Strategic Management: Chapter 10

1) Absence of trading bloc 2) Absence of shared currency, monetary or political association 3) Absence of colonial ties 4) Political hostilities (tariffs, trade quotas etc.) 5) Weak legal and financial institutions

Administrative/Political distance: Distance increases between two countries with.... (5)

That a foreign government views as staples (electricity), as building national reputations (aerospace), or as vital to national security (telecommunications)

Administrative/Political distance: Distance most affects industries or products... (3)

o Attracts differentiation strategy companies o Foreign direct investments to be part of communities of learning o Location economies

Advantage of going global: Develop new competencies (characteristics)

-Economies of scale and scope -If becoming an MNE in a smaller country globalization may be vital to sustain a competitive advantage -Opportunities to participate in larger market and outcompete local rivals -Helps firms in smaller economies achieve growth and gain and sustain competitive advantage

Advantage of going global: Gain access to a larger market (characteristics)

o Attracts low cost leadership strategy companies o Low cost raw materials (lumber, oil, coal), low cost labor o Driver of Globalization 1.0 and 2.0 (In Glob 3.0 firms benefit from lower labor costs in manufacturing services)

Advantage of going global: Gain access to low-cost input factors (characteristics)

gain access to a larger market, gain access to low-cost input factors, develop new competencies

Advantages of going global? (3)

relative

CAGE distance framework doesnt look at absolute measures, consider ____ distance instead

cultural distance

CAGE factor that increases liability of foreignness

cultural distance, Administrative/Political distance, geographic distance, economic distance

Components of CAGE

1. Rising wages & other costs are likely to negate any benefits of access to low-cost input factors 2. The standard of living rises in emerging economies, MNEs are hoping that increased purchasing power will enable workers to purchase the products they used to make for export only.

Continued economic development across the globe has what 2 consequences for MNEs?

-Different languages, ethnicities, religions, social norms, dispositions -Lack of connective ethnic or social networks -Lack of trust/ mutual respect

Cultural distance: Distance increases between two countries with (3)

- w/ high linguistic content (TV) - Related to national and/or religious identify (foods) - Carrying country specific quality associations (wines)

Cultural distance: Distance most affects industries or products... (3)

o An existing comp. advantage o Uses differences across countries to either decrease cost or increase WTP

DDD framework: deepening (2)

o Deploy a home market competitive advantage in new geographic o Strategy: replicating same source of advantage in home market across national markets o Wedge stays the same but volume of sales increases o Relies on similarities across countries

DDD framework: deployment (4)

o A new and complementary source of comp. advantage o Relies on differences across countries o Modes for acquiring new capabilities

DDD framework: development (3)

deployment, development, deepening

DDD framework: what are the D's?

o Search for low cost labor has had tragic effects where local governments are corrupt and unwilling to enforce a min. of safety standards o Innovation reputation, customer service reputation, brand reputation o Corporate social responsibility

Disadvantage of going global: Loss of reputation (characteristics)

Liability of foreignness, loss of reputation, loss of intellectual property

Disadvantages of going global? (3)

no

Does Geographic distance imply only physical distance?

Access low-cost input factors

Economic distance: Why do wealthy countries trade with poor countries?

benefit economies of experience, scale, scope and standardization (due to infrastructure and resources)

Economic distance: Why do wealthy countries trade with wealthy countries?

multinational enterprise (MNE)

Engine behind globalization is...

loss of reputation, loss of intellectual property

Foreign-entry modes w/ a high level of control such as foreign acquisitions or greenfield plants reduce the firm's exposure to what two particular downsides of global business?

Porter's diamond framework

Framework that explains national competitive advantage: why are some nations outperforming others in specific industries?

• Physical size • Within-country distances to its borders • The country's topography • Time zones • Whether the countries are contiguous to one another • Access to waterways and the ocean

Geographic distance includes what attributes? (6)

o Source supplies at lower cost o Learn new competencies o Differentiate product

Globalization allows companies to do what three things

contract based, strategic alliances, subsidiary

How do MNEs enter foreign markets? (using investment and control continuum)

transnational

Integration-responsiveness framework Pressure for cost reductions: high Pressure for local responsiveness: high

global standardization

Integration-responsiveness framework Pressure for cost reductions: high Pressure for local responsiveness: low

multidomestic

Integration-responsiveness framework Pressure for cost reductions: low Pressure for local responsiveness: high

International

Integration-responsiveness framework Pressure for cost reductions: low Pressure for local responsiveness: low

Global-standardization strategy

Integration-responsiveness framework stage that involves COST LEADERSHIP strategy Benefit from economies of scale and standardization Often organized as networks → lowest cost possible option

transnational strategy

Integration-responsiveness framework stage that involves attempting to combine the benefits of a localization strategy with those of a global-standardization strategy (BLUE OCEAN) Difficult to implement Implemented through global matrix structure→ combines economies of scale along specific product divisions with economies of learning attainable in specific geographic regions. Higher risk of IP expropriation and some exchange rate exposure

international strategy

Integration-responsiveness framework stage that is affected by exchange rate fluctuations/exposing international property but benefits from economies of scale (low cost implementation through exporting, licensing, franchising)

international strategy

Integration-responsiveness framework stage that is typically a differentiation strategy and well suited for high-end products w/ high value to weight rations that can be shipped across globe

multidomestic strategy

Integration-responsiveness framework stage that is used when entering host countries w/ large and/or distinctive domestic markets, such as japan, Can be costly and inefficient (duplication of business functions across countries), risk of intellectual property appropriation increases → exposes tacit knowledge bc products are manufactured locally Reduce exchange rate exposure

global standardization strategy

Integration-responsiveness framework stage: Attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost Globalization 3.0 Cost leadership strategy must maintain a minimum efficient scale

international strategy

Integration-responsiveness framework stage: Involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets Globalization 1.0 Generally first step companies take Used successfully by MNEs with large domestic markets & strong reputation and brand names Well suited for high-end products w/ high value to weight rations that can be shipped across globe differentiation strategy

Multi domestic strategy

Integration-responsiveness framework stage: Pursued by MNEs that attempt to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies Globalization 2.0 Can be costly and inefficient (duplication of business functions across countries)

transnational strategy

Integration-responsiveness framework stage: Strategy that attempt to combine the benefits of a localization strategy with those of a global-standardization strategy High local responsiveness and lowest-cost position attainable Generally used with blue ocean strategy Difficult to implement

international strategy, multi-domestic strategy, global standardization strategy, transnational strategy

Integration-responsiveness framework: Four stages

lower (.2>.5)

Is a lower or higher score better when calculating cultural distance?

Polycentric innovation strategy

MNE's now draw on multiple, equally important innovation hubs throughout the world. characteristic of Globalization 3.0.

foreign direct investment (FDI)

MNEs engage in...

cost reductions, local responsiveness

MNEs face what two opposing forces when competing globally:

• Power distance • Individualism • Masculinity-femininity • Uncertainty avoidance • Long-term orientation • Indulgence

Main dimensions of culture (6)

contract based

Mode of foreign entry that is used to test if foreign market is ready for firms products)

subsidiary (acquisition, greenfield)

Modes of Foreign Entry Along the Investment and Control Continuum Most investment/control

strategic alliances (long-term contracts (licensing/franchising), equity alliances, joint ventures)

Modes of Foreign Entry Along the Investment and Control Continuum medium investment/control

contract based (exporting)

Modes of Foreign Entry Along the Investment and Control Continuum: lowert investment and control

Globalization 1.0

Name the stage of globalization: o All important business functions located in home country o Typically, only sales/distribution took place overseas o Sometimes firms procured raw materials from overseas o Strategy formulation/implementation/knowledge flows followed one-way path from domestic headquarters to international outposts o Ended w/ WWII

Globalization 2.0

Name the stage of globalization: o MNEs created smaller copies of themselves, with all business functions in overseas outpost→ greater local responsiveness to country-specific circumstances o Focus on European countries, Japan and Australia o Knowledge flow back to U.S. headquarters remained limited

Globalization 3.0

Name the stage of globalization: o MNEs have become global-collaboration networks→ now freely locate business functions globally based on mix of costs, capabilities, & PESTEL factors. o Investments in fiber-optic cable networks→ reduced communication distances→ companies can operate 24/7, 365 days a year o Benefits service industries & industrial sectors

Globalization 1.0 -1900-1941 Globalization 2.0 -1945-2000 Globalization 3.0 -21st century

Name the time period of the three stages of globalization

factor conditions, demand conditions, competitive intensity in focal industry, related and supporting industries/complementors

Porter's diamond framework consists of what four interrelated factors

Competitive intensity in a focal industry

Porter's diamond framework factor: Companies that face a highly competitive environment at home tend to out perform global competitors that lack such intense domestic competition. Ex: fierce environment for German car companies helped prepare them for global competition

Related and supporting industries/complementors

Porter's diamond framework factor: Leadership in related and supporting industries. Fosters complementors in downstream industries. Firms that provide an additional good or service (combined with the primary product leads customers to value the local firm's offering more) and further strengthens national competitive advantage

factor conditions

Porter's diamond framework factor: a countries endowments in terms of natural, human, and other resources

demand conditions

Porter's diamond framework factor: specific characteristics of demand in a firm's domestic market. Customers hold companies to high standards of value creation (developments in research, cost containment, other marketplace applications)

US is the world's largest air traffic market (1/3). Emirates, Etihad Airways and Qatar Airways use modern aircrafts and offer direct flights (ATL, DFW, LAX, NYC, etc). Customers are flocking to these brands due to cost competitiveness and a better service experience. Increasing competitive pressure

Strategy highlight: The Gulf Airlines Are Landing in the US

They lost billions and exited Germany in 2006 Culturally, Germans don't want cheer and smile, they couldn't get costs down so prices weren't low, they had a liability of foreignness

Strategy highlight: Walmart Retreats from Germany

Ikea = the worlds more profitable retailer. It External Challenges: o The global supply chain has become a bottleneck. o Growth slowed after the recession. o Consumers are concerned about deforestation. Internal Challenges: o Constraints in accessing large sums of capital o CEO succession Keeping costs low is their value innovation (shifted from an international strategy to a gloval standardization strategy) Attempts to achieve economies of scale through managing a global supply chain

Strategy highlight: The Wonder From Sweden: Is Ikeas Success Sustainable?

transnational strategy

The Business Level Strategy Influences the Global Strategy A blue ocean strategy is more likely to achieve success with a ____ strategy

global standardization

The Business Level Strategy Influences the Global Strategy A cost leader is more likely to achieve success with a ____ strategy

international or multidomestic

The Business Level Strategy Influences the Global Strategy A differentiator is more likely to achieve success with a ____ strategy (2)

Death of Distance Hypothesis

The assumption that geographic location shouldn't lead to firm-level competitive advantage because firms are able to source inputs globally. This assumption is inaccurate.

10-25% (semi-global)

What percent of the world is globalized? (range%)

MNE

a company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries.

foreign direct investment (FDI)

a firm's investments in value chain activities abroad

globalization

a process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs.

tariffs, trade quotas, FDI restrictions

administrative and political barriers include (3)

•Shared monetary or poltical associations •Political hostilities •Weak or strong legal and financial institutions

administrative and political distance are captured in factors such as.... (3)

Location economies

benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be.

greenfield operations

building new, fully owned plants and facilities from scratch

CAGE distance framework

created by Pankaj Ghemaway to aid MNEs in deciding where to compete

1) Different consumer incomes (most important) 2) Wealthy countries engage in more cross border trade; rich trade with rich & poor trade w/ rich 3) Companies from wealthy countries benefit in cross-border trade with other wealthy countries when their competitive advantage is based on economies of experience, scale, scope, and standardization 4) Companies from wealthy countries trade with companies from poor countries to benefit from economic arbitrage: access to low cost input factors 5) Different costs and quality of natural, financial, and human resources 6) Different information or knowledge

economic distance: Distance increases between two countries with.... (6)

• For which demand varies by income (cars) • In which labor and other cost differences matter (textiles)

economic distance: Distance most affects industries or products... (2)

1) Lack of common border, waterway access, adequate transportation, or communication links 2) Physical remoteness 3) Different climates and time zones

geographic distance: Distance increases between two countries with.... (3)

1) With low value-to- weight ration (cement) 2) That are fragile or perishable (glass, meats) 3) In which communications are vital (financial

geographic distance: Distance most affects industries or products... (3)

hi

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born global

in the digital age, some companies are...

Capital markets, supportive institutional framework, research universities, public infrastructure

other important factor conditions (4)

global strategy

part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world.

Integration-responsiveness framework

strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally

national culture

the collective mental and emotional "programming of the mind" that differentiates human groups