CH 10 Global Strategy- Strategic Management

Which of the following is the most likely advantage of using foreign acquisitions or greenfield plants as a foreign-entry mode?

They reduce a firm's exposure to loss of reputation.

Which of the following is the most likely advantage of using foreign acquisitions or greenfield plants as a foreign-entry mode?

They reduce a firm's exposure to loss of reputation. Foreign-entry modes with a high level of control such as foreign acquisitions or greenfield plants reduce the firm's exposure to two particular downsides of global business: loss of reputation and loss of intellectual property.

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

Unilever's new-concept center is situated in downtown Shanghai, China, attracting hundreds of eager volunteers to test the firm's latest product innovations on-site while Unilever researchers monitor consumer reactions. In this example, Unilever is trying to reap the benefits of

location economies

Liabilities of foreignness (q?)

refers to the possibility of higher costs of doing business in an unfamiliar cultural and economic environment.

Toyota's global success in the 1990s and early 2000s was based to a large extent on a network of world-class suppliers in Japan. This tightly knit network allowed for fast two-way knowledge sharing—this in turn improved Toyota's quality and lowered its cost, which it leveraged into a successful blue ocean strategy at the business level. This example shows the effectiveness of

related and supporting industries/complementors. This example shows the effectiveness of related and supporting industries/complementors. The availability of top-notch supporting industries, such as the suppliers in Japan, further strengthens a firm's national competitive advantage.

Which of the following factors is the most important determinant of economic distance?

the wealth and per capita income of consumers

Cultural Dimensions

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

Going Global: Why?

§Simply put, firms expand beyond their domestic borders if they can increase their economic value creation (V - C) and enhance competitive advantage.

Liabilities of foreignness

§Working in an unfamiliar cultural environment §Working in an unfamiliar economic environment

Economic distance (b)

üDeveloped economies trade and benefit from economies of experience, scale, scope and standardization and is tied to wealth. üWe also highlighted economic arbitrage as one of the main benefits of going global: access to low-cost input factors.

The world only semi-globalized.

•The level of globalization is at 10-25% total.

During the period of Globalization 1.0, the mode of entry into foreign markets primarily involved..

exporting goods

How do MNEs enter foreign markets?

- low investments and low level of control (exporting, licensing, franchising) - high investments and high level of control (joint venture, acquisition, greenfield operations)

§GLOBALIZATION 3.0: 21st CENTURY

Based on an optimal mix of costs, skills, and PESTEL factors, MNEs are organized as global collaboration networks that perform business functions throughout the world.

Which of the following is an observable feature in the Globalization 3.0 stage?

Based on an optimal mix of costs, skills, and PESTEL factors, companies now freely locate business functions anywhere in the world.

economic arbitrage

Capitalizing on differences in costs by buying where costs are low and selling where prices are high. This is the traditional, age-old, definition of arbitrage.

Cultural Distance

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

Economic Distance

Differences in consumer incomes, costs, and human and natural resources

Stratton Oakmont Inc., a well-established and reputed multinational enterprise (MNE), is headquartered in a highly developed economy. It wants to start its operations in Old Hebrides, considered one of the less-developed nations in the world. How will this strategic move most likely affect Stratton Oakmont Inc.?

It will benefit from economic arbitrage.

Michael Porter's diamond framework explains

Michael Porter's diamond framework is used to explain national competitive advantage. It analyzes why some nations are outperforming others in specific industries.

§GLOBALIZATION 2.0: 1945-2000

More FDI taking place. Strategically, more local responsiveness.

Which of the following is a feature of the Globalization 2.0 stage?

Multinational enterprises (MNEs) began to create smaller, self-contained replicas of themselves in a few key countries.

economies of experience

The cost of producing a good fall as workers and managers gain the specific skills as a consequence of producing the good. Often referred to as "moving down the learning curve"

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.

Peter is a senior vice president at a textile manufacturer that wants to move from being 20 percent globalized to 70 percent globalized in the next 10 years. What are some possible drawbacks that Peter's company must anticipate?

Rising wages may cancel out cost savings of access to low-cost input factors.

Which of the following modes of entering a foreign market allows for the lowest level of control?

exporting

The transnational strategy is similar to a(n) ________ strategy because they both focus on product differentiation and low costs.

blue ocean

Communities of Learning

clustered firms that have unique skill sets located in specific geographic regions.

MNEs face two opposing forces when competing around the globe:

cost reductions vs. local responsiveness

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

Sirius Cybernetics Inc. has a national competitive advantage in the pharmaceutical industry. This means that the country

is a world leader in the pharmaceutical industry. -National competitive advantage refers to world leadership in specific industries. Companies from home countries that are world leaders in specific industries tend to be the strongest competitors globally.

Exporting

is used to test whether a foreign market is ready for a firm's products and requires the smallest investments. Generally, exporting is contract based.

Aldorria and Estoccia are neighboring countries with strong economic disparities. However, both the countries share a common national language and the same political ideologies. The relationship between these two countries will most likely affect the trade of

luxury items manufactured in Adorria. -Between the two countries, trade of luxury items manufactured in Aldorria will be most affected. Economic distance most affects industries or products for which demand varies by income (such as cars).

Michael Porter's diamond framework explains

national competitive advantage

A payroll company in the nation of Osterlich is seeking to expand beyond its borders while limiting administrative and political distance in the new country. Which potential site is the best one for this type of expansion?

one that used to have a colonizer or colonized relationship with Osterlich -Colony-colonizer relationships have a strong positive effect on bilateral trade between countries. British companies continue to trade heavily with businesses from its former colonies in the commonwealth; Spanish companies trade heavily with Latin American countries; and French businesses trade with the franc zone of West Africa.

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

Retrenchment

reduction -Retrenchment may occur in the future. •There has been a rise of nationalism.

demand conditions

specific characteristics of demand in a firm's domestic market

International Strategy

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

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 -international competitive advantage stemming from a combination of factor conditions, demand conditions, related and supporting industries, and firm strategies, structures, and rivalries

Foreign Direct Investment

A firm's investments in value chain activities abroad.

location economies

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

Jeremy is a strategist who wants to decide on the appropriate strategy to help his firm "go global." Which of the following should he consider while choosing his strategy?

He must be aware of the fact that despite globalization and the emergence of the internet, firm geographic location has actually maintained its importance.

Which of the following is a drawback of pursuing a transnational strategy?

It requires a global matrix structure, which is difficult to implement.

Thomás works in a rare metals industry and wants to open a business in a foreign country that is rich with natural resources. He believes that natural resources are the one and only mechanism that can help him achieve an international competitive advantage. After all, countries like Afghanistan, Iran, and Venezuela are home to the world's richest natural recourses, so, in theory they too should be able to leverage those resources in order to create a national competitive advantage. Which of the statements below best represents an appropriate response to Thomás and his theory?

Natural resources are often not needed to generate world-leading companies because competitive advantage is often based on other factor endowments such as human capital and know-how.

Decisions along three areas formulate a firm's corporate strategy:

The degree of vertical integration and level of diversification. Strategic alliances, and mergers and acquisitions. If and how the firm should compete beyond its home market, around the world.

Which of the following modes of entering a foreign market allows for the lowest level of control?

exporting Exporting, licensing, and franchising are vehicles of foreign expansion that require low investments but also allow for a low level of control.

Lucy wishes to have more control with her international strategy and is willing to increase her firms' investments in this foreign market. She considers creating a subsidiary but also wishes to build a manufacturing plant from the ground up. Lucy is most likely interested in pursuing a(n)

greenfield operations strategy.

Foreign Direct Investment

o A firm's investments in value chain activities around the world. o Can include vertical direct investment or horizontal direct investment. o Involves greenfield or brownfield investments.

Multinational Enterprise (MNE)

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

Globalization

o Involves closer integration and exchange between different countries and peoples worldwide. o Made possible by falling trade and investment barriers, advances in technology, and reductions in transportation costs. o Allows companies to source supplies at lower costs, to learn new competencies, and to further differentiate products.

Complementors

o firms that provide a good or service that leads customers to value the focal firm's offering more when the two are combined—further strengthens national competitive advantage.

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 -•The global-standardization strategy arises out of the combination of high pressure for cost reductions and low pressure for local responsiveness.

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

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) --•A transnational strategy is generally used by MNEs that pursue a blue ocean strategy with the managers' mantra to think globally, but act locally.

economies of scope

the ability to use one resource to provide many different products and services

National Culture

•Culture is made up of a collection of social norms and mores, beliefs, and values. •Culture captures the often unwritten and implicitly understood rules of the game.

multidomestic strategy

•Strategy that attempts to maximize local responsiveness, with the intent local consumers will perceive MNE as domestic. •This strategy arises out of the combination of high pressure for local responsiveness and low pressure for cost reductions.

Geographic distance

•The costs to cross-border trade rise with geographic distance. •Geographic distance does not simply capture how far two countries are from each other.

Advantages of going global

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

Disadvantages of going global

-liability of foreignness -loss of reputation -loss of intellectual property

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.

Globex Inc., a company popular for its dairy products, successfully follows a multidomestic strategy. Omni Consumer Products, a large conglomerate, pursues a transnational strategy. Which of the following statements is most likely true of this scenario?

Both Globex Inc. and Omni Consumer Products will have to duplicate key business functions in multiple host countries. A multidomestic strategy is costly and inefficient because it requires the duplication of key business functions across multiple countries. Each country unit tends to be highly autonomous. Similarly, for a transnational strategy, high local responsiveness typically requires that key business functions are frequently duplicated in each host country.

§GLOBALIZATION 1.0: 1900-1941

Business functions in home country. Sales and distribution take place oversees. Involves exporting.

administrative and political distance

Captured in factors such as: -Shared monetary or political associations -Political hostilities -Weak or strong legal and financial institutions Political and administrative barriers include: -Tariffs -Trade quotas -FDI restrictions

Bayside Inc., a reputed brand for fine art supplies, is implementing an international strategy. Cyberdyne Corp., a maker of mini-computer tablets, is pursuing a global-standardization strategy. Which of the following statements most likely holds true in this scenario?

Cyberdyne Corp. focuses more on cost-reductions when compared to Bayside Inc. Cyberdyne most likely focuses more on cost-reductions when compared to Bayside Inc. he global-standardization strategy arises out of the combination of high pressure for cost-reductions and low pressure for local responsiveness. An international strategy is advantageous when the multinational enterprise MNE faces low pressures for both local responsiveness and cost-reductions.

factor conditions

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