Chapter 8 Flashcards
What is the global market
Companies of different nations trading goods and services, increasing intensity of competition
What is the globalization of production
Lowers barriers to international trade and investment to disperse important important function of their production process around the world
How are companies taking advantage of the lower barriers
Exploit national differences in cost and quality of factors of production to lower cost structure
What do companies have been able to exploit
Land, capital, labour
What is the globalization of markets
World economy
What are important implications for competitions
- Boundaries don’t stop at national borders
- Intensified competitive rivalry in many industry, resulting to global industries battling each other
- Increased threat of entry and intensity of rivalry
What is a national competitive advantage
Nations possess based on factors available to them
What are the global competitiveness of companies located within a nation based off of Michael Porter
- Factor Endowments
- Local Demand Conditions
- Related and Supporting Industries
- Firm Strategy, structure and rivalry
What is a factor endowment
Labour, capital, raw materials, technological know how, management experience and entrepreneurship
What are local demand conditions
Nations gain competitive advantage if their customers are demanding to meet high standards of product quality and produce innovative products
What are the characteristics of home demand
Important in shaping attributes to create pressures for innovation and quality
What are the competitiveness of related and supporting industries
Local companies are in the presence of internationally competitive suppliers or related industry
What are the benefits of spill over
Businesses can spill over into a given industry and help achieve a strong competitive position internationally n
What is intensity of rivalry
Different nations have different management ideologies which can help or not help them to build national competitive advantage
What does Michael Porter say about the Intensity of Rivalry
- Different nations have different management ideologies which can help or not help them to build national competitive advantage
- Strong association between domestic rivalry and the creation and persistence of competitive advantage of an industry
What is the domestic rivalry
Creates the pressure to innovate, improve quality, reduce costs and invest in upgrading factors
What is a world class competitor
When rivalry compels companies to look for ways to improve efficiency, innovate, improve quality and reduce costs
How do companies expand globally
- Market their domestic goods in the international market
- Realize location economies by spreading activities to locations they can be efficient
- Realize greater cost economies from experience effects by serving from a central location
- Earn a greater return to leverage valuable skills developed in foreign operations and transfer them to other operations
What are the two competitive pressures
- Cost reductions
- Locally responsive
How do companies minimize unit of costs
- Have a favorable low cost location
- Offer standardized product in the global marketplace
- Outsource certain function to low cost foreign suppliers
What are the pressures for local responsiveness
Companies have to differentiate its product offering and marketing strategy to accommodate the diverse demands from national differences
What are the diverse demands that businesses have to keep in mind
- Consumer tastes and preferences
- Business practices
- Distribution channels
- Competitive conditions
What is the European Union
Eurozone countries that have trade block
What is USMCA
NAFTA
How do companies choose their global strategy
- Global standardization strategy
- Location strategy
- Transnational strategy
- International strategy
What is the globalization standardization strategy
- Focus on increasing profitability by pursuing a low cost strategy on a global level
- Companies don’t try to customize products and marketing because this can raise costs
What is a localization strategy
- Focus on increasing profits by customizing products or services that provide a favorable match to taste preferences in different national or regional markets to increase value of the product in the local market
- Higher pricing to recoup higher costs
What is a transnational strategy
Achieves low costs, differentiates products across geographic markets, foster a flow of resources
What is international strategy
- Low cost pressure and low pressures for local responsiveness
- Usually sells a product that serves universal needs, no significant competition
What the 5 primary choices of entry mode
- Exporting
- Licensing
- Franchising
- Join ventures
- Wholly owned subsidiaries
What are the advantages of exporting
- Avoids costs of establishing manufacturing operations in the host country
- Company can increase scale economies from its global sales volume
What are the disadvantages of exporting
- Not appropriate there are lower cost manufacturing locations abroad
- High transportation costs
- Tariff
What is licensing
- An agreement arranged where a foreign licensee purchases the rights to produce a company’s product in the licensees country for a negotiated fee
- Licensee provides capital necessary to open operations
What are the advantages of licensing
Company does not bear the development costs and risks associated with opening a foreign market
What are the drawbacks of licensing
- No tight control over manufacturing, marketing, strategic functions to realize both scale and location economies
- Limits a company’s ability to coordinate strategic moves across countries
- Risks on technological knowhow to foreign companies
- Licensee can degrade or damage the brand if it pursues strategies that are not in the best interests of the company
What is franchising
Specialized form of licensing where the franchisor sells intangible property to the franchisee and they have to follow strict rules
What is the franchisor and franchisee relationship
Franchisee assists the franchisee to run the business on an ongoing basis and receive loyalty payments based on percentage of franchisees revenues
What are joint ventures
50/50 joint venture where each party takes 50% of the ownership stake and team of managers from both companies
What are the benefits of joint ventures
- Local partners knowledge of competitive conditions, culture, language, political and business systems
- Development costs are shared
- Political considerations
What are the major disadvantages of joint ventures
- Company yields the control of technology to its partner
- Doesn’t give the company the tight control over subsidies that it might need to realize experience curve
What are wholly owned subsidaries
- Parent company owns 100% of the sub
- Company can set up a completely new operations in a country and acquire an established company to promote products
What are the advantages of wholly owned subsidaries
- Complete control of technological competency
- Complete control of operations allowing it to take profits from one country to support competitive attacks
- Best choice to realize location economies
What are global strategic alliances
- Cooperative agreements between companies from different countries that are actual or potential competitors
- Contractual agreement on work on a strategic objective
What are the benefits of global strategic alliances
- Shared fixed costs of developing new products or processes
- Bring together complementary skills and assets
- Help establish technological standards for the industry
What are location economies
Economic benefits arising from performing a value creation activity in an optimal location
How to realize cost economies from global volume
- Spread fixed costs with developing products over its global sales volume
- Utilize its production facilities more intensively leading to higher productivity, lower costs and greater profitability
- Increase the size of the enterprises, its bargaining power with supplier increases leading to bargain down the cost of key inputs and boost profitability
What are the two effects of value creation activity
- Lower costs of the value creation to help achieve a low cost position
- Enable a company to differentiate its product offer which gives the option of charging premium
How do you make strategic alliances work
- Partner selection that helps company accomplish strategic goals, share the same vision and likely try to exploit
- Alliance structure so that companies risk is not giving too much to the partner
- Managing alliance from building interpersonal relationships between firms managers (relational capital)
What is opportunism
Seeking ones own self interest
What is a multinational company
Company that does business in two or more national markets
