IBS Exam 2

Harvest & exit: five routes

1) Selling an equity stake 2) Selling the business 3) Merging with another firm 4) Considering an initial public offering Initial public offering (IPO) - the first round of public trading of company stock. 5) Declaring bankruptcy

Resource-Based considerations: VRIO framework

1) Value - you want resources that add value 2) Rarity - you want rare resources 3) Imitability - you want resources that can't be imitated 4) Organizational - your resources should be organizationally embedded

Four factors may influence the performance of alliances and networks

1. Equity 2. Learning and experience 3. Nationality 4. Relational capabilities

OLI Advantages: (See Fig. 6.4)

1. Ownership 2. Location 3. Internalization

Formation: a three stage model (see figure 7.3, table 7.2)

1. To cooperate or not- Market transactions, purse cooperative inerfirm relationships, Mergers and acquisitions. 2. Contract or equity: Driving forces learning by doing- A way of learning not by reading books but by engaging in hands on activities. a. Nature of shared resources (degree of tacitness and complexity) b. Importance of direct organizational monitoring and control c. Potential as real options d. Influence of formal institutions 3. positioning the relationship- Given that each firm is likely to have multiple interfirm relationships, it is important to manage them as corporate portfolio (or network).

Institution-based considerations: formal vs. informal constraints

1) Formal institutional constraints- laws and regulations 2) Informal institutional constraints - cultural values and norms

Five entrepreneurial strategies

1) Growth 2) Innovation 3) Network 4) Financing & Governance 5) Harvest & Exit

International strategies for staying in domestic markets

1) Indirect exports 2) Supplier of foreign firms 3) Franchisee/licensee of foreign brands 4) Alliance partner of foreign direct investors 5) Harvest and exit

Divorce: Four phases

1) Initiation 2) Going public 3) Uncoupling 4) Aftermath

Industry-based considerations: Porter's 5 forces framework

1) Interfirm rivalry 2) Entry barriers 3) Bargaining power of suppliers 4) Bargaining power of buyers 5) Threats of substitute products have a bearing on entrepreneurship.

Organization

How are firms organized to benefit from alliances and networks is an important issue.

The savvy strategiest

Improving relational (collaborative) capabilities is crucial for success Need to understand the rules of game governing networks - both formal and informal Carefully weigh the pros and cons associated with alliances and acquisitions

Expropriation

confiscation of foreign assets invested in one country

Small and medium-sized enterprises (SMEs)

Firms with less than 500 employees.

Global vs. regional geographic diversification

(The majority of the largest MNEs are not necessarily very "global" in their geographic scope)

Cyberspace vs. conventional entries

(in the absence of harmonization among formal national regulations and informal norms (to cooperate with versus to resist local security authorities demanding sensitive information) concerning cyberspace, such clashes seem inevitable)

Liability vs. asset of foreignness

(sometimes being foreign can be seen as an asset and lead to a competitive advantage, but really you have to look at what two countries are involvedand what industry the company is in)

Sunk costs

Irrevocable costs occurred and investments made

Majority JVs vs minority JVs as real options

minority JV low costs and less demand on managerial resources and attention. Majority JV's. minorities are the stepping stone to reach the Majority JV's.

Where to enter

2 sets of considerations drive the location of foreign entries: (1) strategic goals and (2) cultural and institutional distances

Understanding the propensity to internationalize

2 underlying factors: 1. Size of the firm 2. Size of the domestic market Enthusiastic internationalizer - large firms in a small domestic market are often this because they can quickly exhaust opportunities in a small country Follower internationalizer - small firms in a small domestic market are often this because they often follow their larger counterparts to go abroad as suppliers Slow internationalizers - large firms in a large domestic market are often this because their overseas activities are usually (but not always) slower than those of enthusiastic internationalizers Occasional internationalizer - small firms in a large domestic market confront a "double whammy" on the road to internationalization, both because of their relatively poor resource base and the size of their domestic market. Many small firms in the US do not feel compelled to go abroad.

Performance

A central focus for strategic alliances and networks.

Collective norms

A core idea of the institutional perspective is that because firms act to enhance or protect the legitimacy, copying other reputable organizations, even without knowing the direct performance benefits of doing so, may be low cost way to gain legitimacy.

Learning Race

A race in which alliance partners aim to outrun each other by learning the tricks from the other side as fast as possible

Competitive Dynamics

Actions and responses undertaken by competing firms

Exploitation

Actions captured by terms such as refinement, choice, production, efficiency, selection, and execution.

Exploration

Actions captured by terms such as search variation, risk taking, experimentation, play flexibility, discovery, and innovation.

Ownership advantage

Advantage associated with directly owning assets overseas, which is one of the three key advantages of being a multinational enterprise (the other two are location and internalization advantages)

Late-mover advantages

Advantages associated with being a later mover 1) Opportunity to free ride on first mover investments 2) Resolution of technological and market uncertainty 3) First mover's difficulty to adapt to market changes

Location-specific advantages and strategic goals

Advantages associated with operating in a specific location

Evolution

All relationships evolve-some grow and some fail.

Alliance vs acquisitions

Alliances create value primarily by combining complementary resources, whereas acquisitions derive most of their value by eliminating redundant resources.

Contractual Alliances

Alliances which are based on contract and which do not involve the sharing of equity.

Real Option

An option investment in real operations as opposed to financial capital.

Anti-failure bias vs. entrepreneur-friendly bankruptcy laws

Anti-failure bankruptcy laws - harsh penalties as a result of filing for bankruptcy entrepreneur-friendly laws - less strict penalties as a result of filing for bankruptcy Institutionally, there is an urgent need to remove some of our anti-failure biases and design and implement entrepreneur-friendly bankruptcy policies so that failed entrepreneurs are given more chances. At a societal level, entrepreneurial failures, while certainly painful to entrepreneurs, may be beneficial. Only through a large number of entrepreneurial experimentations-many of which will fail-can winning solutions emerge, entrepreneurship flourish, and economies develop.

Anti trust issues

Basically saying that many firms are not as tight with other firms that they are selling and buying from page 197.

Walling off critical capabilities

Both sides can contractually agree to wall off critical skills and technologies not meant to be shared. Kind of like a marriage with a prenuptial agreement where assets are protected through this, as long as both sides are willing to live with these deals, these relationships can prosper.

Agglomeration

Clustering economic activities in certain locations

Industry based considerations

Collaboration among rivals, entry barriers scaled by alliances, upstream/downstream alliances with suppliers/buyers, alliances and networks to provide substitutes products/services

The performance of strategic alliances and networks

Combination of objective and subjective measures can be used to determine performance

Transaction Costs

Costs associated with economic transaction-or more broadly, costs of doing business.

Innovation seeking

Firms targeting countries and regions renowned for generating world-class

International trade (Direct vs. Indirect)

Directly selling products made in the home country to customers in other countries Indirect exports - exporting indirectly through domestic-based export intermediaries Importing Exporting

Natural resource seeking

Firms entering foreign markets in search of natural resources

Efficiency seeking

Firms going after certain locations in search of efficiency gains

Market seeking

Firms going after the most lucrative markets for their products and services

Swapping critical capabilities through credible commitments

Is the exact opposite of the walling off critical capabilities. Both sides not only agreenot to hold critical skills and technological skills back, but also make credible commitments to hold each other "hostage".

Learning race vs cooperative specialization

Learning race view assumes that acquiring know how from partners is always cost effective, also view assumes that partners are passively being exploited. Cooperative Specialization is saying that different firms in a relationship may want to specialize in different tasks in exchange for access to partners contributions.

Contractual agreements:

Licensing/franchising Turnkey projects R&D contracts Co-marketing

Stage Models

Models which suggest firms internationalize by going through predictable stages from simple steps to complex operations.

Non-equity modes

Modes of foreign market entries which do not involve the use of equity

Equity modes

Modes of foreign market entry which involve the use of equity

Combating opportunism

Most firms want to make relationships work, but also want to protect themselves in case the other side is opportunistic.

Mutual forbearance [collusion]

Multimarket firms respect their rivals spheres of influence in certain markets and their rivals reciprocate, leading to tacit collusion

Multimarket Competition

Occurs when firms engage the same rivals in multiple markets

Imitability

One firms resources and capabilities must be imitated by partners. There must be trust and understanding among partners in successful alliances.

Serial Entrepreneurs

People who start, grow, and sell several businesses throughout their careers.

Rarity

Rarity of relational capabilities and desirable partners.

Relational/collaborative capabilities

Relational/collaborative capabilities- The capabilities to successfully manage interfirm relationships.

Market entry Requirements

Saying that its hard to enter certain markets. Page 197

Foreign Direct Investment (sole ownership vs. joint venture)

Sole ownership - (wholly owned subsidiary (WOS)) subsidiaries located in foreign countries which are entirely owned by the MNE Joint venture - a "corporate child" that is a new entity given birth and jointly owned by two or more parent companies Greenfield Operations - building factories and offices from scratch (on a proverbial piece of "greenfield" formerly used for agricultural purposes) Acquisition - the transfer of control of assets, operations, and management from one firm (target) to another (acquirer); the former becoming a unit of the latter

Born global

Start-up companies that attempt to do business abroad from inception.

Financing & Governance

Start-ups need to raise capital in order to finance their business. The larger the start-up, the greater the chance they have of surviving the first few years.

Horizontal alliances

Strategic alliances formed by competitors

Strategic Networks

Strategic alliances formed by multiple firms to compete against other such groups and against traditional single firms (also known as constellations).

Internalized value and beliefs

Which centers on the internalized taken for granted valued and beliefs that guide firm behavior.

Evolving from strong to weak ties

Strong ties have two advantages: Strong ties are associated with the exchange of finer grained higher quality information. Strong ties serve as an informal social control mechanism that is an alternative to formal contracts, and thus act to combat opportunism. Weak ties have to advantages as well: Weak ties are less costly to maintain. Weak ties excel at connecting with distant others possessing unique and novel information for strategic actions.

Formal Institutions

Supported by regulatory pillar- Strategic alliances and networks function within formal legal and regulatory frameworks.

The Savvy Strategist

The Savvy Strategist can draw four implications for action. 1) From an industry based view, you need to thoroughly understand the dynamism underlying the industry in a foreign market you are looking into 2) From a resource based view, you and your firm need to develop overwhelming capabilities to offset the liability of foreignness 3) From an institution based view, you need to understand the rules of the game, both formal and informal, governing competition in foreign markets 4) Match efforts in market entry and geographic diversification with strategic goals

First-mover advantages

The advantages that first movers enjoy and later movers do not 1) Establish technological leadership 2) Purchase of scarce resources 3) Establishment of entry barriers for late entrants 4) Lack of dominant firms 5) Relationships and connections

Scale of entry

The amount of resources committed to foreign market entry

Obsolescent bargain

The deals struck by MNEs and host governments, which change their requirements after the entry of MNEs

Cultural distance

The difference between two cultures along some identifiable dimensions

Partner Rarity

The difficulty to locate partners with certain desirable attributes.

Institutional distance

The extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries

Network Centrality

The extent to which a firms position is pivotal with respect to others in the inter firm network.

Liability of Foreignness

The inherent disadvantage foreign firms experience in host countries because of their nominative status

Country of origin effect

The positive or negative perception of firms and products from a certain country

Competitor analysis

The process of anticipating rivals' actions in order to both revise a firm's plan and prepare to deal with rivals' responses

Internalization

The process of replacing a market relationship with a single multi-national organization spanning both countries (Not the same as internationalization)

Dissemination risks

The risks associated with the unauthorized diffusion of firm-specific assets

The savvy Entrepreneur

The savvy entrepreneur can draw at least four important implications for action. 1) Establish an intimate understanding of your industry to identify gaps and opportunities 2) Leverage entrepreneurial resources and capabilities. 3) Push for institutions that facilitate entrepreneurship development-both formal and informal. 4) When internationalizing, be bold, but not too bold.

Traits vs. Institutions

This focuses on the question: What motivates entrepreneurs to establish new firms, while most others are simply content to work for bosses? The traits school of thought argues it is personal traits that matter-compared with non-entrepreneurs, entrepreneurs seem more likely to possess a stronger desire for achievement and are more willing to take risks and tolerate ambiguities. Others suggest that it is institutions, or the environments that set formal and informal rules of the game.

Slow internationalizers vs. born global start-ups

Two questions to be addressed: 1) Can SMEs internationalize faster than what has been suggested by traditional models? It is possible for some SMEs to make very rapid progress in internationalization. 2) Should they rapidly internationalize? Some say that firms should rapidly pursue international markets. Others say that firms need to spend time in close markets first, get their feet under them, and then gradually begin to export. There is no definite answers, just two opposing views

Vertical alliances

Upstream- Alliances with firms on the supply side (upstream) Downstream- Alliances with firms on the distribution side (downstream)

Value

Value added must outweigh costs

Strategic Alliances

Voluntary agreements between firms involving ex-changing, sharing, or co-developing of products, technologies, or services.

Growth

an attempt to more fully utilize currently underutilized resources.

Trade barriers

barriers blocking international trade Tariff barriers - taxes levied on imports Non-tariff barriers (NTBs) - trade and investment barriers which do not entail tariffs Local content requirements - government requirements that certain products be subject to higher import tariffs and taxes unless a given percentage of their value is produced domestically

Network

intentionally constructing and tapping into relationships, connections, and ties that individuals and organizations have. Liability of newness - the inherent disadvantage that entrepreneurial firms experience as new entrants. Intensity: strong vs. weak ties - Strong ties - more durable, reliable, and trustworthy relationships cultivated over a long period of time. Weak ties - relationships that are characterized by infrequent interaction and low intimacy.

Licensing/Franchising

licencing refers to Firm A's agreement to give Firm B the rights to use A's proprietary technology or trademark for a royalty fee paid to A by B. Franchising represents essentially the same idea, except it is typically used in service industries, such as fast food.

Stage models

models which suggest firms internationalize by going through predictable stages from simple steps to complex operations 2 schools of thought: 1) firms will enter culturally similar countries during their first stage of internationalization, and that they may gain more confidence to enter culturally distant countries in later stages 2) considerations of strategic goals such as market and efficiency are more important than cultural/institutional considerations

Currency risks

risks stemming from exposure to unfavorable movements of the currencies Speculation - making bets on currency movements by committing to stable currencies Hedging - spreading out activities in a number of countries in different currency zones to offset the currency losses in certain regions through gains in other regions

Innovation

specialized form of differentiation strategy and offers 3 advantages The first firm to introduce new goods/services are likely to earn "monopoly profits" until competitors emerge Innovation should be considered broadly. Innovation doesn't have to be a technological breakthrough, it could be a new way of doing business. SMEs tend to be more innovative and risk-taking than those at large firms

FDI

strategic alliances with foreign partners, foreign acquisitions, and/or greenfield wholly owned subsidiaries.

Direct Exporting

the sale of products made by entrepreneurial firms in their home country to customers in other countries.