Strategy Final Exam

Different Business Model to lower costs

(1) eliminate activities or steps in the value chain (Ryanair - doesn't serve food) (2) perform completely new activities - amazon started selling books in a new way

Categories of innovative strategy

+ 7. Create a platform to share assets - Uber/Airbnb

Strategic implications of the scale/experience curve

+ Acquisition strategy - can be useful to predict cost synergies: the amount by which costs will likely decrease if two firms combine their volume/scale

4 Ways to create value in alliances

1. Combine unique resources - to create a more powerful offering (pixar and disney) 2. Pool similar resources - to achieve economies of scale that neither could achieve on their own (Intel and Micron when entering flash memory market) 3. Create new, Alliance-specific resources - to increase efficieny of doing business together or to expand available resources to all partners (Toyota Boshoku built manufacturing plant next to toyota to reduce costs) 4. Lower transaction costs - costs associated with making transaction happen (fewer sales personnel and costs of creating a contract)

Porter's Five Forces Model Elements

1. Competitive rivalry 2. Threat of new entrants 3. Threat of substitutes 4. Bargaining power of buyers 5. Bargaining power of suppliers

Types of Strategic Alliances

1. Contractual (non-equity) alliances 2. equity alliances 3. joint ventures

How are strategies formulated?

1. Corporate level 2. Business level 3. Functional level

Ways to neutralize bargaining power of suppliers (key question)

1. Create cost of switching 2. Develop alternative sources of supply 3. Ally with a supplier and encourage supplier to make non-redeployable (transaction-specific) investments to provide inputs to you as the customer at lowest possible cost (contracts) 4. Diversify your product offerings to diminish your dependen of business on any particular supplier 5. Narrow the sell options of supplier through market consolidation, merger or alliances

Reasons for stakeholder model (I don't think I need to know this)

1. Describes what managers actually do - spend most of their time interacting with and managing the demands and needs of different stakeholder groups. This includes working to better understand and meet customer needs, negotiating wages, dealing with working conditions for employees, responding to government regulations, and reacting to the demands of special interest and advocacy groups. 2. many people believe that stakeholder groups have the right to be considered in decisions that will have an impact on them. 3. Stakeholders can assist in creating competitive advantage

List the four primary ways companies differentiate their product from the competition.

1. Different product/service features 2. Convenience 3. Brand Image 4. Reliability

Four primary ways that companies differentiate their products

1. Different/superior product/service features 2. Better quality/reliability (Toyota/honda) - offer same features but last longer 3. More convenient to find, purchase, use (star-bucks, coca cola) 4. Brand Image (Harley Davidson, Prius, Jello) - when products are differentiated through marketing. Often turn to this source when they have difficult time differentiating product based on features, reliability or convenience

Three ways that a product can offer superior features

1. Does a "better job" on existing features - Nordstrom, dyson vacuums have better "suction" 2. Does "more jobs" than other products - iphone, digital camera 3. Does a "unique job" that nothing else does - Disney, Build-a Bear (w/ mass customization)

Two basics of competitive advantage

1. Doing different things (Skype) 2. Doing similar things differently (Southwest)

Types of Arbitrage

1. Economic 2 Capital 3. Cultural 4. Administrative

When choosing a country to enter, business leaders should seek to minimize the "distance." Please name the four types of distances:

1. Economic distance 2. Cultural 3. Administrative 4. Geographic

Examples of barriers to entry

1. Economies of scale, experience, or learning 2. Patents or proprietary technology 3. Capital requirements 4. Network effects 5. Government policy restrictions 6. Switching Costs due to learning, customer investment, loyalty programs, network effects. 7. Access to scarce resources (inputs, distribution, locations) 8. Economies of scope, less expensive costs per unit created by bundling different types of products 9. Product complexity

Exploiting and expanding resources and capabilities through diversification employs the Six Ss mechanisms to create more value (w/ examples)

1. Employing SLACK - utilizing unused resource capacity (Delta uses extra space on flights to carry freight) 2. Creating SYNERGY - create more value together than separately (Disney films and theme park) 3. SHARED KNOWLEDGE - Leverage core competencies. Collective knowledge that can be distributed throughout the organization to create value (Ex: Honda uses knowledge of engines to diverse downstream markets (cars, lawnmowers, generators, etc.) 4. SIMILAR model - utilizing core business functions. 5. SPREADING capital - share funds or talent 6. STEPPING STONE - entrance to a new industry. Path involves "short leaps" executed over time that allow company to acquire new resources and capabilities. MUST MIGRATE THROUGH ADJACENT INDUSTRIES to acquire skills and capabilities

Modes of entry into a foreign country - how firms get into another country

1. Exporting 2. Licensing and franchising 3. Alliances and joint ventures 4. Wholly-owned subs

Purpose of Five forces model

1. Five forces help explain why industry profitability is what it is and why it might be changing 2. Attractive (profitable) industries are those where firms have created power over buyers and suppliers, created barriers to entry to reduce the threat of new entrants, and minimized the threat of substitutes while keeping rivalry to a minimum.

Two types of vertical integration

1. Forward 2. Backward

Which strategy (entry mode) to choose?

1. Global strategies require more control, moving firms toward exporting and wholly owned subsidiaries 2. Multidomestic strategies encourage local innovation, which could involve joint ventures, franchising, or autonomous wholly owned subsidiaries. 3. Arbitrage strategies require ownership, suggesting that exporting and licensing/ franchising will not be good choices.

Three types of horizontal diversification

1. Greenfield or organic entry 2. alliance 3. acquisition

5 reasons firms expand internationally

1. Growth - they need to grow sales (saturated market) 2. Efficiency - (1) lower-cost resources, (2) longer product life, (3) economies of scale and scope 3. Managing risk - economic slowdown, natural disaster, etc. in one country may be offset by another country 4. Knowledge - gain more knowledge, identify new customer needs, more innovation 5. Responding to customers or competitors - Often to replicate competitor's actions otherwise might have a significant disadvantage.

Risks of alliances

1. Hold-up 2. Misrepresentation 3. Other

Examples of Fairness/cheating

1. Honest accounting and record keeping 2. Truth in advertising

Stages of consumption chain

1. How do consumers become aware of a need for your product/service? 2. How do consumers find your offering? How do consumers make their final selections (priority of attributes)? 3. How do consumers order and purchase your product? 4. How is your product/service delivered? 5. How is your product/service paid for? 6. How is your product stored/moved around? 7. What do consumers need help with when they use the product? 8. What if customers aren't satisfied and need to return or exchange? 9. How is your product repaired, serviced, disposed of?

Experience Curve

A representation of the relationship between cumulative volume and product cost. Costs per unit change with increases in cumulative volume produced Law of experience: costs per unit decreases with increases in cumulative volume of production

Wholly-owned sub

A unit in foreign country that is wholly owned by the parent company

Define value chain

A visual description of the steps required to turn raw materials into finished products and/or services. Each activity is meant to add value. The value chain also describes key functions of the company linked to each stage and functions that span its productive activities. From image - X-axis are the key activities which create value Y-axis are the departments, people and jobs of the organization and which of these areas on the value chain do we need to improve.

Which of the following statements is a characteristic of a disruptive innovation? A. It disturbs an existing market by displacing an earlier technology B. It typically uses old technologies used by competitors in the market C. It sustains a company's current product offering by the firm's established knowledge D. It typically offers value in a way that is easy to imitate

A. It disturbs an existing market by displacing an earlier technology

Identify an accurate statement about blue ocean strategy. A. It involves creating new demand by targeting noncomsumption-individuals. B. It disrupts an existing market by displacing an earlier technology. C. It uses low-end disruptive innovations to compete in the market. D. It relies on its existing knowledge of products to improvise on new features

A. It involves creating new demand by targeting noncomsumption-individuals.

Which of the following is true of product differentiation? A. It is a matter of customer thought and perception B. It cannot occur when two companies use similar technologies. C. It does not typically require higher costs. D. It is independent of intangible features such as brand image and value.

A. It is a matter of customer thought and perception

Tokef Inc., a U.S.-based firm, adopts a multi-domestic strategy to enter the Japanese market. Which of the following is likely to be true in this case? A. It is likely to focus on local responsiveness over standardization B. It is likely to focus on economies of scale over local responsiveness C. It is likely to focus on global standardization over local responsiveness D. It is likely to focus on standardization over mass customization

A. It is likely to focus on local responsiveness over standardization

Which of the following is an ancient Greek word for excessive pride, arrogance, or overconfidence that is used to refer to the actions of managers when they diversify or make acquisitions based on their own experience or gut feelings rather than on solid data and research?

A. Kanban B. Hubris C. Agora D. Kaizen

________ occur(s) when some products or services are more convenient to use because there is a large network of other users.

A. Network ethics B. Network effects C. Network latency D. Network virtualization

TinyToys Inc. is a company that manufactures toys. Which of the following would be its secondary stakeholder? A. Other local toy manufacturers B. Companies that supply its raw materials C. People who purchase its toys D. People who work for the company

A. Other local toy manufacturers

Azure LLC is a toy manufacturing company. The company has recently started manufacturing industrial wiring for construction companies. In this scenario, Azure LLC has chosen _________.

A. Related diversification B. Unrelated diversification C. Related-linked diversification D. Related-constrained diversification

Global strategy

Aggregate and Standardize to Gain Economies of Scale - Most firms that pursue a global strategy standardize their products, marketing, and operational practice, and aggregate or centralize them in a few locations to achieve economies of scale. low-cost strategy

Alliances and joint ventures

Alliances - An agreement between two businesses to cooperate on a mutually beneficial project. It usually involves the sharing of resources and/or knowledge. Joint venture - An alliance between firms involving the creation of a new entity where both firms provide assets and/or knowledge, processes, or technology.

Takeover

An acquisition where the acquiring firm absorbs the target firm. The target firm ceases to exist.

Merger

An acquisition with the goal of creating a new firm from the components of the two pre-acquisition firms.

Vertical alliance

An alliance between firms that are positioned at different stages along the value chain, such as a supplier and a buyer.

Horizontal alliance

An alliance between two firms that do not have a supplier-buyer relationship and are typically positioned at a common stage of the value chain (e.g., competitors). Horizontal alliances can also occur between companies that don't do the same activities but do complementary ones

Joint venture

An alliance in which collaborating firms create and jointly own a legally independent company. The new company is created from resources and assets contributed by the parent firms. The parent firms jointly exercise control over the new venture and consequently share revenues, expenses, and profits.

Proxy offer

An attempt by dissatisfied investors or stakeholders to gain seats on the board of directors, or to influence corporate policy.

Diseconomies of scale

An increase in marginal cost when output is increased If a company continues to increase its volume beyond the minimum efficient scale, the cost per unit starts to increase - Can occur because large plants become very difficult to manage - increased waste and low employee motivation

Tender Offer

An offer by those hoping to control the corporation to purchase shares of dissatisfied investors.

Stakeholder

Any person or group that can affect or is affected by the activities of the corporation. The primary stakeholder groups for most organizations are shareholders, customers, suppliers, employees, and local communities (including governments). Secondary stakeholders include competitors, national or global communities, and many special-interest groups, such as those working to protect the natural environment.

Which of the following is not one of the four ethical orientations discussed in Chapter 13? A. Caring for and avoiding. harm to individuals B. Concern about adequate compensation C. Recognition of things as sacred or degraded D. Praise of liberty and condemnation of oppression

B. Concern about adequate compensation

Three reasons to vertically integrate

Capabilites ex: Nike chooses to focus on design and marketing and allow manufacturers to to a better job making shoes.

Who benefits from a good business strategy?

Capital market stakeholders (Shareholders, banks, etc.) Product maret stakeholders (customers, suppliers) Organizational stakeholders (employees) Community stakeholders (communities, government, community activists

Economic arbitrage

Capitalizing on differences in costs by buying where costs are low and selling where prices are high. This is the traditional, age-old, definition of arbitrage.

Cultural arbitrage

Capitalizing on differences in culture between countries by actively using the culture of one country as a selling point for products being marketed in another country (Ex: france wine sales at higher price bc from france)

Administrative Arbitrage

Capitalizing on differences in taxes, regulations, and laws between countries by operating where they are the lower or more lax

Capital arbitrage

Capitalizing on differences in the cost of capital by acquiring capital where it is less expensive.

Economies of Scope

Companies reduce costs (not by increasing volume of production) but by expanding the scope of its operations to related activities so that some costs can be shared. The average total cost of production decreases as a result of increasing the number of different goods purchased. Cost of conducting two business activities within the same company is less than the cost of those same two businesses operating separately.

What is Strategy?

Company's dynamic plan to gain and sustain competitive advantage in the marketplace. Includes four interrelated strategic choices strategy --> competitive advantage --> shareholder value

Competitive Rivalry Definition

Competition among firms w/in an industry. Typically this involves firms putting pressure on each other and limiting each other's profit potential by attempting to gain profits and/or market share

Learning Curve

Concept that labor costs per unit decrease with increases in volume due to learning. New skills or knowledge can be quickly acquired initially, but subsequent learning becomes much slower.

How is value created through diversification?

Exploiting and expanding resources and capabilities Diversification adds value when it allows the combined businesses to deliver greater value and utility to new or existing customers than the firm coils without being diversified. Diversification also adds value if the combined businesses reduce the firm's overall cost of producing goods or services.

A strategic alliance is a non-cooperative arrangement in which two or more firms combine their resources and capabilities to create new value.

False

Strategic management is best described as the processes and structures that provide the ultimate decision making authority for a firm. True False

False - corporate governance

Product attributes customer segmentation

Features of the product Ex: customers looking to buy a motorcycle will place different value on different attributes (speed, reliability, ease of handling, gas consumption, customizability, etc.) Honda vs. Harley Davidson offers different attributes that different customers care about.

Threat of New Entrants

Firms try to discourage new entrants by building barriers to entry

Examples of value chain reconfiguration

For mass customization: Build-a-bear (When a company mass-produces the various modules of the product and then allows the customer to select which modules will be combined together.) Eliminate steps in value chain: This is the approach that Netflix used to gain a cost advantage against Blockbuster and Redbox. Amazon used this same approach—selling books over the Internet—to offer books at lower cost than Barnes & Noble --> eliminated need for a store

Ethic of care

In a good society, individuals care for each other, exhibit empathy with others, and focus on meaningful relationships. Relationships matter most. Strategies that marginalize certain groups or management techniques that threaten relationships are immoral for those who believe in the ethic of care.

Two types of innovative strategy

Incremental innovation: Building on a firm's established knowledge base to create minor improvements to the product or service a firm offers. Radical innovation: Innovation that draws on a different knowledge base, technologies, or methods to deliver value in a truly unique way.

Process for Successful Entry

Indirect assault - one of the most successful ways to enter industry is to come in like Honda through low cost indirect fashion

Principals

The shareholders of a corporation, also called the principals, want to maximize the return on the dollars they've put into the firm; they want the corporation managed in a way that maximizes revenue and minimizes cost, leaving the most profit. Includes shareholders and stakeholders

Hold-up

When one partner tries to exploit the alliance-specific investments made by another partner. Managers must be aware that whenever they make investments in equipment, facilities, or processes that are customized to a partner—and therefore not easily redeployable to other uses—there is the potential for the partner to hold up their company. Ex: Once Toyota Boshoku built its factory next to Toyota, it gave Toyota an opportunity to "hold up" Boshoku by renegotiating lower prices after Boshuku made the investment. Boshoku prevented this risk by creating an equity alliance with Toyota.

When are equity alliances preferred?

When parties in an alliance need incentives to bring their best resources to the alliance (aligns incentives).

How is competitive advantage achieved?

Which market will you compete in? What unique value do you bring to those markets? What resources and capabilities are required to offer unique value better than competitors? What barriers to imitation do you have - ways you sustain the advantage by preventing imitation

Unique value

Why we win with customers - the firm's value proposition (cost or differentiation)

Examples of avoiding harm

Working condiitions, working hours and housing, product recalls

Related-linked diversification:

a firm that operates in related markets, but fewer linkages exist between the new and existing markets than the elements create separately

Economies of Scale

a reduction in costs per unit due to increases in efficiency of production as the number of goods being produced increases

Transnational or mass customization strategy

a strategy involving a combination of both local responsiveness and standardization

What is corporate level strategy?

decisions that are made by senior corporate executives about where to compete in industries and markets

Utilitarianism

greatest good for the greatest number of people

Differentiation

providing unique value that allows a firm to command a premium price for its product or service (relies on consumers willingness to pay more)

Exporting and when to use

sending goods or services to another country for sale When to use: 1. When little adaption of product is required and good distribution networks are in place in foreign market. 2. Cultural or administrative distance is large 3. If speed to market is important 4. Maximizes scale: utilization of existing facilities When not to use: 1. High transportation costs and government trade tariffs 2. Company and products viewed as "foreign" 3. Fluctuations in exchange rates impacts prices in foreign market least risky 4. Limited access to local information

Acquisition and when to use it

the purchase of another company or its assets When to use it: 1. when firm needs to quickly expand its resources and capabilities to compete 2. When delay is costly (often for tech companies) 3. When industry favors competitors with large scale or is characterized by a steep learning or experience curve

Concentrated industry

typically dominated by a few large firms (fewer competitors). Rivalry much less. Smaller competitors don't have capacity to respond & few large competitors very aware of each other

Network effects

when the value of a product increases with the number of users. Virtuous circle: when more sellers attract more buyers, who, in turn, attract more sellers.

multidomestic strategy

Adapt to fit the local market differentiation strategy

Coordination reason for vertical integration

1. The greater the interdependence between activities, the more it makes sense to vertically integrate

Dangers of outsourcing

- loss of capabilities - loss of control over critical assets or activities Know example of Dell - The company's ability to generate high profits with only a few assets was possible because it outsourced most of the components and operations associated with making its PCs to outside suppliers. This allowed it to focus on computer design, final assembly, sales and distribution, and service. Although Dell outsourced to increase efficiency and improve its performance, other companies in the industry chose the opposite approach. ASUS, a Chinese company that was the recipient of much of Dell's outsourcing, began making circuits and motherboards for Dell (and other PC manufacturers) cheaper than Dell could. ASUS had a cost advantage from manufacturing circuits and motherboards in China and soon became the world's largest manufacturer of PC motherboards.5 As ASUS produced more and more of Dell's components, it increased both sales and profits. Over time, ASUS continued to build new manufacturing knowledge and capabilities, moving upmarket behind Dell, from circuits and motherboards to supply chain management, computer assembly, and computer design. Eventually, in 2007 ASUS launched its own inexpensive Eee PC in Taiwan at a price tag of $340, and the computer quickly sold out.

Four principal factors that create economies of scale

1. Ability to spread fixed costs of production 2. Ability to spread non-production costs - R&D, advertising, distribution, G&A, finance 3. Specialization of machines and equipment - A firm that has high volumes of production is often able to purchase specialized equipment that small firms can't afford due to their lower production volumes. 4. Specialization of tasks and people - (1) small firms do not have the volume necessary to justify high levels of employee specialization (2) When they do hire specialized employees there may not be enough work to keep them busy all of the time

Ways to lower input costs

1. Bargaining power over suppliers - (1) purchasing higher volumes (2) purchasing and negotiating tactics 2. Cooperation with suppliers - toyota has good relationship with supplier 3. Location advantages - source inputs from lowest-cost location 4. Preferred access to inputs - companies can get particular inputs more easily than others (oil companies in Saudi Arabia)

Buyer power elements

1. Buyer bargaining power: a. Buyers switching costs b. Buyer demands c. Number, or concentration, and size of buyers - if few buyers but many sellers, seller must compete more strongly for buyer business. d. Credible threat of backward integration - when a buyer exerts pressure over suppliers by threatening them with backward integration, meaning they will make the product themselves. 2. Buyer price sensitivity:

Four main ethical concerns

1. Caring for and avoiding harm to individuals 2. Fairness and condemnation of cheating (honesty) 3. Recognition of sacred/transcendent - ensure products and services confirm to religious norms 4. Praise of liberty and overcoming oppression

Describe the BCG Matrix and how it works

1. Cash cow - can generate large cash flows that can be used to fund growth businesses 2. Stars - smart managers invest heavily in these units to maintain or improve their position over time. 3. Question marks - conundrum for management because they require significant investment and effective strategic management if they want to become stars. 4. Dogs - divest

Why don't more companies attempt a low end disruption?

1. In many cases, rivals do not attempt to respond to a new low-cost offering. Why don't they respond? They see little to gain by selling what they view as an inferior, inexpensive product to a price-sensitive niche market. After all, why would Harley-Davidson want to offer an inexpensive motorcycle? The margins are small, and Harley might tarnish its brand by offering an inexpensive, possibly inferior, motorcycle. Instead, companies like Harley focus on the needs of their most profitable customers, who tend to ask for more features and better performance from their products. By the time they realize that the new low-end product has improved its performance enough to attract their mainstream customers, incumbents find it is too late to respond. 2. Some organizations also find it difficult to respond because a response would require them to develop a new set of resources and capabilities. Integrated steel makers would have to learn how to make steel using mini-mill technology. Harley-Davidson would have to learn to produce smaller motorcycles in large volumes at low cost. 3. Finally, some companies are afraid of cannibalization. They are concerned that if they provide a less-expensive offering, customers will switch to it, resulting in a loss in revenues and profits. Short response - You have to have some sort of cost advantage. This approach can sometimes be duplicated. But also, Often means you have a lesser brand name.

Three reasons for the shareholder primacy model

1. Legal owners of the corps assets 2. Financial capital is critical resource for business success 3. A single objective to maximize - corps that try to maximize welfare of others (society, employees) don't actually do so and only hurt economie, community and environment 4. The residual claiment at risk - shareholders put their money "at risk" without a gauranteed return but in exchange get two proprietary rights

What are the three types of non-equity alliances?

1. Licensing agreements 2. Supply agreements 3. Distribution agreements

Types of non-equity (Contractual) alliances

1. Licensing agreements, in which one firm receives a license, or permission to use a resource, such as a brand or a patent, from another firm in return for a percentage of the revenues or profits. 2. Supply agreements, in which a supplier might agree to develop certain customized inputs for a customer. 3. Distribution agreements, in which a distributor or retailer might agree to provide certain customized services in order to help sell a product.

Two competing pressures for firms as they expand internationally

1. Local responsiveness 2. Cost reduction

Three generic firm-level strategies to deliver unique value

1. Low cost (Efficiency) - providing similar product at lower cost. Key sources of cost advantage: (1) economies of scale, (2) lower-cost inputs, (3) proprietary production know-how, (4) learning and experience curves, (5) different business models Example: Walmart 2. Product differentiation (Premium Value) - providing unique product with attributes buyers will pay for (Apple, Merrill Lynch) 3. Value (Best value for price) - Providing a combination of features and price between low priced and premium value offerings (Charles Schwab, Costco)

Four key strategic choices

1. Markets - industries/geographic markets the company will pursue in search of a hgih return on intvested capital. 2. Unique value - What unique value to offer the customer in those markets (the firm's value proposition: cost or differentiation) --> why we win with customers 3. Resources and Capabilities - What resources and capabilities will allow the firm to deliver a superior value proposition to customers --> how we deliver unique value 4. Barriers to imitation - how the company will prevent imitation of its strategy by competitors --> How do we sustain our competitive advantage? (I think this is included based on quiz question below)

Three common types of international strategies (how to expand internationally)

1. Multi-domestic Strategy 2. Global Strategy 3. Arbitrage Strategy

Supplier power

1. Number, or concentration, and size of Suppliers - Few sellers but lots of buyers - then buyers have to compete to get the product they want, often paying higher prices to get sufficient supply 2. Credible threat of forward integration - Supplier can exert pressure over buyers by threatening them with forward integration, doing what its buyers do, if the buyers don't offer price concessions

Ways to Neutralize bargaining power of buyers

1. Offer a more unique product - differentiate your offering so that it unique responds to certain buyer needs. 2. Narrow the options through market consolidation or exclusive alliances (or aggressive pricing or cross subsidizing to eliminate competitors) - buy out competition. Buyers have less power when fewer options. 3. Create switching costs for buyers - due to learning, specialized investments, loyalty programs, network effects, etc.

When to use multidomestic strategy

1. Often used by firms in industries where customer needs and preferences vary widely from country to country (ex: food or media) 2. Often hard to get economies of scale because each country may need different product development, design lab, manufacturing plants, and sales personnel (parts of the value chain have to be replicated in each country) 3. Mainly in countries that are similar to home base (limit effects of distance)

Two ways for companies to achieve different steps along the value chain

1. Outsourcing 2. Vertical integration (insourcing)

Factors that impact inimitability

1. Path dependence - the process through which a resource or capability came into being may make it difficult for competitors to imitate 2. Tacit knowledge - skills/knowledge which is difficult to learn, teach, or coach 3. Casual ambiguity - When the cause of success or a competitive advantage is hard to determine, and thus hard to replicate. 4. Complexity: when resources, capabilities, and priorities are difficult to imitate because they span the organization or contain many interrelated elements 5. Time Compression Diseconomies: Diseconomies happen when an action increases cost and inefficiency. Some resources take time to learn 6. Network Effects and First-Mover Advantages:

Four types of resources

1. Physical Resources: plant or equipment 2. Financial Resources: free cash flow or financing 3. Human Resources: employee and management skills and talents 4. Intangible Resources: intangible assets held by firms like brands and patents

Three ways to segment the market

1. Product attributes 2. Customer demographics 3. Job-to-be-done

7 factors that determine intensity of rivalry in industry

1. The number and size of competitors (fragmented and concentrated) - High rivalry with more competitors and more substitutes 2. Standardization of products (lack of product differentiation): high rivalry when there are minor or no differences in functionality and performance of products or services. 3. Costs to buyers of switching to another product (also part of all other four): low switching costs increase rivalry 4. Growth in demand for products (industry growth rate): slow growth increases rivalry. High rivalry in high growth industries when ther are strong first mover advantages (Ebay) 5. Levels of unused production capacity: when production exceeds demand increases rivalry 6. High fixed costs (airplanes), highly perishable products (fruits), high storage costs: High rivalry when fixed to variable ratio is high (need to keep volumes high to spread fixed costs) 7. The difficulty for firms of leaving the industry (Exit barriers): High rivalry when companies must make significant investments in non-deployable assets (steel industry, bowling alleys)

When to use global strategy

1. Typically firms with a large, ready-made market for their products or industries where cost pressures are high and standardized products can meet relatively universal needs

Four ethical orientations

1. Utilitarianism (John Stuart Mill) 2. People have rights (Immanuel Kant) 3. Liberty (Robert Nozick) 4. Ethic of Care (Carol Gilligan)

Outsourcing

1. When a firm contracts out a business process or activity to an external supplier

Examples of Liberty/oppression

1. Whistle blower policies 2. Electronic moniroting, information security

Principals employe two tools to monitor their manager-agents:

1. monitoring through the board of directors 2. reducing the agency problem through compensation and incentives (bonuses, stock-based compensation, stock options, stock grants)

Name the three "jobs" that products do to achieve superior product differentiation:

1.They do a "unique job" 2. They do "more jobs" 3. They do a "better job"

What does VRIO stand for?

A V- value: worth or utility for customers R - rarity: to be uncommon or not available to other competitors. Creates comp. adv. through scarcity I - inimitability: an attribute of a resource that describes the degree of difficulty a competitor would face in copying the value of that resource - Positive Network Externalities - Virtuous Circle O - organized to exploit: the degree to which the legal, administrative and operating structure of the firm allows it to capture the rents generated by resources

Agency problem

A consequence of the separation of ownership (shareholders/principals) and control (managers/agents) in the corporation. Agency problems occur when the goals of principals differ from those of agents.

Strategic alliance

A cooperative arrangement in which two or more firms combine their resources and capabilities to create new value; sometimes referred to as a partnership (a.k.a cooperative strategy or relational advantage)

Related-constrained diversification

A firm that earns less than 70 percent of its revenue from its main line of business, and its other lines of business share product, technological, and distribution linkages with the main business.

Board of Directors

A group of individuals who monitor the executive team of the corporation (management) and ensure that those executives are acting in the best interests of the shareholders and/or stakeholders US corporate law, and that of most countries, requires that all publicly held corporations have a board of directors. Directors, as well as the executives themselves, have a legal fiduciary duty to act in the best interests of the corporation's owners.

All assets, capabilities, organizational processes, firm attributes, information, knowledge, and so on, controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness most accurately defines the term __________.

A. priorities B. capabilities C. resources D. functions

BestBrew Corp. and True Coffee Inc. were two leading coffee manufacturing firms. They united and created a whole new firm called True Brew Inc. that used the best customer front-end and operational back-end processes of the two firms. This union is an example of a _________.

A. Brownfield entry B. Greenfield entry C. Takeover D. Merger

Identify the first decision a company has to make as part of its business strategy.

A. Choose a market in which to compete B. Choose a competitor to compete with C. Decide what unique value to offer to customers D. Decide ways to maintain a competitive advantage

(Blank) can be best defined as when an organization generates higher profits compared to its rivals.

A. Client advantage B. Competitive advantage C. Employer Advantage D. Unique value

Lupus LLC is a company that sells personalized gift items. It reduces the cost of employing professional artists, designers, photographers, salespeople, and retailers by letting its members and other people submit their ideas for designs, quotes, and phrases on its e-commerce website. Which of the following types of crowdsourcing does Lupus LLC use?

A. Crowdvoting B. Crowdinnovation C. Crowdtasking D. Crowdcreating

Pisces Corp. is an apparel manufacturing company. It purchased a few of its raw material suppliers and set up their factories close to the clothing stores so that the company does not have to invest on transportation charges. This is an example of _________.

A. Downward diversification B. Forward integration C. Backward integration D. Horizontal diversification

_________ occurs when one partner tries to exploit the alliance-specific investments made by another partner. A. Hold-up B. Misrepresentation C. Bondage D. Battery

A. Hold-up

LuxeDrive Inc. is an automobile company with minimal competition due to features that set it apart from other automobile companies. These features act as qualifications that rival companies find difficult replicate. This scenario can be best categorized as an example of __________.

A. Serviceability B. Rarity C. Inimitability D. Value

In the context of the primary reasons for vertical integration in companies, which of the following statements is true of coordination? A. The greater the interdependence between activities, the more a company should vertically integrate. B. Activities that require high levels of coordination are known to be modular in nature C. The greater the interdependence between activities, the more a company should rely on outsourcing D. Activities that require low levels of coordination are known to be reciprocal in nature

A. The greater the interdependence between activities, the more a company should vertically integrate.

Which of the following statements is true of standardization of products? A. a) It is easier to convince the customers to switch brands. B. b) They meet customer needs in unique ways. C. c) It makes buyers more loyal to a particular brand. D. d) These products are usually inimitable (not able to be copied) and of high quality.

A. a) It is easier to convince the customers to switch brands.

Which of the following statements is true about concentrated industries? A. a) These industries have few competitors and rivalry is less intense. B. b) Smaller competitors usually respond aggressively to actions taken by large firms. C. c) Few large competitors are aware of each other's presence and therefore more likely to create conflict. D. d) If firms are approximately the same size, they tend to be able to respond, or retaliate, strongly to moves by rival firms.

A. a) These industries have few competitors and rivalry is less intense. D - wrong because this is word for word what is written for fragmented industries

Competition among firms within an industry best defines the term ________.

A. a) substitute B. b) threat C. c) rivalry D. d) opportunity

Upstream activites on value chain

Activities closer to the beginning of value chain (raw materials) - moving upstream is backward integration

Downstream activities on value chain

Activities toward the end (final products) - moving downstream is forward integration

An industry can be defined as a group of:

A. companies offering products or services that are close substitutes for each other B. twenty or more companies offering products or services that are close substitutes for each other. C. companies that offer dissimilar products or services. D. companies that offer products or services to dissimilar customers.

DFN Inc. expanded its manufacturing plant to employ more equipment because the management of the company thought this would help them attain more sales. Unfortunately, this affected the cost of each unit produced because the company invested more finances for better equipment. This also led to a decrease in sales as customers were not willing to buy the product for an increased price. This scenario best illustrates _____.

A. competitive failure B. diseconomies of scale C. economies of scale D. virtuous circle

The owners of Carpo Inc., a watch company, also own a steel company and a leather goods manufacturing company. This relieves them from expenses that they would have to bear, if they had to rely on outside sources for the raw materials needed to make their watches. This enables the company to produce watches at a much lesser cost than other companies in the industry. This scenario best illustrates a ________.

A. complementary service B. emergent strategy C. unique value D. cost advantage

Taurus Inc. usually produces 5,000 handcrafted products in a day. Recently, the demand for handcrafted products drastically increased as one of its products became a popular item for home décor. Due to this increase, the company had to up its production level to 10,000 products per day. This, however, decreased the price of individual products. This scenario best illustrates _____.

A. economies of wealth B. economies of finance C. economies of scope D. economies of scale

A group of students studying a firm named Sanders & Collins Corp. found that the workers initially learned their task-related activities very fast. In turn, this helped the firm reduce the labor cost incurred in producing each product. However, their rate of learning these tasks reduced over time. This scenario best illustrates the _____.

A. experience curve B. learning curve C. value curve D. scale curve

A scale curve slope in a particular industry that is quite steep indicates that:

A. first movers in a fast-growing market will end up with a cost disadvantage. B. first movers in a fast-growing market will secure a widening cost advantage. C. the firms in that industry will have a low cost per unit production. D. the output of the firms will not be able to meet the minimum efficient scale.

Thomas is an important figure at Seasons Inc. All of the company's functions, acquisitions, marketing strategies, and business development plans need to partially receive approval from Thomas. This is due to the fact that Thomas owns 20% of Seasons Inc. In this scenario, Thomas is a ________.

A. supplier B. stakeholder C. customer D. distributor

VisionZed Inc., a computer software company, spends a lot of finances on research. It tries to implement the latest technologies available and provides services that are matchless when compared to any of its competitors. At the same time, Xtron Technologies Corp., another computer software company, pays half the price that VisionZed pays on research as it combines the intelligence of different software companies and creates its product. This enables Xtron to have a cost advantage over VisionZed. Xtron Technologies Corp. is an example of a company that eliminates steps in the _____.

A. supply chain B. growth chain C. value chain D. pricing chain

The industries most affected by economic distance are those for which ________. A. the demand for products is very elastic B. the supply for products is very stable C. the geographic distance is the highest D. the administrative distance is the lowest

A. the demand for products is very elastic

A survey is conducted among the customers of a supermarket chain. This survey reveals that the majority of customers prefer to buy Lia, a brand of soap. The reason for the customers' preference is because the company constantly delivers what it promises. In this scenario, the factor that has made the brand of soap named Lia popular among these customers can be best categorized as __________.

A. value B. rarity C. inimitability D. prestige

When to use transnational approach

As many industries have become increasingly global, the pressures for both local responsiveness and the efficiency that comes from standardization have become more intense. Some companies try to use a hybrid of the multidomestic and global strategy in order to be glocal. Example is Samsung

Job-to-be-done customer segmentation

Attributes of the circumstance and job to be done Observing someone in a particular circumstance can lead to insights about a job to be done - and a better way to do that job (because people "hire" products to do jobs for them.

Customer demographics customer segmentation

Attributes of the customer Segment based on demographics - age, socioeconomic status (income), education, profession, ethnic group

Which of the following is true of a tangible resource? A. It is an economically valuable asset such as brands and patents. B. It has a physical presence such as land, machinery, and cash. C. It includes employee and management skills and talents. D. It includes organizational assets like knowledge and reputation.

B. It has a physical presence such as land, machinery, and cash.

Peach Corp. operates a chain of supermarkets. The managers and employees of the company have been on strike for months due to their differences with its owners. As a result, the share price of the company has fallen to historic low. Globe Investments decides to purchase a majority of the shares of Peach Corp., confident that it can manage the company better. Globe Investments makes a public offer to purchase the shares of the investors who are dissatisfied with the performance of Peach Corp. The offer made by Globe Investments can be termed as a(n) A. Proxy offer B. Tender offer C. Discount offer D. Private offer

B. Tender offer

In the context of the three Cs of vertical integration, under what conditions should a firm choose to engage in vertical integration? A. When the firm lacks the capability to perform an activity better than other firms B. When the firm is incapable of coordinating different activities within its departments C. When the activities of the firm are conducted independently D. When there is greater interdependence between the activities of the firm

D. When there is greater interdependence between the activities of the firm

A good strategy provides clear answers to four key questions. Which one of the following is NOT one of the four questions? A. What resources and capabilities do we utilize? B. In what market do we compete? C. What will be the rate of growth in profits? D. How do we sustain our competitive advantage?

C - What will be the rate of growth in profits?

Property rights

The rights of owners to: (1) claim the residual earnings of the corporation, or the profits after all other stakeholders have been paid, and/or (2) monitor the management team to make sure that the team works in their best interests.

Business Level strategy

The search for competitive advantage within a single industry, market, or line of business

Which of the following is not a reason to vertically integrate? A. Capabilities B. Coordination C. Cooperation D. Control

C. Cooperation

Which of the following statements is true about strategic alliances? A. Strategic alliances exclude functions that are bought through bidding B. In strategic alliances, the power to make decisions is always evenly distributed amidst the firms. C. In strategic alliances, companies may choose to cooperate at any stage along the value chain D. Strategic alliances usually lead to one of the firms losing their relational advantage

C. In strategic alliances, companies may choose to cooperate at any stage along the value chain

Which of the following best describes rarity? A. It refers to the characteristics that make a resource or capability difficult to imitate. B. It is an attribute of a resource that describes its worth or utility. C. It is an attribute of a resource which means to be uncommon, or not available to other competitors. D. It refers to an organization's ability to exploit profit returns generated by its unique and valuable resources.

C. It is an attribute of a resource which means to be uncommon, or not available to other competitors.

Which of the following is not a type of free business model as discussed in Chapter 10? A. Cross-Sell Strategy B. Third-Party Pay Strategy C. Maturity Stage Strategy D. Bundling Strategy

C. Maturity Stage Strategy

Identify an accurate statement about agency problems. A. They are mostly faced by sole proprietorships. B. The managers of a corporation are also called the principals. C. They occur when the goals of principals differ from those of agents. D. The shareholders of a corporation act as the agents of the principals.

C. They occur when the goals of principals differ from those of agents.

Corporate level strategy

The search for value and competitive advantages through participation in several different industries and markets

Which of the following statements is true of a fragmented industry? A. a) It is characterized by rivalry that is typically less intense. B. b) It usually has very few competitors and tends to be dominated by a few large firms. C. c) It is difficult to keep track of the pricing and competitive moves of multiple players. D. d) It involves companies selling the same brand of products that are scattered in different locations.

C. c) It is difficult to keep track of the pricing and competitive moves of multiple players.

Blue-ocean strategy

Creating new demand in an uncontested market space. Where sharks competing for the same scarce food create a red ocean of blood because of intense rivalry, blue ocean success relies on swimming to empty water—in other words, offering value that is very different from anything on the market. Ex: For example, when Cirque de Soleil opened its first show, it was clear that it would be nothing like a Ringling Brothers circus. A Cirque de Soleil show combines elements of a traditional circus, acrobatic troupe, street performers, and a Broadway show to offer a unique entertainment experience. Cirque's shows are so original that there is no direct competition. The tagline for one of the first Cirque productions was revealing: "We reinvent the circus." Moreover, it attracted a new group of customers who were willing to pay several times the price of a conventional circus ticket for a unique entertainment experience.

Crowd creating

Crowdcreating refers to turning to the crowd to create content or complete a task that requires specific knowledge or expertise on the part of the crowd member. Ex: Threadless, an online community of artists and an e-commerce website, is a company that uses crowdcreating. Rather than hire T-shirt designers, Threadless enlists members to submit ideas for T-shirt slogans and designs.

Crowd Innovation

Crowdinnovation refers to using the crowd to solve a challenging problem that requires an innovative solution. For example, Netflix offered a $1 million prize to the software programmer(s) who could create an algorithm that would provide the best recommendations about movies for specific customers.

CrowdSourcing definition and types

Crowdsourcing refers to the phenomenon of outsourcing tasks to individuals or organizations that are outside of your organization. 1. Crowd tasking 2. Crowd creating 3. Crowd voting 4. Crowd innovation

Crowd Voting

Crowdvoting or crowdsorting refers to using a crowd to evaluate an offering or to make predictions about uncertain events. Ex: For example, after Threadless receives submissions for T-shirt designs, it goes to a crowd of customers and designers and asks for their vote on which T-shirt designs they like the best.

Although there are several alternative treatments available across the globe, herbal products produced in Brazil are sold at a premium. The ancient Brazilian recipes for wellness are considered the main reason for the premium price. This is an example of a(n) _____________ arbitrage.

Cultural arbitrage

Two processes companies use to search for product differentiation opportunities

Customer segmentation: grouping customers based on similar needs Mapping the consumption chain

Crimson Corp., a painting unit, collaborates with a car manufacturing company. They sign a contract that specifies the tasks of each party in alliance. Which of the following is being exemplified in this scenario? A. A nonequity alliance B. An equity alliance C. A coordination alliance D. A vertical alliance

D. A vertical alliance

Which of the following statements is true of a high-end disruptive innovation? A. It disrupts an existing market by displacing a high-end technology with a low-end tool. B. It relies on discounted prices to increase the sale of high-end services. C. It uses the price skimming strategy to gain a foothold in the market. D. It creates new products that offer superior performance on some existing product features.

D. It creates new products that offer superior performance on some existing product features.

What is not a type of of non-equity alliance? A. Licensing agreement B. Supply agreement C. Distribution agreement D. Joint venture agreement

D. Joint venture agreement

Jobs Now is an employment website. Like its competitors, it offers free listings in every category, which is free for job seekers but not for companies. This feature of Jobs Now is an example of ___________. A. a blue ocean strategy B. a mass-customization strategy C. a standardization model D. a revenue model

D. a revenue model

Functional level strategy

Decisions about how to effectively implement the business unit strategy within functional areas like finance, product development, operations, information technology, sales and marketing, and customer service.

Two types of strategies

Deliberate Strategy - a plan or pattern of action that is formulated through a deliberate planning process that is then carried out to achieve the mission or goals of an org Emergent Strategy - a plan or pattern of action that develops and emerges over time in an org despite a mission or goal

Agents

The managers who act as the agents of the principals in operating the firm want to maximize their own utility.

horizontal diversification

The movement into an adjacent market, one that is not along a firm's current value chain.

Diversification

The process of entering new industries, distinct from a company's core or original industry, to make new kinds of products that can be sol profitably

Greenfield Acquisition and when to use it

Entry into an adjacent market by a firm that opens its own operations. This method makes sense when: 1. companies have the front-end and back-end resources and capabilities they can immediately exploit to create value OR 2. Method makes sense when companies can afford to enter new arenas slowly and at small to moderate investment

Inside directors

Executives or managers working inside the company who also hold seats on the board of directors.

Describe the stages of innovative disruption

Introduction: the company tries to get early adopters—those types of buyers willing to try out the latest new gadget—to test the potential of its new product. Product innovation is much more important than process innovation during this stage; as a result, R&D, product development, and design are key competencies. Growth Stage: Sales accelerate during the growth stage as the initial innovation gains traction and increased market acceptance. Demand increases as the early majority, a new group of buyers, is convinced that the product concept works as demonstrated by early adopters in the introduction stage. Toward the end of this stage, product innovation starts to give way to process innovation. Maturity Stage: As an industry moves into the mature stage, growth starts to slow as total market penetration increases. What little growth there is comes from buyers called the late majority entering the market, people who want not only a proven concept but also a low price. The limited market growth leads to an increase in competitive rivalry, and cost starts to become more important as a determinant of success. Process innovation and operational efficiency are typically more important to success than product innovation. (Laptops) Decline Stage: The decline stage is often initiated by new products entering the market that cause demand to fall. As the market size shrinks during the decline stage, some firms try to minimize competition and consolidate the industry by buying rivals.

Licensing and Franchising definition

Licensing - Granting another business the permission to use or sell a firm's product, technology, or process. Franchising - A license that allows a person or firm access to a business's proprietary knowledge, processes, or trademarks in order to allow them to sell a product or service under the business's name.

How to use the diamond model

Looks at things companies do to compete → their activities (strengths and weaknesses) Looks at resources → the assets we employ Looks at capabilities → the processes we use Looks at priorities → the values that guide us

Outside directors

Members of the board of directors not employed by the corporation in any other role - brings deep knowledge and fresh perspective, which should ensure that firm's strategy serves financial interests of shareholders & brings independence (bc don't have to worry about losing job if offer opinions that are not liked)

How important is size/volume as a driver of costs (and thus profitability) in my industry?

Most strategists today acknowledge that there is a correlation between market share and profitability and appreciate that greater market share will lead to lower costs per unit (however not the case for all industries). However, in most cases the cause of both market share and profitability is some common underlying factor, such as a lower-cost method of production or an innovative product that allows a firm to simultaneously grow market share and profitability. The general consensus of strategists now is that market share cannot be easily purchased. Rather, it is most often earned, through a low-cost strategy or by offering a differentiated product.

Backward integration

Movement in the direction of raw materials

Forward integration

Movement in the direction of sales, service, or warranty operations

Vertical integration

Movement into adjacent markets by a firm along its own value chain.

How do you calculate a Net Promoter score?

Net Promoter Score = % promoters - % detractors

Summary of different strategic positions and their managerial requirements

Note - if we get a question on home market base just know that anyone can do it...

How to launch an indirect assault?

Often a successful way to enter the market.

Diversified company

One that makes and sells in two or more distinct industries

Low-end disruptive innovation

Producing a low-cost product or service for the low-end or most price-sensitive segment of the market, and then gradually moving upmarket as the product or service improves its technology and processes. ex: In a similar fashion, Honda started at the low end in the automobile industry by offering 50cc and 150cc motorcycles. When Honda first launched, Harley-Davidson wasn't concerned about the competition because its market was superheavyweight motorcycles. But over time, Honda used profits from its large volume of small motorcycles to invest in the development of larger motorcycles and eventually entered the superheavyweight motorcycle categories with bikes that were less expensive but more technologically advanced than Harley-Davidsons

When wholly owned sub?

Requires most investment and most risk When? 1. Can overcome trade and transportation barriers by producing locally 2. Foreign firm may appear more local to gov and consumers 3. Most control over local sub 4. Many high tech firms in order to control access to their tech and avoid leaking info to licensee or alliance partner. 5. Greater knowledge on local market and customer 3. Limits knowledge spillover When not? 1. Most risky and expensive 2. Inability to manage local resources in local market Enter by greenfield acqusition or acuiring local firm

What is net promoter score?

Respondents answer on a 10-point scale, "How likely is it that you would recommend company X, product Y to a friend or colleague?" Net promoter score = % promoters - % detractors Best indicator of whether a customer was loyal and enthusiastic about a company or product. Products with high net promoter scores consistently grow much faster than competitors.

Who is responsible for business strategy?

Strategic leaders

Corporate Governance

The processes and structures that provide the ultimate decision making authority for the firm. In terms of corporate governance, this question is often worded in one of two ways: What is the purpose of the corporation? Or, who is the corporation run for?

free business/revenue model types

Strategy 1: Upsell (Freemium) - Zynga or Skype offering a free basic product to gain widespread initial use, after which users are offered a nonfree premium version Strategy 1: Cross-Sell Strategy: The cross-sell strategy involves offering a free basic product to gain widespread initial use, after which users are sold products not directly tied to the free product. Mint.com, Ryanair Strategy 2: Third-Party Pay Strategy: sometimes called a two-sided market—provide free products to a community of product users as a method of generating revenue from a third party that pays to access those users (Google or Craigslist) Strategy 3: Bundling Strategy: offering a free product with a paid product or service. For example, Hewlett-Packard may give away a free printer with the purchase of a computer, or Verizon may give away a free cell phone with the purchase of a service contract.

What is indirect assault?

Successful entrants use strategies that allow them to stay under the radar screen of powerful incumbents and avoid incumbent retaliation. In general, the more indirect the assault, the more successful it is

VRIO Model

The VRIO model is used to assess whether there is sustainable competitive advantage. All of these four elements (VRIO) are required to establish a sustainable competitive advantage.

Stakeholder model

The belief that a corporation should be run for the benefit of its entire stakeholder set, with no group enjoying primacy in decision making.

Shareholder primacy model

The belief that a corporation should be run, primarily or exclusively, for the benefit of its shareholders.

Two potential answers to the question, "Who is the corporation run for?"

The corporation should either be run for the shareholders or be run for the stakeholders.

Liberty ethical view

The good society creates the most freedom for people to act as they please. Ethical behavior is that which promotes human freedom of expression and development. Free markets are morally good because they allow people the maximum amount of choice.

People have rights

The good society ensures a basic set of rights for its citizens. Treat everyone as an end, never a means. For example, people have a right, and companies have a moral obligation, to provide full and fair information about the potential risks of products.

Four distances

The lower the distance between countries when choosing location, the greater likelihood of successful expansion. 1. Cultural distance: degree of distance between cultures of two nations. Language, religion, trust, gender roles, etc. 2. Administrative Distance: diff between legal and regulatory frameworks. Are laws and government policies similar? (how contracts enforced, laws for foreign firms) 3. Geographic Distance: close physical proximity lowers transportation and communication costs. 4. Economic Distance: difference between average income of people in different countries (GDP). Industries most affected are those where demand fluctuates a lot.

How do profitable firms successfully enter an attractive market?

Through indirect assault

What is the diamond model?

Tool used to assess the competitive advantage of a company

Examples of sanctity/degradation

Transportation safety

Generally, when interdependence between partners is low, you should pursue a joint venture.

True False

Where should firms expand internationally?

Typically go to country with the largest number of potential customers but must consider several risks including to also choose location with the lowest risk. Risks include: 1. Market driven 2. political risks 3. economic risks 4. Must consider distance (CAGE)

Movement into adjacent markets by a firm along its own value chain can be best termed _________.

Vertical integration

When to use joint venture/alliance

WHen? 1. allow faster and less risky access to new markets than wholly owned subsidiaries 2, Combines resources of two companies - potential for learning 3. viewed as insider 4. reduces investment When not? 1. Management problems - must overcome cultural barriers to bring together foreign managers 2. Lack of tight control 3. Greater risk than export/license 4. Partner may become competitor: knowledge spillover

When to use/when not to use licensing and franchising

When - 1. For firms that have unique know-how or a solid brand that can be easily valued (so price of license or franchise can be negotiated), but do not have the capital or resources and capabilities to expand abroad themselves. (less investment, lower risk, faster to market) 2. avoid trade barriers 3. High ROI When not - 1. Least amount of control 2. Less knowledge gained 3. Risk that licensee firm will become a competitor

What is competitive advantage

When a firm generates consistently higher profits (above-average profits) compared to competitors through a strategy that competitors are unable to imitate or find too costly to imitate

Misrepresentation

When one partner in an alliance creates false expectations about the resources it brings to the relationship or fails to deliver what it originally promised.

Fragmented industry

an industry with a lot of competitors & creates intense rivalry. In a fragmented industry, it is difficult to keep track of the pricing and competitive moves of multiple players. The large number of firms responding to one another tend to create intense rivalry. If firms are about the same size, they can generally respond strongly to moves of rival firms.

What is business level strategy

at level of standalone business units in a company that typically have their own profit and loss responsibility (amazon's kindle vs. Amazon Web services, two business units). Decisions made at manager level

Good strategies have...

barriers to imitation

Vertical Integration (insourcing)

bringing business purposes or activities previously conducted by outside companies in-house. Companies that participate in many or all stages of the industry value chain are highly vertically integrated Companies that participate in only one activity are vertically specializd

unrelated diversification

competes in product categories and markets with few, if any, commonalities between them. Corporate level strategy based on a multi-busines model to increase profitability through: 1. Use of general organizational competencies, and 2. Increase the performance of ALL company's business units Companies pursuing this strategy are often called conglomerates

non-equity alliance

cooperation between firms is managed directly thrugh contracts, without cross-equity holdings or an independent firm being created

First-mover advantage:

first customers; they can lock up resources such as locations, patents, or scarce raw material inputs; establish long-term contracts with customers; set industry standards that favor their products; etc. Very important when economies of scale or learning experience curve exist

Crowd tasking

enlisting a crowd to complete a simple, repetitive task.

high-end disruptive innovations

high-end disruptive innovations actually outperform existing products when they're introduced, and they sell for a premium price rather than at a discount. Products created through high-end disruptive innovations are initially purchased by the most discriminating and least price-sensitive buyers, and then they move steadily downward, into mainstream markets. New entrants launching high-end innovations typically rely on "radical" or leapfrog technological innovations that are expensive initially, but with improvements in technology, and as they are produced in larger volumes with greater scale, the costs gradually decline. Ex: Tesla's strategy is to sell highly desirable electric vehicles in the high-end niche—such as the Model S and Model X—and then gradually move downmarket, offering more affordable cars such as the Model 3

Mapping the consumption chain

identifying all the steps through which customers pass, from the time they first become aware of a your product to the time when they finally have to dispose of it or discontinue using it

Lower costs due to proprietary knowledge

information that is not public and that is viewed as the property of the holder (independent of scale or output)

Who are strategic leaders

leaders of an organization who develop and implement a strategy with the objective of ensuring survival and success of organization.

A ____________________________ strategy centers on tailoring products and operations to individual markets.

multidomestic

The process where a firm contracts out a business process or activity to an external supplier is known as _________.

outsourcing