MNGT 4800 Exam Two
Performance measure
A metric along which organizations can be gauged. -Used by executives to examine measures such as profits, stock price, and sales -Helps understand how well an organization is competing in the market
Icons
A rare combination of style and substance leads these CEOs to become household names. The "Oracle of Omaha" Warren Buffett has advised presidents, and the yearly letters he writes to his shareholders are as influential as any report created by the Federal Reserve and other financial institutions.
Distinctive competence
A set of activities that an organization performs especially well.
Forward vertical integration
A strategy that involves a supplier entering the industry that it supplies inputs to.
Value Chain
A tool that charts the path by which products and services are created and eventually sold to customers.
Value Chain Primary Activities (donut example)
Actions that are directly involved in the creation and distribution of goods and services. -*Inbound logistics* (arrival of new material)-Donut Plant in NYC with all organic ingredients -*Operations* (production process)-Coffee and Donut Shop rely n a secret doughnut recipe. -*Outbound logistics*: VooDoo Donuts uses a van to deliver donuts far beyond the store. -*Marketing and Sales* (attracting potential customers)-Randy's Donuts in CA, iconic marketing presentation -*Service* (provide assistance to customers)-Voo Doo Donuts help customers understand their unique menu.
Performance referent
*Benchmark used to make sense of an organization's standing along a performance measure.* Ex: A firm has a profit margin of 20% in 2011. This sounds great on the surface. But suppose that the firm's profit margin in 2010 was 35 percent and that the average profit margin across all firms in the industry for 2011 was 40 percent. *Viewed relative to these two referents*, the firm's 2011 performance is a cause for concern.
The Marketing Mix
-*Product*: what it sells to customers -*Price*: provides a good match with the value offered. -*Place*: can refer to a physical purchase point as well as a distribution channel. -*Promotion*: consists of the communications used to market a product, including advertising, public relations, and other forms of direct and indirect selling.
SMART: Realistic
-Achievement of the goal must be feasible. If Coca-Cola's water efficiency goal was 95% improvement, Coca-Cola's employees would probably react with surprise. Reaching a goal must be feasible in order for employees to embrace it. Unrealistic goals make most people give up. And basing goals on impossible cliches, such as "give 110%" creates confusion.
SMART: Aggressive
-Achieving it presents a significant challenge to the organization. A series of research studies have established that performance is strongest when goals are challenging but attainable. Reaching a 20% improvement will require aggressive work by Coke, but the goal can be reached. *Setting organizational goals that are easy to reach encourages employees to work just hard enough to reach the goals.*
Extra
-As margins get smaller and smaller, you invest in automation -Specific assets: Designed for one use.
Understanding Entrepreneurial Orientation
-Autonomy -Competitive Aggressiveness -Innovativeness -Proactiveness -Risk Taking
Rivalry among existing competitors tends to be high to the extent that
-Competitors are numerous or are roughly equal in size and power -The growth rate of the industry is slow. -Competitors are not differentiated from each other. -Fixed costs in the industry are high -Exit barriers are high -Excess capacity exists in the industry -Capacity must be expanded in large increments to be efficient. -The product is perishable.
Best Value Supply Chains
-Focus on the *total value* added to the customer as opposed to individual outcomes, such as speed or cost. -Four components of a best value supply chain include: --*Strategic Supply Chain Management*: The use of supply chains as a means to create competitive advantages and enhance firm performance; strives to excel along four measures: *Speed* (time duration from initiation to completion of the production and distribution process), *Quality* (relative reliability of supply chain activities), *Cost* (Price paid for supply chain inputs), and *Flexibility* (Supply chain's responsiveness to changes in customers' needs) --*Agile*: Ability to act rapidly in response to dramatic changes in supply and demand (can be achieved using buffers) --*Adaptable*: Willingness and capacity to reshape supply chains when necessary --*Aligned*: Creating consistency in the interests of all participants in a supply chain.
SUPPLIERS
-Gain power when the industry is concentrated and there are no substitutes (Cubic Zirconium vs. Diamonds) -Anytime switching would be costly (Blackboard to Canvas) -When supplier has differentiated products (better bargaining position) -Threaten to compete in the industry. Ex: Ford supplies Hertz and Avis. They could threaten to compete instead.
A supplier group is powerful if ...
-It is dominated by a few companies or is more concentrated than the industry that it supplies. -There is no substitute for what the supplier group provides -The industry members rely heavily on suppliers to be profitable -Industry members face high costs when changing suppliers -Their products are differentiated -It can credibly threaten to compete (*forward vertical integration of suppliers*) in the industry if motivated
SMART: Measurable
-Measurable to the extent that whether the goal is achieved can be quantified. Water efficiency can be calculated, so Coca-Cola is able to track its progress relative to its 20% target. If progress is slow, more resources can be devoted to achieving the goal.
**Five Force Analysis tells us "is this a good industry to be in?"**
-Porter's Five Forces-helps you answer is this a good industry to be in, helps to identify how much profit potential exists in an industry -Marijuana video (creating software for a middle man)-now legal in Washington state. Do you think this industry: --Is a good industry: ---If more states allow it, it could become a great market ---Very controversial though ---You could charge more if people from other areas wanted it
SMART Goals
-Specific -Measurable -Aggressive -Realistic -Time-bound
Why does the General Environment matter?
-The environment provides resources that an organization needs in order to create goods and services. -The environment is also a source of dependencies. -The environment shapes the various strategic decisions that executives make as they attempt to lead their organizations to success. *Evaluating the General Environment: PESTEL Analysis*
A buyer group is powerful when...
-There are relatively few buyers compared to the number of firms supplying the industry -The industry's goods are standardized or undifferentiated -They face little or no switching costs in changing vendors -The good or service purchased by the buyers represents a high percentage of the buyer's costs, *encouraging ongoing searches for lower-priced suppliers*. -It can credibly threaten to compete (*backward integration of buyers*) in the industry if motivated). -The good or service purchased by buyer groups is of limited importance to the quality or price of the buyer's offerings.
When writing a vision statement:
-Use concrete language -Talk about the why It should: -Evoke passion (giving up specificity in favor of capturing emotion) -Overarching-the whole organization needs to sign on to this thing -Long-term Fundamental statement of your values or what you aspire to ex: Mary Kay "Enriching womens' lives", Alice
Three things managers do with their resources
1. *Structuring*-Acquiring and divesting resources 2. *Bundling*-Putting resources together to maximize their effectiveness. 3. *Leverage*-How you're going to apply resources to create value for the customers.
**What do managers do with the general environment?**
1. They *monitor* the environment (Reviewing the film in football) 2. *Forecasting*-Which way are things going. Make predictions based on trends. 3. *Assess*-What does that mean for us? How do we respond to that?
Entrepreneurial Orientation (EO)
A key concept where executives are crafting strategies in the hopes of doing something new and exploiting opportunities that other organizations cannot exploit. EO refers to the processes, practices, and decision-making styles of organizations that act entreprenuerially. Any organization's level of EO can be understood by examining how it stacks up relative to the five dimensions: (1) autonomy, (2) competitive aggressiveness, (3) innovativeness, (4) proactiveness, and (5) risk taking.
The CEO as a Celebrity
Advantages: -Serves as an intangible asset for the CEO's firm-may increase opportunities available to the firm. -Hiring or developing a celebrity CEO may increase stock price, enhance a firm's image, and improve the morale of employees or other stakeholders Disadvantages: -Magnifies any gaps between actual and expected firm performance -Faces larger and more lasting reputation erosion if their performance and behavior is inconsistent with their celebrity image.
The Balanced Scorecard
An approach to assessing performance that targets managers' attention in four areas: -*Financial*- "How do we look to shareholders?" -*Customer*- "How do customers see us?" -*Internal business process*- "What must we excel at?" (Are we an innovative organization? ex: 3m) -*Learning and growth*- "Can we continue to improve and create value?" (Are we getting better? Are we investing in our organization in terms of people?) *Helps managers resist the temptation to fixate on financial measures, and instead monitor a diverse set of important measures.* (ex: Blind Men and the Elephant)
POTENTIAL ENTRANTS *How hard is it to get into this industry?*
Barriers to entry: -Economies of scale (Caterpillar) -Capital Requirements (stump grinder) -Government Policy (Ki-jong) -Differentiation (Mama Mocha's) -Switching costs (cell phone carriers make it difficult) -Access to distribution channels -Expected retaliation -Cost advantages independent of size. -Insurance Ex: *Commercial airlines: economies of scale* Also: military weaponry, construction, oil & gas
When Brands = Categories
Brand valuation can be a major intangible resource for the firm. Some product brands are so well established that the entire category of products (incl. competitors) may be called by the brand name. *Firms do not want this.* -Can dilute their brand by affiliating their name with products not of the same quality.-products can then be substitutes. -It could also build customer loyalty. -Firms generally fight this vigorously.
Enactment
Contends that an organization can, at least in part, create an environment for itself that is beneficial to the organization by putting strategies in place that reshape competitive conditions in a favorable way. Reverse theory of environmental determinism. Advocates changing the environment. Ex: Apple changing the PC industry.
Transaction cost economics
Centers on whether it is cheaper for a firm to make or buy the products that it needs. Make, buy, or ally.
SMART: Time-bound
Coca-Cola is seeking to achieve its 20% improvement by 2012. Some universities, such as Texas Tech University, provide incentives, including preferred scheduling for students who sign contracts agreeing to graduate on a four-year schedule. Deadlines such as these are motivating and they create accountability.
Porter's Five Forces
Considers the interactions among: -Competitors in an industry -Potential entrants to the industry -Substitutes for the industry's offerings -Suppliers to the industry -Industry's buyers *If none of these five forces works to undermine profits in the industry, then the potential is very strong. If all the forces work to undermine the profits, then the profit potential is weak.*
Industry (competitive environment)
Consists of multiple organizations that collectively compete with one another by providing similar goods, services, or both.
Environmental determinism
Contends that organizations are very limited in their ability to adapt to the conditions around them.
Resource Theory
Contends that the possession of strategic resources provides an organization with a golden opportunity to developed competitive advantages over its rivals. Our strategy is determined by what we have, our resources. *It is an array of resources and capabilities that fuels enduring success, not any one resource alone.* ex: Fable of the grasshopper and the donkey
Intellectual property
Creations of the mind, such as inventions, artistic products, and symbols.
PESTEL: Economic
Economic factors include elements such as interest rates, inflation rates, gross domestic product, unemployment rates, levels of disposable income, and the general growth or decline of the economy. Ex: Dollar General has done really well (even better than Wal-Mart) because they are selling out at discount and their baskets are smaller.
PESTEL: Environmental
Environmental factors include, for example, natural disasters and weather patterns. Ex: New product categories as people try to be more environmentally conscious.
Opportunities
Events and trends that create chances to improve an organization's performance level.
Threat
Events and trends that may undermine an organization's performance.
Institutional theory
Examines the extent to which firm's copy each other's strategies. -Managers are trying to reduce uncertainty. -*Memetic isomorphism*: When managers in an industry all start copying each other, which moves the industry in a particular direction.
Dynamic capability
Exists when a firm is skilled at continually updating its array of capabilities to keep pace with changes in its environment.
Mobility barriers
Factors that make it unlikely or illogical for a firm to change strategic groups over time.
Ch. 3: Industrial Organization View of Performance
Firm performance is a function of the *industry* you're in. *environment*, Porter's Five Forces
Ch. 4: Resource View of Performance
Firm performance is a function of the *resources* the firm possesses. *Only resource-based theory does a good job of explaining firm performance across a wide variety of contexts.*
POTENTIAL ENTRANTS
Firms that are not currently considered viable competitors in the industry but that may become viable competitors in the future. New entrants tend to *reduce the profit potential of an industry by increasing its competitiveness*. For example, Tesla Motors' production of electric vehicles poses a threat to displace the traditional powers in the auto industry, and Chinese auto makers are rumored to be eyeing the US market.
SMART: Specific
Have a framework, so that once you have a framework, the decisions come easily. -Explicit rather than vague. -Coca-Cola is seeking to improve its water efficiency by a *specific* amount--20%. In contrast, goals such as "do your best" are vague, making it difficult to decide if a goal is actually reached.
Profitability measures
Helpful for understanding how much profit, if any, is really being made. Ex: Net Income (income after taxes)
Leverage measures
Helpful for understanding if debt level is too high. The term *leverage* refers to the extent to which borrowed money is used. Ex: Debt-to-equity ratio
Liquidity measures
Helpful for understanding if obligation can be paid when due. Ex: Current ratio (Current assets/current liabilities)
Organizational performance
How well an organization is doing at reaching its vision, mission, and goals. -A multidimensional concept. -Vital aspect of strategic management -Assists executives in knowing how well their executives are performing. Ex: The Blind Man and the Elephant Some performance measures: -Liquidity measures (like the current ratio) -Leverage measures: monthly income/expenses -Profitability (salary after taxes)
Scoundrels
In the early 2000s, several high profile CEOs played central roles in ethical scandals. One was Enron CEO Kenneth Lay, who in 2006 was convicted of crimes related to corporate abuse and accounting fraud. He later committed suicide.
INDUSTRY COMPETITORS
Is there a lot of rivalry? Which is a lot of competitors that are roughly equal in size. Ex: fast food industry Circuses are the opposite of this. There are very few so no rivalries. *Many competitors*=high rivalry *If the growth rate is slow*, rivalry is high. Ex: high end segments *Not much differentiation*=high rivalry (must compete on price) *Excess capacity*=high rivalry *Know when rivalry is high!* Where is competition fierce? Automotive industry, boutiques, fast food, cell phone carriers, cable services
PESTEL: Legal
Legal factors include laws involving issues such as employment, health and safety, discrimination, and antitrust. Ex: Forcing people to go overseas because they are so stringent.
**When is managerial leadership more important? With good or bad resources?**
More important when the players were bad than when they were good.
Goals
Narrower aims that should provide clear and tangible guidance to employees as they perform their work on a daily basis. *While missions and visions provide an overall sense of the organization's direction, goals are narrower aims that should provide clear and tangible guidance to employees.*
Value Chain Secondary "Support" Activities (donut example)
Not directly involved in the evolution of a product, but instead provide important underlying support for primary activities -*Firm infrastructure* (how the firm is organized and led by executives) Burger King and Tim Horton's leadership led Canada to have the highest per capita consumption of doughnuts in the world -*HR management* (recruitment, training, and compensation of employees) Donut Hole ensures that a friendly face greets each customer. -*Technology* (use of computerization and telecommunications to support primary activities) Krispy Kreme creates efficiency and a visual enticement for potential customers. -*Procurement* (negotiating for and purchasing raw material) Dunkin' Donuts buys supplies in bulk to sell at low prices.
SUBSTITUTES
Offerings from other industries that fulfill the same need or a very similar need as an industry's products or services. Substitutes for the auto industry's products include bicycles and mass transit. Luckily for automakers competing in the US market, Americans are notoriously reluctant to embrace these substitutes. Ex: Diamonds can't have cubic zirconium substitute. Substitute: UPS, FEDEX, DHL, EMAIL, FAXING, TAKE IT YOURSELF, SEND IT BY COURIER, TELEPHONE *Clearly defining a firm's industry is an important step for executives who are performing a five forces analysis.*
General environment (macroenvironment)
Overall trends and events in a society such as social trends, technological trends, demographics, and economic conditions.
Trademarks
Phrases, pictures, names, or symbols used to identify a particular organization. McDonald's golden arches are an example of a trademark.
Patents
Protect inventions from direct imitation for a limited period of time (20 years). Patents don't have a sustained competitive advantage. (Proves that an invention is new, non obvious, and useful).
Copyrights
Provide exclusive rights to the creators of original artistic works such as books, movies, songs, and screenplays. Sometimes copyrights are sold and licensed.
Suppliers
Providers of inputs that the competitors in an industry need to create goods or services.
The Triple Bottom Line
Provides a tool to help executives focus on performance targets beyond profits alone. Emphasizes the three P's: -*People* (Social concerns) -*Planet* (Environmental concerns) -*Profits* (Economic concerns)
Buyerss
Purchasers of the goods or services that the competitors in an industry create.
Trade secrets
Refer to formulas, practices, and designs that are central to a firm's business and that remain unknown to competitors. Ex: KFC's recipe
PESTEL: Political
Refers to the role of governments in shaping business. Political factors include elements such as tax policies changes in trade restrictions and tariffs, and the stability of governments. Ex: Boeing vs. airbus (Small vs. big), tariffs, tax. Airbus gets a lot of help from other governments-creates a huge impact on ability to compete.
Intangible resources
Resources that are difficult to see, touch, or quantify. Ex: reputation, customer loyalty. *More valuable than tangible resources.*
RARE resources
Resources that are unique when contrasted with the resources of competitors. Those held by few or no other competitors. Ex:Southwest Airlines' culture provides the firm with uniquely strong employee relations in an industry where strikes, layoffs, and poor morale are common.
Tangible resources
Resources that can be readily seen, touched, and quantified. Ex: PPE, cash, inventory, people
DIFFICULT-TO-IMITATE resources
Resources that cannot be easily duplicated by competitors and are often protected by various legal means, including trademarks, patents, and copyrights. Often involve legally protected intellectual property such as trademarks, patents, or copyrights. Other difficult-to-imitate resources, such as brand names, usually need time to develop fully. Ex: Southwest's culture arose from its very humble beginnings and has evolved across decades. Because of this unusual history, other airlines could not replicate Southwest's culture, regardless of how hard they might try.
NONSUBSTITUTABLE resources
Resources that exist when competitors cannot find alternative ways to gain the benefits that a resource provides. Exist when the resource combinations of other firms cannot duplicate the strategy provided by the resource bundle of a particular firm. Ex: The influence of Southwest's organizational culture extends to how customers are treated by employees. Executives at other airlines would love to attract the customer loyalty that Southwest enjoys, but they have yet to find ways to inspire the kind of customer service that the Southwest culture encourages.
VALUABLE resources
Resources that help a firm create strategies that capitalize on opportunities and ward off threats. Aid in improving the organization's effectiveness and efficiency while neutralizing the opportunities and threats of competitors. Ex: Southwest Airlines' legendary organizational culture that inspires employees to do their very best.
Environment
Set of external conditions and forces that have the potential to influence the organization. The influence of the external environment on an organization: 1. Industry Level (competitive environment) 2. General Environment (macroenvironment) Ex: Subway is more popular now than McDonald's because health is more important now than the "play place." Comparing Subway in the US to Subway in China. *Overall, the environment has a far greater influence on most organizations than most organizations have on the environment.*
Strategic groups
Sets of firms that follow similar strategies. Consist of a set of industry competitors, that have similar characteristics to each other but differ in important ways from the members of other groups. *The analysis of the strategic groups in an industry can offer important insights to executives.* -Closest rivals-best referents for executives to consider -Highlight alternative paths to success -Analysis of strategic groups can reveal gaps in the industry that represent untapped opportunities
PESTEL: Social
Social factors include trends in demographics such as population size, age, and ethnic mix, as well as cultural trends such as attitudes toward obesity and consumer activism. -More women in the workforce now. The number of hunters is shrinking. What does this mean? Families are getting smaller. 1 in 3 Americans are obese. Hemlines are going up. Who does this affect?
Mission
States the reason for an organization's existence and explains what role it plays in society. -Well-written mission statements effectively capture an organization's identity. -Answers the fundamental question of "who are we?" -Reflects on the organization's past and present -States why the organization exists and what role it plays in the society -Should explain to shareholders why they should support the organization by making clear what important role or purpose the organization plays in society. --Basis of competition --More specific --Focuses on the MEANS by which you will compete --Build strong roots
Customer measures
Such as *number of new or repeat customers* and *percentage of repeat customers*-relate to customer attraction and satisfaction. You could ask yourself: How strong is my social network? The number of new contacts you make over time might reflect this dimension.
Financial measures
Such as *return on assets* and *stock price*-relate to effectiveness and profits. You could ask yourself: How can I improve my personal wealth? Measures might include cash, savings account, and retirement. *Financial performance measures are commonly articulated and emphasized within an organization's annual report to shareholders.*
Internal business process measures
Such as *speed at serving a customer* and *time it takes to create a new product and get it to market*-relate to organizational efficiency. You could ask yourself: Am I getting better at my current job? Tracking improvements in personal efficiency such as the time needed to complete a task can be helpful.
Learning and growth measures
Such as the *average number of new skills learned by each employee every year*-relate to the future and emphasize that employee learning is often more important than formal training. You could ask yourself: What skills should I develop now for the future? Although the acquisition of new skills is hard to measure, the attainment of specialized licenses or earning of a graduate degree are tangible benchmarks.
Five Forces Analysis (Evaluating the Competitive Environment)
Technique for understanding an industry, by examining the interactions among: -Competitors in an industry -Potential new entrants to the industry -Substitutes for the industry's offerings -Suppliers to the industry -Industry's buyers
PESTEL: Technological
Technological factors include, for example, changes in the rate of new product development, increases in automation, and advancements in service industry delivery. -Changing so quickly and so rapidly. Ex: Subway has online ordering in California.
Intellectual Property Rights
The ability of an organization to protect intangible goods such as movies, software, and video games from piracy.
Industry concentration
The extent to which a *small* number of firms dominate an industry. Buyers and suppliers generally have more bargaining power when they are from concentrated industries. This is because the firms that do business with them have fewer options when seeking buyers and suppliers (ex: circuses and breakfast cereal manufacturing). Medium concentrated: flight training and sugar. Low concentrated: full-service restaurants, legal services, truck driving schools, and telephone call centers.
Capabilities
The firm's ability to bundle, manage, or otherwise exploit resources in a manner that provides value added and, hopefully, advantage over competitors.
Competitors
The set of firms that produce goods or services within an industry.
Proactiveness
The tendency to anticipate and act on future opportunities rather than rely solely on existing products and services. Proactive Communications Inc. lives up to its name by focusing on emerging and unusual opportunities. The firm embraces contacts in war zones and natural disaster areas that are often avoided by other telecommunications firms.
Autonomy
The tendency to bring forth ideas and see them through to completion. Microsoft's value statement notes, "We take on big challenges, and pride ourselves on seeing them through." For example, Microsoft embraced a huge challenge when developing and launching its Xbox gaming system to compete with market leaders Nintendo and Sony. *Organizations that effectively develop autonomy should foster a work environmet with high levels of employee satisfaction and low levels of turnover.*
Competitive Aggressiveness
The tendency to intensely and directly challenge rivals rather than trying to avoid competition. One of Nike's past mission statements-"To experience the emotion of competition, winning, and crushing competitors"-highlights its aggressiveness.
Innovativeness
The tendency to pursue novel ideas, creative processes, and experimentation. 3M has built its business around its mission statement: to solve unsolved problems innovatively. 3M's innovativeness has led it to develop thousands of products that are sold in almost 200 countries.
Risk Taking
The tendency to take bold actions rather than being cautious.
Hidden Gems
These CEOs perform their jobs admirably, but they lack fame. Many prefer to avoid the spotlight, bur they are known all too well by their wary competitors. Anne Mulcahy, CEO of Xerox, is a hidden gem whose avoidance of media attention may stem from her humble roots as a copier salesperson.
Silent Killers
These unknown CEOs can be just as harmful to their firms as celebrity scoundrels. Harding Lawrence, former CEO of now defunct airline Braniff International, made a major blunder by expanding his airline too quickly. Lawrence was fired before the firm plunged into bankruptcy. Lawrence's poor decisions were largely forgotten.
BUYERS
Those firms that buy directly from the industry such as automobile dealerships. Automakers also have to pay careful attention to end users, of course, such as individual drivers and rental car agencies. -Gain power when there are not very many buyers -When the goods and services are very standardized.
SWOT Analysis (Resource-Based View of Firm)
Used to compare *internal and external* factors in order to generate ideas about how their firm might become more successful. It is wise to focus on ideas that allow a firm to: -*Leverage its strengths -Steer clear of or resolve its weaknesses -Capitalize on opportunities -Protect itself against threats* Five forces analysis examines the situation faced by the competitors in an industry. Strategic groups analysis narrows the focus by centering on subsets of these competitors whose strategies are similar. *SWOT analysis takes an even narrower focus by centering on an individual firm.*
VRIN Model
What makes a resource "strategic"? -Valuable -Rare -Inimitable -Nonsubstitutable *You need to have these four qualities in a resource in order for it to be useful for you. According to resource based theory, organizations that own "strategic resources" have sustained competitive advantages over organizations that do not. Some resources, such as cash and trucks, are not considered to be strategic resources because an organization's competitors can readily acquire them. Instead, a resource is strategic to the extent that it is valuable, rare, difficult to imitate, and non substitutable. *ex: girl selling Girl Scout cookies outside of a marijuana dispensary.
Vision
What the organization aspires to become in the future. -A key tool for *inspiring* people in an organization -Well-constructed visions clearly articulate an organization's aspirations and can give an organization an edge over its rivals. *While a vision looks to the future, a mission captures the key elements of the organization's past and present.*
General Environment
Why does it matter? It creates resources and dependencies. Ex: Apple Where do they get all this stuff? Samsung. Who they are in constant legal battles with. Ex: China has cheap manufacturing, but creates huge dependencies in a control with a lot of turmoil.