International Strategic Management Midterm

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forward vertical integration

(bargaining power of buyers) business activities are expanded to include control of the direct distribution or supply of a company's products

backward vertical integration

(bargaining power of suppliers) when a firm buys a company who previously supplied raw materials to the firm

strategic outcomes

(desired: strategic competitiveness and above-average returns) result when a firm is able to successfully formulate and implement value-creating strategies that others are unable to duplicate

industry-based decision

(five primary forces) 1. rivalry among established firms 2. entry barriers 3. bargaining power of suppliers 4. bargaining power of buyers 5. market potential of substitute products

organizational strategists

(who) must consider the risks of actions under consideration, along with the firm's vision and manager's strategic orientations

some trends in cross-border acquisitions

-because of relaxed regulations, the amount of cross-border activity among nations within the European community also continues to increase -many large European corporations have approached the limits of growth within their domestic markets and thus seek growth in other markets -many European and US firms participated in cross-border acquisitions across Asian countries that experienced a financial crisis due to significant currency devaluations in 1997, and this facilitated the survival and restructuring of many large Asian companies such that these economies recovered more quickly than they would have otherwise

non-equity strategic alliance

-does not establish a separate independent company and therefore firms don't take equity positions -is less formal and demands fewer partner commitments -is unsuitable for complex projects requiring effective transfers of tacit knowledge between partners

international business-level strategy

-home country of operation is often the most important source of competitive advantage -resources and capabilities established in the home country frequently allow the firm to pursue the strategy into markets located in other countries -as a firm grown internationally, research indicates that the country of origin diminishes in importance as the dominant factor

costs/potential risks of licensing:

-little control over manufacture and distribution of its products in foreign markets -least revenue potential as profits must be share between licensor and licensee -licensee can learn firm's technology and may create a competing product

international acquisition disadvantages:

-same disadvantages as domestic acquisitions -great expense that often requires debt financing -exceedingly complex international negotiations for acquisitions -dif. corporate cultures -challenges of merging the new firm into the acquiring firm (dif. social cultures and practicies)

synergistic strategic alliance

-similar to business-level horizontal complementary strategic alliances at the business level -create synergy across multiple functions or multiple businesses

negative tradeoffs of leveraged buyouts

-the resulting large debt increases the financial risk of the firm -the intent of the owners to increase the efficiency of the bought-out firm and then sell it within a five to eight year period can create a short-term and risk-averse managerial focus -these firms may fail to invest adequately in R&D or take other major actions designed to maintain or improve the company's core competence

when top-level managers are not able to adequately evaluate the strategies and strategic actions taken by division or business unit managers:

-they lack a rich understanding of business units' strategies and objectives, top=level managers tend to emphasize the financial outcomes of strategic actions rather than the appropriateness of the strategy itself -this forces division or business unit managers to become short-term performance-oriented -the problem is more serious when manager compensation is tied to short-term returns -long term-analysis deteriorates -long-term, risky investments (such as R&D) may be reduces to boost short-term returns

new wholly owned subsidiaries are risky because:

-this alternative carries the highest costs of all entry alternatives since a firm must build new manufacturing facilities, establish distribution networks, and learn/implement the appropriate marketing strategies -the firm also may have to acquire knowledge and expertise relevant to the new market, often having to hire host country nationals and or costly consultants

internationalization

1. a firm produces an innovation in its domestic market 2. product demand develops in other countries and exports are provided from domestic operations 3. as demand increases, foreign rivals produce the product; then firms justify investing in production abroad 4. as products become standardized, firms relocate production to low-cost countries

three different types of strategic alliances:

1. joint venture 2. equity strategic alliance 3. non-equity alliance

trade barriers

1. tariff barriers 2. non-tariff barriers local content requirements and restrictions on certain entry modes; local content requirements mandating that a "domestically produced" product can still be subject to tariff and non-tariff barriers unless a certain fraction of its value is truly produced domestically

results of mutli-domestic strategies

1. usually expands the firm's local market share because the firm can pay attention to the needs of local buyers 2. results in more uncertainty for the corporations as a whole, because of the differences across markets and thus the different strategies employed by local country units 3. does not allow for the achievement of economies of scale and can be more costly 4. decentralizes a firm's strategic and operating decisions to the business units operating in each country

attributes that appear to be associated consistently with successful acquisitions:

1. when a firm's assets are complementary (highly related) with the acquiring firm's assets and create synergy and, in turn, unique capabilities, core competencies, and strategic competitiveness 2. when targets were selected and "groomed" through earlier working relationships (strategic alliances) 3. when the acquisition is friendly, thereby reducing animosity and turnover of key employees 4. when the acquiring firm has conducted due diligence 5. when management is focused on research and development 6. when acquiring and target firms are flexible/adaptable 7. when integration quickly produces the desired synergy in the newly created firm, allowing the acquiring firm to keep valuable human resources in the acquired firm to keep valuable human resources in the acquired firm from leaving

1. increasing rate of technological change and diffusion 2. the information age 3. increasing knowledge intensity

3 technological trends & conditions that are significantly altering the nature of competition

1. strategic thinking 2. deal making 3. partnership governance 4. change management

4 skills that are essential for managers involved in outsourcing programs:

geographically clustered

A network cooperative strategy is particularly effective when it is formed by ________________ ___________________ firms

1980's, 1990's, and into the 21st century

Acquisitions have been a popular strategy among US firms for many years. Some believe that this strategy played a central role in the restructuring of US businesses during ___________, ___________, and into the _________________

strategic leaders

CEO or top manager who is primary organizational strategist in every org.

sold at a profit

It is not uncommon for those buying a firm through an LBO to restructure the firm to the point that it can be ____________ __________ ___________ ___________ within a five to eight year period

1. managerial mistakes 2. managers that are making decisions primarily serving their personal interests rather than those of shareholders

LBO's are used as a restructuring strategy to correct (2):

principal advantages: ownership (O), location (L), internalization (I)

MNEs enter foreign markets via equity modes:

downsizing:

Short-term outcomes: reduced labor costs long-term outcomes: loss of human capital and lower performance

Poor contract development that may result in one (or more) of the partners acting opportunistically and taking advantage of other venture partners Misrepresentation of partner firms' competencies by misstating or exaggerating an intangible resource such as knowledge of local market conditions Failure of partner firms to make complementary resources available to the venture as agreed The possibility that a firm may make investments that are specific to that alliance while its partner does not

The risks associated with cooperative strategies are significant because the firms that are cooperating may also be competing with each other. These risks include:

alliance network

The set of partnerships, such as strategic alliances, that result from the use of a network cooperative strategy

small businesses; currency exchange rates

________ ___________ are most likely to use exporting; a major problem with this is __________________ _________________ ___________

core competencies

__________ ______________ are potential sources of competitive advantage

acquisitions

___________ may provide the fastest and largest initial international expansion of any of the alternatives

patents, brands, and trademarks

___________, _____________, & ________________ legally protect the rarity of certain product features

licensing

____________ is the least costly (potentially least risky) form of international expansion because the licensor does not have to make capital investments in the host countries

20; 60; 20

____________ percent of all mergers/acquisitions are successful; ______________ percent produce disappointing results, and the last __________ percent are clear failures

core competencies

_____________ __________________ of a firm should drive its selection of strategies

small

_____________ firms are more likely to, and quicker to launch competitive actions

regional strategies

______________ ________________ are being promoted by groups of countries that have developed trade agreements to enhance the economic power of a region; i.e. EU, NAFTA, OAS, CAFTA

acquisitions

______________ work best in situations with less need for flexibility and when the transaction supports economies of scale or scope

core competencies

_______________ ___________________ and product-market positions are the most important sources of advantage

high

_______________ levels of commonality reduce the likelihood of competitive interaction

similar

________________ resources will result in a less likely attack

intangible resources

_________________ _________________ are more likely to be sources of sustainable competitive advantage

cultural diversity

__________________ _________________ may enable a firm to compete more effectively in international markets

global; domestic

__________________ markets are growing faster than ________________ markets

1. strategic goals 2. cultural & institutional distances

___________________ & ______________ drive the location of foreign entries

new wholly owned subsidiaries (greenfield venture)

___________________ is the most costly and complex of all international market entry alternatives

capabilities (teams or bundles of resources)

___________________ represent sources of core competencies

alliances

_____________________ are more favorable when uncertainty is high and where cooperation is needed to access knowledge dispersed between partners and where strategic flexibility is important

acquisitions

______________________ are used to overcome entry barriers in international markets

exporting

a common form of international expansion is for firms to export products from the home country to other markets

flexible manufacturing systems

a computer controlled process used to produce a variety of products in moderate, flexible quantities (increases a firms ability to engage in an integrated low-cost/differentiation strategy)

strategic myopia

a condition in which the management of a business can see clearly those things that are to take place in the short term, but have only a fuzzy view of what their future might be over the longer term

hypercompetition

a condition that results from the dynamics of strategic moves and countermoves among innovative, global firms: a condition of rapidly escalating competition that is based on price-quality positioning, efforts to create new know-how & achieve first-mover advantage, and battles to protect or to invade established product or geographic markets

multipoint competition

a condition where two or more diversified firms compete in the same product areas or geographic markets

transnational strategy

a corporate strategy that seeks to achieve bot global efficiency and local responsiveness

whom to serve, what customer needs will be satisfied, and how those needs will be satisfied through the strategy selected

a customer focus requires that firms simultaneously evaluate or consider

business level strategy

a deliberate choice about how a firm will perform the value chain's primary and support activities in ways that create unique value

licensing

a firm authorizes a foreign firm to manufacture and sell its products in a foreign market

-the action leads to better use of the competitor's capabilities to gain or produce stronger competitive advantages or an improvement in its market position -the action damages the firm's ability to use its capabilities to create or maintain an advantage -the firm's market position becomes less defensible

a firm is likely to respond to a competitive action when....

leveraged buyout

a firm is purchased by a few (new) owners using a significant amount of debt (in a highly leveraged transaction) and the firm's stock is no longer traded publicly

dominant business

a firm that generates between 70-95% of its sales within a single business area

single business

a firm where more than 95% of its revenues are generated by the dominant business

resources

a firm's tangible and intangible ______________ represent sources of capabilities

industry

a group of firms producing products that are close substitutes for each other; as they compete for market share, the strategies implemented by these companies influence ea. other and include a broad mix of competitive strategies as each company pursues strategic competitiveness and above-average returns

tactical action/response

a market-based move that is taken to fine-tune a strategy

vision

a picture of what the firm wants to be, and in broad terms, what it wants to ultimately achieve; "big picture" thinking with passion that helps people feel what they are supposed to be doing

due diligence

a process through which a firm evaluates a target firm for acquisition

monitoring

a process whereby analysts observe environmental changes over time to see if, in fact, an important trend begins to emerge; the most important thing is that analysts are able to detect meaning from the data collected (normally ambiguous, incomplete, and unconnected)

industry, resource, and institution views

a savvy strategist should consider __________, ____________, & ________________

horizontal complementary strategic alliance

a strategic alliance that is an arrangement that links similar segment of competing firms' value chains, such as linking R&D or new product development activities

vertical complementary strategic alliance

a strategic alliance that links suppliers, manufacturers, and/or distributors and represents linkages between different segments of each partner's value chain

competitive action

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

competitive response

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

value chain analysis

a tool for determining which value-creating competencies should be maintained, upgraded, and developed and which should be outsourced

acquisition

a transaction where one firm buys a controlling or 100 percent interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio

merger

a transaction where two firms agree to integrate their operations on a relatively co-equal basis because they have resources and capabilities that together may create a stronger competitive advantage

outsourcing

a typical form of a non-equity strategic alliance

partnership governance

ability to oversee and govern appropriately the relationship with the company to which the services were outsourced

deal making

ability to secure rights from external providers that can be fully used by internal managers

convenience

accessibility to customers

easily; accurately

acquisition outcomes can be estimated _____________ and _________________

1. difficulties integrating the two firms after the acquisition is complete 2. paying too much for the target (acquired) firm or inappropriately/inadequately evaluating the target 3. the cost of financing the acquisition, related to large or extraordinary debt 4. overestimating the potential for gains from capabilities and/or synergy 5. excessive or too much diversification 6. management being preoccupied or overly focused on acquisitions 7. the combined firm being too large

acquisition related problems (7):

takeover

acquisition where the target firm did not solicit the bid of the acquiring firm and often resists the acquisition (a hostile takeover)

cross-border acquisitions

acquisitions between companies with headquarters in different countries

unfriendly takeovers

acquisitions can be considered _________________

innovation

acquisitions could become a substitute for _______________, which has a serious downside

unrelated diversification strategy

acquisitions have gained in popularity as an _____________ ______________ __________ because of the changes in regulatory interpretation and enforcement of antitrust laws

where a firm headquartered in one country acquires a firm headquartered in another country

acquisitions made across country borders

-this may be the fastest way to enter new markets -they provide more control over foreign operations than do strategic alliances with a foreign partner

acquisitions represent a viable strategy for firms that wish to enter international markets because:

supplier, competitor, distributor, or business in a highly related industry

acquisitions to meet a market power objective generally involve buying (4) _______________________

Resource-based Model

adopts an internal perspective to explain how a firm's unique bundle of internal resources and capabilities represent the foundation on which value-creating strategies should be built

agglomerations

advantages obtained when economic activities are clustered in certain locations

-achieving maximum control over the venture -being potentially the most profitable alternative -maintaining control over the technology, marketing, & distribution of its products

advantages of a new wholly owned subsidiary

external environmental factors

affect firm growth and profitability in the US and beyond

Competitive Advantage

after implementing a value-creating strategy that current and potential competitors are not simultaneously implementing and that competitors are unable to duplicate, or find too costly to imitate, a firm achieves a...

competitive dynamics

all competitive behavior-the total set of actions and responses taken by all firms competing within a market

network cooperative strategy

alliances can also be expanded to include a larger number (or network) of partners as a complement to other forms of cooperative strategy

synergistic strategic alliance

allow firms to combine some of their resources and capabilities to create joint economies of scope between partner firms

intra-organizational conflicts

among managers making decisions about which core competencies are to be nurtured and about how the nurturing should take place

durability

amount of use before performance deteriorates

joint venture

an alliance where a new, independent firm is formed from two or more partners, with each partner firm contributing some of their resources and capabilities

equity strategic alliance

an alliance where partner firms own unequal shares of equity in a venture formed by combining some of their resources and capabilities to create a competitive advantage

non-equity strategic alliance

an alliance where two or more firms contract to share some of their resources and capabilities to create a competitive advantage

-financing for intended transaction -differences in cultures between the acquiring and target firm -tax consequences of the transaction -actions that would be necessary to successfully meld the two workforces

an effective due diligence process examines:

mission

an externally focused application of its vision that states the firm's unique purpose and the scope of its operations in product and market terms

Strategy

an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage

-cost leadership strategy -differentiation strategy -focus strategies (cost leadership or differentiation) -integrated cost leadership/differentiation 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

cross-border strategic alliance

an international cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage

the future

analysis of the general environment focuses on....

stable alliance networks

appear in mature industries with predictable market cycles and demand

opportunity-maximization

approach focuses on a partnership's value-creation opportunities. In this case, partners are prepared to take advantage of unexpected opportunities to learn from each other and to explore additional marketplace possibilities. Less formal contracts, with fewer constraints on partners' behaviors, make it possible for partners to explore how their resources and capabilities can be shared in multiple value creating ways.

strategic inputs

are used to develop the firm's vision and mission (in the form of information gained by scrutinizing the internal environment and scanning the external environment)

tangible resources

assets that can be seen or quantified

specialized assets

assets whose value is linked to use in a particular industry or location, with little or not value as salvage or in other uses

regulatory risks

associated with unfavorable government policies such as: obsolescing bargain

result: high probability of synergy and competitive advantage by maintaining strengths

attribute: acquired firm has assets or resources that are complementary to the acquiring firm's core business

result: financing (debt or equity) is easier and less costly to obtain

attribute: acquiring firm has financial slack (cash or a favorable debt position)

results: maintain long-term competitive advantage in markets

attribute: acquiring firm has sustained and consistent emphasis on R&D and innovation

result: faster and more effective integration and possibly lower premiums

attribute: acquisition is friendly

results: lower financing cost, lower risk and avoidance of trade-offs that are associated with high debt

attribute: merged firm maintains low to moderate debt position

small entrepreneurial firms can

avoid retaliation by identifying and serving neglected market segments

1. national boundaries 2. cultural differences 3. geographical distances

barriers to entry into many markets (international)

labor and natural resources

basic factors

change management

because outsourcing can significantly change how an organization operates, managers administering these programs must also be able to manage that change

-earn above average returns until competitors respond effectively -gain customer loyalty -gain market share

by being early, the first mover hopes to...

judgment

capacity for making a successful decision in a timely manner when no correct model is available or when relevant data are unreliable or incomplete

-strategic myopia -inflexibility

causes of core rigidities

demand conditions

characterized by the nature and the size of buyer's needs in the home market for the industry's products or services

speculation

committing to stable currencies (can be risky if firms bet on the wrong currency movements)

positive

compared to downsizing, downscoping has a more ________________ effect on firm performance

core rigidities

competencies emphasized when no longer competitively relevant

price, quality, or innovation

competition can be based on:

business-level

competition in an individual product market is a question of _______________________ strategy

Inadequate contracts Misrepresentation of competencies Partners failing to use complementary resources Holding alliance partners' specific investments hostage

competitive risks of cooperative strategies:

market commonality resource similarity

competitor analysis components (1st step of predicting nature of rivalry of the competitor)

-future objectives -current strategy -assumptions -capabilities

competitor analysis components:

predicting the dynamics of rivals' actions, responses, and intentions

competitor analysis focuses on:

scanning, monitoring, forecasting, and assessing

components of the external environmental analysis:

general environment

composed of elements in the broader society that can indirectly influence an industry and the firms within the industry; firms cannot directly control the general environment's segments and elements

sociocultural segment

concerned with different societies' social attitudes and cultural values

uncertainty complexity intraorganizational conflicts

conditions affecting managerial decisions about resources, capabilities, and core competencies

opportunities

conditions in the general environment that may help a company achieve a strategic competitiveness by presenting it with possibilities

threats

conditions that may hinder or constrain a company's efforts to achieve strategic competitiveness

finance

consists of activities associated with effectively acquiring and managing financial resources

human resources

consists of activities associated with managing the firm's human capital

supply chain management

consists of activities including sourcing, procurement, conversion, and logistics management that are necessary for the firm to receive raw materials and convert them into final products

operations

consists of activities necessary to efficiently change raw materials into finished products

distribution

consists of activities related to getting the final product to the customer

marketing

consists of activities taken for the purpose of segmenting target customers on the basis of their unique needs, satisfying customers' needs, retaining customers, and locating additional customers

follow-up service

consists of activities taken to increase a product's value for customers

management information systems

consists of activities taken to obtain and manage information and knowledge throughout the firm

collusive strategy

cooperative strategy through which two or more firms cooperate to raise prices above the fully competitive level

diversifying strategic alliance

corporate-level cooperative strategy in which firms share some of their resources and capabilities to diversify into new product or market areas

franchising

corporate-level cooperative strategy used by a franchisor to describe and control the sharing of its resources and capabilities

fewer; greater

corporate-level strategic alliances are also attractive compared to mergers & acquisitions, b/c they require _________________ resource commitments and permit _______________ flexibility

financial economies

cost savings realized through improved allocations of financial resources based on investments inside or outside the firm

-building efficient-scale facilities -establishing tight control of production and overhead costs -minimizing the cost of sales, product research and development, and service -investing in state-of-the-art manufacturing technologies

cost-reduction strategies

critical basic resources

countries often develop advanced and specialized factors because they lack __________________________________

exit barriers

created by economic, strategic, and emotional factors that cause companies to remain in an industry even though the profitability of doing so is in question

reliable products at the lowest possible price

customer's expectations and demands are

market segmentation

customers based on differences in needs or preferences

product differentiation

customers may perceive that products offered by existing firms in the industry are unique as a result of services offered, effective advertising campaigns, or being the first to offer a product or service to the market

markets of one

customized products normally sold online

-it is difficult to accurately estimate the returns that will be earned from introducing product innovations -the first mover's cost to develop a product innovation can be substantial, reducing the slack -lack of product acceptance over the course of the competitor's innovations may indicate less willingness in the future to accept the risk of being a first mover

dangers/disadvantages of being a first mover...

dissemination risks

defined as the risks associated with the unauthorized diffusion of firm-specific assets

The general environment

demographic, political/legal, sociocultural, economic, technological, global, physical

market dependence

denotes the extent to which a firm's revenues/profits are derived from a particular market

international corporate-level strategy

dependent on the complexity and scope of product and geographic diversification, and these include: multi-domestic, global, and transnational

intensity of rivalry among competitors

depends on the extent to which firms in an industry compete with one another to achieve strategic competitiveness and earn above-average returns because success is measured relative to other firms in the industry

foreign firms are able to enjoy competitive advantage by...

deploying overwhelming resources and capabilities, such as: superior technology, organizational know-how & knowledge about the institutional intricacies in various countries

Competitive Landscape

described as one in which the fundamental nature of competition is changing in a number of the world's industries

outsourcing

describes a firm's decision to purchase a value-creating activity from an external supplier

corporate-level cooperative strategies

designed to facilitate product and market diversification through a means other than a merger or an acquisition

business-level strategies

detail actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual products or service markets

intra-organizational conflicts

develop as a result of uncertainty and complexity

resource view

develop overwhelming capability to overcome the liability of foreignness

firms can offset the attractiveness of substitute products by

differentiating their products in ways that are perceived by customers as relevant; viable strategies might include price, product quality, product features, location, or service level

advanced factors

digital communications systems and highly educated work forces

-end-use segments -product segments -geographic segments -common buying factor segments -customer size segments

dimensions used to identify potential customers in industrial markets (5):

-level of diversification -connection or linkages between and among business units

diversified firms vary according to two factors:

short-term outcomes: reduce debt costs and emphasize strategic controls long-term outcomes: higher performance

downscoping

lower

downsizing contributed to __________________ returns for both US and Japanese firms

legitimate restructuring strategy

downsizing is now recognized as a ___________ _____________ ________________ and has been one of the most common ones adopted by US firms

restructuring forms:

downsizing, downscoping, leveraged buyouts

-awareness -motivation -ability

drivers of competitive action and responses (3)

investment bankers, accountants, lawyers, and management consultants specializing in that activity

due diligence is commonly performed by

serviceability

ease and speed of repair

direct

effect of the industry environment is more ____________, which is opposite of the general environment

joint ventures

effective in establishing long-term relationships and in transferring tacit knowledge

ethical

effective strategic leaders work to set an _____________ tone in their firms

information networks

enable a firm to coordinate interdependencies between internally and externally performed value-creating activities to increase flexibility and responsiveness i.e. CRM

strategic alliance

enable firms to share the risks and resources required to enter international markets & facilitate the development of new core competencies that yield strategic competitiveness

competitor analysis

enables the firm to focus its attention on those firms with which it will directly compete, and is especially important when a firm faces a few powerful competitors

corporate-level strategy

entails selecting a strategy that focuses on the selection and management of a mix of businesses

fast-cycle markets

entrepreneurial and dynamic, with new products or services imitated rapidly

- industry's competitive conditions -target country's situation -gov. policies -the firm's unique set of resources, capabilities, and core competencies

entry mode decisions should be based on the following conditions:

-extent of technological leadership -degree of product quality -pricing policies -choice of distribution channels -degree/type of customer service

essential characteristics of a firm's strategy

competition response strategy: cooperative strategic alliances

established to enable partner firms to respond to major strategic actions initiated by competitors; strategic alliances are primarily formed to respond to strategic rather than tactical actions

Total Quality management systems

established to improve product quality and to improve productivity in the performance of the internal value-creating activities

cost leadership strategy

establishing a low-cost position and providing standardized products at the lowest competitive price

1. actively solving problems 2. being trustworthy 3. consistently pursuing ways to combine partners' resources and capabilities to create values

examples of cooperative behavior for strategic alliances:

tacit collusion

exist when several firms in an industry observe others' competitive actions and respond to reduce industry output below the potential competitive level to maintain higher-than-competitive prices

market power

exists when a firm is able to sell its products at prices above the existing competitive level or decrease the costs of its primary activities below the competitive level, or both

explicit collusion

exists when firms get together to negotiate production output and pricing agreements with the goal of reducing competition

synergy

exists when the value created by business units working together exceeds the value the units create when working independently

illegal

explicit collusion strategies are ______________________ in the US and most developed economies

channels of distribution; outlets

exporters must establish ________ _______ __________ and _____________ for their goods, usually by developing contractual relationships with firms in the host country to distribute and sell products

1. high transportation costs 2. tariffs may be charged 3. less control over the marketing and distribution of their products

exporting disadvantages:

institutional distances

extent of similarity or dissimilarity between the regulatory, normative, and cognitive institutions of two countries

identify environmental changes, trends, opportunities, and threats that can be matched with the firm's core competencies so that it can achieve strategic competitiveness and earn above-average returns

external analysis efforts should focus on segments most important to the firm's strategic competitiveness to:

interpret information to identify opportunities and threats

external environmental analysis helps firms' managers

affiliation

facilitating useful interactions

barriers to entry

factors associated with the market and/or firms operating in the market that make it more expensive/difficult for new firms to enter the market

focused differentiation strategy

few segments, unique products

vertical integration

firms also might gain market power by following a _____________ ____________________ strategy

mutual forbearance

firms avoid competitive attacks against rivals they meet in multiple markets

capital requirements

firms choosing to enter any industry must commit resources for facilities- to purchase inventory, to pay salaries and benefits, etc.

multimarket competition

firms competing against each other in several product/geographic markets

value

firms create ______________ by innovatively bundling and leveraging their resources and capabilities

related-constrained

firms earn at least 30% of their revenues from the dominant business, and all business units share product, technological, and distribution linkages

flexibility, mitigate risks, and reduce their capital investment

firms engaging in outsourcing can increase their _______________, ________________ _______________, and _________________ ________________ ___________

conglomerates

firms following unrelated diversification strategies

uncertainty-reducing strategy

firms may form strategic alliances to hedge against risk and uncertainty (esp. in fast cycle markets)

competitors

firms operating in the same market with similar products targeting similar customers

local responsiveness and global integration

firms should choose their internatnioal corporate-level strategy based on the need for both ________ __________________ and for ___________ ____________

focus strategy

firms that choose to compete in narrow customer segments

related linked (mixed related and unrelated)

firms that generate at least 30% of their total revenues from the dominant business, but there are few linkages between key value-creating activities

late movers

firms that respond to a competitive action, but only after considerable time has elapsed after the first mover's action and the second mover's response

second movers

firms that respond to a first mover's competitive action, typically through imitation

strategic & tactical

firms use _____________ & ______________ actions when forming their competitive actions and competitive responses in the course of engaging in competitive rivalry

outperform

firms using related diversification strategies _______________ those using unrelated diversification strategies

unrelated-diversified (or highly diversified)

firms who do not share resources or linkages often known as conglomerates

strategic focus

firms' efforts to take care of the physical environment in which they compete

gaining proprietary, preempting scarce assets, establishing entry barriers, avoiding clashes with dominant firms in domestic markets and creating good relationships with key stakeholders

first mover advantages

cost leadership strategy

five business-level strategies

institution-based considerations

focus on three major institutional constraints confronting foreign entrants: regulatory risks, trade barriers, and currency risks

complementary resources; capabilities

for a standard cycle market, alliances are more likely to be between partners with _______________ __________________ and ______________________

undesirable

for acquiring firms, acquisitions strategies may result in ________________ outcomes

-perform them in a manner superior to the ways that competitors perform them -perform it so that no competitor is able to perform in order to create superior value for customers and achieve a competitive advantage

for primary and supporting activities to be sources of competitive advantage, a firm must be able to:

1. searching for viable candidates 2. completing effective due diligence 3. preparing for negotiations with the target firm 4. managing the integration process post-acquisition

for the acquiring firm, the managerial time and energy takes the form of:

vertical complementary strategic alliance

formed between firms that agree to use their resources and capabilities in different stages of the value chain to create value

vertical complementary strategic alliance

formed in reaction to environmental changes; thus they serve as a means of adaptations to the environmental changes

1. basic factors 2. advanced factors 3. generalized factors 4. specialized factors

four categories of factor conditions/factors of productions

-valuable -rare -costly to imitate -nonsubstitutable

four criteria of sustainable advantages

1. factors of production 2. demand conditions 3. related and supporting industries 4. firm strategy, structure, and rivalry

four interrelated national/regional factors contribute to the competitive advantage of firms competing in global industries

1. define the pool's boundaries 2. estimate the pool's overall size 3. estimate the size of the value-chain activity in the pool 4. reconcile the calculations

four steps of profit pools:

-complementary strategic alliances -competition response strategy -uncertainty reducing strategy -competition reducing strategy

four types of business-level cooperative strategies

completeness

fully serviced, as required

external environment

general, industry, and competitive environments

consistency

giving all customers similar experiences each time

different; very specific

goals with each cooperative relationship is _______________ and _____________________

Global Economy

goods, services, people, skills, and ideas move freely across geographic borders

government policy

governments are able to control entry into an industry through licensing and permit requirements

strategic groups

groups of firms in an industry following the same or similar strategies along the same strategic dimensions

firm strategy, structure, and rivalry

growth in certain industries is fostered by this factor; these vary between nations

strategic actions

guided by the firm's vision and mission, and are represented by strategies that are formulated or developed and subsequently implemented or put into action

valuable capabilities

help a firm exploit opportunities and/or neutralize threats in the external environment; allow a firm to develop and implement strategies that create customer value

cost-based and revenue-based synergies

horizontal acquisitions increase a firm's market power by exploiting (list two)

equal; equal

horizontal alliances may require __________ investments of resources by the partners, but they rarely provide __________ benefits to the partners

successful

horizontal and related acquisitions tend to contribute more to strategic competitiveness, so they are more _______________ than diversifying acquisitions

long-term employment, tax revenues, minimum use of public support services

host communities' expectations and demands are:

aesthetics

how a product looks and feels

cost disadvantages independent of scale

i.e. proprietary process technology, more favorable access to or control of raw materials, the best locations, or favorable government subsidies

unique loyal

if customers perceive a product or service as _________, they are generally __________ to that brand

time; energy

if firms follow active acquisition strategies, the acquisition process generally requires significant amounts of managerial ____________ & ______________

joint ventures; wholly owned subsidiaries

if 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, entnry models such as ___________ ____________ or __________ ____________ _____________ are preferred

diseconomies of scale

implies that problems related to excess growth may be similar to those that accompany overdiversification

strategy, managerial styles, and resource allocation patterns

important similar characteristics of horizontal acquisitions

features

important special characteristics

leveraged buyout

in general, the new owners restructure the private firm by selling a significant number of assets (businesses) both to downscope the firm and to reduce the level of debt (significant debt costs) used to finance the acquisition

reach richness affiliation

in the internet age, firms can maintain competitive advantage by

technological segment

includes institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes and materials

location-specific advantage

includes the geographical advantages and agglomeration, which goes beyond the geographical advantages; stem from knowledge spillovers among closely located firms that attempt to hire individuals from competitors, industry demand that creates a skilled labor force whose members may work for different firms without having to move out of the region, and industry demand that facilitates a pool of specialized suppliers and buyers also located in the region

Globalization

increasing economic interdependence among countries as reflected in the flow of goods and services, financial capital, and knowledge across country borders

stakeholders

individuals and groups who can affect and are affected by the strategic outcomes achieved and who have enforceable claims on a firm's performance

factors and conditions influencing firm profitability within its industry

industry analysis focuses on:

greater

information processing requirement are _____________ for a related diversified firm (compared to its unrelated counterparts) due to its need to effectively and efficiently coordinate the linkages and interdependencies on which value-creation through activity sharing depends

knowledge

information, intelligence, and expertise

Resources

inputs into a firm's production process, such as: capital equipment, individual employee's skills, patents, brand names, finance, and talented managers

1. human resources 2. innovation resources 3. reputational resources

intangible resources can be classified as:

1. melding disparate corporate cultures 2. linking different financial and control systems 3. building effective working relationships (esp. when managing style differs) 4. problems related to differing status of acquired and acquiring firms' executives

integration difficulties (4):

costly; high risk investment

internal development of new products is often perceived by managers to be ____________ and to represent ________ ____________ ______________ of firm resources

1. global strategy 2. transnational strategy 3. multi-domestic strategy

international corporate level strategies (list them)

1. increased market size 2. return on investment 3. economies of scale and learning 4. location-related advantages

international opportunities

risk

investor uncertainty about the economic gains or losses that will result from a particular investment

other problems

investors also seem to assume that downsizing occurs as a consequence of _________________ ________________ in a company

quality

involves meeting or exceeding customer expectations in the products and/or services offered

Strategic Competitiveness

is achieved when a firm successfully formulates and implements a value-creating strategy

strong retaliation

is likely when existing firms have a heavy investment in fixed assets or when industry growth is slow or declining

human captial

it is important to maintain the ____________ ______________ of the target firm after the acquisition to preserve the organization's knowledge

-the acquired firm has established sales volume and customer base, thus yielding predictable returns -the acquiring firm gains immediate market access

it may be the firm's best interest to acquire an existing business because

1. they may be able to take a free ride on first movers' investments 2. they are able to join the game with massive firepower after some of these uncertainties are removed 3. they may be able to take advantage of first movers' inflexibility by leapfrogging over them

late mover advantages

low, moderate to high, very high

levels of diversification

short-term outcomes: emphasize strategic controls and high debt costs long-term outcomes: higher performance and higher risk

leveraged buyout

LLL framework

linkage, leverage, and learning

Feedback

links the elements of the strategic management process together (strategic inputs, actions & outcomes) and helps firms continuously adjust or revise strategic inputs & actions in order to achieve desired strategic outcomes

local content requirements

local content requirements mandating that a "domestically produced" product can still be subject to tariff and non-tariff barriers unless a certain fraction of its value is truly produced domestically

richness

maintaining information with depth and detail for customers

strategic leader responsibilities

making decisive roles in firms' efforts to achieve their desired strategic outcomes; decide how resources will be developed/acquired, at what cost, and how they will be used or allocated throughout the organizatoin

-diversify managerial employment risk -increase managerial compensation

managerial or value-reducing motives

judgment

managers that must make decisions under conditions of uncertainty, complexity, and intra-organizational conflict must exercise ____________________

lower

managers view acquisitions as carrying __________________ risk

conformance

match with pre-established standards

financial controls

may be emphasized when managers feel that they do not have sufficient expertise or knowledge of the firm's various businesses

overdiversification

may result in poor performance when top-level managers emphasize financial controls over strategic controls

social complexity

mean a firm's capabilities are the product of complex social phenomena such as interpersonal relationships within the firm or a firm's reputation with its customers and suppliers

flexibility

meeting operating specifications over some period of time

related-diversified, related-constrained, related linked, unrelated-diversified, conglomerates

moderate and high levels of diversification

exporting licensing strategic alliances acquisition new wholly owned subsidiary (greenfield venture)

modes of entry (list them)

higher the entry barriers

more intensely firms will attempt to compete abroad

the franchisor and franchisees work closely together

most successful franchising strategy is one in which:

specialized factors

most valuable in specific uses

-avoid violations of antitrust regulations -take advantage of tax incentives -to overcome low performance -to reduce the uncertainty of future cash flows -to reduce overall firm risk -to exploit tangible/intangible resources

motives that are value-neutral with respect to strategic competitiveness:

-economies of scope through activity-sharing and the transfer of core competencies -market power motives by vertical integration or blocking competitors via multipoint competition -financial economies motives to improve efficiency of capital allocation through an internal capital market or by restructuring the portfolio of business

motives to create value

focused cost leadership strategy

narrow segment, standardized products at the lowest competitive price

related and supporting industries

national firms may be able to develop competitive advantage when industries that provide either materials or components or that support the activities of the primary industry are present

growth; strong global competitors

nations having both advanced and specialized factors are likely to be characterized by _________________ in new firms that are _______________ ______________ _________________

non-substitutable

no structural equivalents

BOT agreement (build-operator-transfer)

non-equity mode of entry used to build a longer-term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or a firm

1. licensing or franchising 2. turnkey projects 3. research and development contracts 4. co-marketing

non-equity modes involved the following types of contractual agreements

factors of a competitive rivalry

numerous or equally balanced competitors, slow industry growth, high fixed costs or high storage costs, lack of differentiation or low switching costs, high strategic stakes

competition-reducing

of the four business-level cooperative strategies, the ___________________________ strategy has the lowest probability of creating a sustainable competitive advantage

differentiation strategy

offering unique products

first mover advantage

often firms prefer ______________________ (when to move)

downscoping

often includes downsizing; however, the former is targeted so that the firm does not lose key employees from core businesses (because such losses can lead to the loss of core competencies)

standard-cycle markets

often large and oriented toward economies of scale

related-diversified firm

one that earns at least 30% of its revenues from sources outside the dominant business and whose units are related to each other

switching costs

one time costs customers will incur when buying from a different supplier

performance

operating characteristics

bureaucratic controls

other actions taken to enable more effective management of increased firm size include increasing or establishing __________________ _______________

costly to imitate

other firms cannot obtain them inexpensively (relative to other firms)

franchising

particularly attractive strategy to use in fragmented industries where no firm or small set of firms has a dominant share in the industry, making it possible for a company to gain a large market share by consolidating independent companies through contractual relationships

strategic alliance

partnership between firms whereby their resources and capabilities are combined to create a competitive advantage

complementary strategic alliances

partnerships that are designed to take advantage of market opportunities by combining partner firms' resources and capabilities in complementary ways so that new value is created

actions; reactions

patterns of frequent _____________ and __________________ often result in intense rivalry

courtesy

performed cheerfully

accuracy

performed correctly each time

timeliness

performed in the promised period of time

demographic segments

population size, age structure, geographic distribution, ethnic mix, and distribution of income

rare

possessed by few, if any, competitors

uncertainty

present because of the inherent difficulty to identity, assess, and predict changes and trends in characteristics of the external environment

complexity

present because of the uncertain nature of interrelationships among the characteristics of the external environment and the related challenge regarding how to asses the effects of changes in one set of characteristics on other characteristics

barriers to entry

present when entry is difficult or when it is too costly and places potential entrants at a competitive disadvantage

what businesses should the firm be in? how should the corporate office manage its group of businesses? how can the corp. as a whole add up to more than the sum of its business parts?

primary concerns of corporate-level strategy:

efficiency

primary intent of new owners of a leveraged buyout is to improve the firm's ________________

customers, suppliers, host communities, and unions

product market shareholders (4)

-performance -features -flexibility -durability -conformance -serviceability -aesthetics -perceived quality

product quality dimensions

commodities

products that are not characterize by brand loyalty or perceived uniqueness; for these, industry rivalry is more intense and competition is based primarily on price, service, and other features of interest to consumers

1. size of the firm 2. size of the domestic market

propensity to internationalize has two underlying factors

perpetual innovation

rapid and consistent replacement of current technologies by new, information-intensive technologies

-speed up development of new goods or services -speed up new market entry -maintain market leadership -form an industry technology standard -Share risky R&D expenses -overcome uncertainty

reasons for a strategic alliance in a fast-cycle

-gain access to a restricted market -establish a franchise in a new market -maintain market stability

reasons for a strategic alliance in a slow-cycle

-gain market power -gain access to complementary resources -establish better economies of scale -overcome trade barriers -meet competitive challenges from other competitors -pool resources for very large capital projects -learn new business techniques

reasons for a strategic alliance in a standard-cycle

-frequently, the partners have different opportunities as a result of the alliance -partners may learn at different rates and have different capabilities to leverage the complementary resources provided in the alliance -some firms are more effective in managing alliances and in deriving the benefits from them -the partners may have different reputations in the market thus differentiating the types of actions firms can legitimately take in the marketplace

reasons for imbalance between horizontal complementary strategic alliance

-multinational corporations outperform firms operating on only a domestic basis -a firm can form cross border-strategic alliances to leverage core competencies that are the foundation of its domestic success to expand into international markets -limited domestic growth opportunities -gov. economic policies can influence firms to form cross-border alliances -help firms overcome certain liabilities of moving into a foreign country, lack of knowledge of local culture or institutional norms -help transform themselves to better use their competitive advantages to exploit opportunities surfacing in the rapidly changing global economy

reasons for the increased use of cross-border strategic alliances:

1. there are limits to the abilities of firms to possess all of the bundles of resources and capabilities that are required to achieve superior performance in all its primary and support activities 2. w/ limited resources and capabilities, firms can increase their ability to develop resources and capabilities to form core competencies and achieve competitive advantage by nurturing a few core competencies

reasons outsourcing is important:

-increase its market power because of a competitive threat -enter a new market because of an available opportunity -spread the risk due to the uncertain environment -shift its core business into more favorable markets

reasons to make an acquisition

1. the firm is less diversified as a result of downscoping 2. top-level managers can better understand the core and related businesses

reducing the diversity of businesses in the portfolio enables top-level managers to manage the firm more effectively because:

mature industries; innovation

reducing the emphasis on R&D and on innovation may result in the firm losing its strategic competitiveness UNLESS the firm operates in ______________ _______________ in which ________________ is not required to maintain competitiveness

leverage

refers to MNEs' ability to take advantage of their unique resources and capabilities, which are typically based on a deep understanding of customer needs and wants

franchise

refers to a contract between two legally independent companies that allows the franchise to sell the franchisor's product or do business under its trademark over a given time and location

leveraged buyout (LBO)

refers to a restructuring action whereby the management of the firm and/or an external party buys all of the assets of the business, largely financed with debt, and thus takes the private firm

restructuring

refers to change in the composition of a firm's set of businesses and/or financial structure

linkage

refers to emerging MNEs' ability to identify and bridge gaps

physical environmental segment

refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to and deal with those changes

international strategy

refers to selling products in markets outside of the firm's domestic market to expand the market for their products

learning

refers to the acquiring of a whole range of skills from basic communication to high-level executive skills in transparent governance, market planning, and management of diverse multicultural workforces

private synergy

refers to the benefit from merging the acquiring and target firms that is due to the unique assets that are complementary between the two firms and not available to other potential bidders for that target firm

organizational culture

refers to the complex set of ideologies, symbols, and core values shared throughout the firm and that influences the way it conducts business; it is the social energy that drives-or fails to drive- the organization

obsolescing bargain

refers to the deals struck by MNE's and host governments, which change their requirements after the entry of MNE's. the host gov. is often pressured by domestic political groups, may demand renegotiations of the deal that seems to yield "excessive" profits to the foreign firm, while the foreign firm considers these as "fair" and "normal" profits

downscoping

refers to the divestiture spin-off, or other means of eliminating businesses that are unrelated to the firm's core business; refocuses the firm on its core businesses

factor conditions or factors of production

refers to the inputs necessary to compete in an industry, these include: labor, land, natural resources, capital, and infrastructure

economic segment

refers to the nature and direction of the economy in which a firm competes or may compete

awareness

refers to whether or not the attacking or responding firm is aware of the competitive market characteristics of a potential attacker or responder

uncertainty

regarding the assessment of the general and industry environments, assessments, and predictability of competitive actions, and customer preferences

complexity

regarding the nature of any interrelatedness of the causes of change in the environment and how the environments are perceived, especially regarding decisions as to which of the firm's resources and capabilities might serve as the foundation for competitive advantage

ability

relates to each firm's resources and the flexibility they provide

economies of scope

represent cost savings attributed to entering an additional business and sharing activities or using capabilities and core competencies developed in another business that can be transferred to a new business without significant additional costs

resources

represent inputs into a firm's production process

strategies

represent integrated and coordinated sets of actions that are taken to exploit core competencies and gain a competitive advantage

capabilities

represent its capacity to integrate individual firm resources to achieve a desired objective

value chain activities

represent traditional line activities such as supply chain management, operations, distribution, marketing, and follow-up service

junk bonds

represented a new financing option in which risky investments were financed with money (debt) that provided a high return to lenders (bond holders)

support functions

represented by a firm's staff activities and include its financial infrastructure, human resource management practices, and management informations systems activities

bureaucratic controls

represented by formalizing supervisory and behavioral controls such as rules and policies designed to ensure consistency across different units' decisions and actions

motivation

represented by the incentives that a firm has to either initiate an attack or to respond when attacked

downsizing

represents a reduction in the number of employees, and sometimes in the number of operating units, but may or may not represent a change in the composition of the business in the firm's portfolio

competitor analysis

represents the firm's understanding of its current competitors; this understanding will complement information and insights derived from investigating the general and industry environments

generalized factors

required by all industries; highway systems and a supply of capital

tactical; strategical

research evidence and corporate experience suggest that downsizing may be of more _____________ value than _____________ value

temporary competitive advantage

resources and capabilities are both valuable and rare but are not costly to imitate and may or may not be non-substitutable earning above-average to average returns

core competencies

resources and capabilities that serve as a source of competitive advantage for a firm

combined; integrated

resources must be _______________ or ________________ with other firm resources to establish a capability

Organizational strategists

responsible for determining how the organization does business (organizational culture)

leveraged buyouts

restructure the firm's assets by taking it private

attribute: acquiring firm conducts effective due diligence to select target firms and evaluate the target firm's health (financial, cultural, and human resources)

result: firms with strongest complementarities are acquired and overpayment is avoided

attribute: acquiring firm manages change well and is flexible and adaptable

result: faster and more effective integration facilitates achievement of synergy

Above average returns

returns that exceed returns that investors expect to earn from other investments with similar levels of risk

political and economical

risks in the international environment

1. liability of "foreignness" 2. over diversification beyond the firm's ability to successfully manage operations in multiple foreign markets

risks of globalization

-avoid both the mistakes and spendings of pioneers -have time to develop processes and technologies that are more efficient -respond quickly to first mover's successful, innovation based market entries -rapidly and meaningfully interpret market feedback to respond quickly yet successfully to the first mover's successful innovations

second movers.....

focus strategy

seeking to use their core competencies to serve the needs of a particular customer group in an industry (firms focus on smaller segments, or niches, of customers rather than across the entire market

-timeliness -courtesy -consistency -convenience -completeness -accuracy

service quality dimensions

economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, cost disadvantages independent of scale, and government policy

seven forms of barriers to entry:

1. integration difficulties 2. inadequate evaluation of target 3. large or extraordinary debt 4. inability to achieve synergy 5. too much diversification 6. managers overly focused on acquisitions 7. too large

seven reasons for poor performance of acquisitions faced in attempts to achieve success are:

1. increase market power 2. overcome entry barriers 3. reduce the cost of new product development and increase speed to market 4. lower risk compared to developing new products 5. increase diversification 6. avoid excessive competition 7. learn and develop new capabilites

seven reasons that firms (and managers) implement acquisition strategies:

capital market stakeholders

shareholders and lenders who enhance and preserve wealth

above-average returns; are less likely to earn above-average returns

shareholders of acquired firms often earn ___________________ from an acquisition, while shareholders of acquiring firms _______________

low levels of diversification

single or dominant business strategies

diseconomies of scale

size can become a disadvantage due to this

gain capabilities

some acquisitions are made to _________ _______________ that the firm does not possess

restrictions on entry modes

some countries limit or even ban wholly foreign-owned subsidiaries

-investments in specialized assets -fixed costs of exit -strategic relationships -emotional barriers -government and/or social restrictions

some sources of exit barriers:

external; internal

sometimes, firms use a restructuring strategy because of changes in their _____________ and _____________ environments

I/O Model (Industrial Organization)

specifies that the choice of industries in which to compete has more influence on firm performance than the decisions made by managers inside their firm

hedging

spreading out activities (or currency purchases) in several countries with different currencies to offset possible currency losses in certain regions by earning gains in other regions

global strategy

standardized products are offered across country markets and competitive strategy is dictated by the home office

currency risks

stem from unfavorable currency movements to which firms are exposed

cooperative behaviors

strategic alliance success requires ______________________ ____________________ from all partners

complementary business-level strategic alliances (especially vertical ones)

strategic alliance that is most likely to create sustainable competitive advantage

horizontal complementary alliances

strategic alliance that is sometimes difficult to maintain because they are often formed between rival firms

1. selection of incompatible partners 2. conflict between partners

strategic alliances also present potential problems and risks due to:

multi-domestic strategy

strategic and operating decisions are decentralized to the strategic business unit in each country in order to tailor products and services to the local market

to develop an understanding of the implications of these elements and factors for a firm's competitive position

strategic challenge of external environment analysis:

1. seeking natural resources 2. market 3. efficiency 4. innovation

strategic goals include:

matched

strategic goals must be ______________ with specific locations

1. internal growth 2. mergers and acquisitions 3. cooperative strategies

strategies firms use to grow, develop value-creating competitive advantages, and create differences between them and competitors (3: in order)

cooperative strategy

strategy in which firms work together to achieve a shared objective

perceived quality

subjective assessment of characteristics (product image)

-well-conceived strategy in selecting the target -the avoidance of paying too high a premium -employing an effective integration process

successful acquisitions generally involve (3):

liability of foreignness

superb value of firm-specific assets allows foreign entrants to overcome _______________

receiving the highest sustainable prices

suppliers' expectations and demand are

cross subsidization strategy

support for a product comes from the profits generated by another product. This is usually done to attract customers to a newly introduced product by giving them a lower price. The low price is sustained by the earnings of another product sold by the same company.

-obsolescence of a core competence as a result of environmental change - availability of substitutes for the core competence -imitability of the core competence

sustainability of a competitive advantage is a function of three factors:

reversed

tactical actions are easily ___________________

Valuable

taking advantage of opportunities or neutralizing external threats

1. financial resources 2. organizational resources 3. physical resources 4. technological resources

tangible resources have four categories:

tacit collusion

tends to be used as a business-level competition-reducing strategy in highly concentrated industries

imitability of a core competence

the abilities of competitors to develop the same core competence

political legal segment

the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations as well as between firms and various local governmental agencies

slack

the buffer or cushion provided by actual or obtainable resources that aren't currently in use

Capabilities

the capacity for a set of resources to perform (intigratively or in combination) a task or activity

intense

the competition for market share is _____________ in standard-cycle markets

industry environment

the constellation of factors that directly influence a firm and its competitive decisions and responses

cultural/institutional distances

the difference between two cultures along some identifiable dimensions

resource similarity

the extent to which a firm's tangible and intangible resources are comparable to a competitor's in terms of both type and amount

availability of substitutes

the extent to which competitors can use different core competencies to overcome value created by the original core competence

market commonality

the extent to which firms compete in the same markets

cost-minimization

the firm develops formal contracts with its partners. These contracts specify how the cooperative strategy is to be monitored and how partner behavior is controlled. The goal of this approach is to minimize the cooperative strategy's cost and to prevent opportunistic behavior by partners.

first-mover incentives

the firms that take an initial competitive action b/c they have the resources, capabilities, and core competencies that enable them to gain a competitive advantage through innovative and entrepreneurial competitive actions

Strategic management process

the full set of commitments, decisions, and actions required for a firm to systematically achieve strategic competitiveness and earn above-average returns

barriers to exit

the higher the ____________ ___________ __________, the greater the probability that competitive actions and reactions will include price cuts and extensive promotions

political/legal

the implications of changes and trends in the economic segment may affect the ______________ segment both domestically and in other global markets

liability of foreignness

the inherent disadvantage foreign firms experience in host countries because of their nonnative status

licensing/franchising agreements

the licensor/franchisor sells the rights to intellectual property such as patents and know-how to the licensee/franchisee for a royalty fee

casual ambiguity

the link between a firm's capabilities and core competencies are not identified or understood

complementors

the networks of companies that sell goods and services compatible with the firms own product or service

competitive rivalry

the ongoing set of competitive actions and competitive responses occurring between rivals as they compete against each other for an advantageous market position

forecasting

the process where analysts develop feasible projections of what might happen- and how quickly- as a result of the changes and trends detected through scanning and monitoring; accuracy is challenging

economies of scale

the relationship between quantity produced and unit cost

actor's reputation

the responses a competitor has taken previously when attacked; it is assumed to be a reasonable predictor

strategic flexibility

the set of capabilities that firms use to respond to the various demands and opportunities that are found in dynamic, uncertain environments

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

post-acquisition integration phase

the single most important determinant of shareholder value creation (or destruction) in mergers and acquisitions

assessing

the step in the external analysis process where all of the other steps come together

horizontal complementary strategic alliance

the strategic alliance that is used to increase each firm's competitive advantage and often focus on the long-term development of product and service technology

dynamic

the strategic management process is _____________

scanning

the study of all segments in the general environment; used to detect early warning signals; most important in highly volatile environments

profit pools

the total profits earned in an industry at all points along the value chain

primary; secondary

the value chain analysis segments the value chain into ________________ and ___________________ activities

map out a profit pool

the way to predict the outcomes of an organizational strategist's strategic decision is to:

rare capabilities

they are possessed by few, if any, current or potential competitors

reach

thinking continuously about accessing and connecting with customers

standard-cycle markets

those (markets) in which the firm's competitive advantages are moderately shielded from imitation and where imitation is moderately costly

slow-cycle markets

those (markets) in which the firm's competitive advantages are shielded from imitation, often for long period of time, and where imitation is costly

fast-cycle markets

those (markets) in which the firm's competitive advantages aren't shielded from imitation and where imitation happens quickly and somewhat inexpensively through reverse engineering and technology diffusion

substitute products

those products that are capable of satisfying similar customer needs but come from outside the industry and thus have different characteristics

political risks

those related to instability in national governments, and to war, civil or international

industry environment

threat of new entrants, power of buyers, power of suppliers, threat of rivalry, threat of substitutes

Five Forces Model of Competition

threat of new entrants, threat of substitute products, bargaining power of buyers, bargaining power of suppliers, rivalry among competing firms in an industry

1. unique historical conditions 2. casual ambiguity 3. social complexity

three "costly to imitate" conditions

1. motives to create value 2. motives that are value-neutral with respect to strategic competitiveness 3.managerial or value-reducing motives

three broad sets of diversification motives

1. diversifying strategic alliances 2. synergistic strategic alliances 3. franchising

three corporate level strategies:

1. the general environment 2. the industry environment 3. the competitor environment

three parts of an external environment include:

1. capital market stakeholders 2. product market stakeholders 3. organizational stakeholders

three stakeholder groups

1. management buyouts (MBO) 2. employee buyouts (EBO) 3. whole-firm buyouts where another firm takes the private firm (LBO)

three types of leveraged buyouts

private synergies; core competencies

to achieve a sustained competitive advantage through an acquisition, acquirers must realize ___________ ________________ and _________ _________________ that cannot be easily imitated by competitors

objective of assessing:

to determine the timing and significance of the effects of change and trends in the environment on the strategic management of a firm

single; few

to reduce intense rivalry's negative effect on financial performance, a firm may use acquisitions as a way to restrict its dependence on a ____________ or a _________ products or markets

1. direct costs (legal fees and charges from investment bankers) 2. indirect costs (managerial time to evaluate target firms and then to complete negotiations and the loss of key managers and employees post-acqusition)

transaction costs when using acquisition strategies include:

1. initial condition of the relationship 2. negotiation process to arrive at an agreement 3. partner interactions 4. external events 5. country culture involved in the alliance or joint venture

trust between partners is critical and is affected by:

1. cost minimization 2. opportunity maximization

two basic approaches to managing cooperative strategies are:

1. four criteria determine which of the firm's resources and capabilities are core competencies 2. value chain analysis

two conceptual tool/frameworks firms can use to identify competitive advantages:

1. barriers to entry 2. expected reaction

two factors that greatly influence the threat of new entrants:

1. business-level strategy 2. corporate-level strategy

two types of international strategies

1. establish greenfield operations/build new factories and offices from scratch 2. acquisition

two ways to establish WOS (wholly owned subsidiary)

-licensing -distribution agreements -supply contracts -marketing agreements

types of non-equity strategic alliances

the businesses in the firm's portfolio are worth more under current management than they would be under different ownership or management

ultimate measure of the value of a firm's corporate-level strategy:

denial

unconscious coping mechanism used to block out and initiate major changes that may have some pain associated with them

industry view

understand the dynamism underlying the industries in the foreign market

institution view

understand the rules of the game, both formal and informal, governing competition

1. help build new capabilities 2. buffer the firm from environmental impacts 3. build bridges to influential stakeholders

understanding the external environment helps build firms' base of knowledge and information that can...

strategic thinking

understanding whether/how outsourcing creates competitive advantage within the company

secure, dynamic, stimulating, and rewarding work environment

union's expectations and demands are:

dynamic alliance networks

used in industries with frequent technological innovation and short product life cycles

business-level cooperative strategy

used to help the firm improve its performance in individual product markets

quickest; easiest

using acquisitions to diversify a firm is the _______________ and often the _______________ way to change its portfolio of business

Resources and capabilities can lead to a competitive advantage when they are...

valuable, rare, costly to imitate, and non-substitutable

differentiation strategy

value is provided to customers through unique features and characteristics of a firm's products rather than by the lowest price

-developing the ability to save on its operations -avoiding market costs -improving product quality -protecting its technology from imitation by rivals -having strong ties between their assets for which no market prices exist

vertical integration enables a firm to increase market power by:

Detailed contracts and monitoring Developing trusting relationships

ways that the competitive risks of cooperative strategies can be managed

1. speculation 2. hedging

ways to safeguard against currency problems

backward integration

when a company produces its own inputs

horizontal acquisitions

when a competitor in the same industry is acquired; increase a firm's market power by exploiting cost-based and revenue-based synergies

vertical acquisitions

when a firm acquires a supplier or distributor that is positioned either backward or forward in the firm's cost/activity/value chain

diversification

when a firm manufactures and sells a diverse variety of products

forward integration

when a firm owns its own distribution system

competitive parity

when a firm's resources and capabilities are ONLY rare and maybe non-substitutable earning average returns

related acquisitions

when a target firm in a highly related industry is acquired

acquire

when barriers to entry are present, the firm's best choice may be to ________________________ a firm already having a presence in the industry or market

costly-to-imitate capabilities

when firms are unable to develop capabilities except at a cost disadvantage relative to firms that already have them

global strategy adoption

when the need for global integration is high and there is little need for local market responsiveness

multi-domestic strategy adoption

when the need for global integration is low, but there is a great need for local market responsiveness

transnational strategy adoption

when there is a great need for both global integration and local market responsiveness

non-substitutable capabilities

when they do not have strategic equivalents

-privatization of industries and economies -rapid expansion of the Internet's capabilities in terms of the quick dissemination of information -speed with which advancing technologies make quickly imitating even complex products possible

why are slow-cycle markets becoming rare?

-increase customer satisfaction -cut costs -reduce the amounts of time required to introduce innovative products to the marketplace

why companies use total quality management

reduce competition, enhance their competitive capabilities, gain access to resources, take advantage of opportunities, & build strategic flexibility

why do firms form strategic alliances?

-to neutralize a competitor's market power -to reduce manager's employment risk -to increase managerial compensation because of the positive relationships between diversification, firm size, and compensation

why firms may attempt to diversify

threat of new entrants

with new competitors, the intensity of competitive rivalry in an industry generally increases

financial diversification

without successful integration, a firm achieves


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