Midterm 2

Choosing an Office/Manufacturing Location

-Companies do not have to establish an office or manufacturing location in each country they enter - they can license, franchise, or export to foreign market. -Some foreign offices are established through global mergers and acquisitions, while some are established b/c of commitment to grow in a new market -Some companies choose locations by seeking a tax haven (difficult for US companies for legal concerns) -Companies should consider both Qualitative Factors and Quantitative Factors

Weigh the Criteria

-Decide which criteria are more or less important -*Absolute Comparisons* - each criterion is compared with a standard or is ranked on its own merits -*Relative Comparisons* - each criterion is compared directly with every other criterion

Identify Decision Criteria

-Decision criteria are the standards used to guide judgments and decisions -Typically, the more criteria a potential solution meets, the better that solution will be

Compute the Optimal Decision

-Determine the optimal value of each alternative -Multiply the rating for each criterion by the weight for that criterion, and then summing those scores for each alternative course of action

Blue Ocean

-Entrepreneurship -Creating new market -Creating new demand

Evaluate Each Alternative

-Evaluate each alternative against each criterion -Usually takes longer and is more expensive -Use collected information systematically

PERT Network

-If prior data is available, use it! -For new tasks, use expert judgment and this formula: Te=(To+4Tm+Tp)/6

Corporation

-Legal separate entity for doing business -Continues to exist after death of owners -Earnings on corporations are taxed twice, once on business income, and then again when dividends are paid out as personal income for those receiving dividends

Output Control (objective control)

-Measures the results of manager and worker efforts -Gives managers and workers the freedom to behave as they see fit as long as they accomplish pre-specified, measurable results -Often coupled with rewards and incentives

Delphi Technique

-Member of a panel of experts respond to questions and to each other until reaching agreement on an issue -Step 1: assemble panel exports -Step 2: create questionnaire consisting of a series of open-ended questions for the group -Step 3: Group member's written responses are analyzed, summarized, and fed back to the group until the members reach agreement

Feedforward Control

-Monitoring Inputs -Anticipating and preventing problems

Concurrent Control

-Monitoring Processes -Adjusting ongoing activities

Feedback Control

-Monitoring Products -Learning from past mistakes -Outputs

Growing Markets

-Most important factor of attractive foreign business climate is access to this -Two Measures: 1. Purchasing Power 2. Foreign Competition

Budgets for Control

-Most widely used control device -Organizations usually have many budgets: 1. sales budget (revenue) 2. operating budget (expense) 3. income statements (revenue, expense, net income) 4. balance sheet (assets, liabilities, net worth)

Behavior Control (objective control)

-Regulating behaviors and actions that workers perform on the job -management-based: managers are responsible for monitoring and then rewarding or punishing workers for exhibiting desired or undesired behaviors

Forces of Internationalization

-Shrinking Globe -Modern Communication Technology -Air Travel -Corporate Globalism

"Burn Your Business Plan" by David Gumpert

-This book argues that writing a business plan unnecessarily wastes time -Suggest focusing on: 1. Effective oral presentation 2. Compelling written story 3. Effective website 4. Hard-hitting financial projections

Quality in Service Provision (RATER)

1. *Reliability* (most important) 2. Assurance 3. Tangibles 4. Empathy 5. Responsiveness

Four Resource Conditions for Sustainable Competitive Advantage

1. *Valuable Resources* - allow companies to improve their efficiency and effectiveness 2. *Rare Resources* - not controlled or possessed by many competing firms 3. *Imperfectly Imitable Resources* - impossible or extremely costly or difficult to duplicate 4. *Nonsustainable Resources* - no other resources can duplicate them and produce similar value or competitive advantage

Strategies to Minimize/Adapt to Political Risk

1. Avoidance Strategy 2. Control 3. Cooperation

Nominal Group Technique

1. Begins with a quiet time in which group members independently write down as many problem definitions and alternative solutions as possible 2. Next, group leader asks each member to share one idea at a time with the group 3. Next, group discusses advantages/disadvantages of all the ideas 4. Closes with another quiet time in which group members rank the ideas presented 5. Idea with highest ranking is selected

Components of Economic Value Added

1. Calculate NOPAT 2. Identify how much capital the company has invested (that is, spent) 3. Determine the cost (that is, rate) paid for capital (usually between 5 and 8%) 4. Multiply capital used (Step 2) times cost of capital (Step 3) 5. Subtract the total dollar cost of capital from net profit after taxes

4 Positioning Strategies

1. Cost Leadership 2. Differentiation 3&4. Focus Strategy (Cost and Differentiation)

Service Provision Characteristics

1. Customers participate 2. Services are consumed immediately 3. Services are provided where and when the customer desires 4. Services tend to be labor intensive 5. Services are intangible

Steps in Rational Decision Making

1. Define the Problem 2. Identify Decision Criteria 3. Weigh the Criteria 4. Generate Alternative Courses of Action 5. Evaluate Each Alternative 6. Compute the Optimal Decision

Getting Funding

1. Equity - shark tank, investors, selling shares in your business 2. Debt - Loans 3. Awards from competitions

4 Stages of Internationalization Process

1. Exporting 2. Cooperative Contracts 3. Strategic Alliances 4. Wholly Owned Affiliates

Ways to get into Business

1. Family-owned 2. Starting new 3. Buy existing 4. Buy franchise

2 Types of Control to Emphasize

1. Feedforward Control 2. Concurrent Control *this way you can build in quality before the customer sees the product!*

3 Types of Control

1. Feedforward Control 2. Concurrent Control 3. Feedback Control

4 Main Components of Balanced Scorecard (airline example)

1. Financial 2. Customers 3. Internal 4. Innovation and Learning Compared Against: 1. Goals 2. Standards 3. Measures 4. Initiative

Main Differences in Types of Ownership

1. How/when earning are taxed 2. Liability for debts

BUILD-A-BEAR Control Example

1. Inputs: labor, raw materials, equipment 2. Processes: cutting, stuffing, sewing, assembling, packaging 3. Outputs: bear itself, the shipped package

BUILD-A-BEAR Standards Example

1. Inputs: test people to make sure they have proper skills, measure quality of raw materials, test equipment 2. Processes: measure products at each stage, verify things going as they should 3. Outputs: verify bear against checklist, customer satisfaction survey, etc.

Hofstede's Dimensions

1. Long-term vs Short-term orientation 2. Uncertainty Avoidance 3. Masculinity vs Femininity 4. Individualism vs Collectivism 5. Power Distance

Benefits of Planning

1. Managers and employees put forth greater *effort* when following a plan 2. Planning leads to *persistence* - working hard for long periods 3. *Direction* - planning through goal setting 4. Encourages the development of task strategies - encourages people to think of better ways to do their jobs

3 things for Output Control to Lead to Improved Business Results

1. Measures must be reliable, fair, and accurate 2. Employees and managers must believe that they can produce the desired results 3. The rewards or incentives tied to output control measures must truly be dependent on achieving established standards of performance

Bending in the Middle (strategic plan)

1. Middle management is responsible for developing and carrying out *tactical plans* to accomplish the organizations strategic objective 2. Involves *management by objectives*

Planning and Control Tools

1. PERT Networks 2. Gantt Charts *planning and control should be connected*

Pitfalls of Planning

1. Planning can impede change and prevent or slow needed adaptation 2. Fail to see that their plans aren't working or that goals need to change 3. Planning can create a false sense of certainty 4. Detachment of planners - leads planners to plan for things they don't understand

Types of Ownership

1. Proprietorship/Partnership 2. Corporation 3. Subchapter S-Corporation 4. Limited Liability Company (LLC)

5 Types of Non-Tariff Barriers

1. Quotas 2. Voluntary Export Restraints 3. Government Import Standards 4. Government Subsidies 5. Customs Classification

Control Process

1. Set Standards 2. Measure Performance 3. Compare with Standards 4. Identify Deviations 5. Analyze Deviations 6. Take Corrective Action 7. Repeat starting from #2

3 Kinds of Operational Plans

1. Single-Use Plans 2. Standing Plans 3. Budgeting

Types of Plans, Procedures and Rules

1. Starting at the Top 2. Bending in the Middle 3. Finishing at the Bottom

Firm-Level Strategies

1. Strategic moves in direct competition (attacks and responses in red ocean) 2. Entrepreneurship (blue ocean)

Starting at the Top (strategic planning)

1. Top management is responsible for developing long term strategic plans that make clear how the company will serve customers and position itself against competitors in the next *2 to 5 years* 2. Begins with creation of *purpose statement* 3. Need a *strategic objective*

US Market place is _____ most competitive in the world.

3rd. -US economy is easy for foreign companies to enter, American consumers have had plentiful choices among American-made and foreign-made products --this keeps competition levels high, and helps keep prices low in the US

Grand Strategies

A broad strategic plan used to help an organization achieve its strategic goals. Includes... 1. Growth Strategy 2. Stability Strategy 3. Retrenchment Strategy

Define the Problem

-A problem exists when there is a gap between a desired state and an existing state -Managers have to be aware of the gap -Managers have to be motivated to reduce the gap -Managers must also have the knowledge, skills, abilities, and resources to fix the problem

Red Ocean

-Attacks & Responses -Existing market with competitors and existing customers

Language and Cross-Cultural Training

-Can reduce uncertainty felt by ex-patriots, misunderstandings with natives, and unintentional inappropriate behaviors -Allow for faster adjustments and better performance -3 Methods: 1. Documentary Training 2. Cultural Simulations 3. Field Simulation - places trainee in ethnic neighborhood

S-Corporation

-Can't have any more than 100 shareholders -You have to apply for this status -Have to abide by certain rules and regulations

Sole Proprietorship

-Cheapest way to start your own business -Problem: you have unlimited liability -Profits are taxed as part of your personal income -You are personally liable for all business debts -If you can't pay business debts, you stand to lose your house, car, and other personal assets.

SWOT (situational) Analysis

S: Internal Strengths W: Internal Weaknesses O: External Opportunities T: External Threats

Standing Plans

Save managers time because after the plans are created, they can be used repeatedly to handle frequently recurring events. Involves... 1. Policies 2. Procedures 3. Rules and Regulations

Quotas

Specific limits on the number or volume of imported products. (importing country imposes limit)

Tactical Plans

Specify how a company will use resources, budgets, and people to accomplish specific goals related to it's strategic objective for the next five years.

2 Steps of Retrenchment Strategy

Step 1: Significant cost reductions - laying off employees, closing stores, offices, plants, that are poor performing, or selling entire lines of products or services Step 2: Recovery - strategic actions a company takes to return to a growth strategy

Government Subsidies

Such as, long-term, low-interest rate loans, cash grants, and tax deferments, to develop and protect companies in special industries

Why do trade agreements matter to managers?

The reason is that while free-trade agreements create new business opportunities, they also intensify competition, and addressing that competition is a manager's job.

Sustainable Competitive Advantage

What a competitive advantage becomes when other companies cannot duplicate the value a firm is providing to customers -a competitive advantage is sustained if competitors have tried unsuccessfully to duplicate the advantage and have stopped trying to duplicate it

Generate Alternative Courses of Action

Generate as many alternatives that could solve the problem as possible

Quantitative Factors

Kind of facility, tariff/non-tariff barriers, exchange rates, transportation, & labor costs

Voluntary Export Restraints

Limit the amount of a product that can be imported annually. (the exporting country imposes restraints)

Competitive Advantage Positioning

Lower Cost: Cost Leadership & Cost Focus Differentiation: Differentiation & Focused Differentiation

Finishing at the Bottom (strategic planning)

Lower-level managers are responsible for developing and carrying out *operational plans*

Differentiation

Making your product/service sufficiently different form competitors' offerings that customers are willing to pay a premium price for the extra value or performance that it provides -reduces threat of substitute produces

Purchasing Power

Measured by comparing relative cost of standard set of goods and services in two countries. *countries with high/growing levels of purchasing power are good choices for companies looking for attractive global markets*

Economic Value Added

the amount by which profits exceed the cost of capital in a given year. It is based on the simple idea that capital is necessary to run a business and that capital comes at a cost

Spouse, Family, and Dual-Career Issues

*-How well an ex-patriot's family and spouse adjust to the foreign culture is most important factor in determining the success or failure of the assignment -Adaptability screening -Intercultural training

Most Compelling Benefit of Planning

*Planning has been proven to work for both companies AND individuals*

Qualitative Factors

*Workforce quality* - can be difficult to find workers with the skills, abilities, and experience that a company needs to run its business *Company strategy* - low-cost, differentiation, etc.

Boston Consulting Group (BCG) Matrix

-A portfolio strategy that mangers use to categorize their corporation's businesses by growth rate and relative market share, which helps them decide how to invest corporate funds -Stars -Question Marks -Cash Cows -Dogs

Focus Strategy

A company uses either cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment. -work in market niches that competitors have overlooked or have difficulty serving -Cost Focus vs Focused Differentiation

Attack

A competitive move designed to reduce a rival's market share or profits

Response

A countermove, prompted by a rival's attack, that is designed to defend or improve a company's market share or profits -2 kinds of Responses 1. Match/mirror your competitors move 2. Respond along a different dimension from your competitors move/attack

Tariff

A direct tax on imported goods. -can exist for both importing goods and exporting goods

Management by Objectives

A four step process in which managers and their employees... 1. Discuss possible goals 2. Collectively select goals that are challenging, attainable, and consistent with the companies overall goals 3. Jointly develop tactical plans that lead to the accomplishment of tactical goals & objectives 4. Meet regularly to review progress toward accomplishments of those goals

Strategic Objective

A more specific goal that unifies company-wide efforts, stretches and challenges the organization, and possesses a finish line and a time frame -(flows from the purpose statement)

Purpose Statement

A statement of a company's purpose or reason for existing (other than to make money) -no more than 2 sentences -enduring, inspirational, clear, & consistent with company beliefs and values -a clear mission can also help employees prioritize better and work more efficiently

Competitive Advantage

Achieved by using resources to provide greater value for customers than competitors can

Industry Strategies

Addresses the question: "How do we compete in this industry?" -Includes Positioning Strategies

Control

An active strategy to prevent or reduce political risks. -Firms using this strategy lobby foreign governments or international trade agencies to change laws, regulations, or trade barriers hurting their business.

Customs Classification

As products are imported into a country, they are examined by customs agents who must decide which of nearly 9,000 categories they should be classified into. -the category affects the size of the tariff

Political Uncertainty

Associated with the risk of major changes in political regimes that can result from war, revolution, death of political leaders, social unrest, or other influential events

Competitive Scope Positioning

Broad Target: Cost Leadership & Differentiation Narrow Target: Cost Focus & Focused Differentiation

Planning

Choosing a goal and developing a method or strategy to achieve that goal.

Strategic Alliances

Companies join together with equal ownership such as joint ventures

Stars (BCG Matrix)

Companies that have a large share of a fast-growing market (receive large investments)

Cash Cows (BCG Matrix)

Companies that have a large share of a slow-growing market (highly profitable)

Question Marks (BCG Matrix)

Companies that have a small share of a fast-growing market (potential to be stars)

Dogs (BCG Matrix)

Companies that have a small share of a slow-growing market (not profitable)

Portfolio Strategy

Corporate-level strategy that minimizes risk by diversifying investment among various businesses or product lines -Guides the strategic decisions of corporations that compete in a variety of businesses -Managers employing portfolio strategy can either develop new businesses internally, or look for *acquisitions* (other companies to buy) -Can further reduce risk through *unrelated diversification* - creating or acquiring companies in completely unrelated businesses -Boston Consulting Group (BCG) Matrix

High-Context Cultures

Cultures in which nonverbal and situational messages convey meaning -Relationship more important than terms

Low-Context Cultures

Cultures in which words convey primary meaning. -Nonverbal messages are secondary -The terms of the deal are more important than building a business relationship

Single-Use Plans

Deal with unique, one time only events

Minimizing Political Risk

Deals with Political Uncertainty and Policy Uncertainty.

Foreign Competition

Determined by the number and quality of companies that already compete in a foreign market.

Balanced Scorecard

Encourages managers to look beyond such traditional financial measures to four different perspectives on company performance.

Purpose of Organizational Control

Ensure that activities are providing desired results

Rules and Regulations

Even more specific than procedures because they specify what must happen or not happen

Government Import Standards

In theory, they are established to protect the health/safety of citizens. In reality, such standards are often used to restrict or ban imported goods.

Policies

Indicate the general course of action that company managers should take in response to a particular event or situation -a well-written policy will also specify why the policy exists and what outcome the policy is intended to produce

Cooperation

Involves using joint ventures and collaborative contracts, such as franchising and licensing. -Does not eliminate political risk, but it can limit the risk associated with foreign ownership of a business

Procedures

More specific than policies because they indicate the series of steps that should be taken in response to a particular event.

Limited Liability Company (LLC)

Most common type of corporation

Non-Tariff Barriers

Non-tax methods of increasing the cost or reducing the volume of imported goods

Corporate-Level Strategies

Overall organizational strategy that addresses the question, "what business are we in or should be in?" 1. Portfolio Strategies 2. Grand Strategies

PERT Network vs Gantt Chart

PERT: flow chart, uses formula Gantt: activities shown in blocks on calendar format

Cost Leadership

Producing a product or service of acceptable quality at consistently lower production costs than competitors so that the firm can offer the product or service at the lowest price in the industry -keeps companies from entering the industry

Stability Strategy

Purpose is to continue doing what the company has been doing, just doing it *better* -to try to improve the way in which they sell the same products or services to the same customers

Growth Strategy

Purpose is to increase profits, revenues, market share, or the number of places (stores, offices, locations) in which the company does busines -External Growth: merging with or acquiring other companies -Internal Growth: directly expanding the company's existing business or creating and growing new businesses

Retrenchment Strategy

Purpose is to turn around very poor company performance by shrinking the size or scope of the business, or, if a company is in multiple lines of business, by closing or shutting down different lines of the business -2 step process

Budgeting

Quantitative planning because it forces managers to decide how to allocate available money to best accomplish company goals

Policy Uncertainty

Refers to the risk associated with changes in laws and government policies that directly affect the way foreign companies conduct business (most common)

Operational Plans

The day-to-day plans for producing or delivering the organization's products and services. -direct behavior, efforts, and priorities of operative employees for periods ranging from *30 days to 6 months*

Primary reason for ex-patriot failure?

The difficulty of adjusting to language, cultural, and social differences when in foreign country.

Objective Control

The use of observable measures of employee behavior or output to assess performance and influence behavior. -focuses on observing and measuring worker behavior or output. -behavior control & output control

Bureaucratic Control

Top-down control, in which managers try to influence employee behavior by rewarding or punishing employees for compliance or noncompliance with organizational policies, rules, and procedures. -supposed to make companies more efficient, effective, and fair but it frequently has just the opposite effect. -due to their rule-and policy-driven decision making, they are highly resistant to change and slow to respond to customers and competitors.

Avoidance Strategy

Used when the political risks associated with country or region are viewed as too great.

Normative Control

Using a company's widely shared values and beliefs guide workers' behavior and decisions.

Wholly Owned Affiliates

You buy an entire company in another country and use it to distribute your products OR new venture - build a new business from ground up in new country

Protectionism

the use of trade barriers to protect local companies and their workers from foreign competition

Goal of most organizational strategies

to create and then sustain a competitive advantage