Global Insights Exam 3
functional strategies
- "How will we manage the functions of finance, marketing, operations, human resources, and R&D in ways consistent with our international corporate and business strategies?"
Government Policies
- Export promotion policies, export financing programs, and other forms of home country subsidization encourage exporting as an entry mode. - host countries may impose tariffs and nontariff barriers (NTBs) on imported goods, thereby discouraging the firm from relying on exports as an entry mode
Licensee
- Firm that buys the rights to use the intellectual property of another firm - pays a royalty back to the licensor
Licensor
- Firm that sells the rights to use its intellectual property to another firm - earns new revenues with relatively low investment
4. Tactics
- Methods used by middle managers to implement strategic plans - Grand Metropolitan, a huge British food company, and Guinness, a major British spirits maker, merged to create Diageo PLC, one of the world's largest consumer products companies.
Disadvantages of related diversification
- cost of coordinating the operations of the related divisions. - possibility that all the firm's business units may be affected simultaneously by changes in economic conditions.
Distribution Issues
- firm captures additional revenues by performing the distribution function - maintains control over the distribution process, thereby avoiding the problems that we discuss in the following paragraphs.
conglomerates
- the term used for firms comprising unrelated businesses
Global Strategy
-views the world as a single marketplace and has as its primary goal the creation of standardized goods and services that will address the needs of customers worldwide. - assumes that customers are fundamentally the same regardless of their nationalities - views the world market as a single entity as it develops, produces, and sells its products. - concentrating its production activities in a handful of highly efficient factories and then creating global advertising and marketing campaigns to sell those goods. -most appropriate when the pressures for global integration are high but the need for local responsiveness is low
Acquisition strategy (Brownfield Strategy)
Form of foreign direct investment involving the purchase of existing assets in a foreign country
Licensing
Transaction in which a firm (Licensor) sells the rights to use its intellectual property to another firm (licensee) for a fee
Manufacturers export agents
act as a foreign sales department for domestic manufacturers, selling those firms' goods in foreign markets.
Franchising
allows the franchisor more control over the franchisee and provides for more support from the franchisor to the franchisee than is the case in the licensor-licensee relationship.
Export and Import brokers
bring together international buyers and sellers of such standardized commodities as coffee, cocoa, and grains
Objective measures include
changes in per capita income, energy consumption, GDP, and ownership of consumer durables such as private automobiles
Royalty
compensation paid by a licensee to a licensor
international strategies
comprehensive frameworks for achieving a firm's fundamental goals.
international R&D strategy
concerned with the magnitude and direction of the firm's investment in creating new products and developing new technologies.
International marketing strategy
concerns the distribution and selling of the firm's products or services. It addresses questions of product mix, advertising, promotion, pricing, and distribution.
Franchisee
independent entrepreneur or organization to operate a business under the name of another
International strategic management
is a comprehensive and ongoing management planning process aimed at formulating and implementing strategies that enable a firm to compete effectively internationally.
Liability of foreignness
reflects the informational, political, and cultural disadvantages that foreign firms face when trying to compete against local firms in the host country market.
worldwide learning
requires the transfer of information and experiences from the parent to each subsidiary, from each subsidiary to the parent, and among subsidiaries.
manufacturer's agents
solicit domestic orders for foreign manufacturers, usually on a commission basis
synergy and competitive advantage
some combination of market entry, risk sharing, and learning potential, each collaborating firm will be able to achieve more and to compete more effectively than if it had attempted to enter a new market or industry alone
Freight Forwarders
specialize in the physical transportation of goods, arranging customs documentation, and obtaining transportation services for their clients.
what type of strategy do Disney managers use?
strategic management
ownership advantages
tangible or intangible resources owned by a firm that grant it a competitive advantage over its industry rivals.
Direct costs
those the firm incurs in entering a new foreign market and include costs associated with setting up a business operation (leasing or buying a facility, for example), transferring managers to run it, and shipping equipment and merchandise.
Business Strategy
- "How should we compete in each market we have chosen to enter?" - focuses on specific businesses, subsidiaries, or operating units within the firm. - helps the firm improve its distinctive competence for that business or unit. - three basic forms of business strategy are differentiation, overall cost leadership, and focus.25
2. SWOT analysis
- Analysis of a firm and its environment to determine its strengths, weaknesses, opportunities, and threats. - environmental scan: identify both opportunities (the O in SWOT) and threats (the T in SWOT) confronting the firm. - Organizational strengths are skills, resources, and other advantages the firm possesses relative to its competitors. Potential strengths, which form the basis of a firm's distinctive competence, might include an abundance of managerial talent, cutting-edge technology, well-known brand names, surplus cash, a good public image, and strong market shares in key countries. - weaknesses reflect deficiencies or shortcomings in skills, resources, or other factors that hinder the firm's competitiveness. They may include poor distribution networks outside the home market, poor labor relations, a lack of skilled international managers, or product development efforts that lag behind those of competitors. - Value Chain - Boeing continuously monitors changes in political and economic forces that affect air travel. In China, political shifts in the early 1990s to allow more competition in the air travel market led the government to split the giant state-owned carrier CAAC into competing regional carriers and to allow Hong Kong's Cathay Pacific airline to offer air travel within China
Foreign Direct Investment (FDI)
- Control is particularly important to the firm if it needs to closely coordinate the activities of its foreign subsidiaries to achieve strategic synergies - FDI is also beneficial if host country customers prefer dealing with local factories - FDI exposes the firm to greater economic and political risks and operating complexity, as well as the potential erosion of the value of its foreign investments if exchange rates change adversely.
Access to information
- Limited access to information is another drawback of many strategic alliances. - one partner (or both) may have to provide the other with information it would prefer to keep secret. - between Ford and Mazda to work on the design of a new Ford sedan almost stalled when Mazda officials would not allow their Ford counterparts to visit their research laboratory. After several weeks of arguing, a compromise was eventually reached whereby Ford engineers could enter the facility but only for a limited time.
How to pick between home vs host country
- Relative wage rates and land acquisition cost - surplus or unused capacity in existing factories, - access to research and development (R&D) facilities - logistical requirements - the needs of customers - additional administrative costs of managing a foreign facility. - Political risk
unrelated diversification
- a firm operates in several unrelated industries and markets. - These operations are unrelated to each other, and there is little reason to anticipate synergy among such diverse operations and businesses. - GE owns such diverse business units as a lighting manufacturer, a medical technology firm, an aircraft engine producer, an oil field services company, and an investment bank
Disadvantages of Acquisition Strategy
- acquiring firm assumes all the liabilities—financial, managerial, and otherwise—of the acquired firm - acquired firm has poor labor relations, unfunded pension obligations, or hidden environmental cleanup liabilities, the acquiring firm becomes financially responsible for solving the problem. - spend substantial sums up front - Kraft purchased Britain's Cadbury PLC for $19 billion in 2010, it had to pay out this vast sum shortly after the deal was closed.
management contract
- an agreement whereby one firm provides managerial assistance, technical expertise, or specialized services to a second firm for some agreed-on time in return for monetary compensation. - specify performance bonuses based on profitability, sales growth, or quality measures. - allow firms to earn additional revenues without incurring any investment risks or obligations. - subsidiary of Hilton Hotels, for example, offers hotel management and reservation services to hotels that bear the Hilton logo but that are not company-owned. - major airlines such as Air France, British Airways, and Lufthansa often sell their management expertise to small state-owned airlines headquartered in developing countries.
Resource Deployment
- answers the question: "Given that we are going to compete in these markets, how should we allocate our resources to them?" - might be specified along product lines, geographical lines, or both. - Disney invested nothing in Tokyo Disneyland and limited its original investment in Disneyland Paris to 49 percent of its equity and in Hong Kong to 47 percent. But it continues to invest heavily in its U.S. theme park operations and in filmed entertainment. - Boeing, the leading U.S. exporter, concentrates final assembly of most of its commercial aircraft in the Seattle, Washington, region. Although it buys materials and sells aircraft globally, it has limited much of its production resource deployment to its home country.
Synergy
- answers the question: "How can different elements of our business benefit each other?" - create a situation in which the whole is greater than the sum of the parts. - Disney has excelled at generating synergy in the United States. People know the Disney characters from television, so they plan vacations to Disney theme parks.
Turnkey Project
- contract under which a firm agrees to fully design, construct, and equip a facility, then turn the project over to the purchaser when it is ready for operation. - involve large, complex, multiyear projects such as construction of a nuclear power plant, an airport, or an oil refinery. - may be for a fixed price, in which case the firm makes its profit by keeping its costs below the fixed price.
Marketing concerns
- image, distribution, and responsiveness to the customer, may also affect the decision to export.
Scope of operations
- answers the question: "Where are we going to conduct business?" - geographical regions, such as countries, regions within a country, or clusters of countries. - may focus on market or product niches within one or more regions, such as the premium-quality market niche, the low-cost market niche, or other specialized market niches. - geographical scope of Disney's current theme park operations consists of the United States, Japan, France, Hong Kong, and Shanghai, whereas the geographical scope of its movie distribution and merchandise sales operations reaches almost 200 countries. - Grupo Luksic, a family-owned conglomerate with interests in beer, copper, banking, hotels, railroads, telecommunications, and ranching in Chile and neighboring countries. - Ballantyne Strong, a small ($76 million in annual revenues) Nebraska-based company, is sharply focused, just like its primary product: feature-film projectors, a market it has mastered in the United States and abroad
Location advantages
- are those factors that affect the desirability of host country production relative to home country production. - Siam Cement, one of the world's lowest cost producers, initially relied on exports from its modern domestic factories to serve the ASEAN market rather than setting up production facilities outside Thailand
Comprehensive alliances
- arise when the participating firms agree to perform together multiple stages of the process by which goods or services are brought to the market: R&D, design, production, marketing, and distribution. - firms must establish procedures for meshing such functional areas as finance, production, and marketing for the alliance to succeed. - General Mills and Nestlé created a comprehensive JV, CPW, to market cereal in Europe in the face of fierce, entrenched competition from Kellogg.
Transnational Strategy
- attempts to combine the benefits of global scale efficiencies, such as those pursued by a global corporation, with the benefits and advantages of local responsiveness, which is the goal of a multidomestic corporation. - carefully assigns responsibility for various organizational tasks to that unit of the organization best able to achieve the dual goals of efficiency and flexibility. - locate responsibility for one product line in one country and responsibility for a second product line in another. -most appropriate when pressures for global integration and local responsiveness are both high - Ford Motor Company now has a single manager responsible for global engine and transmission development
Corporate Strategy
- attempts to define the domain of businesses in which the firm intends to operate - Sony competes in the global market for consumer electronics and entertainment but has not broadened its scope into home and kitchen appliances. Archrival Panasonic spans all these industries, while Pioneer Corporation focuses only on electronic audio and video products.
differentiation strategy
- attempts to establish and maintain the image (either real or perceived) that the SBU's products or services are fundamentally unique from other products or services in the same market segment. - successful at establishing a high-quality image, they can charge higher prices for their products or services. - Rolex sells its timepieces worldwide for premium prices. The firm limits its sales agreements to only a few dealers in any given area, stresses quality and status in its advertising, and seldom discounts its products. - Coca-Cola (nonalcoholic bottled beverages), Nikon (cameras), Louis Vuitton (leather goods), and Prada (fashion accessories).
Value Chain
- breakdown of the firm into its important activities—production, marketing, human resource management, and so forth—to enable its strategists to identify its competitive advantages and disadvantages. - quality of Caterpillar's products (Research, Development, and Product Design in the figure) and the strength of its worldwide dealership network (Distribution and After-Sales service in the figure) are among its organizational strengths, but a history of contentious labor relations (Human Resource Management in the figure) represents one of its organizational weaknesses.
Strategic alliances
- business arrangements whereby two or more firms choose to cooperate for their mutual benefit - may agree to pool R&D activities, marketing expertise, or managerial talent. - results from cooperation among two or more firms. - motivated to promote its own self-interest but has determined that cooperation is the best way to achieve its goals, as was the case for the merchant guilds that formed the Hanseatic League. - Kodak and Fuji—two fierce competitors in the film market—formed a strategic alliance with camera manufacturers Canon, Minolta, and Nikon to develop a new standard for cameras and film, the Advanced Photo System, to make picture taking easier and more goof-proof.2
overall cost leadership strategy
- calls for a firm to focus on achieving highly efficient operating procedures so that its costs are lower than its competitors'. - allows it to sell its goods or services for lower prices. - successful overall cost leadership strategy may result in lower levels of unit profitability due to lower prices but higher total profitability because of increased sales volume - France's Bic Pen Company - Timex (watches), Vizio (high-definition TVs), Hyundai (automobiles), Aldi (grocery stores), and SK Hynix (DRAM memory chips).
single business strategy
- calls for a firm to rely on a single business, product, or service for all its revenue. - firm can concentrate all its resources and expertise on that one product or service - increases the firm's vulnerability to its competition and to changes in the external environment - Singapore Airlines, McDonald's, and Facebook, have found the single-business strategy a rewarding one.
focus strategy
- calls for a firm to target specific types of products for certain customer groups or regions, such as a retailer specializing in maternity clothes or "big and tall" clients. - groups might be characterized by geographical region, ethnicity, purchasing power, tastes in fashion, or any other factor that influences their purchasing patterns. - Patagonia produces high-quality, high-priced outdoor gear coupled with a strong commitment to environmental protection and social justice. - Denmark's Bang and Olufsen focuses on producing elegantly designed high-end audio products, thereby meeting the needs of customers with demanding standards in both form and function.
R&D consortium
- confederation of organizations that band together to research and develop new products and processes for world markets. - represents a special case of strategic alliance in that governmental support plays a major role in its formation and continued operation
Advantages of Unrelated Diversification
- corporate parent may be able to raise capital more easily than any of its independent units can separately The parent can then allocate this capital to the most profitable opportunities available among its subsidiaries. - overall riskiness may be reduced because a firm is less subject to business cycle fluctuations. - firm is less vulnerable to competitive threats because any given threat is likely to affect only a portion of the firm's total operations. - firm can more easily shed unprofitable operations because they are independent. - can buy new operations without worrying about how to integrate them into existing businesses.
Joint Ventures
- created when two or more firms agree to work together and create a jointly owned separate firm to promote their mutual interests. - normally established as corporations and are owned by the founding parents in whatever proportions they negotiate - General Motors and China's state-owned SAIC Motors each own 50 percent of their joint venture, Shanghai General Motors Ltd., which is among the leaders in the huge Chinese automobile market.3
international financial strategy
- deals with such issues as the firm's desired capital structure, investment policies, foreign-exchange holdings, risk-reduction techniques, debt policies, and working-capital management. - develops a financial strategy for the overall firm as well as for each SBU.
international operations strategy
- deals with the creation of the firm's products or services. - guides decisions on such issues as sourcing, plant location, plant layout and design, technology, and inventory management.
shared management agreement
- each partner fully and actively participates in managing the alliance. - partners run the alliance, and their managers regularly pass on instructions and details to the alliance's managers - requires a high level of coordination and near-perfect agreement between the participating partners. - Coca-Cola and France's Groupe Danone to distribute Coke's Minute Maid orange juice in Europe and Latin America. This JV combines Danone's distribution network and production facilities—Danone supplies between 15 and 30 percent of the dairy products sold by supermarkets in these countries—with the Minute Maid brand name.
Changing Circumstances
- economic conditions that motivated the cooperative arrangement may no longer exist, or technological advances may have rendered the agreement obsolete - Samsung bought out Sony's interests in a seven-year-old JV to produce LCD screens for high-definition TVs
Ease of Market Entry
- entrenched competition or hostile government regulations - Yet the costs of speed and boldness are often high and beyond the capabilities of a single firm. - Ford recently created a joint venture in China with a Chinese car company, Anhui Zotye Automobile, to produce electric vehicles, allowing the two companies to combine their R&D, manufacturing, and marketing expertise - entered into a JV with Wanda Cinema Line, the operator of China's largest theater chain, that will install 360 IMAX theaters in China. IMAX supplies its specialized projection equipment and technology, while Wanda will build the theaters
RISKS of entering a new market
- exchange rate fluctuations, additional operating complexity, and direct financial losses resulting from inaccurate assessment of market potential. - result of war or terrorism - continued inability to reach the right decisions may threaten the firm's existence.
Advantages of International franchising
- expand internationally with relatively low risk and cost. - obtain critical information about local market customs and cultures from host country entrepreneurs that it otherwise might have difficulty obtaining - learn valuable lessons from franchisees that apply to more than the host country - McDonald's, for example, benefited from this worldwide learning phenomenon - Japanese franchisee convinced the firm to allow it to open a restaurant in an inner-city office building. It quickly became one of the firm's most popular restaurants. Because of the insight of its Japanese franchisee, McDonald's now has restaurants in downtown locations in many cities throughout the world.
BENEFITS of entering a new market
- expected sales and profits from the market. - lower acquisition and manufacturing costs (if materials or labor are cheap), - foreclosing of markets to competitors (which limits competitors' ability to earn profits), - competitive advantage (which allows the firm to keep ahead of or abreast with its competition), - access to new technology, and the opportunity to achieve synergy with other operations.
Reactive motivations
- exporting are those that push a firm into foreign markets, often because opportunities are decreasing in the domestic market. - production lines are running below capacity or because they seek higher profit margins in foreign markets in the face of downturns in domestic demand.
B-O-T project
- firm builds a facility, operates it, and later transfers ownership of the project to some other party. - contractor profits from operation and ownership of the project for some period of time but bears any financial risks associated with it during this period
Exporting Advantages
- firm can control its financial exposure to the host country market as it deems appropriate - Little or no capital investment may be needed if the firm chooses to hire a host country firm to distribute its products. - permits a firm to enter a foreign market gradually, thereby allowing it to assess local conditions and fine-tune its products to meet the idiosyncratic needs of host-country consumers.
Advantages of Greenfield Strategy
- firm can select the site that best meets its needs and construct modern, up-to-date facilities - clean slate - Managers do not have to deal with existing debts, nurse outmoded equipment, or struggle to modify ancient work rules protected by intransigent labor unions.
strategy implementation
- firm develops the tactics for achieving the formulated international strategies. - usually achieved via the organization's design, the work of its employees, and its control systems and processes. - Disney's decision to build Hong Kong Disneyland was part of strategy formulation. Deciding which attractions to include, when to open, what to charge for admission, and how to leverage its investment in the park to penetrate the TV, movie, and character licensing markets in China is part of strategy implementation
international trading company
- firm directly engaged in importing and exporting a wide variety of goods for its own account. - provides a full gamut of services, including market research, customs documentation, international transportation and host country distribution, marketing, and financing. - most important international trading companies in the global marketplace are Japan's sogo shosha, which are an integral part of Japan's keiretsu system
Logistical Considerations
- firm must consider the physical distribution costs of warehousing, packaging, transporting, and distributing its goods, as well as its inventory-carrying costs and those of its foreign customers - higher for exported goods than for locally produced goods. - longer supply lines and increased difficulties in communicating with foreign customers, firms choosing to export from domestic factories must ensure that they maintain competitive levels of customer service for their foreigncustomers.
Compatibility
- firm should select a compatible partner that it can trust and with whom it can work effectively - alliance between General Electric Corporation (a UK firm unrelated to the U.S. firm of the same name) and the German firm Siemens failed because of incompatible management styles.
Export Management Company (EMC)
- firm that acts as its client's export department. Most are small operations that rely on the services of a handful of professionals. - commission agents for exporters. They handle the details of shipping, clearing customs, and document preparation in return for an agreed-on fee. - title to the goods. They make money by buying the goods from the exporter and reselling them at a higher price to foreign customers
home replication strategy
- firm uses the core competency or firm-specific advantage it developed at home as its main competitive weapon in the foreign markets that it enters. - takes what it does exceptionally well in its home market and attempts to duplicate it in foreign markets. - Mercedes-Benz's home replication strategy, for example, relies on its well-known brand name and its reputation for building well-engineered, luxurious cars capable of traveling safely at high speeds - home replication strategy is often adopted by firms when both the pressures for global integration and the need for local responsiveness are low, as the lower left-hand cell
Difference between home replication and global strategy
- firm using the home replication strategy believes that if its business practices work in its domestic market, then they should also work in foreign markets. - global firm thinks of its market as a global one, not one divided into domestic and foreign segments. The global firm tries to figure out the best way to serve all of its customers in the global market, and then does so.
distinctive competence
- first component of international strategy, answers the question: "What do we do exceptionally well, especially as compared to our competitors?" - may be cutting-edge technology, efficient distribution networks, superior organizational practices, or well-respected brand names. - represents an important resource to the firm. - Disney name, image, and portfolio of characters, for example, is a distinctive competence that allows the firm to succeed in foreign markets AND Windows operating systems gives Microsoft an advantage in competing with local firms outside the United States.
Market Potential
- first step in foreign market selection - provide data about population, gross domestic product (GDP), per capita GDP, public infrastructure, and ownership of such goods as automobiles and televisions. - A firm must then collect data relevant to the specific product line under consideration - consider the potential for growth in a country's economy by using both objective and subjective measures
International human resource strategy
- focuses on the people who work for an organization - guides decisions regarding how the firm will recruit, train, and evaluate employees and what it will pay them, as well as how it will deal with labor relations.
Production Alliance
- functional alliance in which two or more firms each manufacture products or provide services in a shared or common facility. - use a facility one partner already owns.
Marketing Alliance
- functional alliance in which two or more firms share marketing services or expertise. - one partner introduces its products or services into a market in which the other partner already has a presence. - U.S. toymaker Mattel and its Japanese rival Bandai established a strategic marketing alliance that served their mutual interests. Bandai agreed to distribute Mattel products such as Barbie dolls, Hot Wheels, and Fisher Price toys in Japan, and Mattel agreed to market Bandai's Power Rangers and Digimon in Latin America, where Mattel's distribution network is strong but Bandai's is nonexistent
financial alliance
- functional alliance of firms that want to reduce the financial risks associated with a project. - Partners may share equally in contributing financial resources to the project, or one partner may contribute the bulk of the financing while the other partner (or partners) provides special expertise or makes other kinds of contributions to partially offset its lack of financial investment. - Boeing and its three Japanese partners was created primarily for financial purposes—Boeing wanted the other firms to help cover R&D and manufacturing costs.
Advantages of Acquisition Strategy
- generate revenues as the purchaser integrates it into its overall international strategy - adds no new capacity to the industry.
Webb-Pomerene Association
- group of U.S. firms that operate within the same industry and that are allowed by law to coordinate their export activities without fear of violating U.S. antitrust laws. - engages in market research, overseas promotional activities, freight consolidation, contract negotiations, and other services for its members. - exporting by buying goods domestically from members and selling the goods in foreign markets on the association's behalf.
Franchisor
- independent entrepreneur or organization to operate a business under the name of another in return for a fee - provides its franchisees with trademarks, operating systems, and well-known product reputations, as well as continuous support services such as advertising, training, reservation services (for hotel operations), and quality assurance programs.
Greenfield Strategy
- involves starting a new operation from scratch - firm buys or leases land, constructs new facilities, hires or transfers in managers and employees, and then launches the new operation. - Samsung's semiconductor chip fabrication facility in Texas represents a greenfield investment, as does the Mercedes-Benz automobile assembly plant in Alabama and Nissan's factory in Sunderland, England.
competitive environment
- it should identify the number and sizes of firms already competing in the target market, their relative market shares, their pricing and distribution strategies, and their relative strengths and weaknesses, both individually and collectively. - must then weigh these factors against actual market conditions and its own competitive position - Kia entered the crowded North American automobile market believing low labor costs at its Korean factories would allow it to charge lower prices than entrenched competitors such as GM, Ford, Toyota, and Volkswagen.
Shared Knowledge and Expertise
- learn more about how to produce something, how to acquire certain resources, how to deal with local governments' regulations, or how to manage in a different environment—information that a partner often can offer - can then use the newly acquired information for other purposes.
3. Strategic Goals
- major objectives the firm wants to accomplish through pursuing a particular course of action - measurable, feasible, and time-limited - Disney set strategic goals for Disneyland Paris for projected attendance, revenues, and so on. Part of the park's resultant financial problems arose from the firm's goals not being met. Disney's strategic managers had to revise the firm's strategic plan and goals, taking into account the new information painfully learned from the first years of the park's unprofitable operation.
The Relative Safeness of the Alliance
- managers should gather as much information as possible about a potential partner before entering into a strategic alliance - General Mills and Nestlé is an example of this principle in action: Both are food-processing firms, but Nestlé does not make cereal, the product on which it is collaborating with General Mills. General Mills had a strong distribution network within its home market, but not internationally
Scope of Strategic Alliances
- may consist of a comprehensive alliance, in which the partners participate in all facets of conducting business, ranging from product design to manufacturing to marketing OR - may consist of a more narrowly defined alliance that focuses on only one element of the business, such as R&D.
related diversification
- most common corporate strategy, calls for the firm to operate in several different but fundamentally related businesses, industries, or markets at the same time. - allows the firm to leverage a distinctive competence in one market to strengthen its competitiveness in others. - Disney uses the related diversification strategy AND Accor SA also relied on the related diversification strategy to become one of the world's largest hotel operators.
International firm
- multiple governments, multiple currencies, multiple accounting systems, multiple political systems, multiple legal systems, and a variety of languages and cultures. - managers must also coordinate the implementation of their firm's strategy among business units located in different parts of the world with different time zones, different cultural contexts, and different economic conditions, as well as monitoring and controlling their performance
Sociocultural Influences
- must also consider sociocultural influences, which, because of their subjective nature, are often difficult to quantify. - firms often focus their initial internationalization efforts in countries culturally similar to their home markets - Canada was the location of Starbucks' and Hollister's first international outlets.
Disadvantages of International franchising
- must share the revenues earned at the franchised location - more complicated than domestic franchising. - control is also an issue - McDonald's expanded to Moscow, it had to teach local farmers how to grow potatoes that met its standards - McDonald's was once forced to revoke the franchise it had awarded a French investor because his stores were not maintained according to McDonald's standards.
Legal and Political Environment
- needs to understand the host country's trade policies and its general legal and political environments. - firm may choose to forgo exporting its goods to a country that has high tariffs and other trade restrictions in favor of exporting to one that has fewer or less significant barriers. - Ford, GM, Audi, and Mercedes-Benz built auto factories in Brazil to avoid that country's high tariffs and to use Brazil as a production platform to access other Mercosur members. - Government stability is an important factor in foreign market assessment. - Government regulation of pricing and promotional activities may need to be considered. - many governments restrict advertising for tobacco and alcohol products, so foreign manufacturers of those products must understand how those restrictions will affect their ability to market their goods in those countries. - Care and political impositions
Direct exporting
- occurs through sales to customers—either distributors or end-users—located outside the firm's home country. - firm gains valuable expertise about operating internationally and specific knowledge concerning the individual countries in which it operates. - Baskin-Robbins, for example, followed this deliberate approach in entering the Russian market. It began by shipping ice cream to that country in 1990 from company-owned plants in Canada and Texas
Indirect exporting
- occurs when a firm sells its product to a domestic customer, which in turn exports the product, in either its original form or a modified form. - firm may sell goods to a domestic wholesaler who then sells them to an overseas firm. A firm also may sell to a foreign firm's local subsidiary, which then transports the first firm's products to the foreign country. - Association of Guatemala Coffee Producers sells bags of coffee to passengers boarding international flights in Guatemala City to gain export sales and to build consumer awareness of its product.
assigned arrangement
- one partner assumes primary responsibility for the operations of the strategic alliance. - Boeing controls the overall operations of its strategic alliance with Fuji, Mitsubishi, and Kawasaki for the design and production of its 777 and 787 commercial aircraft - GM, with a 67-percent stake in a JV with Raba, a Hungarian truck, engine, and tractor manufacturer, has assumed management control over the venture's operations
public-private venture
- one that involves a partnership between a privately owned firm and a government - particular country does not allow wholly owned foreign operations. - should ensure that it thoroughly understands the expectations and commitments of both the host country's government and its prospective business partner
R&D alliances
- partners agree to undertake joint research to develop new products or services. - BMW and Toyota to conduct battery research destined for the next generation of electric-powered automobiles - Bayer AG formed R&D alliances with smaller biotechnology companies like Millennium Pharmaceuticals and MorphoSys to strengthen their joint search for new miracle drugs.
Conflicts over Distributing Earnings
- partners share risks and costs, they also share profits - partners must also agree on the proportion of the joint earnings that will be distributed to themselves as opposed to being reinvested in the business, the accounting procedures that will be used to calculate earnings or profits, and the way transfer pricing will be handled. - General Mills and Nestlé split the profits from their European JV on a 50/50 basis. -Rubbermaid ended its JV to manufacture and distribute rubber and plastic houseware products throughout Europe, North Africa, and the Middle East because its local partner, the Dutch chemical company DSM Group NV, resisted reinvesting profits to develop new products to expand the JV's sales as Rubbermaid preferred.48
The Learning Potential of the Alliance
- partners should also assess the potential to learn from each other. - Areas of learning can range from the specific—for example, how to manage inventory more efficiently or how to train employees more effectively - partner should carefully assess the value of its own information and not provide the other partner with any information that will result in competitive disadvantage for itself should the alliance dissolve
Incompatibility with Partners
- primary cause of the failure of such arrangements - can lead to outright conflict, although typically it merely leads to poor performance of the alliance - can stem from differences in corporate culture, national culture, goals and objectives, or virtually any other fundamental dimension linking the two partners - General Motors' $340-million JV with Russian auto manufacturer OAO AvtoVAZ, which was established to build Chevrolet-branded compact SUVs designed by AvtoVAZ, initially struggled as a result of disagreements between the partners over parts pricing, product design, market development, and adjustments in the JV's strategic direction. - marketing alliance between AT&T and Italy's Olivetti announced with great fanfare quickly failed after the firms could not reach agreement on a marketing strategy, what they wanted the alliance to accomplish, and how they planned to work together.
strategic planning
- process of developing a particular international strategy - responsibility of top-level executives at corporate headquarters and senior managers in domestic and foreign operating subsidiaries - Disney's planning staff, for example, gathered demographic and economic data that the firm's decision makers used to select the sites for its domestic and international theme parks.
Strategic Business Unit (SBU)
- pursue corporate strategies of related diversification or unrelated diversification tend to bundle sets of businesses together - helps the firm improve its distinctive competence for that business or unit. - Disney defines its SBUs as Parks and Resorts, Studio Entertainment (Touchstone, Buena Vista, and Pixar studios), Consumer Products (Disney publishing, character licensing, Disney Stores), and Media Networks (ABC, the Disney Channel, ESPN) (RELATED DIVERSIFICATION) - General Electric, for example, has created eight SBUs, centered on its aviation, healthcare, renewable energy, transportation, oil and gas, lighting, finance, and power generation products. (UNRELATED DIVERSIFICATION)
Advantages of Related Diversification
- related diversification may allow a firm to use technology or expertise developed in one market to enter a second market more cheaply and easily. - may produce economies of scale for a firm. - the firm depends less on a single product or service, so it is less vulnerable to competitive or economic threats.
5. Control Framework
- set of managerial and organizational processes that keep the firm moving toward its strategic goals - Disneyland Paris had a first-year attendance goal of 12 million visitors. When it became apparent that this goal would not be met, the firm increased its advertising to help boost attendance and temporarily closed one of its hotels to cut costs
Loss of Autonomy
- share control, thereby limiting what each can do. - partners may accuse each other of opportunistic behavior, that is, trying to take unfair advantage of each other. - JV between the Walt Disney Company and Sky Television, a British pay-TV channel operator, broke down after Sky accused Disney of deliberately delaying the supply of promised programming. Disney, in turn, accused Sky of proceeding too hastily and without consulting it.51
Nature of a Potential Partner's Products or Services
- should ally itself with a partner whose products or services are complementary to but not directly competitive with its own - Pepsi Lipton, has expanded internationally into over 100 markets
Disadvantages of Greenfield Strategy
- successful implementation takes time and patience - land in the desired location may be unavailable or expensive. - building the new factory, the firm must also comply with various local and national regulations and oversee the factory's construction. - must also recruit a local workforce and train it to meet the firm's performance standards - constructing a new facility, the firm may be more strongly perceived as a foreign enterprise.
Environmental scan
- systematic collection of data about all elements of the firm's external and internal environments, including markets, regulatory issues, competitors' actions, production costs, and labor productivity - obtain data about economic, financial, political, legal, social, and competitive changes in the various markets the firm serves or might want to serve. - Boeing's environmental scanning suggested that booming demand for air travel would make the Chinese market a particularly appealing opportunity. Accordingly, the firm chose to locate a new sales office in Beijing. The move paid off, and China has become one of Boeing's most important markets.
strategy formulation
- the firm establishes its goals and the strategic plan that will lead to the achievement of those goals. - international strategy formulation, managers develop, refine, and agree on which markets to enter (or exit) and how best to compete in each.
intra-corporate transfer
- the sale of goods by a firm in one country to an affiliated firm in another. - 34 percent of all U.S. exports and imports. - BP ships crude oil from its storage facilities in Kuwait to its Australian subsidiary, the transaction is counted as a Kuwaiti export and an Australian import, but the revenues for the transaction remain within the same firm.
Intermediaries
- third parties that specialize in facilitating imports and exports - may offer limited services such as handling only transportation and documentation. -may perform more extensive roles, including taking ownership of foreign-bound goods and/or assuming total responsibility for marketing and financing exports. - export management companies, Webb-Pomerene associations, and international trading companies.
Effective strategies
- those that exploit environmental opportunities and organizational strengths, neutralize environmental threats, and protect or overcome organizational weaknesses. - BMW's decision to build automobiles in South Carolina took advantage of its strong brand image in the United States. This decision also neutralized the firm's internal weakness of high German labor costs and its vulnerability to loss of U.S. customers if the euro were to rise in value relative to the U.S. dollar.
Internalization advantages
- those that make it desirable for a firm to produce a good or service itself rather than contracting with another firm to produce it - firm must consider both the nature of the ownership advantage it possesses and its ability to ensure productive and harmonious working relations with any local firm with which it does business. - Toyota, for example, possesses two important ownership advantages: efficient manufacturing techniques and a reputation for producing high-quality automobiles. Neither asset is readily saleable or transferable to other firms; thus, Toyota has used FDI and joint ventures rather than franchising and licensing for its foreign production of automobiles.
Proactive Motivations
- those that pull a firm into foreign markets because of opportunities available there. - exploit a technological advantage or to spread fixed R&D expenses over a wider customer base, thereby allowing it to price its products more competitively in both domestic and foreign markets
Contract Manufacturing
- used by firms, both large and small, that outsource most or all their manufacturing needs to other companies. - reduces the financial and human resources firms need to devote to the physical production of their products - international businesses can focus on that part of the value chain where their distinctive competence lies and yet benefit from any location advantages generated by host-country production. - surrender control over the production process, which can lead to quality problems or other unexpected surprises - Nike, for example, has chosen to focus its corporate energies on marketing its products and has contracted with numerous factories throughout Southeast Asia to produce its athletic footwear and apparel - Victoria's Secret and J.C. Penney rely on contract manufacturers to fabricate their store-branded apparel.
shared risk
- used to either reduce or control individual firms' risks - Boeing established a strategic alliance with several Japanese firms to reduce its financial risk in the development and production of the Boeing 777 jet.
multidomestic strategy
- views itself as a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market - free to customize its products, its marketing campaigns, and its operational techniques to best meet the needs of its local customers. - clear differences among national markets; when economies of scale for production, distribution, and marketing are low; and when the cost of coordination between the parent corporation and its various foreign subsidiaries is high. - Because each subsidiary in a multidomestic corporation must be responsive to the local market, the parent company usually delegates considerable power and authority to managers of its subsidiaries in various host countries. -often used when the need to respond to local conditions is high, but the pressures for global integration are low.
1. Mission Statement
- which clarifies the organization's purpose, values, and directions. - used as a way of communicating with internal and external constituents and stakeholders about the firm's strategic direction - may specify such factors as the firm's target customers and markets, principal products or services, geographical domain, core technologies, concerns for survival, plans for growth and profitability, basic philosophy, and desired public image - IKEA's mission is "to create a better everyday life for the many people," and Disney's is to be "one of the world's leading producers and providers of entertainment and information."
delegated arrangement
- which is reserved for JVs, the partners agree not to get involved in ongoing operations and so delegate management control to the executives of the JV itself. - specifically hired to run the new operation or may be transferred from the participating firms - American Motors and the Beijing Automotive Works contributed experienced managers to the operation of Beijing Jeep so that its management team could learn both modern automobile assembly operations and operating conditions in China.
Domestic firm
Managers developing a strategy for a domestic firm must deal with one national government, one currency, one accounting system, one political and legal system, and, usually, a single language and a comparatively homogeneous culture.
Similarity between home replication and global strategy
firm conducts business the same way anywhere in the world.
opportunity cost
firm has limited resources, entering one market may preclude or delay its entry into another. The profits it would have earned in that second market are its opportunity costs—the organization has forfeited or delayed its opportunity to earn those profits by choosing to enter another market first.
assessing alternative foreign markets
firm must consider a variety of factors, including the current and potential sizes of these markets, the levels of competition the firm will face, the markets' legal and political environments, and sociocultural factors that may affect the firm's operations and performance.
What techniques does transnational corporations use?
matrix organizational designs, project teams, informal management networks, and corporate cultures to help promote transfer of knowledge among their subsidiaries.
