test 2 MGMT 490

what is necessary for implementation of integrated cost leadership/ differentiation strategy.

-Commitment to strategic flexibility: -Flexible manufacturing systems (FMS) -Information networks (CRM) -Total quality management (TQM) systems

Competitive Dynamics for Standard-Cycle Markets

-Moderate cost of imitation may shield competitive advantages. -Competitive advantages are partially sustainable if their quality of capabilities is continuously upgraded. -imitation is modertaly costly -Firms --Seek large market shares --Gain customer loyalty through brand names --Carefully control operations -highly competitive markets ex:hersheys, nestle, mars

Incentives to use international strategy

-New market expansion extends product life cycle. -Gain access to materials and resources. -Integration of operations on a global scale -Better use of rapidly developing technologies -International markets yield potential new opportunities. -gain access to consumers in emerging markets

strong interactive relationships with customers

-often provide the foundation for the firm's efforts to profitably serve customers' unique needs -effectively managing customer relationships along 3 dimensions helps firm answer questions related to the issues of who, what and how

strategic competitiveness outcomes

-overall the degree to which firms achieve strategic competitiveness through international strategies is expanded or increased when they successfully implement an international diversification strategy

Wal Mart

-prices aggressively *stream of tactical actions to attack rivals by changing some of its products' prices and tactical responses by responding to competitor price changes

-Focused cost leadership strategy

IKEA: young buyers desiring style at low costs are target customers

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.

successful second mover

able to rapidly and meaningfully interpret market feedback to respond quickly yet successfully to the first mover's successful innovations

Choice of International Mode of Entry: if The firm needs rapid cross-border access to new international markets whats the optimal solution?

acquisitions

A Model of Competitive Rivalry- connections

competitor analysis (market commonality & resource similarity)-->drivers of competitive behavior (awareness, motivations, ability)-->competitive rivalry: likelihood of attack (1st mover benefits, org. size, quality) & likelihood of response (type of competitive action, actors reputation, market dependence)-->outcomes: market position & financial performance

from competition to competitive dynamics

competitors engage in competitive rivalry (to gain an advantageous position) through competitive behavior (actions and responses)which results in competitive dynamics (competitive actions and responses taken by all firms competing in a market)

core competencies

resources and capabilities that serve as a source of competitive advantage for the firm over its rivals

Choice of International Mode of Entry: if The firm needs to facilitate the product improvements necessary to enter foreign markets. whats the optimal solution?

licensing

strategic action/response

market-based move that involves a significant commitment of organizational resources and is difficult to implement and reverse

tactical action/response

market-based move that is taken to fine-tune a strategy; it involves fewer resources and is relatively easy to implement and reverse

competitive response

a strategic or tactical action the firm takes to counter the effects of a competitor's competitive action

first mover, benefits

*A firm that takes an initial competitive action in order to build or defend its competitive advantages or to improve its market position. -emphasize R&D as a path to develop innovative goods/services that customers will value *benefits of success are substantial (especially in fast cycle mkt with short product life cycle) -earn above average returns until competitors respond to its successful competitive action -loyalty of customers who may be committed to goods or services of the firm that first made them available -marketshare that can be difficult for competitors to take during future competitive rivalry -have greater survival rates

Differentiation Strategy

*An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them. -Focus is on nonstandardized products -Appropriate when customers value differentiated features more than they value low cost. -seek to differentiate on as many dimensions as possible -the less similarity to competitors' products, the more buffered from competition

Focus Strategies

*An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment. =Particular buyer group—youths or senior citizens =Different segment of a product line—professional craftsmen versus do-it-yourselfers =Different geographic markets—East coast versus West coast

Cost Leadership 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. -target industry's typical customer -offer low cost products with competitive levels of differentiation -firms emphasize efficiency for lower costs *Product Characteristics =Relatively standardized (commoditized) products =Features broadly acceptable to many customers =Lowest competitive price

International Diversification and Returns

*Expanding sales of goods or services across global regions and countries and into different geographic locations or markets: -May increase a firm's returns (such firms usually achieve the most positive stock returns). -May achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns.

Complexity of Managing Multinational Firms

*Expansion into global operations in different geographic locations or markets: -Makes implementing international strategy increasingly complex. -Can produce greater uncertainty and risk. -May result in the firm becoming unmanageable -May cause the cost of managing the firm to exceed the benefits of expansion. -Exposes the firm to possible instability of some national governments.

Competitive Scope

-Broad Scope: The firm competes in many customer segments. -Narrow Scope: The firm selects a segment or group of segments in the industry and tailors its strategy to serving them at the exclusion of others.

purpose of business level strategy

=to create differences between the firm's position and those of its competitors =decide whether it intends to perform activities DIFFERENTLY or to perform DIFFERENT activities

Determinants of National Advantage (porter)

*Factors of production: The inputs necessary to compete in any industry ex: Labor, Land, Natural resources, Capital, Infrastructure *Basic factors: Natural and labor resources *Advanced factors Digital communication systems and an educated workforce *Demand Conditions: Characterized by the nature and size of buyers' needs in the home market for the industry's goods or services. -Size of the market segment can lead to scale-efficient facilities. -Efficiency can lead to domination of the industry in other countries. -Specialized demand may create opportunities beyond national boundaries. *Related and Supporting Industries: Supporting services, facilities, suppliers and so on. -Support in design -Support in distribution -Related industries as suppliers and buyers ex:italy shoe industry *Firm Strategy, Structure and Rivalry: The pattern of strategy, structure, and rivalry among firms. -Common technical training -Methodological product and process improvement -Cooperative and competitive systems *all within: political, formal institutions-regulatory, informal institutions-culture

A Model of Competitive Rivalry

*Firms are mutually interdependent -A firm's competitive actions have noticeable effects on its competitors. -A firm's competitive actions elicit competitive responses from its competitors. -Competitors feel each other's actions and responses. *Marketplace success is a function of both individual strategies and the consequences of their use.

Factors Affecting Likelihood of Response

*Firms study market commonality, resource similarity, awareness, motivation and ability, and three other factors to predict how a competitor is likely to respond to competitive actions: -Type of competitive action: strategic vs. tactical =strategic actions: fewer total competitive responses bc of resource commitment & difficult to implement/reverse & time needed to implement and assess delays response =tactical actions: respond quickly =strategic actions- strategic response & tactical action-response =target large # of rival's customers: strong responses -Actor's reputation: =actor: firm taking action or response =reputation: postive or negative attribute ascribed by one rival to another based on past competitive behavior (positive has strategic value) =past behavior analyzed to predict future behavior =more likely to respond to market leader's actions -Market dependence

Risks of an Integrated Cost Leadership/ Differentiation Strategy

*Often involves compromises: -Becoming neither the lowest cost nor the most differentiated firm= not sufficient value in either *Becoming "stuck in the middle" -Lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy.

Competitive Rivalry's Effect on Strategy

*Success of a strategy is determined by: -The firm's initial competitive actions. -How well it anticipates competitors' responses to them. -How well the firm anticipates and responds to its competitors' initial actions. *Competitive rivalry: -Affects all types of strategies. -Has a dominant influence on the firm's business-level strategy or strategies.

Types of Business-Level Strategies

*customer vale: lowest cost 1.broad target mkt= cost leadership 2.focused (narrow) target mkt= focused cost leadership *customer value: distinctiveness 1.broad target mkt: differentiation 2.focused (narrow) target mkt= focused differentiation

Types of Potential Competitive Advantage

-Achieving lower overall costs than rivals Performing activities differently (reducing process costs) -Possessing the capability to differentiate the firm's product or service and command a premium price Performing different (more highly valued) activities.

Competitive Dynamics for Slow-Cycle Markets

-Competitive advantages are shielded from imitation for long periods of time and imitation is costly. -Competitive advantages are sustainable in slow-cycle markets. -building a unique and proprietary capability produces a competitive advantage and success -All firms concentrate on competitive actions and responses to protect, maintain and extend proprietary competitive advantage. ex-disney--> copyrights, pharmaceutical companies-->patent laws and regulatory requirements (FDA) -Eventually competitors respond to the action with a counterattack

To implement a focus strategy, firms must be able to:

-Complete various primary and support activities in a competitively superior manner, in order to develop and sustain a competitive advantage and earn above-average returns.

Types of focused strategies

-Focused cost leadership strategy -Focused differentiation strategy

Competitive Rivalry

-Is the ongoing set of competitive actions and responses occurring between competitors. -Influences an individual firm's ability to gain and sustain competitive advantages.

-Focused differentiation strategy

-new generation of lunch trucks: high-end fare, gourmet -must be able to complete various primary value chain activities and support functions competitively superior manner to develop and sustain a competitive advantage and earn above average returns

Global Strategy

-Products are standardized across national markets. -Business-level strategic decisions are centralized in the home office. -Strategic business units (SBU) are assumed to be interdependent. -Emphasizes economies of scale. -Often lacks responsiveness to local markets. -Requires resource sharing and coordination across borders (hard to manage). *HIGH need for global integration *LOW need for local responsiveness ex-CEMEX

Transnational Strategy

-Seeks to achieve both global efficiency and local responsiveness. -Difficult to achieve because of simultaneous requirements for: --Strong central control and coordination to achieve efficiency --Decentralization to achieve local market responsiveness --Pursuit of organizational learning to achieve competitive advantage. ex-McDonalds *HIGH need for local responsiveness *HIGH need for global integration

Multidomestic Strategy

-Strategy and operating decisions are decentralized to strategic business units (SBU) in each country. -Products and services are tailored to local markets. -Business units in one country are independent of each other. -Assumes markets differ by country or regions. -Focus on competition in each market. -Prominent strategy among European firms due to broad variety of cultures and markets in Europe. *HIGH need for local responsiveness *LOW need for global integration EX-unilever

Competitive Dynamics for Fast-Cycle Markets

-The firm's competitive advantages aren't shielded from imitation. -Imitation happens quickly and somewhat expensively. -Competitive advantages are not sustainable. -technology-based strategic focus: increasing need for comprehensive approach integrated with decision speed -->Competitors use reverse engineering to quickly imitate or improve on the firm's products -Non-proprietary technology is diffused rapidly. -more volatile, rely on innovation -use strategic alliances to gain access to new technologies and develop new products -rapid cannibilize own products -rapid product upgrades and quick product innovation ex: apple

Selecting an International Corporate-Level Strategy

-The type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies. --Some strategies provide individual country units with the flexibility to choose their own strategies. --Other strategies dictate business-level strategies from the home office and coordinate resource sharing across units.

Total quality management (TQM)

-managerial process that emphasizes an organization's commitment to the customer and to continuous improvement of all processes through problem-solving approaches based on empowerment of employees -developed to: 1. increase customer satisfaction 2.cut costs 3.reduce the amount of time required to introduce innovative products to the marketplace

cross-border acquisitions

-a firm from one country acquires a stake in or purchases all of a firm located in another country -rapid access to new markets: quickest -some disadvantages of domestic acquisitions -require debt financing which requires extra cost -negotiations can be exceedingly complex and are generally more complicated -issues: deal with legal and regulatory requirements in target firm's country and obtaining appropriate info to negotiate agreements -hard to merge different cultures and practices -difficult to capture potential synergy when integration is slowed by cultural differences -firms operations are human capital intensive

licensing

-an agreement is formed that allows a foreign company to purchase the right to manufacture and sell a firm's products within A HOST COUNTRY'S MARKET OR A SET OF HOST COUNTRIES' markets -licensor paid a royalty per product sold -least costly form of international diversification -attractive for smaller and new firms -potential benefit: possibility of earning greater returns from product innovations by selling them in international and domestic markets, larger market to pay off R&D -disadvantages: little control over selling & distribution -least potential returns bc returns are shared -international firm may earn technology and produce product after expiration of license

reach

-dimension of relationships with customers concerned with the firms's access and connection to customers -firms seek to extend their reach, adding customers in the process

Flexible manufacturing systems (FMS):

-firm integrates human, physical and information resources to create relatively differentiated products at relatively low costs - computer-controlled process with min. manual -goal: to eliminate the low cost vs. product variety trade off

international business level strategy

-first develop domestic-market strategies -national advantage/disadvantage affects the firms efforts to use an international business level strategy for the purpose of establishing competitive advantage in international markets -based at least partially on its international corporate-level strategy

strategic alliances

-increasingly popular -firm collaborating with another company in a different setting in order to enter one or more international markets -share risks & resources -facilitate developing new capabilities and possibly core competencies that may contribute to the firms's strategic competitiveness -trust is critical for developing and managing technology-based capabilities in strategic alliances -primary reasons for failure: incompatible partners and conflict between the partners -especially difficult to manage -equity-based alliances over which a firm has more control are more likely ro produce positive returns- but can serve as a barrier to necessary relationship building

new wholly owned sub (greenfield venture)

-invests directly in another country or market by establishing a new wholly owned sub -complex and costly, but gives maximum control and greatest amount of potential to contribute to the firm's strategic competitiveness as it implements international strategies (esp. firms with strong intangible resources) -preferred in: =proprietary technology =service industry: close contacts with end customers, high levels of professional skills, specialized know-how, customization required =rely significantly incaptal -intensive manufacturing facilities quality -risks: =substantial costs: may have to acquire knowledge and expertise about the new market by hiring either host-country nationals or consultants =country risk is high, firms prefer to enter with joint venture -use if firms have previous experience in country

Integrated Cost Leadership/ Differentiation Strategy

-involves engaging in primary value chain activities and support functions that allow a firm to simultaneously pursue low cost and differentiation *A firm that successfully uses an integrated cost leadership/differentiation strategy should be in a better position to: =Adapt quickly to environmental changes.- flexible =Learn new skills and technologies more quickly. =Effectively leverage its core competencies while competing against its rivals.

competitive risks of focus strategies

-same risks as regular strategies on an industry-wide basis plus: 1. competitor may be able to out-focus the focuser: provide same but cheaper or additional features at same price 2. company competing on industry wide basis may decide the market segment served by the firm using a focus strategy is attractive and worth of competitive pursuit 3. the needs of the customers within a narrow competitive segment may become more similar to those of industry-wide customers as a whole over time. so advantage of a focus strategy are either reduced or eliminated

richness

-second dimension of firm's relationships with customers, concerned with the depth and detail of the two-way flow of information between the firm and the customer -the potential of the richness dimension to help the firm establish competitive advantage in its relationship leads firms to offer online services in order to better manage info. exchanges with customers

-Information networks (CRM)

-source of flexibility by linking firms with suppliers, distributors and customers -help firm satisfy customer expectations in terms of product quality and delivery speed -CRM-customer relationship management: info based network

affiliation

-third dimension, concerned with facilitating useful interactions with customers -viewing the world through the customer's eyes and constantly seeking ways to create more value for the customer have positive effects in terms of affiliation =enhances customer satisfaction

exporting

-usually initial mode of entry -firm sends products it produces in its domestic market to international markets -popular for small businesses -no costs of establishing operations abroad -costs of marketing and distribution -transportation costs and tariffs -loss of control -contracts with local firms can be expensive -using international cost leadership when exporting to developed countries has most positive effect on performance -using an international differentiation strategy with larger scale when exporting to emerging economies leads to the greatest amount of success -export to closest countries

Drivers of Competitive Behavior

1. Awareness is the extent to which competitors recognize the degree of their mutual interdependence that results from: -Market commonality -Resource similarity 2.Motivation concerns the firm's incentive to take action or to respond to a competitor's attack and relates to perceived gains and losses 3. Ability relates to each firm's resources and the flexibility that these resources provide -Without available resources the firm lacks the ability to attack a competitor and respond to the competitor's actions 4. market commonality: -A firm is more likely to attack the rival with whom it has low market commonality than the one with whom it competes in multiple markets. -Given the strong competition under market commonality, it is likely that the attacked firm will respond to its competitor's action in an effort to protect its position in one or more markets 5. resource dissimilarity: -The greater the resource imbalance between the acting firm and competitors or potential responders, the greater will be the delay in response by the firm with a resource disadvantage. -When facing competitors with greater resources or more attractive market positions, firms should eventually respond, no matter how challenging the response.

Classic Rationale for International Diversification: Extend a Product's Life Cycle

1. Firm introduces innovation in domestic market 2.Product demand develops and firm exports products 3. Foreign competition begins production 4. Firm begins production abroad 5. Production is standardized and relocated to low cost countries

Factors Affecting Likelihood of Attack

1. First-Mover Incentives: *First movers allocate funds for: -Product innovation and development -Aggressive advertising -Advanced research and development *First movers can gain: -The loyalty of customers who may become committed to the firm's goods or services. -Market share that can be difficult for competitors to take during future competitive rivalry. 2. Second Mover Incentives: *Second mover responds to the first mover's competitive action, typically through imitation: -Studies customers' reactions to product innovations. -Tries to find any mistakes the first mover made, and avoid them. -Can avoid both the mistakes and the huge spending of the first-movers. -May develop more efficient processes and technologies 3. late mover incentives: *Late mover responds to a competitive action only after considerable time has elapsed. *Any success achieved will be slow in coming and much less than that achieved by first and second movers. *Late mover's competitive action allows it to earn only average returns and delays its understanding of how to create value for customers. 4. organizational size-small: *Small firms are more likely: -To launch competitive actions. -To be quicker in doing so. *Small firms are perceived as: -Nimble and flexible competitors -Relying on speed and surprise to defend competitive advantages or develop new ones while engaged in competitive rivalry. -Having the flexibility needed to launch a greater variety of competitive actions. 5.organizational size-large: *Large firms are likely to initiate more competitive actions as well as strategic actions during a given time period *Large organizations commonly have the slack resources required to launch a larger number of total competitive actions "Think and act big and we'll get smaller. Think and act small and we'll get bigger." 5. quality (product): exists when the firm's goods or services meet or exceed customers' expectations *Product quality dimensions include: Performance, Features, Flexibility, Durability, Conformance, Serviceability, Aesthetics, Perceived quality 6.quality (service): dimensions include= Timeliness, Courtesy, Consistency, Convenience, Completeness, Accuracy

Environmental trends influencing a firm's choice and use of international strategies, particularly international corporate level strategies

1. Liability of Foreignness: a set of costs associated with various issues firms face when entering foreign markets, including unfamiliar operating environments; economic, administrative and cultural differences; the challenges of coordination over distances (cultural, administrative, geographic, economic) 2.regionalization: choosing to compete in one or more regional markets rather than individual country markets -prominent because whee a firm chooses to compete can affect its strategic competitiveness -allows firms to marshal their resources to compete effectively rather than spreading their limited resources across multiple country-specific international markets -countries that develop trade agreements to increase the economic power of their regions may promote regional strategies: EU, OAS, NAFTA -most firms enter regional markets sequentially

risks of differentiation strategy

1. a customer group's decision that the unique features provided by the differentiated product over the cost leader's goods or services are no longer worth a premium price 2.the inability of a differentiated product to create the type of value for which customers are willing to pay a premium 3. the ability of competitors to provide the customers with products that have features similar to those of the differentiated product but at a lower cost 4. the threat of counterfeiting, whereby firms produce imitation of differentiated good or service

business level strategy

=an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets =customers are the foundation of successful business level strategies

choice of international entry mode:

1. exporting: high cost, low control 2.licensing: low cost, low risk little control, low returns 3.strategic alliances: shared costs, resources and risks, problem of integration (2 corporate cultures) 4.acquisitions: quick access to new markets, high costs, complex negotiations, problems of merging with domestic operations 5.new wholly owned sub (greenfield venture): complex, often costly, time consuming, high risk, max control, potential above-average returns

opportunities and outcomes of international strategy

1. identify international opportunities: basic benefits -increased market size -economies of scale and learning (manufacturing operations) -location advantages (reduce costs in labor, energy, natural resources) 2.explore resources and capabilities international strategies -international business level strategy -international -corporate level strategy --multidomestic, global, transnational 3. use of core competence mode of entry -exporting, licensing, strategic alliances, acquisitions, new wholly owned subs (greenfield ventures) 4. strategic competitiveness outcomes -improved performance -enhanced innovation

competitive risks of cost leadership strategy

1. loss of competitive advantage too newer technologies 2.failure to detect changes in customers' needs 3. the ability of competitors to imitate the cost leader's competitive advantage through their own distinct strategic actions

competitor analysis

1. market commonality: is concerned with the number of markets with which the firm and competitor are jointly involved and the degree of importance of the individual markets to each =high market commonality (multi market competition)- less likely to attack, more likely to respond aggressively 2. resource similarity: the extent to which the firm's tangible and intangible resources are comparable to a competitor's in terms of both type and around

risks in an international environment

1. political: probability of disruption of the operations of multinational enterprises by political forces or events whether they occur in host countries, home country or results from changes in international environment =uncertainty created by govt. regulation =existence of many possibly conflicting legal authorities or corruption =potential nationalization of private assets (conduct political risk analysis) 2. economic risks: fundamental weaknesses in a country/region's economy with the potential to case adverse effects on firms' efforts to successfully implement their international strategies =intellectual property rights =perceived security risk =differencies and fluctuations in value of currencies

firm likely to respond to competitor's action when

1. the action leads to better use of the competitors capabilities to develop stronger competitive advantage or an improvement in its market position 2. the action damages the firm's ability to use its core competencies to create or maintain an advantage 3. the firm's market position becomes harder to defend

in terms of customers, when selecting a business level strategy the firm determines

1.WHO will be served 2.WHAT needs those target customers have that it will satisfy 3.HOW those needs will be satisfied

dynamics of mode of entry

1.initially export, only invest distribution 2.licensing, facilitate product improvements 3.strategic alliance: use in uncertain situations (emerging eco. with high risk) =all effective means of INITIALLY enterning new markets 4. joint venture or greenfield venture: if intellectual property rights are not well protected =acquistions, joint venture, greenfield venture: used to establish STRONG PRESENCE in international markets *decision regarding which entry mode to use is primarily a result of the industry's competitive conditions, the country's situation and govt. policies and the firm's unique set of resources, capabilities and core competencies

HOW: determining core competencies necessary to satisfy customer needs

=determine how to use its capabilities and competencies to develop products that can satisfy the needs of its target customers =use core competencies to implement value-creating strategies and satisfy customers' needs

determining WHAT needs to satisfy

=related to product's benefits and features =provide value through low cost with acceptable features or highly differentiated features with acceptable cost =most effective firms continuously strive to anticipate changes in its customer's needs

strategic competitiveness

=results only when the firm satisfies a group of customers by using its competitive advanatges as the basis for competing in individual product markets

International Strategy

A strategy through which the firm sells its goods or services outside its domestic market.

Competitors

Are firms operating in the same market, offering similar products, and targeting similar customers

Multimarket Competition

Firms competing against each other in several product or geographic markets.

competitive action

a strategic or tactical action the firm takes to build or defend its competitive advantages or improve its market position

international diversification strategy

a strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into a potentially large number of geographic locations and markets =use international business level and corporate level strategies for the purpose of entering multiple regions and markets

Choice of International Mode of Entry: if The firm has no foreign manufacturing expertise and requires investment only in distribution. whats the optimal solution?

exporting

quickest access to a new market is

exporting

market segmentation

is a process used to cluster people with similar needs into individual and identifiable groups =to answer WHO question

Competitive Dynamics

refer to all competitive behaviors- The total set of actions and responses taken by all firms competing within a market.

Choice of International Mode of Entry: if The firm needs to connect with an experienced partner already in the targeted market and to reduce its risk through the sharing of costs. whats the optimal solution?

strategic alliance

Choice of International Mode of Entry: The firm's 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 whats the optimal solution?

wholly-owned subsidiary (greenfield venture)