MGMT 3001- Quiz 2

Benefits of global strategy

1. cost benefits- scale and replication 2. exploiting national resource efficiencies 3. servicing global customers 4.achieving a global-level knowledge of the industry 5. increasing the range of competitive options available

What makes alliances successful ?

1. the phase of formation- companies select a partner or partners 2. the phase of design- the alliance governance mechanism is being established 3. the post formation phase- the company manages the alliance on an ongoing basis and creates value. Presents an overview of the main phases of the alliance evolution and some success factors at each phase

Born global

companies that plan and achieve global operations in just a few years

Horizontal differentiation

differences in resources and operational activities between sections of the business at the same level

Property-based assets

legal properties owned by companies including physical resources, such as buildings, and financial capital

Multidivisional Structure

loose-coupled, modular organisation where business-level strategies and operating decisions can be made at the divisional level, where corporate headquarters concentrates on corporate planning, budgeting and providing common services Adv: Suited to fast change, high product visibility, multiple tasks processed in parallel DisAdv: Innovation growth restricted to divisions, shared functions hard to coordinate, difficult to allocate pooled resources

Strategic alliances

partnerships between organizations involving sharing of key resources to take advantage of significant opportunities

Joint-venture partnerships

partnerships in strategic projects where the partners share equity

Spatial boundaries

the physical boundaries of the regions that subsidiaries service

National resource bases

the valuable local assets that global businesses use of comparative advantagae -makes it possible for organizations to access resources from outside their home country

Free trade

unrestricted international trade between countries

Advantages of Hierarchy

1. Economizing on coordination - communicate with one another through standard interfaces, one can eliminate tangle of interconnections 2. Adaptability - evolve more rapidly than unitary systems , the ability of each component subsystem to operate with some measure of independence form the other subsystems

Merger

combination of two companies into a bigger company -both companies' stocks are surrendered and new company stock is issued in its place

Diversification Strategy

company's decision to expand its operations by adding new products and services, markets or stages of production to the existing business

Knowledge baed assets

companys intangible know-how and customer service expertise

Governance mechanisms

concrete managerial and control activities that describe in detail how the required behavior of the partner will become motivated, influenced and established, or in which ways the desirable or predetermined gains are to be fulfilled

Hierarchy

defined as a system composed of interrelated subsystems

Vertical differentiation

differences in the levels of hierarchy that compromise the organisation

Foreign direct investment

direct investment in a market located in a different country

Parental advantage

exists where diversified firms generate more value and a close fit overall with their strategic business units than any of their competitors as rival parents owning the same businesses

Direct investment

investing in business operations in a market, for example, by establishing a local subsidiary to service that market

Transfer pricing

managing cost transfers between subsidiaries (or between the subsidiary and parent company) to give one subsidiary a financial advantage by reducing their input costs

Emerging market

new and developing market

Management systems

provide mechanisms of communication, decision making and control that allow companies to solve the problems of achieving both coordination and cooperation Divided into three main areas: 1. Perfromance 2. Culture-based 3. Strategic planning and financial

Strategic alliances

refer to interorganisational cooperative activities to achieve one or more goals linked to the organisations' strategic objectives

organisational learning

retaining information obtained from past projects and events at the organizational level

Consortia

several companies and possible governments, collaborate towards a shared strategic purpose. Inputs to these cooperative agreements include information and sharing of other resources

Joint Ventrue

strategic alliance in which two or more cooperating companies ('parents') create a legally independent company in which they invest and from which they share any profits created

Alliance capability

the ability of companies to effectively manage inter company alliances and create value through them

First-mover

the initial occupant of a strategic position or niche gains access to resources and capabilities that a follower cannot match

Turnaround Strategy

the plan and effort to return an underperforming company to acceptable levels of profitability and long-term worth -Enables senior managers of underperforming companies to understand the causes of poor performance, with a view to reducing loss

Cooperation problem

the problem of different organizational members having conflicting goals

offshoring operations

transferring specific operations to another coutnry

Strategic networks

used to describe a wide range of relationships RBV argue that large firms proactively create, adapt and control a specific network structure

Tacit collusion

when several companies in an industry cooperate tacitly to reduce industry output below the potential competitive level, thereby increasing prices above the competitive level

Functional Structure

Conducive to a high degree of centralized control by CEO and top management team, with each function existing with unbroken lines from top to bottom Adv: Best in stable environments, ideal for single-product lines DisAdv: Slow response time, decisions pie at the top, stability results in less innovation

Two types of Diversification: Related and Unrelated

Related Diversification: - expansion of the business based on the common core of a company's existing resources and capabilities Unrelated diversification: - used to improve the profitability and lower the overall business risk of a company. It occurs when there is no common thread or strategic fit or relationship between the new and old lines of business (new vs old business)

Matrix Structures

Organisational structures that formalize coordination and control across multiple dimensions Adv: Full-time focus on personnel, knowledge sharing, managers/workers can work across projects DisAdv: Costly to maintain personnel pool to staff matrix, little interchange with functional groups outside the matrix, participants experience dual authority

Pros/Cons of Horizontal Integration

Pros: - Increased market share - Economies of scope -Economies of scale - Increased market power Cons: - Over expansion could result in competition/ antitrust laws -Integration process - No immediate materialization - Two different business units, have different histories of operational problems

Turnaround and Retrenchment activities

Restructuring -cutting labour costs, marketing and promotion expenses Divestment: -eliminating a portion of their business activities Liquidation or Bankruptcy: -Book value of assets, subtract depreciation and sell the business Tie to a large company: - exclusive supplier to a giant company

Value-Creating synergies

SBU inefficiency: - rectify SBU inefficiencies such as management problems related to performance Intermediary role: - add value through the sharing of unique resources and capabilities Sizing up distinctive capability: - Value creation different for just about every corporate parent

International business

a business operating in more than one country or region. If it is focused on servicing the global market, rather than individual country markets, it should be considered to be a global business instead

Alliance function

a structural mechanism in the form of a separate organizational unit or team of mangers responsible or managing and coordination a company's alliance activities

Structured entry

a systematic approach to planning and implementing foreign market entry organisations should: -assess the products in relation to the markets -set up objectives and goals -choose the entry mode -design the marketing plan

Non-equity alliances

agreements under which companies collaborate in order to supply, produce, market or distribute products over an extended period of time but without substantial ownership investment in the alliance

Equity alliance

an alliance in which one or more partners assume a greater ownership interest in either the alliance or another partner

transnational organization

an organisation operation as a local business but with specific operations that span the globe

Acquisition

Takeover or a buyout, is the purchase of one company by another.

Advantages of Alliance Creation

- entry into new markets -increased market power and economies of scale and scope -strategic renewal -risk and investment sharing

Value-Destroying synergies

-Excessive managerialism -Competition for resources -Urgency to perform -Short termism - An emphasis on short-term goals and profits may lead to SBU mangers losing sight of developing capabitlies and new products for sustained competitive advantage in favor of pushing short-term sales targets may become toxic

Why do alliances fail ?

1. Cultural clashes between partners (different objectives) 2. Partnering for the wrong reason (adopting 'everyone else is doing it ' mentality) 4. Ignore responsibilities and free-riding (expecting partners will do the job)

Collaborate with competitors and win

1. collaboration is competition in a different form 2. Harmony is not the most important measure of success 3. Cooperation has limits - defend against competitive compromise 4. Learning form partners is paramount

Difference between Merger and Acquistion

A merger is a transaction in which assets of at least two companies are transferred to a new company so that only one separate legal entity remains. Acquisition is a transaction in which both companies in the transaction can survive but the acquirer increases its percentage ownership in the target

Retrenchment Strategy

Corporate-levle strategy that seeks to reduce the size or diversity of an organizations operations. -Enables senior mangers of underperforming companies to understand the critical causes of poor results in order to stem losses and restore growth

Simple Structure

Decision making is largely centralized in hands of a single person (usually the founder) with very little formalization Adv: Flexibility and adaptability, quick decision making DisAdv: Too reliant on owner, lack of consistency

Reasons for Mergers and Acquisitions

Economies of Scale: - removing overlapping operations Economies of Scope: -extend the market and product portfolio of the companies hone they are combined into one Tax benefits: - acquiring a money-losing business by incorporating the losses into their consolidated profit accounts Higher return on investment: - acquiring another company with a higher ROI

Economies of Scope

Exist whenever there are cost savings from using a resource in multiple activities independtly

Horizontal Integration

Expansion or addition of business activities at the same level of the value chain is referred to as a horizontal integration Ex) A company may decide to pursue new customers, new products and new geographic locaitons Ex #2) Large manufacturer that acquires other similar smaller manufacturers, or a media company that owns various types of media including television, radio, newspapers and magazines

Classification of Mergers: Horizontal Vertical Conglomerate Concentric

Horizontal - two companies that are in direct competition in the same industry and that have similar product lines and markets Vertical -customer and company or a supplier and company Conglomerate merger - merger in which two companies are in the same general industry Concentric merger -A merger in which two companies are in the same general industry, but have no mutual buyer/customer or supplier relationship

Vertical Integration

Integrating up or down a supply chain through which a company will control the production and distribution of products Ex) Retailer starts manufacturing the products its sells, increasing its level of vertical integration

Globalisation

Most important and pervasive force reshaping and competitive business environment

Types of acquisition: Share or Asset

Share Acquisition: -the buyer acquires a controlling number of shares, and thereby takes control of the target company. Asset acquisition: - the buyer purchases the assets of the target company, the cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation

Global businesses

Usually large businesses that create vast flows of transactions comprising payment for trade and services, flows of factor payments operating in many countries or regions with a global market objective. By comparison, international businesses focus on individual foreign country markets

Transaction costs

barriers to exporting in the form of transport costs and import tariffs are forms of transaction costs; cost of (international) trade or business