MGt 495 Exam 3

multinational corporation (MNC).

A firm that has operations in more than one country is known as a

multidomestic strategy

A firm using a _________ sacrifices efficiency in favor of emphasizing responsiveness to local requirements within each of its markets. Ex: Heinz changing ingredients in their sauces to appeal to different markets where onion is not eaten or Nestle offering certain products in certain countries.

transnational strategy

A firm using a ___________ seeks a middle ground between a multidomestic strategy and a global strategy. Ex: McDonald's and KFC in France with having wine on the menu.

global strategy

A firm using a _______________ sacrifices responsiveness to local requirements within each of its markets in favor of emphasizing efficiency. Ex: Microsoft and Intel not changing their products much, because their product can't be seen or doesn't need to be changed.

How attractive is the industry that a firm is considering entering? How much will it cost to enter the industry? Will the new unit and the firm be better off?

A proposed diversification move should pass three tests or it should be rejected (Porter, 1987).

Lowering costs

Access to cheaper raw materials and labor have led to considerable outsourcing and offshoring. Call centers in India have become so sophisticated that many Indian customer service representatives take extensive language training to learn regional U.S. dialects.

three key reasons why executives are enticed to enter new markets.

Access to new customers Lowering costs Diversification of business risk

(1) their home country's demand conditions, (2) their home country's factor conditions, (3) related and supporting industries within their home country, and (4) strategy, structure, and rivalry among their domestic competitors.

According to the model, the ability of the firms in an industry whose origin is in a particular country (e.g., South Korean automakers or Italian shoemakers) to be successful in the international arena is shaped by four factors:

Three factors that determine if a firm will respond to a competitive move:

Awareness, Motivation, Capability

Diversification of business risk

Business risk refers to the risk of an operation failing. Competing in multiple markets allows this risk to be spread out among many economies and customers. Coca-Cola, for example, has a presence in over 200 markets worldwide.

Access to new customers

China's population is roughly four times as large as that of the United States. While political, cultural, and economic differences add danger to trade with China, the immense size of the Chinese market appeals to American firms.

political risk, economic risk, and cultural risk.

Competing in international markets involves important opportunities and daunting threats. The opportunities include access to new customers, lowering costs, and diversification of business risk. The threats include

disappointing

Despite the potential benefits of mergers and acquisitions, their financial results often are very

Entrepreneurial Ability:

Entrepreneurial ability creates national wealth when entrepreneurs develop new innovations that support key industries. Denmark's low start-up costs and high research and development spending have fueled success in industries such as pharmaceuticals and medical equipment.

differentiation strategy Ex:

Ex: Express Oil Change (They do it all)

How much will it cost to enter the industry?

Executives need to be sure that their firm can recoup the expenses that it absorbs in order to diversify. When Philip Morris bought 7Up in the late 1970s, it paid four times what 7Up was actually worth. Making up these costs proved to be impossible and 7Up was sold in 1986.

Capability

Famed literary figure Johann Wolfgang von Goethe once said, "Thinking is easy, acting is difficult." Like a firefighter that puts as many tools at her disposal as possible, firms must possess plans, as well as resources, to respond to the actions of their rivals.

question marks

Finally, low-market-share units within fast-growing industries are called _____ Executives must decide whether to build these units into stars or to divest them.

Related and Supporting Industries:

Firms benefit when their domestic suppliers and other complementary industries are developed and helpful. Italy's fashion industry is enhance by the abundance of fine Italian leather and well-known designers.

Demand Conditions:

Fussy domestic customers help firms prepare for the global arena. Japanese firms must create excellent goods to meet Japanese consumers' high expectations about quality, aesthetics, and reliability.

stars

High market share units within fast-growing industries are called _____ These units have bright prospects and thus are good candidates for growth.

cash cows

High market share units within slow-growing industries are called _____ Because their industries have bleak prospects, profits from cash cows should not be invested back into cash cows but rather diverted to more promising businesses.

horizontal integration

In many cases, _________ is aimed at lowering costs by achieving greater economies of scale can also provide access to new distribution channels

Labor:

India is the seventh largest country in terms of land mass, but its population size is second only to China. Because India graduates more English speakers annually than the United States, it should come as no surprise that Indian firms have gained ground in the international arena within industries that rely on engineering and computer skills.

diversification discount

Investors often struggle to understand the complexity of diversified firms, and this can result in relatively poor performance by the stocks of such firms. This is known as a

Awareness

Like a patrolman walking his beat, executives must watch out for moves by competitors that can steal sales from their firm.

dogs

Low market share units within slow-growing industries are called _____ These units are good candidates for divestment.

(1) multidomestic, (2) global, and (3) transnational. These strategies vary in their emphasis on achieving efficiency around the world and responding to local needs.

Multinational corporations choose from among three basic international strategies:

Stuck in the middle Ex:

Neither Inexpensive nor Differentiated: Arby's signature roast beef sandwiches are neither cheaper than other fast food nor are they standouts in taste. Perhaps not surprisingly, parent company Wendy's has been trying to sell Arby's.

Motivation

Newton's third law of motion states that for every action there is an equal and opposite reaction. Just like a little kid who cries "He hit me first!" when being admonished for hitting a classmate, executives will be highly motivated to retaliate when a rival makes a competitive move.

nationalization

Over time, a government could become increasingly hostile to foreign businesses by imposing new taxes and new regulations. In extreme cases, a firm's assets in a country are seized by the national government.This process is called

Focused Differentiation Strategy Ex: HINT YOU ARE WHAT U EAT

Providing indoor seating creates expenses for fast-food restaurants. Checkers Drive In keeps its costs low by not offering indoor seating. Checkers targets drive-thru customers and offers them big burgers at rock-bottom prices.Also:Guitars and Ukes

horizontal integration

Rather than rely on their own efforts, some firms try to expand their presence in an industry by acquiring or merging with one of their rivals. This strategic move is known as

just-in-time inventory management (JIT)

Rather than storing large amounts of parts and material, JIT management conserves space—and lowers costs—by requiring inputs to a production process to arrive at the moment they are needed.

Land:

Russia has the greatest land mass of any country in the world and it enjoys vast oil deposits. This abundance of natural resources has helped Russia's petroleum industry become one of the largest in the world.

Strategy, Structure, and Rivalry:

The United States has an overall trade deficit, but it enjoys a trade surplus within the service sector. Fierce domestic competition in industries such as hotels and restaurants has helped make American firms such as Marriott and Subway important players on the world stage.

Capital:

The capital market in the United States is one of the largest and most sophisticated in the world. This has helped American companies fund expansion and innovation over time, making them better prepared for international competition.

(1) demand conditions; (2) factor conditions; (3) related and supporting industries; and (4) strategy, structure, and rivalry among its domestic competitors.

The likelihood that a firm will succeed when it competes in international markets is shaped by four aspects of its domestic market:

concentration strategies:

These strategies involve trying to compete successfully only within a single industry. McDonald's, Starbucks, and Subway are three firms that have relied heavily on concentration strategies to become dominant players.

liquidation

This involves simply shutting down portions of a firm's operations, often at a tremendous financial loss.

Will the new unit and the firm be better off?

Unless one side or the other gains a competitive advantage, diversification should be avoided. In the case of Philip Morris and 7Up, for example, neither side benefited significantly from joining together.

How attractive is the industry that a firm is considering entering?

Unless the industry has strong profit potential, entering it may be very risky.

Exporting A wholly owned subsidiary Franchising Licensing joint venture

When the executives in charge of a firm decide to enter a new country, they must decide how to enter the country. There are five basic options available:

Franchising; Licensing

While ____ is an option within service industries, ______ is most frequently used in manufacturing industries.

vertical integration strategy

a firm gets involved in new portions of the value chain

Advantages and Disadvantages of Differentiation

a key advantage is that effective differentiation creates an ability to obtain premium prices from customers. This enables a firm to enjoy strong profit margins. Ex: Coca-Cola, for example, currently enjoys a profit margin of approximately 33 percent, meaning that about thirty-three cents of every dollar it collects from customers is profit. strong margins mean that the firm does not need to attract huge numbers of customers to have a good overall level of profit. buyer loyalty may be created. creates benefits relative to potential new entrants. customers will not be willing to pay extra to obtain the unique features that a firm is trying to build its strategy around. customers may simply prefer a cheaper alternative. customers desire the unique features that a firm offers, but competitors are able to imitate the features well enough that they are no longer unique.

disruptive innovation

an innovation that conflicts with, and threatens to replace, traditional approaches to competing within an industry.

Strategic alliances

are cooperative arrangements between two or more organizations that do not involve creating new entities. For example, a strategic alliance between Merck and PAREXEL International Corporation was recently announced with the goal of collaborating on biotechnology efforts known as biosimilars-a term used to describe subsequent versions of innovative drugs.

Fighting brands: HINT DAD

are lower-end brands that a firm introduces to try to protect the firm's market share without damaging the firm's existing brands. Ex: General Motor's Geo line of inexpensive automobiles and Delta's Song brand were fighting brands intended to keep their owners from suffering knockout blows.

Mutual forbearance

arises when rivals each realize that they have more to lose through aggression against each other than they can gain. Ex: United Airlines' decision to not compete in some markets dominated by Southwest Airlines provides an example of this dynamic.

Offshoring

has become a popular yet controversial means for trying to reduce costs. Offshoring involves relocating a business activity to another country.

Franchising

has been used by many firms that compete in service industries to develop a worldwide presence involves "renting" a firm's brand name and business processes to local entrepreneurs. Curves International has used franchising to bulk up its fitness empire to include over sixty countries.

Three main options are available for responding to a disruptive innovation:

ignore the disruption, engage in a counterattack using different goods and/or services, or directly match the competitor's move. Ex: When online stock trading emerged as a disruptive innovation in the brokerage industry, Merrill Lynch chose the third option and formed its own Internet-based unit.

Diversification strategies

involve firmly stepping beyond its existing industries and entering a new value chain. Generally, related diversification (entering a new industry that has important similarities with a firm's existing industries) is wiser than unrelated diversification (entering a new industry that lacks such similarities). Ex: Honda

blue ocean strategy

involves creating a new, untapped market rather than competing with rivals in an existing market.

Exporting

involves creating goods within a firm's home country and then shipping them to another country. involved creating goods at home and then shipping them to another country. Civilian aircraft is a top-ten U.S. export to countries such as Japan, China, Germany, Italy, and France that want to make their skies friendlier for travel.

Product development

involves creating new products to serve existing markets. involves creating new products to serve existing markets. Ex: McDonald's adding nutritional meals. Coca Cola and Black. Jones soda King Gillette, an American businessman whose family hailed from France, pioneered the safety razor that bears his family name. His company's more recent innovations in the razor market include Trac II (the first two-bald razor), Altra (first razor with a pivoting head), Sensor (first razor with spring-loaded blades), Mach 3 (first three-blade razor), and Fusion (first six-blade razor). Is the ten-blade razor coming soon?

Licensing

involves granting a foreign company the right to create a company's product in exchange for a fee. This option is frequently used in manufacturing industries, such as when Coca-Cola licenses their secret formulas to local bottlers (without revealing the formulas, of course).

Market development

involves taking existing products and trying to sell them within new markets. involves taking existing products and trying to sell them within new markets. Ex: Starbucks selling beans at meijer. Tastykake Starbucks engages in market development by selling their beans and bottled drinks in grocery stores. Apple engages in market development by allowing customers in Starbucks stores to connect directly to iTunes store and Starbucks Now Playing content. Customers are offered a free download to get them to visit iTunes—and to perhaps purchase more songs

Market penetration

involves trying to gain additional share of a firm's existing markets using existing products—often by relying on extensive advertising. involves trying to gain additional share of a firm's existing markets using existing products. Ex: Nike (advertising) and McDonald's (Spanish ™) Perhaps the most famous example of two close rivals simultaneously attempting market penetration is the "cola wars" where Coca-Cola and PepsiCo fight for share in the soft drink market. Pepsi's blind taste tests in 1975 called the Pepsi Challenge is one of the more famous attacks in this ongoing battle.

A wholly owned subsidiary

is a business operation in a foreign country that a firm fully owns. A firm can develop a wholly owned subsidiary through a greenfield venture, meaning that the firm creates the entire operation itself. Intel established IPLS—a wholly owned subsidiary in Ireland—to facilitate and manage its research throughout the "Emerald Isle."

Bricolage

is a concept that is borrowed from the arts and that, like blue ocean strategy, stresses moves that create new markets. Bricolage means using whatever materials and resources happen to be available as the inputs into a creative process.

joint venture

is a cooperative arrangement that involves two or more organizations each contributing to the creation of a new entity. For example, Hong Kong Disneyland is a joint venture between the government of Hong Kong and the Walt Disney Company. While the park consists of Disney mainstays such as Main Street, U.S.A., Fantasyland, Adventureland, and Tomorrowland, the park also incorporates elements of Chinese culture such as adherence to the rules of Feng Shui-a set of aesthetic design principles believe to promote positive energy.

Portfolio planning

is a process that helps executives assess their firms' prospects for success within each of its industries, offers suggestions about what to do within each industry, and provides ideas for how to allocate resources across industries.

Multipoint competition

is a situation where a firm faces the same rival in more than one market. Ex: Such dynamics can set off wildfires such as in the case of cigarette makers R.J. Reynolds (RJR) and Philip Morris, who compete head-to-head worldwide. When threatened in one market, firms often retaliate in other geographic regions.

core competency

is a skill set that is difficult for competitors to imitate, can be leveraged in different businesses, and contributes to the benefits enjoyed by customers within each business

footholds

is a small position that a firm intentionally establishes within a market in which it does not yet compete. Ex: Swedish furniture seller IKEA is a firm that relies on footholds. When IKEA enters a new country, it opens just one store. This store is then used as a showcase to establish IKEA's brand. Once IKEA gains brand recognition in a country, more stores are established.

Coopetition

is a term that refers to the blending of competition and cooperation between two firms. Ex: Toyota and General Motors' creation of jointly owned New United Motor Manufacturing incorporated (NUMMI) allowed for collaboration on automobile designs while Toyota and GM continued to compete for market share worldwide. The NUMMI experience also inspired the 1986 comedy Gung Ho.

merger

is generally used when two similarly sized firms are integrated into a single entity.

Speed of response

is important when under attack. A slow response might lead a beverage firm, for example, to be crushed by the competition. Ex: However, despite that fact that RC Cola been responsible for many innovations in the soft drink industry such as diet and caffeine-free colas, the quick responses of Coca-Cola and Pepsi have kept RC Cola fro taking market share from them.

Boston Consulting Group (BCG) matrix

is the best-known approach to portfolio planning

merger

joins two companies into one. Mergers typically involve similarly sized companies. Ex: ExxonMobil is a direct descendant of John D. Rockefeller's Standard Oil Company. It was formed by the 1999 merger of Exxon and Mobil. As in many mergers, the new company name combines the old company names.

first-mover advantage

making the initial move into a market allows a firm to establish a dominant position that other firms struggle to overcome.

Spin-offs

occur when businesses create a new firm from a piece of their operations. Ex: Delphi Automotive—an automotive parts company headquartered in Troy, Michigan—is a spin-off from General Motors.

Vertical integration

occurs when a firm gets involved in new portions of the value chain. By entering the domain of a supplier (backward vertical integration) or a buyer (forward vertical integration), executives can reduce or eliminate the leverage that the supplier or buyer has over the firm. also creates risks. Venturing into new portions of the value chain can take a firm into very different businesses. can also create complacency.

Related diversification

occurs when a firm moves into a new industry that has important similarities with the firm's existing industry or industries

First, portfolio planning oversimplifies the reality of competition by focusing on just two dimensions when analyzing a company's operations within an industry. Second, portfolio planning can create motivational problems among employees. Third, portfolio planning does not help identify new opportunities

portfolio planning is a useful tool, this tool has important limitations

demand conditions

refer to the nature of domestic customers

Factor Conditions:

refer to the nature of raw material and other inputs that firms need to create goods and services. The inputs present in a country shape firm's global competitiveness. The rapid growth of Chinese manufacturers has been fueled by the availability of cheap labor.

Colocation HINT HOTEL MOTEL

refers to a situation when goods and services offered under different brands are located very close to each other. Ex: Noting once common example of colocation, a comedian once joke that La Quinta was Spanish for "Next to Denny's." Both hotels and restaurants are often colocated alongside freeway exits to allow numerous choices for road-weary travelers.

The concept of firm strategy, structure, and rivalry

refers to how challenging it is to survive domestic competition

Divestment

refers to selling off part of a firm's operations. Ex: Ford selling Hertz

The concept of related and supporting industries

refers to the extent to which firms' domestic suppliers and other complementary industries are developed and helpful

Cultural risk

refers to the potential for a company's operations in a country to struggle because of differences in language, customs, norms, and customer preferences.

Economic risk

refers to the potential for a country's economic conditions and policies, property rights protections, and currency exchange rates to harm a firm's operations within a country.

Political risk

refers to the potential for government upheaval or interference with business to harm an operation within a country.

Business risk

refers to the potential that an operation might fail.

retrenchment strategy

shrink one or more of their business units. Much like an army under attack, firms using this strategy hope to make just a small retreat rather than losing a battle for survival.

Backward vertical integration

strategy involves a firm moving back along the value chain and entering a supplier's business.

forward vertical integration

strategy involves a firm moving further down the value chain to enter a buyer's business. Ex: Disney has pursued forward vertical integration by operating more than three hundred retail stores that sell merchandise based on Disney's characters and movies.

acquisition

takes place when one company purchases another company. Generally, the acquired company is smaller than the firm that purchases it. Ex: Starbucks acquired competitor Seattle's Best Coffee—which had a presence in Borders Bookstores and Subway Restaurants—in order to target a more working-class audience without diluting the Starbucks brand.

joint venture

two or more organizations each contribute to the creation of a new entity. In a strategic alliance, firms work together cooperatively without forming a new organization. Global Nuclear Fuel Co.—a collaboration among General Electric, Toshiba Corporation, and Hitachi Limited—is an example of a joint venture.

reshoring

whereby jobs that had been sent overseas are returning home.

hypercompetition

which involves very rapid and unpredictable moves and countermoves that can undermine competitive advantages.

unrelated diversification

which occurs when a firm enters an industry that lacks any important similarities with the firm's existing industry or industries Ex: Coke buys Colombia pictures, Zippo lighters