BUS 498 Chapter 10

Example of liability of foreignness

Walmart entering the market in Germany. Result: Walmart failed. Executive didn't speak any German and simply decreed that English would be the official in-house language.

Porter's diamond national competitive advantage

1. factor conditions 2. demand conditions 3. competitive intensity in focal industry 4. related and supporting industries/complementors

Example loss of reputation:

Apple's brand. Textile industry is notorious for sweatshop conditions.

Example of Global Strategy:

AstraZeneca, a Swiss-based pharmaceutical company, relocated its research facility to Cambridge, Massachusetts, to be part of the Boston biotech cluster, in hopes of developing new R&D competencies in biotechnology

location economies

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

Example of transnational strategy:

German multimedia conglomerate Bertelsmann attempts to follow a transnational strategy. Global learning and human resource strategies for executives are coordinated at the network level.

Example of global-standardization strategy:

Lenovo acquired from IBM in 2005. Benefits from low-cost labor and to be close to its main markets in order to reduce shipping costs, manufacturing facilities are in Mexico, India, and China

globalization hypothesis example:

McDonalds

Example multidomestic strategy:

Swiss-based Nestle known for customizing its product offerings to suit local preferences, tastes, and requirements

relating and supporting industries/complementors

The availability of top-notch complementors-firms that provide a good service that leads customers to value the focal firm's offering more when the two are combined-further strengthens national competitive advantage

Example of foreign direct investment

Volkswagen invested $1 billion in Chaattanooga, Tennessee

multinational enterprise

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

CAGE distance framework

a decision framework based on the relative distance between home and a foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance

foreign direct investment

a firm's investments in value chain activities abroad

polycentric innovation strategy

a strategy in which MNEs now draw on multiple, equally important innovation hubs throughout the world characteristic of globalization

liability of foreignness

additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances

Demand conditions

are the specific characteristics of demand in a firm's domestic market

globalization hypothesis

assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous

death-of-distance hypothesis

assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally

greenfield operations

building new, fully owned plants and facilities from scratch

Competitive Intensity in a focal industry

companies that face a highly competitive environment at home tend to outperform global competitors that lack such intense domestic competition

cultural distance

cultural disparity between an internationally expanding firm's home country and its targeted host country

Factor conditions

describe a country's endowments in terms of natural, human, and other resources.

CAGE distance framework helps

determine the attractiveness of foreign target markets in a more fine-grained manner based on relative differences

advantages of going global

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

Companies that base their competitive advantage on economies of scale and economies of scope

have an incentive to gain access to larger markets because this can reinforce the basis of their competitive advantage

Globalization

is the 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.

Disadvantages of Going Global

liability of foreignness loss of reputation loss of intellectual property

one of the advantages of global-standardization strategy

obtaining the lowest cost point possible by minimizing local adaptations

global strategy

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

Globalization allows companies to

source supplies at lower costs, to learn new competencies, and to further differentiate products

global-standardization strategy

strategy 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

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

multidomestic strategy

strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic

Transnational strategy

strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable)

international strategy

strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets

national culture

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

local responsiveness

the need to tailor product and service offerings to fit local consumer preferences and host-country requirements

national competitive advantage

world leadership in specific industries