International Strategic Management Midterm
forward vertical integration
(bargaining power of buyers) business activities are expanded to include control of the direct distribution or supply of a company's products
backward vertical integration
(bargaining power of suppliers) when a firm buys a company who previously supplied raw materials to the firm
strategic outcomes
(desired: strategic competitiveness and above-average returns) result when a firm is able to successfully formulate and implement value-creating strategies that others are unable to duplicate
industry-based decision
(five primary forces) 1. rivalry among established firms 2. entry barriers 3. bargaining power of suppliers 4. bargaining power of buyers 5. market potential of substitute products
organizational strategists
(who) must consider the risks of actions under consideration, along with the firm's vision and manager's strategic orientations
some trends in cross-border acquisitions
-because of relaxed regulations, the amount of cross-border activity among nations within the European community also continues to increase -many large European corporations have approached the limits of growth within their domestic markets and thus seek growth in other markets -many European and US firms participated in cross-border acquisitions across Asian countries that experienced a financial crisis due to significant currency devaluations in 1997, and this facilitated the survival and restructuring of many large Asian companies such that these economies recovered more quickly than they would have otherwise
non-equity strategic alliance
-does not establish a separate independent company and therefore firms don't take equity positions -is less formal and demands fewer partner commitments -is unsuitable for complex projects requiring effective transfers of tacit knowledge between partners
international business-level strategy
-home country of operation is often the most important source of competitive advantage -resources and capabilities established in the home country frequently allow the firm to pursue the strategy into markets located in other countries -as a firm grown internationally, research indicates that the country of origin diminishes in importance as the dominant factor
costs/potential risks of licensing:
-little control over manufacture and distribution of its products in foreign markets -least revenue potential as profits must be share between licensor and licensee -licensee can learn firm's technology and may create a competing product
international acquisition disadvantages:
-same disadvantages as domestic acquisitions -great expense that often requires debt financing -exceedingly complex international negotiations for acquisitions -dif. corporate cultures -challenges of merging the new firm into the acquiring firm (dif. social cultures and practicies)
synergistic strategic alliance
-similar to business-level horizontal complementary strategic alliances at the business level -create synergy across multiple functions or multiple businesses
negative tradeoffs of leveraged buyouts
-the resulting large debt increases the financial risk of the firm -the intent of the owners to increase the efficiency of the bought-out firm and then sell it within a five to eight year period can create a short-term and risk-averse managerial focus -these firms may fail to invest adequately in R&D or take other major actions designed to maintain or improve the company's core competence
when top-level managers are not able to adequately evaluate the strategies and strategic actions taken by division or business unit managers:
-they lack a rich understanding of business units' strategies and objectives, top=level managers tend to emphasize the financial outcomes of strategic actions rather than the appropriateness of the strategy itself -this forces division or business unit managers to become short-term performance-oriented -the problem is more serious when manager compensation is tied to short-term returns -long term-analysis deteriorates -long-term, risky investments (such as R&D) may be reduces to boost short-term returns
new wholly owned subsidiaries are risky because:
-this alternative carries the highest costs of all entry alternatives since a firm must build new manufacturing facilities, establish distribution networks, and learn/implement the appropriate marketing strategies -the firm also may have to acquire knowledge and expertise relevant to the new market, often having to hire host country nationals and or costly consultants
internationalization
1. a firm produces an innovation in its domestic market 2. product demand develops in other countries and exports are provided from domestic operations 3. as demand increases, foreign rivals produce the product; then firms justify investing in production abroad 4. as products become standardized, firms relocate production to low-cost countries
three different types of strategic alliances:
1. joint venture 2. equity strategic alliance 3. non-equity alliance
trade barriers
1. tariff barriers 2. non-tariff barriers local content requirements and restrictions on certain entry modes; local content requirements mandating that a "domestically produced" product can still be subject to tariff and non-tariff barriers unless a certain fraction of its value is truly produced domestically
results of mutli-domestic strategies
1. usually expands the firm's local market share because the firm can pay attention to the needs of local buyers 2. results in more uncertainty for the corporations as a whole, because of the differences across markets and thus the different strategies employed by local country units 3. does not allow for the achievement of economies of scale and can be more costly 4. decentralizes a firm's strategic and operating decisions to the business units operating in each country
attributes that appear to be associated consistently with successful acquisitions:
1. when a firm's assets are complementary (highly related) with the acquiring firm's assets and create synergy and, in turn, unique capabilities, core competencies, and strategic competitiveness 2. when targets were selected and "groomed" through earlier working relationships (strategic alliances) 3. when the acquisition is friendly, thereby reducing animosity and turnover of key employees 4. when the acquiring firm has conducted due diligence 5. when management is focused on research and development 6. when acquiring and target firms are flexible/adaptable 7. when integration quickly produces the desired synergy in the newly created firm, allowing the acquiring firm to keep valuable human resources in the acquired firm to keep valuable human resources in the acquired firm from leaving
1. increasing rate of technological change and diffusion 2. the information age 3. increasing knowledge intensity
3 technological trends & conditions that are significantly altering the nature of competition
1. strategic thinking 2. deal making 3. partnership governance 4. change management
4 skills that are essential for managers involved in outsourcing programs:
geographically clustered
A network cooperative strategy is particularly effective when it is formed by ________________ ___________________ firms
1980's, 1990's, and into the 21st century
Acquisitions have been a popular strategy among US firms for many years. Some believe that this strategy played a central role in the restructuring of US businesses during ___________, ___________, and into the _________________
strategic leaders
CEO or top manager who is primary organizational strategist in every org.
sold at a profit
It is not uncommon for those buying a firm through an LBO to restructure the firm to the point that it can be ____________ __________ ___________ ___________ within a five to eight year period
1. managerial mistakes 2. managers that are making decisions primarily serving their personal interests rather than those of shareholders
LBO's are used as a restructuring strategy to correct (2):
principal advantages: ownership (O), location (L), internalization (I)
MNEs enter foreign markets via equity modes:
downsizing:
Short-term outcomes: reduced labor costs long-term outcomes: loss of human capital and lower performance
Poor contract development that may result in one (or more) of the partners acting opportunistically and taking advantage of other venture partners Misrepresentation of partner firms' competencies by misstating or exaggerating an intangible resource such as knowledge of local market conditions Failure of partner firms to make complementary resources available to the venture as agreed The possibility that a firm may make investments that are specific to that alliance while its partner does not
The risks associated with cooperative strategies are significant because the firms that are cooperating may also be competing with each other. These risks include:
alliance network
The set of partnerships, such as strategic alliances, that result from the use of a network cooperative strategy
small businesses; currency exchange rates
________ ___________ are most likely to use exporting; a major problem with this is __________________ _________________ ___________
core competencies
__________ ______________ are potential sources of competitive advantage
acquisitions
___________ may provide the fastest and largest initial international expansion of any of the alternatives
patents, brands, and trademarks
___________, _____________, & ________________ legally protect the rarity of certain product features
licensing
____________ is the least costly (potentially least risky) form of international expansion because the licensor does not have to make capital investments in the host countries
20; 60; 20
____________ percent of all mergers/acquisitions are successful; ______________ percent produce disappointing results, and the last __________ percent are clear failures
core competencies
_____________ __________________ of a firm should drive its selection of strategies
small
_____________ firms are more likely to, and quicker to launch competitive actions
regional strategies
______________ ________________ are being promoted by groups of countries that have developed trade agreements to enhance the economic power of a region; i.e. EU, NAFTA, OAS, CAFTA
acquisitions
______________ work best in situations with less need for flexibility and when the transaction supports economies of scale or scope
core competencies
_______________ ___________________ and product-market positions are the most important sources of advantage
high
_______________ levels of commonality reduce the likelihood of competitive interaction
similar
________________ resources will result in a less likely attack
intangible resources
_________________ _________________ are more likely to be sources of sustainable competitive advantage
cultural diversity
__________________ _________________ may enable a firm to compete more effectively in international markets
global; domestic
__________________ markets are growing faster than ________________ markets
1. strategic goals 2. cultural & institutional distances
___________________ & ______________ drive the location of foreign entries
new wholly owned subsidiaries (greenfield venture)
___________________ is the most costly and complex of all international market entry alternatives
capabilities (teams or bundles of resources)
___________________ represent sources of core competencies
alliances
_____________________ are more favorable when uncertainty is high and where cooperation is needed to access knowledge dispersed between partners and where strategic flexibility is important
acquisitions
______________________ are used to overcome entry barriers in international markets
exporting
a common form of international expansion is for firms to export products from the home country to other markets
flexible manufacturing systems
a computer controlled process used to produce a variety of products in moderate, flexible quantities (increases a firms ability to engage in an integrated low-cost/differentiation strategy)
strategic myopia
a condition in which the management of a business can see clearly those things that are to take place in the short term, but have only a fuzzy view of what their future might be over the longer term
hypercompetition
a condition that results from the dynamics of strategic moves and countermoves among innovative, global firms: a condition of rapidly escalating competition that is based on price-quality positioning, efforts to create new know-how & achieve first-mover advantage, and battles to protect or to invade established product or geographic markets
multipoint competition
a condition where two or more diversified firms compete in the same product areas or geographic markets
transnational strategy
a corporate strategy that seeks to achieve bot global efficiency and local responsiveness
whom to serve, what customer needs will be satisfied, and how those needs will be satisfied through the strategy selected
a customer focus requires that firms simultaneously evaluate or consider
business level strategy
a deliberate choice about how a firm will perform the value chain's primary and support activities in ways that create unique value
licensing
a firm authorizes a foreign firm to manufacture and sell its products in a foreign market
-the action leads to better use of the competitor's capabilities to gain or produce stronger competitive advantages or an improvement in its market position -the action damages the firm's ability to use its capabilities to create or maintain an advantage -the firm's market position becomes less defensible
a firm is likely to respond to a competitive action when....
leveraged buyout
a firm is purchased by a few (new) owners using a significant amount of debt (in a highly leveraged transaction) and the firm's stock is no longer traded publicly
dominant business
a firm that generates between 70-95% of its sales within a single business area
single business
a firm where more than 95% of its revenues are generated by the dominant business
resources
a firm's tangible and intangible ______________ represent sources of capabilities
industry
a group of firms producing products that are close substitutes for each other; as they compete for market share, the strategies implemented by these companies influence ea. other and include a broad mix of competitive strategies as each company pursues strategic competitiveness and above-average returns
tactical action/response
a market-based move that is taken to fine-tune a strategy
vision
a picture of what the firm wants to be, and in broad terms, what it wants to ultimately achieve; "big picture" thinking with passion that helps people feel what they are supposed to be doing
due diligence
a process through which a firm evaluates a target firm for acquisition
monitoring
a process whereby analysts observe environmental changes over time to see if, in fact, an important trend begins to emerge; the most important thing is that analysts are able to detect meaning from the data collected (normally ambiguous, incomplete, and unconnected)
industry, resource, and institution views
a savvy strategist should consider __________, ____________, & ________________
horizontal complementary strategic alliance
a strategic alliance that is an arrangement that links similar segment of competing firms' value chains, such as linking R&D or new product development activities
vertical complementary strategic alliance
a strategic alliance that links suppliers, manufacturers, and/or distributors and represents linkages between different segments of each partner's value chain
competitive action
a strategic or tactical action the firm takes to build or defend its competitive advantage or improve its market position
competitive response
a strategic or tactical action the firm takes to counter the effects of a competitor's competitive action
value chain analysis
a tool for determining which value-creating competencies should be maintained, upgraded, and developed and which should be outsourced
acquisition
a transaction where one firm buys a controlling or 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio
merger
a transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage
outsourcing
a typical form of a non-equity strategic alliance
partnership governance
ability to oversee and govern appropriately the relationship with the company to which the services were outsourced
deal making
ability to secure rights from external providers that can be fully used by internal managers
convenience
accessibility to customers
easily; accurately
acquisition outcomes can be estimated _____________ and _________________
1. difficulties integrating the two firms after the acquisition is complete 2. paying too much for the target (acquired) firm or inappropriately/inadequately evaluating the target 3. the cost of financing the acquisition, related to large or extraordinary debt 4. overestimating the potential for gains from capabilities and/or synergy 5. excessive or too much diversification 6. management being preoccupied or overly focused on acquisitions 7. the combined firm being too large
acquisition related problems (7):
takeover
acquisition where the target firm did not solicit the bid of the acquiring firm and often resists the acquisition (a hostile takeover)
cross-border acquisitions
acquisitions between companies with headquarters in different countries
unfriendly takeovers
acquisitions can be considered _________________
innovation
acquisitions could become a substitute for _______________, which has a serious downside
unrelated diversification strategy
acquisitions have gained in popularity as an _____________ ______________ __________ because of the changes in regulatory interpretation and enforcement of antitrust laws
where a firm headquartered in one country acquires a firm headquartered in another country
acquisitions made across country borders
-this may be the fastest way to enter new markets -they provide more control over foreign operations than do strategic alliances with a foreign partner
acquisitions represent a viable strategy for firms that wish to enter international markets because:
supplier, competitor, distributor, or business in a highly related industry
acquisitions to meet a market power objective generally involve buying (4) _______________________
Resource-based Model
adopts an internal perspective to explain how a firm's unique bundle of internal resources and capabilities represent the foundation on which value-creating strategies should be built
agglomerations
advantages obtained when economic activities are clustered in certain locations
-achieving maximum control over the venture -being potentially the most profitable alternative -maintaining control over the technology, marketing, & distribution of its products
advantages of a new wholly owned subsidiary
external environmental factors
affect firm growth and profitability in the US and beyond
Competitive Advantage
after implementing a value-creating strategy that current and potential competitors are not simultaneously implementing and that competitors are unable to duplicate, or find too costly to imitate, a firm achieves a...
competitive dynamics
all competitive behavior-the total set of actions and responses taken by all firms competing within a market
network cooperative strategy
alliances can also be expanded to include a larger number (or network) of partners as a complement to other forms of cooperative strategy
synergistic strategic alliance
allow firms to combine some of their resources and capabilities to create joint economies of scope between partner firms
intra-organizational conflicts
among managers making decisions about which core competencies are to be nurtured and about how the nurturing should take place
durability
amount of use before performance deteriorates
joint venture
an alliance where a new, independent firm is formed from two or more partners, with each partner firm contributing some of their resources and capabilities
equity strategic alliance
an alliance where partner firms own unequal shares of equity in a venture formed by combining some of their resources and capabilities to create a competitive advantage
non-equity strategic alliance
an alliance where two or more firms contract to share some of their resources and capabilities to create a competitive advantage
-financing for intended transaction -differences in cultures between the acquiring and target firm -tax consequences of the transaction -actions that would be necessary to successfully meld the two workforces
an effective due diligence process examines:
mission
an externally focused application of its vision that states the firm's unique purpose and the scope of its operations in product and market terms
Strategy
an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage
-cost leadership strategy -differentiation strategy -focus strategies (cost leadership or differentiation) -integrated cost leadership/differentiation strategy
an integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors
cross-border strategic alliance
an international cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage
the future
analysis of the general environment focuses on....
stable alliance networks
appear in mature industries with predictable market cycles and demand
opportunity-maximization
approach focuses on a partnership's value-creation opportunities. In this case, partners are prepared to take advantage of unexpected opportunities to learn from each other and to explore additional marketplace possibilities. Less formal contracts, with fewer constraints on partners' behaviors, make it possible for partners to explore how their resources and capabilities can be shared in multiple value creating ways.
strategic inputs
are used to develop the firm's vision and mission (in the form of information gained by scrutinizing the internal environment and scanning the external environment)
tangible resources
assets that can be seen or quantified
specialized assets
assets whose value is linked to use in a particular industry or location, with little or not value as salvage or in other uses
regulatory risks
associated with unfavorable government policies such as: obsolescing bargain
result: high probability of synergy and competitive advantage by maintaining strengths
attribute: acquired firm has assets or resources that are complementary to the acquiring firm's core business
result: financing (debt or equity) is easier and less costly to obtain
attribute: acquiring firm has financial slack (cash or a favorable debt position)
results: maintain long-term competitive advantage in markets
attribute: acquiring firm has sustained and consistent emphasis on R&D and innovation
result: faster and more effective integration and possibly lower premiums
attribute: acquisition is friendly
results: lower financing cost, lower risk and avoidance of trade-offs that are associated with high debt
attribute: merged firm maintains low to moderate debt position
small entrepreneurial firms can
avoid retaliation by identifying and serving neglected market segments
1. national boundaries 2. cultural differences 3. geographical distances
barriers to entry into many markets (international)
labor and natural resources
basic factors
change management
because outsourcing can significantly change how an organization operates, managers administering these programs must also be able to manage that change
-earn above average returns until competitors respond effectively -gain customer loyalty -gain market share
by being early, the first mover hopes to...
judgment
capacity for making a successful decision in a timely manner when no correct model is available or when relevant data are unreliable or incomplete
-strategic myopia -inflexibility
causes of core rigidities
demand conditions
characterized by the nature and the size of buyer's needs in the home market for the industry's products or services
speculation
committing to stable currencies (can be risky if firms bet on the wrong currency movements)
positive
compared to downsizing, downscoping has a more ________________ effect on firm performance
core rigidities
competencies emphasized when no longer competitively relevant
price, quality, or innovation
competition can be based on:
business-level
competition in an individual product market is a question of _______________________ strategy
Inadequate contracts Misrepresentation of competencies Partners failing to use complementary resources Holding alliance partners' specific investments hostage
competitive risks of cooperative strategies:
market commonality resource similarity
competitor analysis components (1st step of predicting nature of rivalry of the competitor)
-future objectives -current strategy -assumptions -capabilities
competitor analysis components:
predicting the dynamics of rivals' actions, responses, and intentions
competitor analysis focuses on:
scanning, monitoring, forecasting, and assessing
components of the external environmental analysis:
general environment
composed of elements in the broader society that can indirectly influence an industry and the firms within the industry; firms cannot directly control the general environment's segments and elements
sociocultural segment
concerned with different societies' social attitudes and cultural values
uncertainty complexity intraorganizational conflicts
conditions affecting managerial decisions about resources, capabilities, and core competencies
opportunities
conditions in the general environment that may help a company achieve a strategic competitiveness by presenting it with possibilities
threats
conditions that may hinder or constrain a company's efforts to achieve strategic competitiveness
finance
consists of activities associated with effectively acquiring and managing financial resources
human resources
consists of activities associated with managing the firm's human capital
supply chain management
consists of activities including sourcing, procurement, conversion, and logistics management that are necessary for the firm to receive raw materials and convert them into final products
operations
consists of activities necessary to efficiently change raw materials into finished products
distribution
consists of activities related to getting the final product to the customer
marketing
consists of activities taken for the purpose of segmenting target customers on the basis of their unique needs, satisfying customers' needs, retaining customers, and locating additional customers
follow-up service
consists of activities taken to increase a product's value for customers
management information systems
consists of activities taken to obtain and manage information and knowledge throughout the firm
collusive strategy
cooperative strategy through which two or more firms cooperate to raise prices above the fully competitive level
diversifying strategic alliance
corporate-level cooperative strategy in which firms share some of their resources and capabilities to diversify into new product or market areas
franchising
corporate-level cooperative strategy used by a franchisor to describe and control the sharing of its resources and capabilities
fewer; greater
corporate-level strategic alliances are also attractive compared to mergers & acquisitions, b/c they require _________________ resource commitments and permit _______________ flexibility
financial economies
cost savings realized through improved allocations of financial resources based on investments inside or outside the firm
-building efficient-scale facilities -establishing tight control of production and overhead costs -minimizing the cost of sales, product research and development, and service -investing in state-of-the-art manufacturing technologies
cost-reduction strategies
critical basic resources
countries often develop advanced and specialized factors because they lack __________________________________
exit barriers
created by economic, strategic, and emotional factors that cause companies to remain in an industry even though the profitability of doing so is in question
reliable products at the lowest possible price
customer's expectations and demands are
market segmentation
customers based on differences in needs or preferences
product differentiation
customers may perceive that products offered by existing firms in the industry are unique as a result of services offered, effective advertising campaigns, or being the first to offer a product or service to the market
markets of one
customized products normally sold online
-it is difficult to accurately estimate the returns that will be earned from introducing product innovations -the first mover's cost to develop a product innovation can be substantial, reducing the slack -lack of product acceptance over the course of the competitor's innovations may indicate less willingness in the future to accept the risk of being a first mover
dangers/disadvantages of being a first mover...
dissemination risks
defined as the risks associated with the unauthorized diffusion of firm-specific assets
The general environment
demographic, political/legal, sociocultural, economic, technological, global, physical
market dependence
denotes the extent to which a firm's revenues/profits are derived from a particular market
international corporate-level strategy
dependent on the complexity and scope of product and geographic diversification, and these include: multi-domestic, global, and transnational
intensity of rivalry among competitors
depends on the extent to which firms in an industry compete with one another to achieve strategic competitiveness and earn above-average returns because success is measured relative to other firms in the industry
foreign firms are able to enjoy competitive advantage by...
deploying overwhelming resources and capabilities, such as: superior technology, organizational know-how & knowledge about the institutional intricacies in various countries
Competitive Landscape
described as one in which the fundamental nature of competition is changing in a number of the world's industries
outsourcing
describes a firm's decision to purchase a value-creating activity from an external supplier
corporate-level cooperative strategies
designed to facilitate product and market diversification through a means other than a merger or an acquisition
business-level strategies
detail actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual products or service markets
intra-organizational conflicts
develop as a result of uncertainty and complexity
resource view
develop overwhelming capability to overcome the liability of foreignness
firms can offset the attractiveness of substitute products by
differentiating their products in ways that are perceived by customers as relevant; viable strategies might include price, product quality, product features, location, or service level
advanced factors
digital communications systems and highly educated work forces
-end-use segments -product segments -geographic segments -common buying factor segments -customer size segments
dimensions used to identify potential customers in industrial markets (5):
-level of diversification -connection or linkages between and among business units
diversified firms vary according to two factors:
short-term outcomes: reduce debt costs and emphasize strategic controls long-term outcomes: higher performance
downscoping
lower
downsizing contributed to __________________ returns for both US and Japanese firms
legitimate restructuring strategy
downsizing is now recognized as a ___________ _____________ ________________ and has been one of the most common ones adopted by US firms
restructuring forms:
downsizing, downscoping, leveraged buyouts
-awareness -motivation -ability
drivers of competitive action and responses (3)
investment bankers, accountants, lawyers, and management consultants specializing in that activity
due diligence is commonly performed by
serviceability
ease and speed of repair
direct
effect of the industry environment is more ____________, which is opposite of the general environment
joint ventures
effective in establishing long-term relationships and in transferring tacit knowledge
ethical
effective strategic leaders work to set an _____________ tone in their firms
information networks
enable a firm to coordinate interdependencies between internally and externally performed value-creating activities to increase flexibility and responsiveness i.e. CRM
strategic alliance
enable firms to share the risks and resources required to enter international markets & facilitate the development of new core competencies that yield strategic competitiveness
competitor analysis
enables the firm to focus its attention on those firms with which it will directly compete, and is especially important when a firm faces a few powerful competitors
corporate-level strategy
entails selecting a strategy that focuses on the selection and management of a mix of businesses
fast-cycle markets
entrepreneurial and dynamic, with new products or services imitated rapidly
- industry's competitive conditions -target country's situation -gov. policies -the firm's unique set of resources, capabilities, and core competencies
entry mode decisions should be based on the following conditions:
-extent of technological leadership -degree of product quality -pricing policies -choice of distribution channels -degree/type of customer service
essential characteristics of a firm's strategy
competition response strategy: cooperative strategic alliances
established to enable partner firms to respond to major strategic actions initiated by competitors; strategic alliances are primarily formed to respond to strategic rather than tactical actions
Total Quality management systems
established to improve product quality and to improve productivity in the performance of the internal value-creating activities
cost leadership strategy
establishing a low-cost position and providing standardized products at the lowest competitive price
1. actively solving problems 2. being trustworthy 3. consistently pursuing ways to combine partners' resources and capabilities to create values
examples of cooperative behavior for strategic alliances:
tacit collusion
exist when several firms in an industry observe others' competitive actions and respond to reduce industry output below the potential competitive level to maintain higher-than-competitive prices
market power
exists when a firm is able to sell its products at prices above the existing competitive level or decrease the costs of its primary activities below the competitive level, or both
explicit collusion
exists when firms get together to negotiate production output and pricing agreements with the goal of reducing competition
synergy
exists when the value created by business units working together exceeds the value the units create when working independently
illegal
explicit collusion strategies are ______________________ in the US and most developed economies
channels of distribution; outlets
exporters must establish ________ _______ __________ and _____________ for their goods, usually by developing contractual relationships with firms in the host country to distribute and sell products
1. high transportation costs 2. tariffs may be charged 3. less control over the marketing and distribution of their products
exporting disadvantages:
institutional distances
extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries
identify environmental changes, trends, opportunities, and threats that can be matched with the firm's core competencies so that it can achieve strategic competitiveness and earn above-average returns
external analysis efforts should focus on segments most important to the firm's strategic competitiveness to:
interpret information to identify opportunities and threats
external environmental analysis helps firms' managers
affiliation
facilitating useful interactions
barriers to entry
factors associated with the market and/or firms operating in the market that make it more expensive/difficult for new firms to enter the market
focused differentiation strategy
few segments, unique products
vertical integration
firms also might gain market power by following a _____________ ____________________ strategy
mutual forbearance
firms avoid competitive attacks against rivals they meet in multiple markets
capital requirements
firms choosing to enter any industry must commit resources for facilities- to purchase inventory, to pay salaries and benefits, etc.
multimarket competition
firms competing against each other in several product/geographic markets
value
firms create ______________ by innovatively bundling and leveraging their resources and capabilities
related-constrained
firms earn at least 30% of their revenues from the dominant business, and all business units share product, technological, and distribution linkages
flexibility, mitigate risks, and reduce their capital investment
firms engaging in outsourcing can increase their _______________, ________________ _______________, and _________________ ________________ ___________
conglomerates
firms following unrelated diversification strategies
uncertainty-reducing strategy
firms may form strategic alliances to hedge against risk and uncertainty (esp. in fast cycle markets)
competitors
firms operating in the same market with similar products targeting similar customers
local responsiveness and global integration
firms should choose their internatnioal corporate-level strategy based on the need for both ________ __________________ and for ___________ ____________
focus strategy
firms that choose to compete in narrow customer segments
related linked (mixed related and unrelated)
firms that generate at least 30% of their total revenues from the dominant business, but there are few linkages between key value-creating activities
late movers
firms that respond to a competitive action, but only after considerable time has elapsed after the first mover's action and the second mover's response
second movers
firms that respond to a first mover's competitive action, typically through imitation
strategic & tactical
firms use _____________ & ______________ actions when forming their competitive actions and competitive responses in the course of engaging in competitive rivalry
outperform
firms using related diversification strategies _______________ those using unrelated diversification strategies
unrelated-diversified (or highly diversified)
firms who do not share resources or linkages often known as conglomerates
strategic focus
firms' efforts to take care of the physical environment in which they compete
gaining proprietary, preempting scarce assets, establishing entry barriers, avoiding clashes with dominant firms in domestic markets and creating good relationships with key stakeholders
first mover advantages
cost leadership strategy
five business-level strategies
institution-based considerations
focus on three major institutional constraints confronting foreign entrants: regulatory risks, trade barriers, and currency risks
complementary resources; capabilities
for a standard cycle market, alliances are more likely to be between partners with _______________ __________________ and ______________________
undesirable
for acquiring firms, acquisitions strategies may result in ________________ outcomes
-perform them in a manner superior to the ways that competitors perform them -perform it so that no competitor is able to perform in order to create superior value for customers and achieve a competitive advantage
for primary and supporting activities to be sources of competitive advantage, a firm must be able to:
1. searching for viable candidates 2. completing effective due diligence 3. preparing for negotiations with the target firm 4. managing the integration process post-acquisition
for the acquiring firm, the managerial time and energy takes the form of:
vertical complementary strategic alliance
formed between firms that agree to use their resources and capabilities in different stages of the value chain to create value
vertical complementary strategic alliance
formed in reaction to environmental changes; thus they serve as a means of adaptations to the environmental changes
1. basic factors 2. advanced factors 3. generalized factors 4. specialized factors
four categories of factor conditions/factors of productions
-valuable -rare -costly to imitate -nonsubstitutable
four criteria of sustainable advantages
1. factors of production 2. demand conditions 3. related and supporting industries 4. firm strategy, structure, and rivalry
four interrelated national/regional factors contribute to the competitive advantage of firms competing in global industries
1. define the pool's boundaries 2. estimate the pool's overall size 3. estimate the size of the value-chain activity in the pool 4. reconcile the calculations
four steps of profit pools:
-complementary strategic alliances -competition response strategy -uncertainty reducing strategy -competition reducing strategy
four types of business-level cooperative strategies
completeness
fully serviced, as required
external environment
general, industry, and competitive environments
consistency
giving all customers similar experiences each time
different; very specific
goals with each cooperative relationship is _______________ and _____________________
Global Economy
goods, services, people, skills, and ideas move freely across geographic borders
government policy
governments are able to control entry into an industry through licensing and permit requirements
strategic groups
groups of firms in an industry following the same or similar strategies along the same strategic dimensions
firm strategy, structure, and rivalry
growth in certain industries is fostered by this factor; these vary between nations
strategic actions
guided by the firm's vision and mission, and are represented by strategies that are formulated or developed and subsequently implemented or put into action
valuable capabilities
help a firm exploit opportunities and/or neutralize threats in the external environment; allow a firm to develop and implement strategies that create customer value
cost-based and revenue-based synergies
horizontal acquisitions increase a firm's market power by exploiting (list two)
equal; equal
horizontal alliances may require __________ investments of resources by the partners, but they rarely provide __________ benefits to the partners
successful
horizontal and related acquisitions tend to contribute more to strategic competitiveness, so they are more _______________ than diversifying acquisitions
long-term employment, tax revenues, minimum use of public support services
host communities' expectations and demands are:
aesthetics
how a product looks and feels
cost disadvantages independent of scale
i.e. proprietary process technology, more favorable access to or control of raw materials, the best locations, or favorable government subsidies
unique loyal
if customers perceive a product or service as _________, they are generally __________ to that brand
time; energy
if firms follow active acquisition strategies, the acquisition process generally requires significant amounts of managerial ____________ & ______________
joint ventures; wholly owned subsidiaries
if intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high, entnry models such as ___________ ____________ or __________ ____________ _____________ are preferred
diseconomies of scale
implies that problems related to excess growth may be similar to those that accompany overdiversification
strategy, managerial styles, and resource allocation patterns
important similar characteristics of horizontal acquisitions
features
important special characteristics
leveraged buyout
in general, the new owners restructure the private firm by selling a significant number of assets (businesses) both to downscope the firm and to reduce the level of debt (significant debt costs) used to finance the acquisition
reach richness affiliation
in the internet age, firms can maintain competitive advantage by
technological segment
includes institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes and materials
location-specific advantage
includes the geographical advantages and agglomeration, which goes beyond the geographical advantages; stem from knowledge spillovers among closely located firms that attempt to hire individuals from competitors, industry demand that creates a skilled labor force whose members may work for different firms without having to move out of the region, and industry demand that facilitates a pool of specialized suppliers and buyers also located in the region
Globalization
increasing economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders
stakeholders
individuals and groups who can affect and are affected by the strategic outcomes achieved and who have enforceable claims on a firm's performance
factors and conditions influencing firm profitability within its industry
industry analysis focuses on:
greater
information processing requirement are _____________ for a related diversified firm (compared to its unrelated counterparts) due to its need to effectively and efficiently coordinate the linkages and interdependencies on which value-creation through activity sharing depends
knowledge
information, intelligence, and expertise
Resources
inputs into a firm's production process, such as: capital equipment, individual employee's skills, patents, brand names, finance, and talented managers
1. human resources 2. innovation resources 3. reputational resources
intangible resources can be classified as:
1. melding disparate corporate cultures 2. linking different financial and control systems 3. building effective working relationships (esp. when managing style differs) 4. problems related to differing status of acquired and acquiring firms' executives
integration difficulties (4):
costly; high risk investment
internal development of new products is often perceived by managers to be ____________ and to represent ________ ____________ ______________ of firm resources
1. global strategy 2. transnational strategy 3. multi-domestic strategy
international corporate level strategies (list them)
1. increased market size 2. return on investment 3. economies of scale and learning 4. location-related advantages
international opportunities
risk
investor uncertainty about the economic gains or losses that will result from a particular investment
other problems
investors also seem to assume that downsizing occurs as a consequence of _________________ ________________ in a company
quality
involves meeting or exceeding customer expectations in the products and/or services offered
Strategic Competitiveness
is achieved when a firm successfully formulates and implements a value-creating strategy
strong retaliation
is likely when existing firms have a heavy investment in fixed assets or when industry growth is slow or declining
human captial
it is important to maintain the ____________ ______________ of the target firm after the acquisition to preserve the organization's knowledge
-the acquired firm has established sales volume and customer base, thus yielding predictable returns -the acquiring firm gains immediate market access
it may be the firm's best interest to acquire an existing business because
1. they may be able to take a free ride on first movers' investments 2. they are able to join the game with massive firepower after some of these uncertainties are removed 3. they may be able to take advantage of first movers' inflexibility by leapfrogging over them
late mover advantages
low, moderate to high, very high
levels of diversification
short-term outcomes: emphasize strategic controls and high debt costs long-term outcomes: higher performance and higher risk
leveraged buyout
LLL framework
linkage, leverage, and learning
Feedback
links the elements of the strategic management process together (strategic inputs, actions & outcomes) and helps firms continuously adjust or revise strategic inputs & actions in order to achieve desired strategic outcomes
local content requirements
local content requirements mandating that a "domestically produced" product can still be subject to tariff and non-tariff barriers unless a certain fraction of its value is truly produced domestically
richness
maintaining information with depth and detail for customers
strategic leader responsibilities
making decisive roles in firms' efforts to achieve their desired strategic outcomes; decide how resources will be developed/acquired, at what cost, and how they will be used or allocated throughout the organizatoin
-diversify managerial employment risk -increase managerial compensation
managerial or value-reducing motives
judgment
managers that must make decisions under conditions of uncertainty, complexity, and intra-organizational conflict must exercise ____________________
lower
managers view acquisitions as carrying __________________ risk
conformance
match with pre-established standards
financial controls
may be emphasized when managers feel that they do not have sufficient expertise or knowledge of the firm's various businesses
overdiversification
may result in poor performance when top-level managers emphasize financial controls over strategic controls
social complexity
mean a firm's capabilities are the product of complex social phenomena such as interpersonal relationships within the firm or a firm's reputation with its customers and suppliers
flexibility
meeting operating specifications over some period of time
related-diversified, related-constrained, related linked, unrelated-diversified, conglomerates
moderate and high levels of diversification
exporting licensing strategic alliances acquisition new wholly owned subsidiary (greenfield venture)
modes of entry (list them)
higher the entry barriers
more intensely firms will attempt to compete abroad
the franchisor and franchisees work closely together
most successful franchising strategy is one in which:
specialized factors
most valuable in specific uses
-avoid violations of antitrust regulations -take advantage of tax incentives -to overcome low performance -to reduce the uncertainty of future cash flows -to reduce overall firm risk -to exploit tangible/intangible resources
motives that are value-neutral with respect to strategic competitiveness:
-economies of scope through activity-sharing and the transfer of core competencies -market power motives by vertical integration or blocking competitors via multipoint competition -financial economies motives to improve efficiency of capital allocation through an internal capital market or by restructuring the portfolio of business
motives to create value
focused cost leadership strategy
narrow segment, standardized products at the lowest competitive price
related and supporting industries
national firms may be able to develop competitive advantage when industries that provide either materials or components or that support the activities of the primary industry are present
growth; strong global competitors
nations having both advanced and specialized factors are likely to be characterized by _________________ in new firms that are _______________ ______________ _________________
non-substitutable
no structural equivalents
BOT agreement (build-operator-transfer)
non-equity mode of entry used to build a longer-term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or a firm
1. licensing or franchising 2. turnkey projects 3. research and development contracts 4. co-marketing
non-equity modes involved the following types of contractual agreements
factors of a competitive rivalry
numerous or equally balanced competitors, slow industry growth, high fixed costs or high storage costs, lack of differentiation or low switching costs, high strategic stakes
competition-reducing
of the four business-level cooperative strategies, the ___________________________ strategy has the lowest probability of creating a sustainable competitive advantage
differentiation strategy
offering unique products
first mover advantage
often firms prefer ______________________ (when to move)
downscoping
often includes downsizing; however, the former is targeted so that the firm does not lose key employees from core businesses (because such losses can lead to the loss of core competencies)
standard-cycle markets
often large and oriented toward economies of scale
related-diversified firm
one that earns at least 30% of its revenues from sources outside the dominant business and whose units are related to each other
switching costs
one time costs customers will incur when buying from a different supplier
performance
operating characteristics
bureaucratic controls
other actions taken to enable more effective management of increased firm size include increasing or establishing __________________ _______________
costly to imitate
other firms cannot obtain them inexpensively (relative to other firms)
franchising
particularly attractive strategy to use in fragmented industries where no firm or small set of firms has a dominant share in the industry, making it possible for a company to gain a large market share by consolidating independent companies through contractual relationships
strategic alliance
partnership between firms whereby their resources and capabilities are combined to create a competitive advantage
complementary strategic alliances
partnerships that are designed to take advantage of market opportunities by combining partner firms' resources and capabilities in complementary ways so that new value is created
actions; reactions
patterns of frequent _____________ and __________________ often result in intense rivalry
courtesy
performed cheerfully
accuracy
performed correctly each time
timeliness
performed in the promised period of time
demographic segments
population size, age structure, geographic distribution, ethnic mix, and distribution of income
rare
possessed by few, if any, competitors
uncertainty
present because of the inherent difficulty to identity, assess, and predict changes and trends in characteristics of the external environment
complexity
present because of the uncertain nature of interrelationships among the characteristics of the external environment and the related challenge regarding how to asses the effects of changes in one set of characteristics on other characteristics
barriers to entry
present when entry is difficult or when it is too costly and places potential entrants at a competitive disadvantage
what businesses should the firm be in? how should the corporate office manage its group of businesses? how can the corp. as a whole add up to more than the sum of its business parts?
primary concerns of corporate-level strategy:
efficiency
primary intent of new owners of a leveraged buyout is to improve the firm's ________________
customers, suppliers, host communities, and unions
product market shareholders (4)
-performance -features -flexibility -durability -conformance -serviceability -aesthetics -perceived quality
product quality dimensions
commodities
products that are not characterize by brand loyalty or perceived uniqueness; for these, industry rivalry is more intense and competition is based primarily on price, service, and other features of interest to consumers
1. size of the firm 2. size of the domestic market
propensity to internationalize has two underlying factors
perpetual innovation
rapid and consistent replacement of current technologies by new, information-intensive technologies
-speed up development of new goods or services -speed up new market entry -maintain market leadership -form an industry technology standard -Share risky R&D expenses -overcome uncertainty
reasons for a strategic alliance in a fast-cycle
-gain access to a restricted market -establish a franchise in a new market -maintain market stability
reasons for a strategic alliance in a slow-cycle
-gain market power -gain access to complementary resources -establish better economies of scale -overcome trade barriers -meet competitive challenges from other competitors -pool resources for very large capital projects -learn new business techniques
reasons for a strategic alliance in a standard-cycle
-frequently, the partners have different opportunities as a result of the alliance -partners may learn at different rates and have different capabilities to leverage the complementary resources provided in the alliance -some firms are more effective in managing alliances and in deriving the benefits from them -the partners may have different reputations in the market thus differentiating the types of actions firms can legitimately take in the marketplace
reasons for imbalance between horizontal complementary strategic alliance
-multinational corporations outperform firms operating on only a domestic basis -a firm can form cross border-strategic alliances to leverage core competencies that are the foundation of its domestic success to expand into international markets -limited domestic growth opportunities -gov. economic policies can influence firms to form cross-border alliances -help firms overcome certain liabilities of moving into a foreign country, lack of knowledge of local culture or institutional norms -help transform themselves to better use their competitive advantages to exploit opportunities surfacing in the rapidly changing global economy
reasons for the increased use of cross-border strategic alliances:
1. there are limits to the abilities of firms to possess all of the bundles of resources and capabilities that are required to achieve superior performance in all its primary and support activities 2. w/ limited resources and capabilities, firms can increase their ability to develop resources and capabilities to form core competencies and achieve competitive advantage by nurturing a few core competencies
reasons outsourcing is important:
-increase its market power because of a competitive threat -enter a new market because of an available opportunity -spread the risk due to the uncertain environment -shift its core business into more favorable markets
reasons to make an acquisition
1. the firm is less diversified as a result of downscoping 2. top-level managers can better understand the core and related businesses
reducing the diversity of businesses in the portfolio enables top-level managers to manage the firm more effectively because:
mature industries; innovation
reducing the emphasis on R&D and on innovation may result in the firm losing its strategic competitiveness UNLESS the firm operates in ______________ _______________ in which ________________ is not required to maintain competitiveness
leverage
refers to MNEs' ability to take advantage of their unique resources and capabilities, which are typically based on a deep understanding of customer needs and wants
franchise
refers to a contract between two legally independent companies that allows the franchise to sell the franchisor's product or do business under its trademark over a given time and location
leveraged buyout (LBO)
refers to a restructuring action whereby the management of the firm and/or an external party buys all of the assets of the business, largely financed with debt, and thus takes the private firm
restructuring
refers to change in the composition of a firm's set of businesses and/or financial structure
linkage
refers to emerging MNEs' ability to identify and bridge gaps
physical environmental segment
refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to and deal with those changes
international strategy
refers to selling products in markets outside of the firm's domestic market to expand the market for their products
learning
refers to the acquiring of a whole range of skills from basic communication to high-level executive skills in transparent governance, market planning, and management of diverse multicultural workforces
private synergy
refers to the benefit from merging the acquiring and target firms that is due to the unique assets that are complementary between the two firms and not available to other potential bidders for that target firm
organizational culture
refers to the complex set of ideologies, symbols, and core values shared throughout the firm and that influences the way it conducts business; it is the social energy that drives-or fails to drive- the organization
obsolescing bargain
refers to the deals struck by MNE's and host governments, which change their requirements after the entry of MNE's. the host gov. is often pressured by domestic political groups, may demand renegotiations of the deal that seems to yield "excessive" profits to the foreign firm, while the foreign firm considers these as "fair" and "normal" profits
downscoping
refers to the divestiture spin-off, or other means of eliminating businesses that are unrelated to the firm's core business; refocuses the firm on its core businesses
factor conditions or factors of production
refers to the inputs necessary to compete in an industry, these include: labor, land, natural resources, capital, and infrastructure
economic segment
refers to the nature and direction of the economy in which a firm competes or may compete
awareness
refers to whether or not the attacking or responding firm is aware of the competitive market characteristics of a potential attacker or responder
uncertainty
regarding the assessment of the general and industry environments, assessments, and predictability of competitive actions, and customer preferences
complexity
regarding the nature of any interrelatedness of the causes of change in the environment and how the environments are perceived, especially regarding decisions as to which of the firm's resources and capabilities might serve as the foundation for competitive advantage
ability
relates to each firm's resources and the flexibility they provide
economies of scope
represent cost savings attributed to entering an additional business and sharing activities or using capabilities and core competencies developed in another business that can be transferred to a new business without significant additional costs
resources
represent inputs into a firm's production process
strategies
represent integrated and coordinated sets of actions that are taken to exploit core competencies and gain a competitive advantage
capabilities
represent its capacity to integrate individual firm resources to achieve a desired objective
value chain activities
represent traditional line activities such as supply chain management, operations, distribution, marketing, and follow-up service
junk bonds
represented a new financing option in which risky investments were financed with money (debt) that provided a high return to lenders (bond holders)
support functions
represented by a firm's staff activities and include its financial infrastructure, human resource management practices, and management informations systems activities
bureaucratic controls
represented by formalizing supervisory and behavioral controls such as rules and policies designed to ensure consistency across different units' decisions and actions
motivation
represented by the incentives that a firm has to either initiate an attack or to respond when attacked
downsizing
represents a reduction in the number of employees, and sometimes in the number of operating units, but may or may not represent a change in the composition of the business in the firm's portfolio
competitor analysis
represents the firm's understanding of its current competitors; this understanding will complement information and insights derived from investigating the general and industry environments
generalized factors
required by all industries; highway systems and a supply of capital
tactical; strategical
research evidence and corporate experience suggest that downsizing may be of more _____________ value than _____________ value
temporary competitive advantage
resources and capabilities are both valuable and rare but are not costly to imitate and may or may not be non-substitutable earning above-average to average returns
core competencies
resources and capabilities that serve as a source of competitive advantage for a firm
combined; integrated
resources must be _______________ or ________________ with other firm resources to establish a capability
Organizational strategists
responsible for determining how the organization does business (organizational culture)
leveraged buyouts
restructure the firm's assets by taking it private
attribute: acquiring firm conducts effective due diligence to select target firms and evaluate the target firm's health (financial, cultural, and human resources)
result: firms with strongest complementarities are acquired and overpayment is avoided
attribute: acquiring firm manages change well and is flexible and adaptable
result: faster and more effective integration facilitates achievement of synergy
Above average returns
returns that exceed returns that investors expect to earn from other investments with similar levels of risk
political and economical
risks in the international environment
1. liability of "foreignness" 2. over diversification beyond the firm's ability to successfully manage operations in multiple foreign markets
risks of globalization
-avoid both the mistakes and spendings of pioneers -have time to develop processes and technologies that are more efficient -respond quickly to first mover's successful, innovation based market entries -rapidly and meaningfully interpret market feedback to respond quickly yet successfully to the first mover's successful innovations
second movers.....
focus strategy
seeking to use their core competencies to serve the needs of a particular customer group in an industry (firms focus on smaller segments, or niches, of customers rather than across the entire market
-timeliness -courtesy -consistency -convenience -completeness -accuracy
service quality dimensions
economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, cost disadvantages independent of scale, and government policy
seven forms of barriers to entry:
1. integration difficulties 2. inadequate evaluation of target 3. large or extraordinary debt 4. inability to achieve synergy 5. too much diversification 6. managers overly focused on acquisitions 7. too large
seven reasons for poor performance of acquisitions faced in attempts to achieve success are:
1. increase market power 2. overcome entry barriers 3. reduce the cost of new product development and increase speed to market 4. lower risk compared to developing new products 5. increase diversification 6. avoid excessive competition 7. learn and develop new capabilites
seven reasons that firms (and managers) implement acquisition strategies:
capital market stakeholders
shareholders and lenders who enhance and preserve wealth
above-average returns; are less likely to earn above-average returns
shareholders of acquired firms often earn ___________________ from an acquisition, while shareholders of acquiring firms _______________
low levels of diversification
single or dominant business strategies
diseconomies of scale
size can become a disadvantage due to this
gain capabilities
some acquisitions are made to _________ _______________ that the firm does not possess
restrictions on entry modes
some countries limit or even ban wholly foreign-owned subsidiaries
-investments in specialized assets -fixed costs of exit -strategic relationships -emotional barriers -government and/or social restrictions
some sources of exit barriers:
external; internal
sometimes, firms use a restructuring strategy because of changes in their _____________ and _____________ environments
I/O Model (Industrial Organization)
specifies that the choice of industries in which to compete has more influence on firm performance than the decisions made by managers inside their firm
hedging
spreading out activities (or currency purchases) in several countries with different currencies to offset possible currency losses in certain regions by earning gains in other regions
global strategy
standardized products are offered across country markets and competitive strategy is dictated by the home office
currency risks
stem from unfavorable currency movements to which firms are exposed
cooperative behaviors
strategic alliance success requires ______________________ ____________________ from all partners
complementary business-level strategic alliances (especially vertical ones)
strategic alliance that is most likely to create sustainable competitive advantage
horizontal complementary alliances
strategic alliance that is sometimes difficult to maintain because they are often formed between rival firms
1. selection of incompatible partners 2. conflict between partners
strategic alliances also present potential problems and risks due to:
multi-domestic strategy
strategic and operating decisions are decentralized to the strategic business unit in each country in order to tailor products and services to the local market
to develop an understanding of the implications of these elements and factors for a firm's competitive position
strategic challenge of external environment analysis:
1. seeking natural resources 2. market 3. efficiency 4. innovation
strategic goals include:
matched
strategic goals must be ______________ with specific locations
1. internal growth 2. mergers and acquisitions 3. cooperative strategies
strategies firms use to grow, develop value-creating competitive advantages, and create differences between them and competitors (3: in order)
cooperative strategy
strategy in which firms work together to achieve a shared objective
perceived quality
subjective assessment of characteristics (product image)
-well-conceived strategy in selecting the target -the avoidance of paying too high a premium -employing an effective integration process
successful acquisitions generally involve (3):
liability of foreignness
superb value of firm-specific assets allows foreign entrants to overcome _______________
receiving the highest sustainable prices
suppliers' expectations and demand are
cross subsidization strategy
support for a product comes from the profits generated by another product. This is usually done to attract customers to a newly introduced product by giving them a lower price. The low price is sustained by the earnings of another product sold by the same company.
-obsolescence of a core competence as a result of environmental change - availability of substitutes for the core competence -imitability of the core competence
sustainability of a competitive advantage is a function of three factors:
reversed
tactical actions are easily ___________________
Valuable
taking advantage of opportunities or neutralizing external threats
1. financial resources 2. organizational resources 3. physical resources 4. technological resources
tangible resources have four categories:
tacit collusion
tends to be used as a business-level competition-reducing strategy in highly concentrated industries
imitability of a core competence
the abilities of competitors to develop the same core competence
political legal segment
the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations as well as between firms and various local governmental agencies
slack
the buffer or cushion provided by actual or obtainable resources that aren't currently in use
Capabilities
the capacity for a set of resources to perform (intigratively or in combination) a task or activity
intense
the competition for market share is _____________ in standard-cycle markets
industry environment
the constellation of factors that directly influence a firm and its competitive decisions and responses
cultural/institutional distances
the difference between two cultures along some identifiable dimensions
resource similarity
the extent to which a firm's tangible and intangible resources are comparable to a competitor's in terms of both type and amount
availability of substitutes
the extent to which competitors can use different core competencies to overcome value created by the original core competence
market commonality
the extent to which firms compete in the same markets
cost-minimization
the firm develops formal contracts with its partners. These contracts specify how the cooperative strategy is to be monitored and how partner behavior is controlled. The goal of this approach is to minimize the cooperative strategy's cost and to prevent opportunistic behavior by partners.
first-mover incentives
the firms that take an initial competitive action b/c they have the resources, capabilities, and core competencies that enable them to gain a competitive advantage through innovative and entrepreneurial competitive actions
Strategic management process
the full set of commitments, decisions, and actions required for a firm to systematically achieve strategic competitiveness and earn above-average returns
barriers to exit
the higher the ____________ ___________ __________, the greater the probability that competitive actions and reactions will include price cuts and extensive promotions
political/legal
the implications of changes and trends in the economic segment may affect the ______________ segment both domestically and in other global markets
liability of foreignness
the inherent disadvantage foreign firms experience in host countries because of their nonnative status
licensing/franchising agreements
the licensor/franchisor sells the rights to intellectual property such as patents and know-how to the licensee/franchisee for a royalty fee
casual ambiguity
the link between a firm's capabilities and core competencies are not identified or understood
complementors
the networks of companies that sell goods and services compatible with the firms own product or service
competitive rivalry
the ongoing set of competitive actions and competitive responses occurring between rivals as they compete against each other for an advantageous market position
forecasting
the process where analysts develop feasible projections of what might happen- and how quickly- as a result of the changes and trends detected through scanning and monitoring; accuracy is challenging
economies of scale
the relationship between quantity produced and unit cost
actor's reputation
the responses a competitor has taken previously when attacked; it is assumed to be a reasonable predictor
strategic flexibility
the set of capabilities that firms use to respond to the various demands and opportunities that are found in dynamic, uncertain environments
competitive behavior
the set of competitive actions and competitive responses the firm takes to build or defend its competitive advantages and to improve its market position
post-acquisition integration phase
the single most important determinant of shareholder value creation (or destruction) in mergers and acquisitions
assessing
the step in the external analysis process where all of the other steps come together
horizontal complementary strategic alliance
the strategic alliance that is used to increase each firm's competitive advantage and often focus on the long-term development of product and service technology
dynamic
the strategic management process is _____________
scanning
the study of all segments in the general environment; used to detect early warning signals; most important in highly volatile environments
profit pools
the total profits earned in an industry at all points along the value chain
primary; secondary
the value chain analysis segments the value chain into ________________ and ___________________ activities
map out a profit pool
the way to predict the outcomes of an organizational strategist's strategic decision is to:
rare capabilities
they are possessed by few, if any, current or potential competitors
reach
thinking continuously about accessing and connecting with customers
standard-cycle markets
those (markets) in which the firm's competitive advantages are moderately shielded from imitation and where imitation is moderately costly
slow-cycle markets
those (markets) in which the firm's competitive advantages are shielded from imitation, often for long period of time, and where imitation is costly
fast-cycle markets
those (markets) in which the firm's competitive advantages aren't shielded from imitation and where imitation happens quickly and somewhat inexpensively through reverse engineering and technology diffusion
substitute products
those products that are capable of satisfying similar customer needs but come from outside the industry and thus have different characteristics
political risks
those related to instability in national governments, and to war, civil or international
industry environment
threat of new entrants, power of buyers, power of suppliers, threat of rivalry, threat of substitutes
Five Forces Model of Competition
threat of new entrants, threat of substitute products, bargaining power of buyers, bargaining power of suppliers, rivalry among competing firms in an industry
1. unique historical conditions 2. casual ambiguity 3. social complexity
three "costly to imitate" conditions
1. motives to create value 2. motives that are value-neutral with respect to strategic competitiveness 3.managerial or value-reducing motives
three broad sets of diversification motives
1. diversifying strategic alliances 2. synergistic strategic alliances 3. franchising
three corporate level strategies:
1. the general environment 2. the industry environment 3. the competitor environment
three parts of an external environment include:
1. capital market stakeholders 2. product market stakeholders 3. organizational stakeholders
three stakeholder groups
1. management buyouts (MBO) 2. employee buyouts (EBO) 3. whole-firm buyouts where another firm takes the private firm (LBO)
three types of leveraged buyouts
private synergies; core competencies
to achieve a sustained competitive advantage through an acquisition, acquirers must realize ___________ ________________ and _________ _________________ that cannot be easily imitated by competitors
objective of assessing:
to determine the timing and significance of the effects of change and trends in the environment on the strategic management of a firm
single; few
to reduce intense rivalry's negative effect on financial performance, a firm may use acquisitions as a way to restrict its dependence on a ____________ or a _________ products or markets
1. direct costs (legal fees and charges from investment bankers) 2. indirect costs (managerial time to evaluate target firms and then to complete negotiations and the loss of key managers and employees post-acqusition)
transaction costs when using acquisition strategies include:
1. initial condition of the relationship 2. negotiation process to arrive at an agreement 3. partner interactions 4. external events 5. country culture involved in the alliance or joint venture
trust between partners is critical and is affected by:
1. cost minimization 2. opportunity maximization
two basic approaches to managing cooperative strategies are:
1. four criteria determine which of the firm's resources and capabilities are core competencies 2. value chain analysis
two conceptual tool/frameworks firms can use to identify competitive advantages:
1. barriers to entry 2. expected reaction
two factors that greatly influence the threat of new entrants:
1. business-level strategy 2. corporate-level strategy
two types of international strategies
1. establish greenfield operations/build new factories and offices from scratch 2. acquisition
two ways to establish WOS (wholly owned subsidiary)
-licensing -distribution agreements -supply contracts -marketing agreements
types of non-equity strategic alliances
the businesses in the firm's portfolio are worth more under current management than they would be under different ownership or management
ultimate measure of the value of a firm's corporate-level strategy:
denial
unconscious coping mechanism used to block out and initiate major changes that may have some pain associated with them
industry view
understand the dynamism underlying the industries in the foreign market
institution view
understand the rules of the game, both formal and informal, governing competition
1. help build new capabilities 2. buffer the firm from environmental impacts 3. build bridges to influential stakeholders
understanding the external environment helps build firms' base of knowledge and information that can...
strategic thinking
understanding whether/how outsourcing creates competitive advantage within the company
secure, dynamic, stimulating, and rewarding work environment
union's expectations and demands are:
dynamic alliance networks
used in industries with frequent technological innovation and short product life cycles
business-level cooperative strategy
used to help the firm improve its performance in individual product markets
quickest; easiest
using acquisitions to diversify a firm is the _______________ and often the _______________ way to change its portfolio of business
Resources and capabilities can lead to a competitive advantage when they are...
valuable, rare, costly to imitate, and non-substitutable
differentiation strategy
value is provided to customers through unique features and characteristics of a firm's products rather than by the lowest price
-developing the ability to save on its operations -avoiding market costs -improving product quality -protecting its technology from imitation by rivals -having strong ties between their assets for which no market prices exist
vertical integration enables a firm to increase market power by:
Detailed contracts and monitoring Developing trusting relationships
ways that the competitive risks of cooperative strategies can be managed
1. speculation 2. hedging
ways to safeguard against currency problems
backward integration
when a company produces its own inputs
horizontal acquisitions
when a competitor in the same industry is acquired; increase a firm's market power by exploiting cost-based and revenue-based synergies
vertical acquisitions
when a firm acquires a supplier or distributor that is positioned either backward or forward in the firm's cost/activity/value chain
diversification
when a firm manufactures and sells a diverse variety of products
forward integration
when a firm owns its own distribution system
competitive parity
when a firm's resources and capabilities are ONLY rare and maybe non-substitutable earning average returns
related acquisitions
when a target firm in a highly related industry is acquired
acquire
when barriers to entry are present, the firm's best choice may be to ________________________ a firm already having a presence in the industry or market
costly-to-imitate capabilities
when firms are unable to develop capabilities except at a cost disadvantage relative to firms that already have them
global strategy adoption
when the need for global integration is high and there is little need for local market responsiveness
multi-domestic strategy adoption
when the need for global integration is low, but there is a great need for local market responsiveness
transnational strategy adoption
when there is a great need for both global integration and local market responsiveness
non-substitutable capabilities
when they do not have strategic equivalents
-privatization of industries and economies -rapid expansion of the Internet's capabilities in terms of the quick dissemination of information -speed with which advancing technologies make quickly imitating even complex products possible
why are slow-cycle markets becoming rare?
-increase customer satisfaction -cut costs -reduce the amounts of time required to introduce innovative products to the marketplace
why companies use total quality management
reduce competition, enhance their competitive capabilities, gain access to resources, take advantage of opportunities, & build strategic flexibility
why do firms form strategic alliances?
-to neutralize a competitor's market power -to reduce manager's employment risk -to increase managerial compensation because of the positive relationships between diversification, firm size, and compensation
why firms may attempt to diversify
threat of new entrants
with new competitors, the intensity of competitive rivalry in an industry generally increases
financial diversification
without successful integration, a firm achieves
