MGMT 478 Exam 2
Sharing Economy
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Why Firms Diversify
-Acts as a financial buffer against competition -Allows firms to leverage core competencies and exploit opportunities in other industries
Disadvantages of Global Expansion: Liability of Foreigness
-Additional costs of (a) doing business in an unfamiliar cultural and economic environment and (b) coordinating across geographic distances -e.g. Walmart's failed expansion going into Germany
Fully Vertically Integrated
-All activities are conducted within the firm (Weyerhauser Paper Co.)
What type of Integration does Amazon represent?
-Backward integration: Amazon Elements -Forward integration: Amazon books
Ethical Universalism
-Belief that concepts of right and wrong are universal -CSR practices should be the same across countries
Ethical Relativism
-Belief that ethical norms vary across countries -CSR practices should be in accordance with local norms
Common Corporate Political Strategies
-Campaign contributions -Traditional lobbying -Revolving door politics -Hosting politicians -Indirect lobbying (sometimes covert) -Direct covert lobbying
Make Advantages
-Command and control of decisions -Increased coordination of specialized tasks -Potential to reap greater profits
Benefits of the Sharing Economy
-Creation of new services -Individuals ability to make extra income -Consumers pay lower prices
Uber Case CAGE Factors
-Cultural: willingness to pay, people's use of transportation, lifestyle/needs, -Administrative: regulations on ride-sharing, patent protection, governmental incentive programs, corruption -Geographic: distance, difficulty in regulations, terrain/roads, population density -Economic: cost of alternatives, disposable incomes, access to smartphone capabilities, employee startup costs, exchange rates
Sharing Economy
-Economic model that allows people to rent or borrow assets owned by others
Ethical Dilemma: Leaving Liberia in 1992
-FF lose resources, Community lost economic development, competitors got more opportunity -Recommend: employee comp. and relocation, get out and stay out
Diversification
-Firm's decision to offer new products/services within and across industries and geographic markets
Backward Vertical Integration
-Firm's ownership of its production of needed inputs (raw materials, intermediate goods, manufacturing)
Forward Vertical Integration
-Firm's ownership of the channels by which it distributes its products (Marketing, Sales, After-Sales Service)
Importance of CES
-Firms confront increased demands to contribute to achieving the United Nations 2030 Sustainable Development Goals -Firms are increasingly monitored by nongovernmental organizations for their sustainable practices (Greenpeace) -A firm's emphasis on sustainability can attract investors who integrate sustainability considerations into their investment portfolios -Implementation and monitoring of CES initiatives can reduce disasters
Low Degree of Vertical Integration
-Firms focus on one or two areas of the industry value chain (Apple)
Hosting Politicians
-Firms host high-ranking government officials -> generate positive market reactions from investors
Indirect Lobbying (Astroturfing)
-Firms often lobby for or against legislation via astroturf groups (seemingly fake grassroots coalitions of consumers/citizens that lobby for change) -In many cases, the corporate sponsors are not acknowledged (i.e., covert lobbying) -In some cases, an industry association is acknowledged as a sponsor of a coalition, but many citizens believe that the coalition is simply a "front" for firms
Direct Covert Lobbying
-Firms seek to influence legislation by providing funding to a group that is not required to list its donors -ALEC (News story on)
Unrelated Diversification
-Firms tend to combine several unrelated business units across industries under one name (GE Aviation, Healthcare, Lighting, Capital...)
Buy Advantages
-Flexibility in comparing prices among various providers
Integration Responsiveness Framework: Global
-Focus on how MNCs reduce costs in business operations by setting up production hubs (e.g., Texas Instruments) -High cost, low responsiveness
Integration Responsiveness Framework: Localization
-Focus on how MNCs respond to differences in local consumer preferences, national standards, and regulations (e.g., McDonalds) -Low cost, high responsiveness
Integration Responsiveness Framework: Transnational
-Focus on how MNCs simultaneously reduce costs and respond to local differences (e.g., Caterpillar) -High cost, high responsiveness
Integration Responsiveness Framework: International
-Focus on how firms take products meant for the home market and sell them internationally with minimal customization (e.g. Xerox) -Low cost, low responsiveness
Disadvantages of Global Expansion: Potential Reputational Threats
-Globalizing a supply chain can have unintended side effects, including the loss of reputation -e.g. suicides at Foxcon
Timberland Case
-Implemented certification agreements with suppliers -Established a "Green Index" environmental rating system to measure impact in the areas of climate, chemical use, and resource consumption -Selecting processes that use less harmful chemicals -Increase use of recycled, organic, and renewable materials -Working with firms in the Outdoor Industry Association to create an industry-wide index for measuring impact of outdoor products
Perceived Benefits of CSR
-It generates internal benefits (e.g., employee recruiting, workforce retention) -It reduces risk of reputational damage -It is in the best interest of shareholders
Ethical Dilemma: Leaving Liberia in 1990
-Labor force lost security, bad for Liberian economy, consumers had no rubber, decreased stockholder's profits, management lost their way of life -Recommend: hire private military, fund refugees, get out and stay out
Related Diversification
-Less than 70% of revenues come from a single industry and business activities share several competencies (Disney theme parks, movie studio, media networks)
Firestone and the Warlord
-Liberia faced a civil war from 1989 to 1997 -Sparked by Charles Taylor until he was deemed President of the country -Approximately 250,000 people died during this period Firestone, among other firms, became caught in the middle of the civil conflict
Why was Liberia strategically important to Firestone?
-Liberia's political independence -Largest rubber plantation in the world
Ethical Dilemma: Returning to Liberia in 1991
-Liberian community in more danger, as FF was funded, labor force gained employment, FF given funding, neighboring countries got more resources -Recommend: do not go back, work with Liberian gov., convince U.S. gov to intervene, explore other locations
Why was Firestone's plantation strategically important for Charles Taylor?
-Location was close to the capital and a regional airport -Communication technology -Food and other resources (fuel, health clinics)
Single Business Diversification
-More than 95% of firm revenues come from one industry (Coca-Cola)
Variables for Classifying Diversification
-Percentage of Revenue from primary business -Relationship of Core Competencies across business units
Chief Sustainability Officers
-Primarily focus on compliance with domestic and international regulations and creating more efficient, innovative, and cost-effective processes
Make Disadvantages
-Principal-agent problem: Managers (agents) may pursue their own interests at the expense of owners (principals)
Certification Initiatives for CES
-Rainforest Alliance Certified Seal -International Organization for Standardization
Challenges Facing Sharing Economy Firms
-Safety/Trust Concerns -Competition and Imitation -Governmental Regulation
Buy Disadvantages
-Search costs when selecting a provider -Information asymmetries: contractors/providers often have more information than the buyer -Enforcement of contracts may be difficult
Revolving Door Politics
-Situations where former politicians obtain high-level corporate positions or former corporate executives obtain seats on governmental task forces -These situations provide firms with information, access, influence, and reduced uncertainty in decision-making
Corporate Social Responsibility (CSR)
-The actions firms take to address social expectations of primary and secondary stakeholders -Economic, Legal, Ethic, Philanthropic
Sustainability Challenge: Managing the Global Supply Chain
-The biggest sustainability challenge facing firms is ensuring that their suppliers are in compliance with environmental codes of conduct
Traditional Lobbying
-The goal of influencing policy outcomes -Lobbyists must be registered -Firms often hire lobbyists to build relationships with legislators in an effort argue for issues that may benefit firms or against issues that are detrimental to firms
Milton Friedman's Philosophy of CSR
-The social responsibility of a firm is to increase its profits
Integrative Social Contracts Theory
-Universal norms take precedence over local ethical norms -this approach provides a middle ground to CSR
Global Strategy Questions
-What are the advantages and disadvantages of a firm expanding abroad? -Which countries should a firm enter to expand its business? -How does each international expansion fit into a firm's broader global strategy?
Equity Based Agreements
-at least one partner takes strategic ownership in the other partner
Dominant Business Diversification
-between 70 and 95% of revenues come from one industry, but the firm also pursues business in a few other industries -leverages products, services, or technologies across the industries (Harley-Davidson motorcycles, apparel, accessories)
What core competencies are leveraged with Amazon Go initiative?
-brand awareness, innovative marketing, efficient supply chain, customer-centricity
Joint Ventures
-creation of a new entity by two or more parent firms
Strategic Alliances to Strengthen Competitive Position
-e.g. Apple and IBM's non-equity alliance
Strategic Alliances to Hedge Against Uncertainty
-e.g. Coca-Cola investment in Monster
Strategic Alliances to Learn New Capabilities
-e.g. GM and Toyota's joint venture so GM could learn Lean and Toyota could learn how to work with American workforce
Strategic Alliances to Enter New Markets
-e.g., Hulu represents a joint venture between NBC, Fox, and Disney-ABC to enter the video streaming market
Disadvantages of Global Expansion: Loss of Intellectual Property
-engaging in joint ventures can lead to intellectual property exposures when companies operate abroad -e.g. high speed train investments in China
What challenges did Uber confront in China?
-established competitors that were trying to keep Uber out (invested in Lyft) -Uber sold its brand to Chinese brand Didi Kuaidi
What challenges did Uber confront in India?
-established competitors with unique business model -Uber adapted to accomodate for cash payment system and a taxi for hire system
CAGE Distance Framework
-firms consider the distance between the home country and a foreign target country -Cultural, Administrative, Geographic, Economic
Corruption: Pervasiveness
-frequency by which bribes (and related corrupt practices) are requested
Mergers
-joining of two independent firms to form a combined entity
Modes of Foreign Entry
-joint ventures may reduce liability of foreignness -acquisitions or greenfield investments may reduce the loss of reputation and loss of intellectual property
Political Risk
-likelihood that a society will undergo political change that negatively affects business activity
Factors for Managing Strategic Alliances
-partner selection -alliance design -post formation management
Non-Equity Agreements
-partnerships based on a contract between two or more firms; typically licensing and distribution programs
Types of Political Risk
-policy changes, seizure of property, political revolutions and conflicts, terrorism
Why Firms Engage in M&As
-potentially lower costs -reduce competitive intensity (horizontal integration) -gain access to new markets
Hofstede's Cultural Distance Dimensions
-power distance, individualism vs collectivism, uncertainty avoidance, masculinity vs femininity, long-term vs short-term orientation, restraint vs. indulgence
Corporate Strategy
-primarily concerned with WHERE firms compete (industry, stage in value chain, geographically)
M&As Over Time
-reduce shareholder value over time
Corporate Environmental Sustainability
-strategic efforts to meet the needs of stakeholders in a manner that protects the environment and provides for the longevity of resources needed for future generations -common in beverage, energy, and leather industries
Corruption
-the abuse of misuse of public power for private personal benefit
Acquisitions
-the purchase of one firm by another -can be friendly or unfriendly
In the late 1990s and throughout the 2000s, why did Amazon diversify within its primary industry?
-to become profitable
Corruption: Arbitrariness
-uncertainty in whom to pay, what to pay, and whether goods and services will be delivered after payment
Strategic Alliances
-voluntary arrangement between firms the involves the sharing of knowledge, resources, and capabilities -firms have the intent of developing new processes, products, and services
Make vs Buy
Transaction cost economics are all internal and external costs associated with economic exchange