BPOL Exam 2
Global Strategy
Products are standardized across national markets. Business-level strategic decisions are centralized in the home office. Strategic business units (SBU) are assumed to be interdependent. Emphasizes economies of scale. Often lacks responsiveness to local markets. Requires resource sharing and coordination across borders (hard to manage).
International Corporate Governance
*Germany*: - owner = manager - public firms have dominant shareholder, usually bank - less emphasis on shareholder value than for US firms *Japan*: - obligation, family, consensus are important governance factors - *Keiretsu*: strongly interrelated groups of firms tied together by cross-shareholdings (i take half of you, you take half of someone else, and so on) - banks are highly influential on firm managers - powerful govt intervention - close relationship b/w firms and govt sectors - passive and stable shareholders who exert little control - virtual absence of external market for corporate control (no hostile takeovers) *China*: - increasing privatization - development of internal equity markets hampered by insider trading - equity held in state-owned enterprises is decreasing - state relies on direct economic controls, indirect social goals as influences, and limitations on access to resources to influence the strategies firms use
Value Creating Diversification
- *economies of scope* (related diversification) > sharing activities > transferring core competencies - *market power* (related diversification) > blocking competitors through multipoint competition > vertical integration - *financial economies* (unrelated diversification) > efficient internal capital allocation > business restructuring
Value-Neutral Diversification
- Antitrust regulation - Tax laws - Low performance - Uncertain future cash flows - Risk reduction for firm - Tangible resources - Intangible resources
Value-Reducing Diversification
- Diversifying managerial employment risk - Increasing managerial compensation
Incentives for International Strategy
- extend a product's life cycle - gain an easier access to raw materials - opportunities to integrate - operations on a global scale (economies of scale) - opportunities to better use rapidly developing technologies - gain access to consumers emerging markets
complementary strategic alliances
-Combine partner firms' assets in complementary ways to create new value. -Include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage. Vertical: absorb different parts of value chain Horizontal: absorb competitors in same business level. DIFFICULT TO MAINTAIN, between rival competitiors!! *Note*: complementary, especially vertical, alliances have the greatest probability of creating a sustainable competitive advantage!
Porter's Diamond Model
-factors of production -demand conditions -related and supporting industries -firm strategy, structure, and rivalry within the rings of - politics - formal institutions (regulatory) - informal institutions (culture)
Attributes of Successful Acquisitions
1. Acquired firm has assets or resources that are complementary to the acquiring firm's core business - Result: High probability of synergy and competitive advantage by maintaining strengths 2. Acquisition is friendly - Result: Faster and more effective integration and possibly lower premiums 3. 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 4. Acquiring firm has financial slack (cash or a favorable debt (position) - Result: Financing (debt or equity) is easier and less costly to obtain 5. Merged firm maintains low to moderate debt position - Result: Lower financing cost, lower risk (e.g., of bankruptcy), and avoidance of trade-offs that are associated with high debt 6. Acquiring firm has sustained and consistent emphasis on R&D and innovation - Result: Maintain long-term competitive advantage in markets 7. Acquiring firm manages change well and is flexible and adaptable - Result: Faster and more effective integration facilitates achievement of synergy
Business-Level Cooperative Strategies
1. Complementary strategic alliances (vertical/horizontal) 2. Competition response strategy 3. Uncertainty-reducing strategy 4. Competition-reducing strategy
Reasons for Acquisitions
1. Increased market power 2. Overcoming entry barriers 3. Cost of new product development and increased speed to market 4. Lower risk compared to developing new products 5. Increased diversification 6. Reshaping the firm's competitive scope 7. Learning and developing new capabilities
Basic benefits of international strategy
1. Increased market size 2. Economies of scale and learning 3. Location advantages
Problems in Achieving Acquisition Success
1. Integration difficulties: • Melding two disparate corporate cultures • Linking different financial and control systems • Building effective working relationships (particularly when management styles differ) • Resolving problems regarding the status of the newly acquired firm's executives • Loss of key personnel weakens the acquired firm's capabilities and reduces its value 2. Inadequate target evaluation: • Due Diligence • Evaluation 3. Large/Extraordinary debt 4. Inability to achieve synergy 5. Too much diversification • Strategic focus shifts to short-term performance. • Acquisitions may become substitutes for innovation 6. Managers overly focused on acquisitions 7. Too large
Reasons for Diversification
1. Value-Creating Diversification 2. Value-Neutral Diversification 3. Value-Reducing Diversification
Louis Vuitton Moet Hennessy
1. What are the drivers of performance in the global luxury good business? Identify both firm-specific drivers as well as context-specific drivers. What does a "success recipe" look like in this industry? 2. Why has Louis Vuitton Moet Hennessy (LVMH) been such a dominant player in the global luxury business? What are the skills, competences, and resources that it uses to nurture its leadership position in the industry? 3. Critically examine the portfolio of brands and business that LVMH has built. What are sources of synergy that can be identified across the portfolio? How would you characterize the quality of the portfolio? Is the pattern of acquisitive expansion justifiable? 4. What alternative courses of strategy would you recommend to LVMH as it pursues the ambitious plan of doubling its sales and profits in five years?
Network Cooperative Strategy
A cooperative strategy wherein *several firms* agree to form *multiple partnerships* to achieve shared objectives. - Stable alliance network - Dynamic alliance network Effective social relationships and interactions among partners are keys to a successful network cooperative strategy.
Downscoping
A divestiture, spin-off or other means of eliminating businesses unrelated to a firm's core businesses. A set of actions that causes a firm to strategically refocus on its core businesses. - May be accompanied by downsizing, but not the elimination of key employees from its primary businesses. - Results in a smaller firm that can be more effectively managed by the top management team. OUTCOMES Short Term: - reduced debt costs - emphasis on strategic controls Long Term: - higher performance
Resources and Diversification
A firm must have both: 1. *Incentives* to diversify 2. The *resources required* to create value through diversification—cash and tangible resources (e.g., plant and equipment) Value creation is determined more by appropriate use of resources than by incentives to diversify. Strategic competitiveness is improved when the level of diversification is appropriate for the level of available resources.
Strategic Alliance
A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage Firm A and B combine resources/cap/comp to work towards mutual interests in designing, manufacturing, or distributing goods and services *Three Types* - Joint Venture - Equity Strategic Alliance - Non-Equity Strategic Alliance
Downsizing
A reduction in the number of a firm's employees and sometimes in the number of its operating units. - May or may not change the composition of businesses in the firm's portfolio. Typical reasons for downsizing: - Expectation of improved profitability from cost reductions - Desire or necessity for more efficient operations OUTCOMES Short Term: - reduced labor costs Long Term: - loss of human capital - lower performance
Leveraged Buyout
A restructuring strategy whereby a party buys all of a firm's assets in order to take the firm private. - Can correct for managerial mistakes. - Can facilitate entrepreneurial efforts and strategic growth. OUTCOMES Short Term: - emphasis on strategic controls - high debt costs Long Term: - higher performance (from strategic control) - higher risk (from high debt)
Cooperative Strategy
A strategy in which firms work together to achieve a shared objective.
Restructuring
A strategy through which a firm changes its set of businesses or financial structure. - Failure of an acquisition strategy often precedes a restructuring strategy. - Restructuring may occur because of changes in the external or internal environments. Restructuring strategies: - downsizing - downscoping - leveraged buyouts
International Strategy
A strategy through which the firm sells its goods or services outside its domestic market. - International business-level strategy - International corporate-level strategy
Cross-Border Acquisitions
Acquisitions made between firms with headquarters in different countries - often made to overcome entry barriers - can be difficult to negotiate and operate because of the differences in foreign cultures
Agency Costs and Governance Mechanisms
Agency Costs: - The sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals, because governance mechanisms cannot guarantee total compliance by the agent. Principals may engage in monitoring behavior to assess the activities and decisions of managers. - However, dispersed shareholding makes it difficult and inefficient to monitor management's behavior. Boards of directors have a fiduciary duty to shareholders to monitor management. - However, boards of directors are often accused of being lax in performing this function.
Diversifying Strategic Alliance
Allows a firm to expand into new product or market areas without completing a merger or an acquisition. Provides some of the potential synergistic benefits of a merger or acquisition, but with less risk and greater levels of flexibility. Permits a "test" of whether a future merger between the partners would benefit both parties.
International Synergistic Strategic Alliance
Allows risk sharing by reducing financial investment Host partner knows local market and customs International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints. Must gauge partner's strategic intent such that the partner does not gain access to important technology and become a competitor.
Learning and Developing New Capabilities
An acquiring firm can gain capabilities that the firm does not currently possess: - Special technological capability - A broader knowledge base - Reduced inertia Firms should acquire other firms with different but related and complementary capabilities in order to build their own knowledge base.
Takeover
An acquisition in which the target firm did not solicit the acquiring firm's bid for outright ownership.
Dynamic Alliance Network
Arrangements that evolve in industries with *rapid technological change* leading to short product life cycles. Primarily used to stimulate rapid, value-creating product innovation and subsequent successful market entries. Purpose is often exploration of new ideas.
Separation of Ownership and Managerial Control
Basis of the modern corporation Shareholders purchase stock, becoming residual claimants. Shareholders reduce risk by holding diversified portfolios. Professional managers are contracted to provide decision making. Modern public corporation form leads to efficient specialization of tasks: Risk bearing by shareholders Strategy development and decision making by managers
Two Strategy Levels
Business-Level Strategy (Competitive) - each business unit in a diversified firm chooses a business level strategy as its means of competing in its *individual product markets* Corporate-Level Strategy (Company-Wide) - specifies actions taken by the firm to gain a competitive advantage by selecting and managing a group of different businesses competing in *different product markets*
Hostile Takeover Defense Strategies
Capital structure change: dilute stock, recapitalization, issue new debt, share buybacks. (Medium success, inconclusive effect on shareholder wealth) Corporate charter amendment: stagger elections of board members (very low, negative effect) Golden parachute: lump sum payment to ceo when firm is taken over (low, negligible effect) Greenmail: repurchase stock from hostile party at a premium in exchange for agreement to stop takeover bid (medium, negative effect) *Litigation:* lawsuit, like antitrust or inadequate disclosure (low success, positive effect) *Poison pill:* make stock unattractive, like loading up on debt (high, positive) Standstill agreement: contract that you won't buy more shares for a period in exchange for a fee (low, negative)
Demand Conditions
Characterized by the nature and size of buyers' needs in the home market for the industry's goods or services. - Size of the market segment can lead to scale-efficient facilities. - Efficiency can lead to domination of the industry in other countries. - Specialized demand may create opportunities beyond national boundaries.
Competition Reducing Alliances
Created to avoid destructive or excessive competition Explicit Collusion: when firms directly negotiate production output and pricing agreements to reduce competition (illegal). OPEC Tacit Collusion: when firms indirectly coordinate their production and pricing decisions by observing other firm's actions and responses. Comcast/Time Warner
Synergistic Strategic Alliance
Creates joint economies of scope between two or more firms. Creates synergy across multiple functions or multiple businesses between partner firms.
International Cooperative Strategy
Cross-border Strategic Alliance Synergistic Strategic Alliance
Diversification and Performance
Curvilinear Relationship between Diversification and Performance get best performance in the middle, related constrained! too much diversification is bad, unrelated businesses muddy your strategy too little diversification is also bad, not taking advantage of opportunities
International Diversification and Returns
Expanding sales of goods or services across global regions and countries and into different geographic locations or markets: - May increase a firm's returns (such firms usually achieve the most positive stock returns). - May achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns. - May yield potentially greater returns on innovations (a larger market). - Can generate additional resources for investment in innovation. - Provides exposure to new products and processes in international markets; generates additional knowledge leading to innovations.
Complexity of Managing Multinational Firms
Expansion into global operations in different geographic locations or markets: Makes implementing international strategy increasingly complex. Can produce greater uncertainty and risk. May result in the firm becoming unmanageable May cause the cost of managing the firm to exceed the benefits of expansion. Exposes the firm to possible instability of some national governments. Management Problems Cost of coordination across diverse geographical business units Institutional and cultural barriers Understanding strategic intent of competitors The overall complexity of competition
Overcoming Entry Barriers
Factors associated with the market or with the firms operating in it that increase the expense and difficulty for new firms in gaining immediate market access. By: economies of scale, or differentiated products
International Business Level Strategy
Follows generic strategies of cost-leadership, differentiation, focused or integrated
Executive Compensation
Forms of compensation: Salaries, bonuses, long-term performance incentives, stock awards, stock options Factors complicating executive compensation: Strategic decisions by top-level managers are complex, nonroutine and affect the firm over an extended period. Other variables affecting the firm's performance over time. Limits on the effectiveness of executive compensation: Unintended consequences of stock options Firm performance not as important than firm size Balance sheet not showing executive wealth Options not expensed at the time they are awarded
Increased Market Power
Gives the ability to sell goods or services above competitive levels. Costs of primary or support activities are below those of competitors. A firm's size, resources, and capabilities gives it a superior ability to compete How: Horizontal acquisitions of other firms in the same industry Vertical acquisitions of suppliers or distributors of the acquiring firm Related acquisitions of firms in related industries
Board of Directors
Group of elected individuals that acts in the owners' interests to formally monitor and control the firm's top-level executives Board has the power to: -Direct the affairs of the organization -Punish and reward managers -Protect owners from managerial opportunism Composition: Insiders: ceo and tmt Related Outsiders: non-work relationship with firm employees Outsiders: third party independent Criticism: -Too readily approve managers' self-serving initiatives -Are exploited by managers with personal ties to board members -Are not vigilant enough in hiring and monitoring CEO behavior - Lack of agreement about the number of and most appropriate role of outside directors. Fix Concerns: -More diversity in the backgrounds of board members -Stronger internal management and accounting control systems -More formal processes to evaluate the board's performance -Adopting a "lead director" role. -Changes in compensation of directors.
Cost of New-Product Development and Increased Speed to Market
Internal development of new products is often perceived as a high-risk activity - Acquisitions allow a firm to gain access to new and current products that are new to the firm. - Returns are more predictable because of the acquired firms' past experience with its products. An acquisition's outcomes can be estimated more easily and accurately than the outcomes of an internal product development process. - Managers may view acquisitions as lowering risk associated with internal ventures and R&D investments. - Acquisitions may discourage or suppress innovation.
S-Curve
International diversification increases performance along an S curve 1. lose money as you invest capital in move overseas 2. gradually increase performance 3. performance peaks and falls off if you are too global, hard to oversee that many corporate and business-level strategies!
Governance Mechanisms and Ethical Behavior
It is important to serve the interests of the firm's multiple stakeholder groups! Capital Market Stakeholders: - shareholders are most important stakeholder group - focus of governance mechanisms is to control managers to assure shareholder interests - board of directors serve shareholder interests Product Market Stakeholders: - customers, suppliers, and host communities may withdraw their support of the firm if their minimum needs are not met Organizational Stakeholders: - ethically responsible companies design and use governance that serves all groups, including employees ENRON, WorldCom, HealthSouth, Tyco are examples of unethical behavior!!
Ch 7 Videos
Lafarge Holcim - merger of equals Airtran and Southwest acquisition Louis Vuitton Disney
Factors of Production
Land, labor, and capital; the three groups of resources that are used to make all goods and services - includes digital communication systems, educated workforce, other intangibles Inputs necessary to compete in any industry
Ownership Concentration
Large block shareholders have a strong incentive to monitor management closely: - Their large stakes make it worth their while to spend time, effort and expense to monitor closely. - They may also obtain board seats which enhances their ability to monitor effectively. - Financial institutions are legally forbidden from directly holding board seats. The increasing influence of institutional owners (stock mutual funds and pension funds) - have size (proxy voting power) and incentive (demand for returns to funds) to discipline ineffective top-level managers - can affect the firm's choice of strategies Shareholder Activism: - Shareholders can convene to discuss corporation's direction. - If a consensus exists, shareholders can vote as a block to elect their candidates to the board. - Proxy fights. - There are limits on shareholder activism available to institutional owners in responding to activists' tactics
Stable Alliance Network
Long term relationships that often appear in *mature industries* where demand is relatively constant and predictable Stable networks are built for exploitation of the economies (scale and/or scope) available between the firms
Case Studies
Louis Vuitton Moet Hennessy Marvel Renault-Nissan Lehman Brothers (not on test? but go over after class)
Ch 8 Videos
Netflix: going global since 2012, almost half of revenue is from overseas, expanding outside saturated US market (hulu, amazon, disney) RioTinto: mining and raw materials company, went global to gain access to new markets and local raw materials Hong Kong Disney Land: transnational, use local food and language but highly standardized rides, logos, merchandise. Space Mountain is the same at all disney land parks.
Acquisition
One firm buys a controlling, or 100% interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio
Global Corporate Governance
Organizations worldwide are adopting a relatively uniform governance structure. - Boards of directors are becoming smaller, with more independent and outside members. - Investors are becoming more active. - In rapidly developing market economies, minority shareholder rights are not protected by adequate governance controls.
Manage Agents
Ownership Concentration Board of Directors Executive Compensation Market for Corporate Control
Competitive Risks of Cooperative Strategies
Partners may act opportunistically. Partners may misrepresent competencies brought to the partnership. Partners fail to make committed resources and capabilities available to other partners. One partner may make investments that are specific to the alliance while its partner does not. *Risk and Asset Management Approaches* 1. Detailed Contracts and Monitoring 2. Developing Trusting Relationships
Equity Strategic Alliance
Partners who own different percentages of equity in a separate company they have formed.
Risks in an International Environment
Political Risks - Instability in national governments - War, both civil and international - Potential nationalization of a firm's resources Economic Risks - Differences and fluctuations in the value of different currencies - Differences in prevailing wage rates - Difficulties in enforcing property rights - Unemployment
Agency Relationship Problems
Principal and agent have divergent interests and goals. Shareholders lack direct control of large, publicly traded corporations. Agent makes decisions that result in the pursuit of goals that conflict with those of the principal. It is difficult or expensive for the principal to verify that the agent has behaved appropriately. Agent falls prey to managerial opportunism.
Moderate to High Levels of Diversification
Related Constrained: Less than 70% of revenue comes from a single business and all businesses *share* product, technological, and distribution linkages. Related Linked: (mixed related and unrelated) Less than 70% of revenue comes from the dominant business, and there are only *limited links* between businesses
Transnational Strategy
Seeks to achieve both global efficiency and local responsiveness. Difficult to achieve because of simultaneous requirements for: Strong central control and coordination to achieve efficiency Decentralization to achieve local market responsiveness Pursuit of organizational learning to achieve competitive advantage.
An Agency Relationship
Shareholders (principals) are the owners. They hire Managers (agents) who are decision makers. This creates an agency relationship: risk-bearing specialist (principal) paying compensation to a managerial decision-making specialist (agent).
Low Level of Diversification
Single Business: More than 95% of revenue comes from a single business (Wrigley's Spearmint) Dominant Business: Between 70% and 95% of revenue comes from a single business (Lifetouch)
Reasons for Strategic Alliances
Slow-Cycle: -gain access to a restricted market -establish a franchise in a new market -maintain market stability (establish standards) Fast-Cycle: -speed up development of new goods/services -speed up new market entry -maintain market leadership -form an industry technology standard -share risky R&D expenses -overcome uncertainty Standard-Cycle -gain market power (reduce industry overcapacity) -gain access to commplementary resources -establish better economies of scale -overcome trade barriers -meet competitive challenges form other competitors -pool resources for very large capital projects -learn new business techniques
Franchising
Spreads risks and uses resources, capabilities, and competencies without merging or acquiring another firm A contractual relationship (franchise) is developed between two parties, the franchisee and the franchisor An alternative to pursuing growth through mergers and acquisitions
Related and Supporting Industries
Supporting services, facilities, suppliers and so on. Support in design Support in distribution Related industries as suppliers and buyers
Ch 9 & 10 Videos
TagHeuer + Intel + Google: luxury watch is their competency, chip hardware is intel specialty, android software is google competency. Same time google is learning to make smart watches from tagheuer production secrets. SkyTeam: stable network alliance, 20 airline companies conference together, have seat sharing, employees, terminals, work together to reduce competition and lower costs Cisco: conference for standardized telecom, example of dynamic alliance, rapid technological change! Same with intel chips. Tesla: Agency problem, Elon Musk tweeted and hurt stock performance! goes against shareholder desires. Larry Fink Blackrock: wrote letter to apple to not listen to activist investors, but blackrock company supports activists! contradictory. SANY: chinese company, got subsidy as small business, then went private to sell shares internationally and grow. compete with caterpillar
Examples of agency problems
The Problem of Product Diversification Increased size, and the relationship of size to managerial compensation Reduction of managerial employment risk Use of Free Cash Flows Managers prefer to invest these funds in additional product diversification (see above). Shareholders prefer the funds as dividends so they control how the funds are invested.
Firm Strategy, Structure and Rivalry
The pattern of strategy, structure, and rivalry among firms. Common technical training Methodological product and process improvement Cooperative and competitive systems
market for corporate control
The purchase of a firm that is underperforming relative to industry rivals in order to improve its strategic competitiveness Threat of takeover may lead firm to operate more efficiently. Changes in regulations have made hostile takeovers difficult. Managerial defense tactics increase the costs of mounting a takeover. Defense tactics may require: - asset restructuring - financial structure change - shareholder approval Lacks the precision of internal governance mechanisms
International Corporate Level Strategy
The type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies. - Some strategies provide individual country units with the flexibility to choose their own strategies. - Other strategies dictate business-level strategies from the home office and coordinate resource sharing across units. Focuses on the scope of operations: - Product diversification - Geographic diversification Required when the firm operates in: Multiple industries, and Multiple countries or regions *Headquarters unit guides the strategy* - But business or country-level managers can have substantial strategic input.
Joint Venture
Two or more firms create a legally independent company by sharing some of their resources and capabilities.
Non-Equity Strategic Alliance
Two or more firms develop a contractual relationship to share some of their unique resources and capabilities. No equity sharing is involved.
Very High Levels of Diversification
Unrelated: Less than 70% of revenue comes from the dominant business, and there are *no common links* between businesses
Uncertainty Reducing Alliances
Used to hedge against risk and uncertainty These alliances are most noticed in fast-cycle markets. An alliance may be formed to reduce the uncertainty associated with developing new product or technology standards. Ex: MS Windows alliance with pc manufacturers to standardize OS *competitive advantage tends to be temporary*
Corporate-Level Cooperative Strategy
Used to help a firm diversify in terms of products or markets or both require fewer resource commitments permit greater flexibility in terms of efforts to diversify partners' operations *Three Types*: 1. Diversifying 2. Synergistic 3. Franchising *Assessment*: - compared to business level strategies these are broader in scope, more complex, more costly! -can lead to competitive advantage and value when: 1. successful alliance experiences are internalized, or 2. the firm uses such strategies to develop useful knowledge about how to succeed in the future
Increased Diversification
Using acquisitions to diversify a firm is the quickest and easiest way to change its portfolio of businesses. Both related diversification and unrelated diversification strategies can be implemented through acquisitions. The more related the acquired firm is to the acquiring firm, the greater is the probability that the acquisition will be successful.
Corporate Level Strategy
Value: the degree to which the businesses in the portfolio are *worth more* under the management of the firm than they would be under other ownership Key Questions: - what businesses should the firm be in? - how should the corporate office manage the group of businesses?
Ch 6 Videos
Walt Disney Company - Honda Corporate - GE reboot plan - cut dividends by half, cut assets, etc. to use money towards restructuring - going forward, create the most value from the portfolio of assets we have, focus on core businesses and exit a dozen other businesses
Cross-Border Strategic Alliance
a strategy in which firms with *headquarters in different countries* decide to combine some of their resources to create a competitive advantage A firm may form cross-border strategic alliances to leverage core competencies that are the foundation of its domestic success to expand into international markets.
New wholly owned subsidiary
complex, often costly, time consuming, high risk, maximum control, potential above-average returns
International Modes of Entry
exporting, licensing, strategic alliances, acquisitions, new wholly owned subsidiary (after addressing management problems and risk, strategic competitive outcomes are *improved performance* and *enhanced innovation*)
Exporting
high cost, low control
Licensing
low cost, low risk, little control, low returns
Multidomestic Strategy
low global integration, high local responsiveness Strategy and operating decisions are *decentralized to strategic business units* (SBU) in each country. - Products and services are *tailored to local* markets. - Business units in one country are independent of each other. - Assumes markets differ by country or regions. - Focus on competition in each market. - Prominent strategy among European firms due to broad variety of cultures and markets in Europe.
Competition Response Alliances
occur when firms join forces to respond to a strategic action of another competitor Because they can be difficult to reverse and expensive to operate, strategic alliances are primarily formed to respond to strategic rather than tactical actions *competitive advantage tends to be temporary*
Strategic Investment
one firm investing in another as a strategic investor
Acquisitions
quick access to new markets, high costs, complex negotiations, problems of merging with domestic operations
Strategic Alliances
shared costs, shared resources, shared risks, problems of integration (e.g. two corporate cultures)
Corporate Governance
the set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations concerned with identifying ways to ensure that strategic decisions are made more effectively used in corporations to establish harmony between the firm's owners and its top-level managers whose interests may be in conflict (agency problem)
Merger
two firms agree to integrate their operations on a relatively co-equal basis
