MGMT 449 FINAL EXAM

Wholly Owned Subsidiary

A business in which a multinational company owns 100% of the stock.

Rule of Law

A characteristic of legal systems whereby behavior is governed by rules that are uniformly enforced.

Multinational Firm

A company pursues international expansion for many reasons. (Multinational firms have 2 or more countries working together because it can increase competitive advantage).A company decides to become a multinational firm in order to: Increase size of potential markets-Attain economies of scale; Take advantage of arbitrage opportunities (Arbitrage opportunities= buy low, sell high gap to make profit)- Applied to every stage of the value chain; Enhance a product's growth potential- Reinvigorate the product life cycle (Reinvigorate meaning take the marketable product and try to sell it to be international); Optimize the location of value chain activity- To enhance performance, To reduce cost, To reduce risk (Reduces costs and risks, but going international could increase costs and risks. Manufacture in countries where production and labor is cheaper); Take advantage of learning opportunities; Explore reverse innovation-Design and manufacture products locally, Export no-frills products to develop markets. Firms that manage operations in more than one country.

Franchising

A contractual arrangement in which a company receives a royalty or fee in exchange for the right to use its intellectual property; franchising usually involves a longer time period than licensing and includes other factors, such as monitoring of operations, training, and advertising.

Licensing

A contractual arrangement in which a company receives a royalty or fee in exchange for the right to use its trademark, patent, trade secret, or other valuable intellectual property.

Vertical Integration

A firm becomes its own supplier or distributor through: Backward integration, Forward integration; Carpeting made by a company and sold through a distributor; Corporation doesn't have much competency in this area An expansion or extension of the firm by integrating preceding or successive production processes

Forbearance

A firm's choice of not reacting to a rival's new competitive action.

Co-opetition

A firm's strategy of both cooperating and competing with rival firms.

Diamond of National Advantage

A framework for explaining why countries foster successful multinational corporations; consists of four factors- factor endowments; demand conditions; related and supporting industries; and firm strategy, structure, and rivalry.

LO 8.5 The components of competitive dynamics analysis are new competitive action, threat analysis, motivation and capability to respond, types of competitive actions, and likelihood of competitive reaction

A new competitive action is an act that may provoke competitors to react, such as price cutting, new market entry, imitating successful products, and expanding production capacity. Threat analysis involves a firm's efforts to understand its closest competitors and the kinds of competitive actions they might be planning. Firms are more motivated to respond when a competitor's actions have a stronger impact on the firm's businesses. A firm's capability to respond is influenced by the resources the firm has and the flexibility of its culture and operations. Competitive actions include two primary types- strategic and tactical actions. The likelihood of a competitive reaction is driven by the degree of the competitor's market dependence, the competitor's resources, and the reputation of the firm imitating the competitive action.

Culture

A system of unwritten rules that forms an internalized influence over behavior. Often found in professional organizations. Associated with high autonomy. Norms are the basis for behavior.

Organizational Culture

A system of: Shared values (what is important). Beliefs (how things work). Shapes a firm's people, organizational structures, and control systems. Produces behavioral norms (the way we do things around here) ((Critical questions to ask in an interview) Sets implicit boundaries regarding: Dress, Ethical matters, The way an organization conducts its business. A strong culture: Leads to greater employee engagement. Provides a common purpose and identity. But can also introduce core rigidities. (See how everyone who works there dress and act so you get an ideas of what they are looking for) A system of shared values and beliefs that shape a company's people, organizational structures, and control systems to produce behavioral norms.

Multidomestic Strategy: Strengths

Ability to adapt products and services to local market conditions. Ability to detect potential opportunities for attractive niches in a given market, enhancing revenue.

Transnational Strategy: Strengths

Ability to attain economies of scale. Ability to adapt to local markets. Ability to locate activities in optimal locations. Ability to increase knowledge flows and learning.

Mergers and Acquisitions: Motives

Acquiring is faster than building; Acquiring valuable resources can expand product offerings and services and/or enter new market segments; Mergers and acquisitions help a firm develop synergy, Leveraging core competencies, Sharing activities, Building market power; Can consolidate an industry, forcing other players to merge

Reasons for Diversification Failures

Acquisitions destroy value by: Paying a premium to the target firm; Failing to integrate the activities of the newly acquired businesses into the corporate family; Undertaking diversification initiatives that are too easily imitated by the competition.

Overall Cost Leadership

Advantage due to: Simpler organizational structure and smaller size. Cost control via quicker decisions to upgrade technology and integrate marketplace feedback.

Firm Strategy, Structure, and Rivalry (National Advantage)

Affect competitiveness via: Strong consumer demand, Strong supplier base, High new entrant potential from related industries. Domestic rivalry leads to a search for new markets. Intense domestic competition is a strong indicator of global competitive success. (Domestic rivalry can lead to competition and customers will leave.) The conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry.

Joint Venture

Agreeing to work on a product together, the starting of a third corporate entity New entities formed within a strategic alliance in which two or more firms, the parents, contribute equity to form the new legal entity

Economies of Scope

Allow businesses to: Leverage core competencies, Sharing related activities, Enjoy greater revenues, enhance differentiation Cost savings from leveraging core competencies or sharing related activities among businesses in a corporation

Vision

An entrepreneur's most important asset: Requires transformational leadership. Ability to envision realities that do not yet exist. Ability to share this vision with others.

Arbitrage Opportunities

An opportunity to profit by buying and selling the same good in different markets.

Evaluation Phase

Analyzing the viability of an opportunity: Talk to potential target customers; Conduct a feasibility analysis- What are the operational requirements?; What is the market potential?-Is the idea strong enough to create value, and therefore, profits? (Can we get it to work? Does it have potential? Try to be as objective as you can)

Strategic Alliances and Joint Ventures: Motives

Are cooperative relationships between two (or more) firms with potential advantages; Ability to enter new markets through, Greater financial resources, Greater marketing expertise; Ability to reduce manufacturing or other costs in the value chain; Ability to develop and diffuse new technologies; Strategic alliances are cooperative

Drive and Dedication

Are necessary: Involves internal motivation. Calls for intellectual commitment. Requires patience. Stamina, willingness to work long hours. Enthusiasm that attracts others.

Restructuring to redistribute assets

Asset, capital, and management restructuring; In restructuring the parent intervenes, Asset restructuring involves the sale of unproductive assets, Capital restructuring involves changing the debt-equity mix, adding debt or equity, Management restructuring involves changes in the top management team, organizational structure, and reporting relationships The intervention of the corporate office in a new business that substantially changes the assets, capital structure, and/or management, including selling off parts of the business, changing the management, reducing payroll and unnecessary sources of experiences, changing strategies, and infusing the new business with new technologies, processes, and reward systems

Portfolio Management

BCG (Boston Consulting Group) growth/share matrix; Involves a better understanding of the competitive position of an overall portfolio or family of businesses by: Suggesting strategic alternatives for each businesses, Identifying priorities for the allocation of resources, Using Boston Consulting Group's (BCG) growth/share matrix A method of (a) assessing the competitive position of a portfolio of businesses within a corporation, (b) suggesting strategic alternatives for each business, and (c) identifying priorities for the allocation of resources across the businesses

Discovery Phase

Becoming aware of the new business concept. Ask: Where are the new venture opportunities? What might be a creative solution to a business problem?: Can be spontaneous and unexpected. Can also result from a deliberate search- Are there frustrations with current productions or processes? Do stakeholders have unmet needs? What do other markets or industries do? Can we revive old ideas?

Unrelated Businesses

Benefits derive from hierarchical relationships; Amazon, G.E; Value creation derived from the corporate office; Leveraging support activities in the value chain

Diversification should create synergy

Business 1 plus Business 2 equals more than two

Greenmail

Buying up enough shares to gain control and if not then they'll sell it for higher price A payment by a firm to a hostile party for the firm's stock at a premium, made when the firm's management feels that the hostile party is about to make a tender offer

Boundaries and Constraints

Can be useful in: Focusing individual efforts on strategic priorities. Providing short-term objectives and action plans to channel employee efforts by: Setting specific, measurable objectives, including a specific time horizon for attainment. Making them achievable, yet challenging enough to motivate. Holding individual managers accountable for implementation (Managers don't like performance review). Can also: Improve efficiency and effectiveness through rule-based controls, appropriate when: Environments are stable and predictable (Useful when producing), Employees are largely unskilled and interchangeable, Consistency in product and services is critical, The risk of malfeasance is extremely high. Minimize improper and unethical conduct via: Explicit rules, Policies that contain an ethical code of conduct. Rules that specify behaviors that are acceptable and unacceptable.

Combination Strategies for New Ventures

Can combine the best features of low-cost, differentiation, and focused strategies: Holding down expenses by having a simple structure. Creating high-value products and services by being flexible and innovative. Offering highly specialized products or superior customer service to a niche market.

Differentiation

Can compete by: Offering a unique value proposition through innovation and superior use of new technology. Deploying resources in a radical new way

Market Power

Can lead to the creation of value and synergy through: Pooled negotiating power, Vertical integration Firms' abilities to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment

Adaptive New Entry

Capitalizes on current market trends. Offers a product or service that is somewhat new and sufficiently different. Creates new value for customers. Captures market share. Does it do a superior job of meeting customer needs? How can we continue to keep it fresh and new? (Trends, what's new? Attract people for a certain time, people are market oriented, not research and development.) A firm's entry into an industry by offering a product or service that is somewhat new and sufficiently different to create value for customers by capitalizing on current market trends

Mergers

Combine together (might create a monopoly); both companies are strong and Board of Directors are strong too, big corporations; Involve a combination or consolidation of two firms to form a new legal entity, On a relatively equal basis, Are relatively rare The combining of two or more firms into one new legal entity

Venture Capitalists

Companies organized to place their investors' funds in lucrative business opportunities.

Competitive Dynamics: Incumbents

Competition among incumbent rivals can involve "hardball" strategies: Devastating rivals' profit sanctuaries (Profitable areas, imitate them). Plagiarizing with pride. Deceiving the competition. Unleashing massive and overwhelming force. Raising competitors' costs.

Contemporary Approach Effectiveness

Contemporary control systems using informational control are effective when: Focus is on constantly changing information that has potential strategic importance. Information is important enough to demand frequent and regular attention from all levels. Data and information are interpreted and discussed in face-to-face meetings. Control system is a catalyst for ongoing debate about underlying data, assumptions and plans. (Since things are always changing in the environment, the company can change overnight. Contemporary= high speed, encourage people to speak up with ideas arguments needed)

Sharing Related Activities

Corporations can also achieve synergy by sharing activities across their business units. Sharing tangible and value-creating activities can provide payoffs; Cost savings through elimination of jobs, facilities and related expenses, or economies of scale; Revenue enhancements through increased differentiation and sales growth; Having significant lost in order to keep growing Having activities of two or more businesses' value chains done by one of the businesses

Opposing Pressures

Cost reduction or adaptation to local markets? Levitt suggested strategies that favor global products and brands should do the following: Standardize all products for all markets. Reduce overall costs by spreading investments over a larger market. Assumes: Customers have homogenous needs and interests. People prefer lower prices at high quality. Global markets produce economies of scale. Assumptions may be incorrect: Product markets DO vary widely between nation- local adaptations work. There is a growing interest in multiple product features, product quality, and service. Technology permits flexible production; cost of production may not be critical to product cost; a firm's strategy should not be solely product driven. "One size fits all" does NOT generally apply.

Synergy

Create more value by working together than if they were freestanding units. Stronger if we combine our forces.

Pioneering New Entry

Create new ways to solve old problems. Meet customers' needs in a unique way. Will it be accepted by customers? Will it be disruptive to the status quo of an industry? Will the advantage be sustainable against imitators? (Apple, Tesla, Amazon, Uber, Netflix) A firm's entry into an industry with radical new product or highly innovative service that changes the way business is conducted.

Multidomestic Strategy: LImitations

Decreased ability to realize cost savings through scale economies. Greater difficulty in transferring knowledge across countries. Possibility of leading to "overadaption" as conditions change.

Market Dependence

Degree of concentration of a firm's business in a particular industry.

Entrepreneurial Financial Resources

Depend on the stage of venture development and venture scale: Initial, startup financing- Personal savings, family, and friends. Crowdfunding (A viable source); Early-stage financing- Bank loans, angel investors (Individuals who invest in private company, often retired CEOs/CFOs, typically don't invest alone, they know lots of people); Later-stage financing- Commercial banks, venture capitalists (Shark Tank, a corporation that specialize in certain segments, they use investors money) equity financing

Internal Development

Develop products faster but need to grow first; Corporate entrepreneurship and new venture internal development motives: No need to share the wealth with alliance partners, No need to face difficulties associated with combining activities across the value chains, No need to merge diverse corporate cultures, No need for external funding for new development; Limitations: Time-consuming, Need to continually develop new capabilities Entering a new business through investment in new facilities, often called corporate entrepreneurship and new venture development

Means of Diversification

Diversification can be accomplished via: Mergers and acquisitions; Divestments; Pooling resources of other companies with a firm's own resource base through strategic alliances and joint ventures; Internal development through corporate entrepreneurship or new venture development

Goal of Diversification= Risk Reduction?

Diversification can reduce variability in revenues and profits over time. However,: Stockholders can diversify portfolios at a much lower cost, Stockholders don't have to worry about integrating the avquisition into their portfolio, Economic cycles are difficult to predict, so why diversify?; Choice to diversify must be part of an overall diversification strategy. Economic cycles are calculated

Mergers and Acquisitions: Divestment Objectives

Divestment objectives include: Cutting the financial losses of a failed acquisition; Redirecting focus on the firm's core businesses, Sears tried to do this but it didn't work out; Freeing up resources to spend on more attractive alternatives, Might backfire and you'll have to pay for it; Raising cash to help fund existing businesses

Tactical Actions

Doing price cutting (or offering increases). Making product/ service enhancements. Increasing marketing efforts. Developing new distribution channels. Refinements or extensions of strategies usually involving minor resource commitments.

Management Risk

Due to culture, customs, language, income level, customer preferences, distribution systems: Could lead to the need for local adaptation of apparently standard products. Potential threat to a firm's operations in a country due to the problems that managers have making decisions in the context of foreign markets.

Currency Risk

Due to fluctuations in the local currency's exchange rate: Affects cost of production or net profit. Potential threat to a firm's operations in a country due to fluctuations in the local currency's exchange rate.

Political Risk

Due to social unrest, military turmoil, demonstrations, terrorism, absence of the rule of law can lead to: Destruction of property, Disruption of operations, Non-payment for goods and services, Arbitrary government decisions. (Insurance doesn't pay for war. Takes place in other countries) Potential threat to a firm's operations in a country due to ineffectiveness of the domestic political system.

Boston Consulting Group (BCG) Matrix

Each circle represents one of the firm's business units. The size of the circle represents the relative size of the business unit in terms of revenue. Stars are growing(SBUs competing in high-growth industries with relatively high market shares. These firms have long-term potential and should continue to receive substantial investment funding); Cash Cows collect profit, make little production, Grind out cost to max available (SBUs with high market shares in low-growth industries. These units have limited long-run potential but represent a source of current cash flows to fund investments in "stars" and "question marks"); Dogs have no more value, divest them to get cash out of it (SBUs with weak market shares in low-growth industries. Because they have weal positions and limited potential, most analysts recommend that they be divested); Question Marks could be new businesses, or in the high growth stage, are new to the area (SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competitive positions)

LO 6.3 Explain how corporations can use related diversification to achieve synergistic benefits through economies of scope and market power

Economies of scope includes two elements, leveraging core competencies and sharing activities: Core competencies reflect the collective learning in organizations, such as how to coordinate diverse production skills, integrate multiple streams of technology, and market diverse products and services. Sharing activities involves the joint issues of value-creating activities, such as common manufacturing facilities, distribution systems, and sales forces by multiple business units in the corporation. Market power reflects the firm's ability to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment: The two primary means to achieve market power are pooled negotiating power and vertical integration.

Behavioral Control: Sustaining an Effective Culture

Effective organizational cultures must be: Cultivated, Encouraged, Fertilized. Organizational cultures can be maintained by: Storytelling, Rallies or pep talks by top executives. (Tell stories to encourage people)

Reward System Characterisitics

Effective reward systems share common characteristics: Objectives are clear, well understood, and broadly accepted. Rewards are clearly linked to performance and desired behaviors. Performance measures are clear and highly visible. Feedback is prompt, clear, and unambiguous. The compensation "system" is perceived as fair and equitable. The structure is flexible; it can adapt to changing circumstances.

Related and Supporting Industries (National Advantage)

Enable firms to manage inputs more effectively via: A competitive supplier base- Reduces manufacturing costs. Close working relationships with suppliers- Allows for joint research and development. Development of related industries- Forces existing firms to practice cost control, product innovation, better distribution methods. (Related industries will try to enter your market, so be aware of costs.) The presence, absence, and quality in the nation of supplier industries and other related industries that supply services, support, or technology to firms in the industry value chain.

Related Diversification

Enables a firm to benefit from horizontal relationships across different businesses; Apple (Phone, Computer), Gas stations (0,1, Snacks); Economies of Scope; Related businesses gain market power Economies of Scope (Leveraging Core Competencies and Sharing Activities) and Market Power (Pooled Negotiating Power and Vertical Integration)

Unrelated Diversification

Enables a firm to benefit from vertical or hierarchical relationships between the corporate office and individual business units through: The corporate parenting advantage; Restructuring to redistribute assets; Portfolio management A firm entering a different business that has little horizontal interaction with other business of a firm Parenting, Restructuring, and Financial Synergies (Corporate Restructuring and Parenting and Portfolio Management)

Strategic Actions

Entering new markets. Create new product introductions. Changing production capacity. Pursuing mergers or alliances. (Are more impactful) Major commitments of distinctive and specific resources to strategic initiatives.

Entrepreneurial Resources

Essential for entrepreneurial success: Financial resources, Human capital, Social capital, Government resources. (You will always need money in order to be profitable, it's a full-time job. Human capital can be friends. Social capital is how you connect with others. Banks lend against assets, no collateral=no loan, clean assets. Small Business Administration does a lending back, they cover loan if you can't)

Vertical Integration: Transaction Costs Perspective

Every market transaction involves some transaction costs. Search costs, Negotiating costs, Contract costs, Monitoring costs, Enforcement costs, Need for transaction specific investments, Administrative costs; Contracts are big; Appear to be knock offs; High administrative costs are harder to keep under control A perspective that the choice of a transaction's governance structure, such as vertical integration or market transaction, is influenced by transaction costs, including search, negotiating, contracting, monitoring, and enforcement costs associated with each choice

Social Capital

Extensive social contacts and strategic alliances: Technology, manufacturing, or retail alliances.

LO 7.4 Explain the two opposing forces- cost reduction and adaptation to local markets- that firms face when entering international markets

Firms can go about attaining competitive advantage in global markets by considering two opposing forces- cost reduction and adaptation to local markets. The relative importance of these two factors should guide which international strategies to select; international, global, multidomestic, or transnational.

Crowdfunding

Funding a venture by pooling small investments from a large number of investors; often raised on the Internet.

Federal, State, and Local Government Resources

Government contracting (Has low risk but difficult to get); Loan guarantee programs-SBA; Training, counseling, and support services.

Trading Blocks

Groups of countries agreeing to increase trade between them by lowering trade barriers.

Globalization

Has to do with the rise of market capitalization around the world: International exchanges have increased- Trade in goods and services, Exchange of money, information, and ideas; Laws. rules, norms, values, and ideas are growing more similar across countries. Challenges include balancing between emerging markets and developed markets: How to meet the needs of customers at very different income levels? (Economies and standards of living have increased. International laws, NAFTA, make it easier to trade and market in other countries. Emerging Market= Developing, up and coming markets.) A term that has two meanings: 1. the increase in international exchange, including trade in goods and services as well as exchange of money, ideas, and information. 2. the growing similarity of laws, rules, norms, values, and ideas across countries.

Entrepreneurial Opportunities: Viability

Have the following qualities: They are attractive; They are achievable; They are durable; They are value-creating. Resources also need to be available, including an entrepreneurial leader and team.

How can creating a synergy be bad

If the company being bought is changing too much

Imitative New Entry

Imitators have a strong marketing orientation. Capitalize on proven market success. Introduce the same basic product or service in another segment of the market. Can we do it better than an existing competitor? Will someone then imitate us? A firm's entry into an industry with products or services that capitalize on proven market successes and that usually have a strong marketing orientation.

Global Strategy

Implies a firm is interested in lowering costs: Competitive strategy is centralized and controlled by the corporate office. Products are standardized, operations centralized, producing economies of scale. Worldwide volume supports research and development. There's a standard level of quality worldwide. Pressure for reducing cost is high; pressure for adaptation to local markets is weak. A strategy based on firms' centralization and control by the corporate office, with the primary emphasis on controlling costs; used in industries where the pressure for local adaptation is low and the pressure for lowering costs is high.

Reward Systems

Incentive programs: Powerful means of influencing an organization's culture. Focusing effects on high-priority tasks (If it's not a high-priority don't reward it as much so people don't lose focus). Motivating individual and collective task performance. Can be an effective motivator and control mechanism. Policies that specify who gets rewarded and why.

Managerial Motives: Antitakeover Tactics

Include: Greenmail, Golden parachutes, Poison pills; Can benefit multiple stakeholders- not just management; Can raise ethical considerations because the managers of the firm are not acting in the best interests of the shareholders

Downside of Reward Systems

Individual actions are not related to compensation; employees are rewarded for the wrong things. Different business units have differing rewards systems. Behavior reinforced within subcultures may reflect value differences in opposition to the dominant culture. Reward systems may lead to information hoarding, working at cross purposes. (Builds opposition instead of cohesion)

Diversification

Initiatives must create value for shareholders through: Mergers and acquisitions; Strategic alliances; Joint ventures; Internal development The process of firms expanding their operations by entering new businesses

Factor Endowments (National Advantages)

Involve factors of production: Land, Capital. Labor Factors of production must be industry and firm specific: Must be rare, valuable, difficult to imitate, and rapidly and efficiently deployed. A nation's position in factors of production.

Threat Analysis

Involves and assessment of: Market Commonality, Resource Similarity. How serious is the threat? Motivation and capability to respond means asking: What type of competitive response is necessary? What resource are needed to fend off a competitive attack? Am I willing and able to launch an attack? Which competitive action should I take? A firm's awareness of its closest competitors and the kinds of competitive actions they might be planning.

Entrepreneurship

Involves value creation and the assumption of risk. New value can be created in many contexts: Startup ventures, Major corporations, Family-owned businesses, Nonprofit organizations, Established institutions. Ideas and opportunities can come from many sources. Change or chance can uncover unmet customer needs. (Create value by creating something new. Cultural things can create value and assume risk.) The creation of new value by an existing organization or new venture that involves the assumption of risk.

Commitment to Excellence

Is required: Commit to knowing the customer. Provide quality goods and services. Pay attention to details. Continuously learn. Connect the dots. Hire people smarter than themselves.

Traditional Approach to Strategic Control

Is sequential: 1. Strategies are formulated, goals are set. 2. Strategies are implemented. 3. Performance is measured against predetermined goals. Feedback loop from performance measurement to strategy formulation. Involves lengthy time lags, "single-loop" learning. Most appropriate when: Environment is stable and relatively simple. Objectives can be measured with certainty. There is little need for complex measures of performance. (Used to be standard)

Vertical Integration Issues

Is the company satisfied with the quality of the value that its present suppliers and distributors are providing? Are there activities in the industry value chain presently being outsourced or performed independently by others that are a viable source of future profits? Is there a high level of stability in the demand for the organization's products? Does the company have the necessary competencies to execute the vertical integration strategies? Will the vertical integration initiatives have potential negative impacts on the firm's stakeholders?

Informational Control

Is the organization "doing the right things"? (Do we have the right strategy) A method of organizational control in which a firm gathers and analyzes information from the internal and external environment in order to obtain the best fit between the organization's goals and strategies and the strategic environment. Deals with both the internal and external environment. Is the organization "doing the right things"? Do the organization's goals and strategies still "fit" within the context of the current strategic environment? Two Key issues: Scan and monitor the external environment. Continuously monitor the internal environment. Ongoing process of organizational learning. Focus is on constantly changing information- continuous monitoring, testing, review. Data is interpreted and discussed face-to-face. Ongoing debates challenge assumptions: Time lags are shortened; Changes are detected earlier; Speed and flexibility of response is enhanced.

Behavioral Control

Is the organization "doing things right" in the implementation of its strategy? (How do we go about things getting done, people, boundaries) A method of organizational control in which a firm influences the actions of employees through culture, rewards, and boundaries. Focused on implementation- "doing things right". Influences the actions of employees via: Culture, Rewards, Boundaries. (There's a corporate culture in every company. Different reward systems, not good that everyone else gets a bonus. Boundaries between positions, what's allowed.

LO 7.3 Explain the motivations (or benefits) and the risks associated with international expansion, including the emerging trend for greater offshoring and outsourcing activity

Key motivations for international expansion include increasing the size of the potential market for products and services, achieving economies of scale, extending the life cycle of products, and optimizing the location for activities in the value chain. Key risks include political and economic risks, currency risks, and management risks. Managers should also consider the threats and opportunities associated with offshoring and outsourcing.

International Strategy: Strengths

Leverage and diffusion of a parent firm's knowledge and core competencies. Lower costs because of less need to tailor products and services.

Competitive Dynamics: Reaction

Likelihood of competitive reaction depends on: Market dependance; Competitor's resources; The reputation of the firm that initiates the action- the actor's reputation. Choosing not to respond is a choice and includes: Forbearance- holding back on an attack. Co-opetition- both cooperating and competing. Working together behind the scenes to achieve industrywide efficiencies.

Global Strategy: Limitations

Limited ability exists to adapt to local markets. Concentration of activities may increase dependence on a single facility. Single locations may lead to higher tariffs and transportation costs.

International Strategy: Limitations

Limited ability to adapt to local markets. Inability to take advantage of new ideas and innovations occurring in local markets.

Poison Pill

Make it undesirable for others to want to takeover Used by a company to give shareholders certain rights in the event of takeover by another firm

Managing Risk

Management economic risk can be done through global dispersion of value chains. Various activities across several countries and continents via: Outsourcing (Using other organizations to do things we don't specialize in), Offshoring (Use companies overseas) (You can outsource your offshoring or do it yourself)

Golden Parachutes

Management team receiving perks when they leave; Severance package, stock options paid out, keep company car; Mainly for senior executives (negotiated) A prearranged contract with managers specifying that, in the event of a hostile takeover, the target firm's managers will be paid a significant package

Managerial Motives

Managers may act in their own self interest, eroding rather than enhancing value creation; Growth for growth's sake, Top managers gain more prestige, higher rankings, greater incomes, more job security, It's exciting and dramatic; Excessive egotism; Use of antitakeover tactics Managers acting in their own self-interest rather than to maximize long-term shareholder value

LO 7.7 Identify the four basic types of entry strategies and the relative benefits and risks associated with each of them

Managers may choose among four types of entry strategies when entering international markets: exporting, licensing/franchising, strategic alliance/joint venture, and wholly owned subsidiaries. The hey trade-off in each of these strategies is the level of investment or risk versus the level of control. Mangers should carefully examine the relative benefits and risks associated with each of these market entry strategies.

LO 7.5 Identify the advantages and disadvantages associated with each of the four basic strategies: international, global, multidomestic, and trasnational

Managers responsible for international expansion should consider the benefits and risks associated with each type of international strategy.

Antitakeover Tactics

Managers' actions to avoid losing wealth or power as a result of a hostile takeover

Growth for Growth's Sake

Managers' actions to grow the size of their firms not to increase long-term profitability but to serve managerial self-interest

Egotism

Managers' actions to shape their firms' strategies to serve their selfish interests rather than to maximize long-term shareholder value

Offshoring

May be costly. Common savings from offshoring include: Lower wages, benefits, energy costs, regulatory costs, taxes. Hidden costs from offshoring include: Higher total wage and indirect costs, wage inflation. Increased inventory due to longer lead time. Reduced market responsiveness. Increased coordination costs. Cost of protecting intellectual property. Shifting a value-creating activity from a domestic location to a foreign location.

Regionalization

May be more reasonable than for companies to rush into full-scale globalization: Distance still matters. Commonalities of language, culture, economics, legal and political systems, and infrastructure all make a difference. Trading blocks and free trade zones ease trade restrictions, taxes, and tariffs (EU, NAFTA are restrictions to protect your local market). (Regionalization= adapt products to those of the region, start in a region not global. Latin America: Columbia, Argentina, Mexico) Increasing international exchange of goods, services, money, people, ideas, and information, and the increasing similarity of culture, laws, rules, and norms within a region such as Europe, North America, or Asia.

Focus

Means ability to: Use a niche strategies that fit the small business model

LO 6.5 Describe various means of engaging in diversification- mergers and acquisitions, joint ventures/strategic alliances, and internal development.

Mergers and acquisitions involve the purchasing of another organization and incorporating it into the parent firm. Acquisitions can help a firm: Obtain valuable resources, such as critical human capital, that can help an organization expand its product offerings. Provide the opportunity for firms to attain three bases of synergy: leveraging core competencies, sharing activities, and building, market power. Lead to consolidation within an industry and force other players to merge. Enter new market segments. Strategic alliances are cooperative relationships between two or more firms: Joint ventures are a specific form of strategic alliance where the partnering firms create a new legal entity that they jointly own. Strategic alliances can be used to enter new markets, reduce costs in the value chain, or develop and diffuse new technologies. Internal development involves the entering of new businesses or industry through the investment in new facilities, often referred to as corporate entrepreneurship and new venture development.

Factors Affecting a Nation's Competitiveness

Michael Porter's Diamond of National Advantage explains why some nations and their industries outperform others: Factor endowments, Demand conditions, Related and supporting industries, Firm strategy, structure, and rivalry (Products can go down if the income is close to the price because they're not going to spend entire income on one product. The factors of endowment are what we inherit, they are critical. Demand conditions, inflation, interest rates. Related and supporting industries are trains, Canada. Firm strategy includes relations.)

International Expansion

Motivations, Risks, Managing Risks, Opposing Pressures

International Expansion: Risks

Multinational firms also encounter risks: Political risk, Economic risk due to piracy and counterfeiting, Currency risk, Management risk

Strategic Alliances and Joint Ventures: Limitations

Need for the proper partner: Partners should have complementary strengths; Partner's strengths should be unique, Uniqueness should create synergies, Synergies should be easily sustained and defended; Partners must be compatible and willing to trust each other; More challenging on an international basis

Entrepreneurial Leadership

Needs: Courage, Belief in one's convictions, Energy to work hard, Ability to build a dedicated team. Leadership personality traits: Higher self-confidence, conscientiousness, openness to new experiences, emotional stability; Lower agreeableness Leadership characteristics: Vision, Dedication and drive, Commitment to excellence Leadership appropriate for new ventures that requires courage, belief in one's convictions, and the energy to work hard even in difficult circumstances; and that embodies vision, dedication and drive, and commitment to excellence.

Competitive Dynamics

New entry threatens existing competitors. Helps explain why competitive strategies evolve and how to respond: Need to identify new competitive action. Engage in threat analysis (What's the threat? What's the competition? Should we exit?). Have the motivation and capability to respond. Understand the types of competitive action. Evaluate the likelihood of competitive reaction. Intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace.

Reverse Innovation

New products developed by developed-country multinational firms for emerging markets that have adequate functionality at a low cost.

Need for Entrepreneurial Strategy

New technologies, shifting social and demographic trends, as well as sudden changes in the business environment can create opportunities for entrepreneurship. However, business opportunities can disappear as quickly as they appear. What do new ventures and entrepreneurial firms need to do to achieve and sustain a competitive advantage? (War= opportunities for entrepreneurs. You have to be quick. Enter, stay, and grow)

Entry Strategies

New venture strategies need to: Quickly generate cash flow (Cash flow allows you to do lots of things); Build credibility (When building credibility, you need to exceed standard agent); Attract good employees; Overcome the liability of newness Choices include: Pioneering new entry, Imitative new entry, Adaptive new entry

Strategic Control

Once strategy is formulated, it must be implemented, and be part of implementation is establishing a mechanism for monitoring and correcting organizational performance. This control mechanism must be consistent with the strategy the firm is following. How does a firm make sure all key stakeholders are moving in the right direction? Involves monitoring performance toward strategic goals and taking corrective action when needed via effective systems: Informational- control systems (Monitoring changes); Behavioral-control systems (Monitoring employees); Corporate governance (Monitoring other corporations) The process of monitoring and correcting a firm's strategy and performance.

Acquisitions

One company buys the other one; Involve one firm buying another either through stock purchase, cash, or the issuance of debt; The more you finance an acquisition, the more debt the firm has so cash goes to paying it off The incorporation of one firm into another through purchase

LO 8.1 The role of opportunities, resources, and entrepreneurs in successfully pursuing new ventures

Opportunity recognition is a process of determining which venture ideas are, in fact promising business opportunities. These opportunities can occur as a result of emergence of new technologies, sociocultural trends, or shifts in consumer demand. The resources that start-ups need include financial resources as well as human and social capital. Many firms also benefit from government programs that support new venture development and growth. New ventures thrive best when they are led by founders or owners who have vision, drive and dedication, and a commitment to excellence.

International Strategies: Entry Modes

Options for international market expansion: Exporting- Low risk, locals know more; but products may not meet local needs (Sell things overseas); Licensing or franchising- Limits risk; but licensor gives up control and profit (Has royalties, pay attention to those. For intellectual property); Strategic alliance or joint venture- Shares risk; but trust and culture issues can lead to conflict; Wholly owned subsidiary- Greatest control, highest revenue; but expensive, greater potential for miss-steps.

Generic Strategies for New Ventures

Overall cost leadership, Differentiation, Focus

LO 6.4 Explain how corporations can use unrelated diversification to attain synergistic benefits through corporate restructuring, parenting, and portfolio analysis

Parenting advantage involves the corporate office providing expertise and support to new business units to improve unit operations in areas such as in planning, financial management, procurement, and human resource management. Restructuring involves the intervention of the corporate office in a new business that substantially changes the assets, capital structure, and/or management, including selling off parts of the business, changing the management, reducing payroll and unnecessary sources of expenses, changing strategies, and infusing the new business with new technologies, processes, and reward systems.

LO 6.1 Identify the reasons for the failure of many diversification efforts

Paying an excessive premium for the target firm. Failing to integrate the activities of the newly acquired businesses into the corporate family. Undertaking diversification initiatives that are too easily imitated by the competition.

LO 8.2 Three types of entry strategies- pioneering, imitative, and adaptive- commonly used to launch a new venture

Pioneering new entrants develop a radical new product or highly innovative service that may change the way business is conducted in an industry. Imitative new entrants see products or business concepts that have been successful in one market niche or physical locale and introduce the same basic product or service in another segment of the market. Adaptive new entrants neither pioneer radically new products or services nor do they merely imitate others. They take an existing idea and adapt it to a particular situation.

Related businesses gain market power by

Pooled negotiating power; Vertical integration

Economic Risk

Potential threat to a firm's operations in a country due to economic policies and conditions, including property rights laws and enforcement of those laws.

Paying a premium to the target firm

Premium is not in the buyers' interest as much as the target firm

Angel Investors

Private individuals who provide equity investments for seed capital during the early stages of a new venture.

Exporting

Producing goods in one country to sell to residents of another country.

Parenting Advantage

Providing competent central functions; redistributes assets and move them away; Allows the corporate office to create value through management expertise and competent central functions The positive contributions of the corporate office to a new business as a result of expertise and support provided and not as a result of substantial changes in assets, capital structure, or management

Multidomestic Strategy

Puts emphasis on differentiating products and services to adapt to local markets: Decisions are decentralized. Products and services are tailored to local use-Consider language, culture, income levels, customer preferences, distribution systems. Markets can expand rapidly. Prices are differentiated by market. Pressure for local adaptation is high; pressure for lowering costs is low. (Companies need to know how to adapt to the culture and society of other countries) A strategy based on firms' differentiating their products and services to adapt to local markets; used in industries where the pressure for local adaptation is high and the pressure for lowering costs is low.

Mergers and Acquisitions

Rarely do well

Demand Conditions (National Advantage)

Refer to the demands that consumers place on an industry Demanding consumers drive firms in that country to: Meet high standards. Upgrade existing products and services. Create innovative products and services. Better anticipate future global demand. Proactively respond to product and service requirements. (Creative innovative products don't just sell commodities.) The nature of home-market demand for the industry's product or service.

A firm diversifies into .... businesses

Related and Unrelated

Contemporary Approach Model

Relationships between strategy formulation, implementation, and control are highly interactive, utilizing: Informational control, Behavioral control. Both types of control are necessary, but not sufficient, conditions for success. (Things move faster, make decisions faster. Formulate strategies is related to control)

Entrepreneurial Strategy

Required for new ventures: What are the industry conditions?-What are the barriers to entry? (Five-forces analysis); What is the competitive environment?- Might there be retaliation by established firms?; What are the market opportunities?-How should the firm actually enter a new market? Firms must choose how to compete: Entry strategies; Generic strategies; Combination strategies A strategy that enables a skilled and dedicated entrepreneur, with a viable opportunity and access to sufficient resources, to successfully launch a new venture. Involves new creation: Threatens existing competitors. Changes the competitive dynamics of the marketplace. Entrepreneurial activity involves risk: How should I enter a market? How should I compete? How should I deal with the competitor's reaction?

Pooled Negotiating Power

Saying you have something that can benefit others; Gaining greater bargaining power with suppliers and customers The improvement in bargaining position relative to suppliers and customers

Transnational Strategy

Seeks global competitiveness via trade-offs: Efficiency versus local adaptation versus organizational learning. Assets and capabilities disbursed according to the most beneficial location for a specific activity; some value chain activities centralized, some decentralized- Economies of scale, increased knowledge flows. Pressures for both local adaptation and lowering costs high. (Standardization in other countries) A strategy based on firms' optimizing the trade-offs associated with efficiency, local adaptation, and learning; used in industries where the pressures for both local adaptation and lowering costs are high.

Counterfeiting

Selling of trademarked goods without the consent of the trademark holder.

Related Businesses

Sharing businesses; Disney acquiring Pixar; Benefits derive from horizontal relationships; Sharing intangible resources such as core competencies in marketing; Sharing tangible resources such as production facilities, distribution channels via vertical integration A firm entering a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power

Core Competencies

Something a business does better, specialty; Reflect the collective learning in organizations. Can lead to the creation of value and synergy if: They create superior customer value, The value-chain elements in separate businesses require similar skills, They are difficult for competitors to imitate or find substitutes for A firm's strategic resources that reflect the collective learning in the organization

Portfolio Management Limitations

Strategic Business Units (SBUs) are compared on only two dimensions and each SBU is considered a standalone entity, Are these the only factors that really matter? Can every unit be accurately compared on that basis? What about possible synergies?; An oversimplified graphic model is no substitute for managers' experience; Following strict and simplistic rules for resource allocation can be detrimental to a firm's long-term viability; Market size are a big factor, Demographics, Sociocultural, Political/Legal

Competitive Dynamics: Actions

Strategic actions and Tactical Actions

Global Strategy: Strengths

Strong integration occurs across various businesses. Standardization leads to higher economies of scale, which lower costs. Creation of uniform standards of quality throughout the world is facilitated.

Human Capital

Strong, skilled management. (Leaders look at management team)

Mergers and Acquisitions: Divestment Success

Successful divestiture involves: Removing emotion from the decision; Knowing the value of the business you're selling; Timing the deal right; Maintaining a sizable pool of potential buyers; Telling a story about the deal; Running divestitures systematically through a project office; Communicating clearly and frequently

Mergers and Acquisitions: Limitations

Takeover premiums for acquisitions are typically very high; Competing firms can imitate advantages; Competing firms can copy synergies; Managers' egos get in the way of sound business decisions; Cultural issues may doom the intended benefits

LO 8.4 How competitive actions, such as the entry of new competitors into a marketplace, may launch a cycle of actions and reactions among close competitors

The competitive actions of a new entrant are very likely to provoke a competitive response from companies that feel threatened. This, in turn, is likely to evoke a reaction to the response. As a result, a competitive dynamic- action and response- begins among the firms competing for the same customers in a given marketplace.

LO 7.2 Identify the sources of national advantage; that is, why an industry in a given country is more (or less) successful than the same industry in another country

The diamond of national advantage helps determine the sources of national competitive advantages along four attributes of nations. Factor endowments are the nation's position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry. Demand conditions capture the nature of home-market demand for the industry's product or service. Related and supporting industries describe the presence or absence in the nation of supplier industries and other related industries that are internationally competitive. Firm strategy, structure, and rivalry capture the conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry.

Divesment

The exit of a business from a firm's portfolio

Market Commonality

The extent to which competitors are vying for the same customers in the same markets.

Resource Similarity

The extent to which rivals draw from the same types of strategic resources.

International Strategy

The global marketplace provides many opportunities for firms to increase their revenue base and their profitability. However, managers face many opportunities and risks when they diversify abroad. What should a firm do in order to create value and attain a competitive advantage in this global marketplace? Requires diffusion and adaptation of the parent company's knowledge and expertise to foreign markets. The primary goal is worldwide exploitation of the parent firm's knowledge and capabilities: All sources of core competencies are centralized. Pressure for both local adaptation and low costs are rather low. A strategy based on firms' diffusion and adaptation of the parent companies' knowledge and expertise to foreign markets; used in industries where the pressures for both local adaptation and lowering costs are low.

LO 7.1 Understand the importance of international expansion as a viable diversification strategy

The trade among nations has increased dramatically in recent years. Specifically the rise of the globalization- meaning the rise of market capitalism around the world- has created opportunities and threats for multinational corporations.

Rewards

The use of performance base incentive systems to motivate. Measurement of output and performance is rather straightforward. Most appropriate in organizations pursuing unrelated diversification. Rewards may be used to reinforce other means of control.

LO 6.2 Explain how managers can create value through diversification initiatives

To create value with related diversification, managers can pursue two paths: Economies of scope that are achieved from the leveraging of core competencies and the sharing of activities. Market power that is attained from greater, or pooled, negotiating power and from vertical integration. To create value with unrelated diversification, the primary ways to create value are corporate restructuring and parenting, as well as the use of portfolio analysis techniques.

New Competitive Action

To improve market position. To capitalize on growing demand. To expand production capacity. To provide an innovative new solution. To obtain first mover advantages (Idea that if you're the first, you get the market share, others can learn from your mistakes). To strengthen financial outcomes and capture profits. To grow the business. Acts that might provoke competitors to react, such as new market entry, price cutting, imitating successful products, and expanding production capacity.

LO 7.6 Understand the difference between regional companies and truly global companies

Truly global companies have a significant presence in each major economic region around the world. However, many multinational companies follow a regionalization strategy by investing in countries that share characteristics in terms of language, culture, and customer preferences. Regionalization is often facilitated by trading blocs, defined as groups of countries that agree to trade among themselves by lowering trade barriers.

Strategic Alliance

Two companies or more agreeing to work together (temporary) to gain market power. A cooperative relationship between two or more firms

Opportunity Recognition

Two phases of activity: Discovery- Becoming aware of a new business concept. Evaluation- Analyzing the opportunity to determine whether it is viable or feasible to develop further. (Analyze whether the opportunity is attainable) The process of discovering and evaluating changes in the business environment, such as a new technology, sociocultural trends, or shifts in consumer demand, that can be exploited.

Transnational Strategy: Limitations

Unique challenges in determining optimal locations of activities to ensure cost and quality. Unique managerial challenges in fostering knowledge transfer.

Outsourcing

Using other firms to perform value-creating activities that were previously performed in-house.

Corporate Level Strategy

What businesses should a corporation compete in? How can these businesses be managed so they create "synergy"?

LO 6.6 Identify managerial behaviors that can erode the creation of value.

While corporate actions should be aimed to enhance shareholder value, they are likely to erode value when they are driven by the following factors: Growth for growth's sake, Egotism, Antitakeover tactics

LO 8.3 How the generic strategies of overall cost leadership, differentiation, and focus are used by new ventures and small businesses

With an overall cost leadership strategy, entrepreneurial firms achieve success by doing more with less. It holds down costs or makes more efficient use of resources than larger competitors, allowing the entrepreneurial firm to offer lower prices and still be profitable. Both pioneering and adaptive entry strategies involve some degree of differentiation. In both cases, the new venture is attempting to do something different, either by using a new technology or by deploying resources in a way that alters the way business is conducted. Focus strategies are often associated with small businesses because there is a natural fit between the narrow scope of the strategy and the small size of the firm.

Rules

Written and explicit guidelines that provide external constraints on behavior. Associated with standardized output. Most appropriate when tasks are generally repetitive and routine. Little need for innovation to creative activity.