Chapter 4

How does a firm Manage key resources for efficiency ?

- identify national country differences in input and output markets -scale economies -scope economies and synergies across different activities

Define Incremental strategy and example 1

-- Komatsu Ltd -The operating logic behind an incremental strategy is for a firm to build competencies incrementally. -Avoid head-to-head confrontation with an industry leader with a superior business model. Therefore, firms should locate un-served niches in the world market. -Continue to build, improve, and refine on a business model. Strategies should focus on competitive advantages that can be transferred abroad.

Multi-domestic strategy

-Firms operate in several national markets that are culturally different, but competition in each country is essentially independent of competition in other countries. -The interactions of the firm's multiple activities across different nations are not sufficiently developed for scale and scope benefits to occur. -A localization (or multi-domestic) strategy is appropriate.

Identify 3 problems with the framework

-What happens if the industry is at medium level of globalization and the firm has medium level of ability to exploit the market? What strategy should they use? -It is very hard to argue that a company should even go global if the company hasn't clearly developed a successful business strategy in domestic market. -No matter what strategy in this framework you use, the key question is often whether the business model is can be transferred to other countries, and which part of the strategy is transferable and which part is not transferable. However, this framework is not very helpful in helping companies to formulate such strategies.

the 3 Strategic Objectives of a Firm to obtain competitive adavantage

-it must achieve efficiency in its current operations; -it must manage the risks that its assumes; -it must develop learning capabilities in order to innovate and adapt to future changes.

Arbitage

Arbitrage is a way of exploiting differences. Culture arbitrage: Favorable effects related to country or place of origin (e.g., Ducati; American fast food chains) Administrative arbitrage Opportunities related to legal, political and institutional differences (e.g., tax differentials; round tripping) Economic arbitrage Exploit different costs of labor, capital, or knowledge. Mainly related to globalization of production

Aggregation

Doing everything country-by-country is very expensive. How do you simultaneously address that complexity without sacrificing economies of scale? Aggregation is all about using various grouping devices to create greater economies of scale than country-by-country adaptation can provide. (e.g., regionalization) The objective is to exploit the similarities among countries more aggressively than traditional adaptation strategies do, but less aggressively than complete standardization would.

Multi domestic strategy example 1

E-Loan- focused on a low cost producer strategy and diversification strategies.

Define global strategy and example

Example-Dell computers The operating logic behind a global strategy is for a firm to integrate its activities on a worldwide basis to capture economies of scale and scope through "standardized" products and services. National economic and factor conditions tend to be different, giving rise to pressures for some level of localization.

Core Value Strategy

Firms with a strong business model that are operating in an international environment that is globalizing (but the level of globalization is still low), are advised to pursue a core-formula strategy. The rationale lies in the firm's ability to leverage its strong business model into various international opportunities, while avoiding massive investment in marketing in a setting that is still largely localized. Be prepared to invest on the targeted market to facilitate the implementation of the business model. Implicit in this strategy is that the firm must be willing to invest and build the necessary infrastructure to support its strategy in the local market.

What are the identifiable risks that a firm must manage?

Macroeconomics risks (e.g., war; natural disaster; exchange rates) Policy risks competitive risks resource risks The strategic task is to consider these different risks jointly in the context of specific decisions.

Does e-loan have globalization potential? what are the drivers for this potential.

Market Drivers-Embryonic. Markets are limited because demand for this service in other countries are limited due to regulatory procedures Competitive Drivers-Few competitors. This service is fragmented worldwide Cost Drivers-few economies which limit distribution, however production costs are low Government Drivers-regualtions related to consumer privacy needs to be in place

What is Walmart globalization potential

Market drivers- the concept of megastores are new; however customers needs and retailing is widespread Cost drivers-scale and scope economies exist in production and distribution. Continue improvements such as MIS and radio frequency are all factors in lowering costs. Competitive Drivers- There are competitors all over the world using different strategies Government Drivers-high local competition favors global competitive positioning

Identify the 4 frameworks for positioning strategic choices. State the Business model and the pace of globalization.

Multi-domestic strategy, incremental strategy, core formula strategy and global strategy.

AAA Strategies for Semi-Global World:Adaptation, Aggregation, Arbitrage

Proposed by Harvard Business School Professor Pankaj Ghemawat Adaptation-Adjust the business model to differences across countries Aggregation-Overcome some differences among countries by grouping them based on similarities Arbitrage-Exploit selected differences among countries instead of treating all of them as constraints

Study Integration Responsiveness

See slide and read in book

Adaptation

Some degree of adaptation is essential for virtually all MNCs Cement is close to a pure commodity produced with a mature technology, but Cemex must still adjust to international differences in energy prices, the mix of demand between bagged and bulk cement, etc. Wal-Mart has historically performed more poorly the farther it gets from Bentonville. Inflexibility and under-adaptation seem to be the most obvious reasons Stocking US style footballs in soccer-mad Brazil Sell US-size pillows in Germany

How does a firm develop learning capabilities

The firm needs to adapt and learn from the diversity of environments it faces in different parts of the world.

Core Value Strategy Example 1 .

Walmart-Focus on large discount stores in small rural towns, creating lower operating costs by efficient logistics, advanced information system, centralized purchasing, limited and simple advertisement, etc.