IB, STUDY GUIDE (CHAPTERS 13 & 14)

M-Pesa has changed the lives of many Kenyans by:

- Allowing them to deposit money in a secure location - Allowing them to receive government assistance - Allowing them to transfer money electronically

What should global companies focus on?

- Capturing value - Creating value

What types of risk are reduced with international expansion?

- Climate risk - Political risk - Currency risk

Identify characteristics of a global integration strategy.

- Different parts of the corporation constitute a whole - Decisions are made based on a global perspective - World-class quality assurance

Cultural distance increases by what?

- Different values - Different languages - Different norms

The disadvantages of export as a mode of entry include what?

- Exports face transportation costs - Exports may be produced in countries with higher relative costs - Exports may face tariffs

Entering the international markets allows firms to grow by:

- Granting access to new customers - Expanding product lines to meet local customer's preferences - Increasing economies of scale

What are some advantages of local adaption?

- More receptive to emerging needs and local trends - Less likely to miss subtle opportunities

Local responsiveness includes:

- Responding to differentiated needs in local markets - Refine business practices such as people management - Sense and answer varied needs of customers and stakeholders

Establishing a wholly owned subsidiary in a foreign market allows a company to do what?

- Retain its knowledge - Learn directly from customers - Have full control of operations

Domestic businesses expand to international markets for what reasons?

- To acquire resources - To grow sales - To reduce risk

Firms may enter foreign markets to _________________________.

- compete in difficult markets - gain access to critical resources - gain access to key customer knowledge

List the following entry modes in order of cost from lowest cost to highest cost. _____________________ is the lowest cost entry mode and _____________________ is the highest cost entry mode.

- exporting - wholly owned subsidiaries

Identify appropriate strategies for different company objectives and industry pressures.

A company's objectives and its relative needs for global integration and local responsiveness direct its choice of global strategy. Companies that focus on increasing profitability by localizing products, services, or operations often choose a multidomestic strategy. Companies that focus on increasing profitable growth through the intensive cost reductions characteristic of global integration lean toward the meganational strategy. Companies that need to be both locally responsive and globally integrated can pursue a hybrid strategy called transnational. A transnational is neither a top-down (meganational) or bottom-up (multidomestic) organization; rather, it is a lateral organization that succeeds or fails based on its ability to effectively shepherd knowledge transfer and communication between foreign subsidiaries.

Explain the advantages and disadvantages of different entry modes.

After firms identify a foreign market to enter, they must choose the market entry mode best tailored to their abilities and strategic objectives. While all market entry modes have downsides and risks, non-equity modes such as exporting, turnkey operations, franchising, and licensing tend to have the lowest risk for the parent company; however, they also offer the least amount of control over the venture. By contrast, equity modes such as joint ventures and wholly owned subsidiaries offer the parent company more control but at the cost of higher risk.

A company in Germany has just developed proprietary technology that allows it to correctly predict when a person is likely to have a stroke. The company has a 6-month lead time over competitors after which they are likely to have direct competition in global markets. Which entry tactic would you suggest the company use when entering the U.S. market.

Ally

Hyundai sell its award winning Genesis luxury car for about $10,000 more in Korea than in other markets. What might explain this price premium?

An ethnocentrism bias

Explain why multinational companies benefit from being locally responsive.

Companies may have to adapt their strategy by being locally responsive to individual markets. Benefits of local responsiveness include better relationships with government authorities, improved awareness of local trends, and better connections with a wider customer base. Not everything needs to be locally adapted, however. Companies that focus too narrowly on local adaptation may struggle to reduce costs and exploit economies of scale. One factor of successful local adaptation is relying on managers who are locally knowledgeable yet experienced with the company's global practices.

Economic distance increase by:

Different natural resources

What is a factor that favors a global integration strategy?

Emergence of global consumers

Imagine that Google wants to create expertise in producing and selling AAA batteries to global markets. Which entry mode would be most appropriate?

Exporting

List the entry modes in order of required investment.

Exporting, franchising, joint ventures, wholly owned subsidiary

True of false: Companies with global integration approaches that compromise and locally adapt are less profitable in the short and long run.

False

True or false: A transnational strategy promotes little to no local adaption?

False

True or false: Companies will usually focus on either a low cost or a differentiation strategy, but they must do both to some extent.

False

True or false: Deciding which international markets to enter should be solely based on a PEST analysis.

False

True or false: Entry through a wholly owned subsidiary is the least risky entry tactic.

False

True or false: Following clients into international markets is not a good reason to internationalize.

False

Define strategy.

Firms going abroad need to choose both their market entry mode and their broader international strategies. Those that effectively manage differences in customer preferences, political requirements, and distribution across borders will gain an advantage over competitors that cannot. The primary objective of any strategy is to create value and then capture as much value as possible by differentiating, reducing costs, or both. Once a firm decides between a cost-leadership and a differentiation strategy, it needs to align its internal operations to that strategy.

Outline the benefits of achieving global integration.

Global integration does not necessarily mean selling identical products in the same way all over the world. It can also be achieved by standardizing a particular process, function, or way of doing business. This strategy enables companies to reap the benefits of economies of scale, maintain a unified global brand image, and offer world-class quality assurance.

What activities are not part of the primary activities in the value chain of a firm?

Human resources

A meganational firm is likely to have what type of information sharing?

Information from headquarters to local markets

What is a unique and defining characteristic of international strategy?

It focuses on managing differences across borders.

Donald Trump, the U.S. president, has established a global real estate brand with properties in India, Korea and Turkey among other markets. Imagine Mr. Trump wants to enter the Egyptian market at the lowest possible cost, what entry strategy should he use?

Licensing

Identify a similarity between the transnational strategy and multidomestic strategy.

Locally adapted products

Company A sells the same unaltered product across multiple markets and consequently enjoys cost reductions that stem from economies of scale. What strategy is Company A implementing?

Meganational

Honda motorcycles decided to build a plant in Brazil that can produce 10 times the current demand of motorcycles. Identify what strategy is Honda most likely to pursue?

Meganational

If Nike designs shoes in Oregon, sources raw materials from Thailand, manufactures shoes in Malaysia, creates adverting in France, and sells shoes globally the company is engaged in which strategy?

Meganational

A __________________ strategy helps you company pursue a differentiation strategy at a global level.

Multidomestic

Cemex is the world's largest cement company. Because the raw materials, structural requirements and building standards are different in each country it requires each market to customize products for the local market. The company is pursuing which strategy?

Multidomestic

E&Y is a global provider of tax and business consulting. What strategy would be most appropriate for the firm to consider as it operates in global markets?

Multidomestic

Compare making, allying, and buying as entry tactics.

Once a firm chooses a market entry mode, it must then consider the objectives of its foreign expansion as well as its own capabilities and resources in order to select the best tactic for market entry. A firm that chooses the "make" tactic develops its own operations in the country. Through the "ally" tactic, a company partners with existing firms in the local market. The "buy" tactic means the firm will acquire another firm already operating in the local market.

Describe factors that determine which markets companies are likely to enter.

Once firms decide to go abroad, they can determine where to go by using a PEST analysis to identify the opportunities and risks of entering a country based on its political, economic, social, and technological factors. However, firms may choose to enter a country because of other pressures, such as the liability of foreignness, the desire for first-mover advantages, or the need to follow customers into specific markets.

The Sky Team is a relationship between several major airlines such as Delta, Air France and Korean Air. This alliance allows the airlines to increase sales by:

Pooling their resources

How do companies achieve profitability?

Profitability comes by pursuing strategies that lower costs or add value to the firm's products in a way that customers are willing to pay extra for.

If Amazon enters the Japanese online market by translating its U.S. website into Japanese the company is using which internationalization strategy?

The meganational

Honda motorcycles decided to build a plant in Brazil that can produce 10 times the current demand of motorcycles. Why would the company do this?

To achieve economies of scale

A joint venture primarily is a ________________________.

ally entry strategy

A greenfield venture is an entry tactic in which a company _______________________________.

build foreign operations from the ground up

A company pursuing a differentiation strategy must ________________________________________.

create a perceived positive difference between its products and services and competitors' products and services

Samsung electronics is headquartered in Suwon South Korea about an hour south of Seoul, in a building next to the corporate headquarters Samsung conducts R&D. Adjacent to this building Samsung produces memory chips that are used in computers and phones around the world. Co-locating R&D, design and production helps the company to _______________________.

create tight linkages in its value chain

A primary advantage of licensing is that it allows an international company to __________________________________.

enter markets outsides its strategic goals

A firm may benefit from entering an international market even if a PEST analysis indicates that it is not a good market to enter if ______________________________.

firms can be the first to market in the country

The liability of foreignness suggest that ________________________________________.

foreign firms face unique challenges operating in foreign markets

An advantage of pursuing a locally responsive strategy is that __________________________________.

it allows firms to have a say in shaping policies and regulations

The primary disadvantage of being locally responsive is that __________________________________.

it makes it difficult to achieve economies of scale

The goal of international strategy is to ________________________________________.

know how to manage differences to create competitive advantage

An ethnocentrism bias means that _______________________________.

local customers prefer local brands and pay more for local brands

A cost leadership strategy suggests that a company ________________________________________.

provide the lowest cost for a given level of service

Joint ventures require ________________________________________.

the creation of a new entity with shared legal ownership

Turnkey operations are called turnkey operations because ______________________________________.

they are projects that when completed the developed turn a key over to the new owner