency in downstream activities. That is because a competitive supplier base helps a firm obtain inputs using cost-effective, timely methods it contributes to reducing manufacturing costs.
related and supporting industries
enables a firm to benefit from horizontal relationships across different businesses in the diversified corporation. There are two means for accomplishing this: (1) leveraging core competencies, and (2) sharing activities.
related diversification
is another means by which the corporate office can add substantial value to a business. Here, the corporate office tries to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change.
restructuring
has become a recent important motivation for international expansion. Here, companies have committed significant resources to developing products that meet the needs of developing nations—and such innovations provide opportunities for success in wealthier companies.
reverse innovation
a change in industry tendencies to continuously improve products by offering products with fewer product attributes and lower prices.
reverse positioning
Two positioning strategies that managers can use in the maturity stage include:
reverse positioning & breakaway positioning
New ventures founded by entrepreneurs with extensive social contacts are more likely to succeed than ventures started without social networks. If the founders have contacts that will vouch for them, they gain exposure and build legitimacy faster. The social capital of entrepreneurs can be both built and leveraged through strategic alliances
social capital
can also be achieved by sharing tangible activities across business units. These include value-creating activities such as common manufacturing facilities, distribution channels, and sales forces.
synergy
low sales growth, rapid technological change, operating losses, and the need for strong sources of cash to finance operations. Since there are few players and not much growth, competition tends to be limited.
the early development of an industry typically involves
attains competitive advantages by dedicating itself to a segment or group of segments and tailors its strategy to serving them
the focuser
Prior to actually observing a competitive action, effort is needed to become aware of potential competitive threats. Awareness of the threats posed by industry rivals allows a firm to understand what type of competitive response, if any, may be necessary.
threat analysis
Multinational firms following this strategy strive to optimize the trade-offs associated with efficiency, local adaptation, and learning. It seeks efficiency not for its own sake, but as a means to achieve global competitiveness. It recognizes the value of local responsiveness, but as a tool for flexibility in international operations. Also, a core tenet of the transnational model is that a firm's assets and capabilities are dispersed according to the most beneficial location for a specific activity
transnational strategy
Asset and cost surgery, Selective product and market pruning, Piecemeal productivity improvements
turnaround strategies
represents an expansion or extension of the firm by integrating preceding or successive productive processes. That is, the firm incorporates more processes toward the original source of raw materials (backward integration) or toward the ultimate consumer (forward integration).
vertical integration
s a situation in which a multinational company owns 100 percent of the stock in the venue. There are two means by which a firm can establish a wholly owned subsidiary: acquisition of an existing company or developing a totally new operation, termed a "greenfield venture."
wholly owned subsidiaries
