Chapter 9: Terms

Question 1

Global strategies

Answer 1

Strategies that take advantage of operations spread across the world.

Question 2

Economies of scale

Answer 2

Reduction in unit costs achieved by increasing volume.

Question 3

Strategic advantages of global firms

Answer 3

● Global scale advantages reduce costs in production, product development and marketing.
● Global sourcing provides access to a wider range of inputs.
● Global knowledge management enhances innovation.
● Global operations allow better servicing of global customers.
● Risk diversification reduces the corporate risk profile.

Question 4

Global sourcing

Answer 4

Buying inputs all over the world.

Question 5

Centres of excellence

Answer 5

Specialized centres for innovation that serve the entire MNE.

Question 6

Four types of benefits of centres of excellence

Answer 6

1 They can overcome the potential replication and inconsistency of standards that may evolve in case of disconnected R&D activity.
2 The interaction between R&D units at different locations enhances creativity and idea generation and thus innovation. Bringing together people living in different environments within one organization allows for the exchange of knowledge, experiences and competencies, which in turn facilitates the generation of new ideas and innovations.
3 Centres of excellence allow exploitation of comparative advantages in, for exam-ple, specialized human resources, such as IT skills in India.
4 R&D centres around the world provide interactions with different customers and hence projections on future market trends.

Question 7

Global key accounts

Answer 7

Customer served at multiple sites around the world but that negotiates centrally.

Question 8

Risk diversification

Answer 8

Reduction of the risk profile of a company by investing in different countries and industries.

Question 9

AAA typology

Answer 9

Aggregation, adaptation and arbitrage strategies.

Question 10

Aggregation strategies

Answer 10

Strategies that focus on synergies between operations at different locations.

Question 11

Adaption strategies

Answer 11

Strategies that deliver locally adapted products in each market

Question 12

Levers of adaptation

Answer 12

1. Focus on activities and products that require less adaptation across markets
2. Externalize the costs of adaptation by working with local partners
3. Design the basic product in ways that increase flex-ibility of the final product to be produced for different markets
4. Organize innovation processes with effectiveness of variation in mind

Question 13

Arbitrage strategies

Answer 13

Strategies that exploit differences in prices in different markets.

Question 14

Overseas listing

Answer 14

Raising capital by listing on a stock exchange abroad.

Question 15

M&A

Answer 15

Popular shorthand for ‘mergers and acquisitions’.

Question 16

Acquisition

Answer 16

The transfer of the control of operations and management from one firm (target) to another (acquirer), the former becoming a unit of the latter.

Question 17

Merger

Answer 17

The combination of operations and management of two firms to establish a new legal entity.

Question 18

Cross-border M&A

Answer 18

M&A involving companies based in different countries.

Question 19

Carve-out acquisition

Answer 19

Acquisition of parts of another company that previously were not clearly defined organizational units.

Question 20

Synergies

Answer 20

Value created by combining two organizations that together are more valuable than the two organizations separately.

Question 21

Motives for acquisition

Answer 21

1. synergistic motives
2. hubris motives
3. managerial motives

Question 22

Synergistic motives

Answer 22

● Leverage superior organizational capabilities
● Enhance market power
● Reduce costs by eliminating duplicate units and exploiting scale economies
● Access to complementary resources
● Tax avoidance effects, for example by moving the company to a location with lower corporate taxation

Question 23

Hubris motives

Answer 23

Managers’ overconfidence in their own capabilities

Question 24

Managerial motives

Answer 24

Self-interested actions, such as prestige, empire building and bonuses

Question 25

Due diligence

Answer 25

The assessment of the target firm’s financial status, resources and strategic fit

Question 26

Strategic fit

Answer 26

The effective matching of complementary strategic capabilities

Question 27

Organisational fit

Answer 27

The similarity in cultures, systems and structures.

Question 28

Post-acquisition integration

Answer 28

The process that aims to integrate two formerly independent firms after an acquisition.

Question 29

Strategic alliances

Answer 29

Collaboration between independent firms using equity modes, non-equity contractual agreements, or both.

Question 30

Business unit JV

Answer 30

A JV in which existing business units from two firms are merged.

Question 31

R&D JV

Answer 31

Joint ventures aiming to develop next-generation technologies.

Question 32

Operational collaboration

Answer 32

A form of strategic alliance that includes collaboration in operations, marketing or distribution.

Question 33

JV is appropriate:

Answer 33

1. Two companies can achieve something they couldn’t do on their own
2. Merged units on inputs
3. A full takeover is not feasible, perhaps because the competition authorities would object.

Question 34

Input foreclosure

Answer 34

Practice of a vertically integrated firm to cut off a competitor from key suppliers.

Question 35

Output foreclosure

Answer 35

Practice of a vertically integrated firm to cut off a competitor from key customers.

Question 36

Acquisition premium

Answer 36

The difference between the acquisition price and the market value of target firms.

Question 37

Hidden champions

Answer 37

Market leaders in niche markets keeping a low public profile.

Question 38

Divestment

Answer 38

The sale or closure of a business unit or asset.

Question 39

Globalfocusing

Answer 39

A strategic shift from diversification to specialization which increases the international profile.

Question 40

Participate in leading debates on global strategies and acquisitions

Answer 40

They concern (1) how hidden champions can succeed and (2) how focus strategies allow conglomerates to become global specialists.