Common Themes

Question 1

Describe the VRIN Framework/Barney’s Model

Answer 1

This follows the RBV approach, with the view that the following characteristics of a resource are necessary in order to produce a sustained competitive advantage:
1. Valuable- the resource must generate value for the firm.
2. Rare- ideally, unique if it is to generate value.
3. Inimitable: Cannot be copied
4. Non-Substitutable: Cannot be substituted
These are the necessary values a sustained competitive advantage would have, however this does not mean it is the ONLY requirements needed (depends on the context).

Question 2

What is a Strategy Tripod?

Answer 2

This is the combination of the industry-, resource-, and institution-based view to provide a more robust understanding of strategy.
- [industry-, resource-, and institution-based view] –> Strategy –> Performance

Question 3

Describe Porters Five Forces

Answer 3

Porters five forces strategy follows the industry-based view with the belief that firms must position themselves against these five external, environmental forces:
* The threat of entry
* The threat of rivalry
* The threat of substitutes
* The threat of powerful suppliers
* The threat of powerful buyers

Question 4

Describe the resource-based view (RBV)

Answer 4

The RBV focuses on the internal resources of the organisation in considering the source of competitive advantage.
It suggests that it is unique clusters of resources that determine profitability.
Performance differences are explained by looking inside the organisation.

Question 5

What are the 2 types of isolating mechanisms associated with a sustained competitive advantage? (2,4)

Answer 5

1. Impediments to imitation
   
   • Legal restrictions (patents, trademarks, copyrights)
   • Superior access to inputs and customers
   • Market Size and Scale Economies
   • Intangible barriers to Imitation (ambiguous link between resource and advantage,
     historical circumstance, social complexity)
2. Early-Mover Advantages
   
   • Learning curves
   • Reputation and buyer uncertainty (people prefer to buy what they know, i.e.
     Starbucks)
   • Buyer switching costs (apples ecosystem)
   • Network effects (the more people that use it, the more attractive the product
     becomes)

Question 6

Network Externalities (Effects)

Answer 6

This is where consumers place a higher value on a product if other consumers use it. –> Very common with Apple products.

Question 7

Describe the Institution-based View

Answer 7

The institution-based view highlights the importance of formal institutions (laws, regulations, etc…) and informal institutions (cultural values, norms, traditions) in explaining firm performance.

Question 8

Why do firms internationalize? Dunning (1992) (3)

Answer 8

• Market Seeking: the search for new customers and new markets
• Resource Seeking: Natural or Advanced, searching for resources within a country.
  (raw materials vs knowledge spillover)
• Efficiency Seeking: search for efficiency from technology or regulation.

Question 9

Describe the Born Global Model (3)

Answer 9

Firms can either be “Born Global” or “non-Born Global”.
Due to an increase in information and technology Born Global firms can directly enter even very distant markets almost immediately, without having to build a domestic base.
- Origin: Born Global firms often start out in small markets, which forces them to internationalize early on.
- Markets: They supply global niche markets–> Forces them to internationalize to achieve scale, or to pursue significant first mover advantages.
- Customers: They tend to have multinational customers, often internationalize simply to follow their customers (piggy-backing).
Non-Born Global firms cannot successfully internationalize in the same way.

Question 10

Give the 3 aspects of the Generic Country Attractiveness Framework

Answer 10

1) Country risk analysis
2) Market Opportunities
3) Industry Opportunities

Question 11

Describe the CAGE Model

Answer 11

The CAGE model focuses on distance as the main source of risk:
- Cultural Distance
- Administrative and political distance
- Geographic distance
- Economic/wealth distance

Question 12

Describe the ‘Country Risk’ analysis factor of the Country Attractiveness framework (4)

Answer 12

1) Country risk analysis:
A. Political Risks (Asset destruction, asset spoliation)
B. Economic Risks (Economic growth, inflation, input costs, exchange rates)
C. Cultural Risks (Hofstede)
D. Operational Risks (Employee risks, operational risks)

Question 13

Describe the ‘Market Opportunities” analysis factor of the Country Attractiveness framework (3)

Answer 13

2) Market Opportunities:
A. Market Size
B. Market Growth (long term investments focus more on forecasts)
C. Market Quality (what is the range of inequality and how may that affect the
product performance)

Question 14

Describe the ‘Industry Opportunities’ analysis factor of the Country Attractiveness framework (3)

Answer 14

3) Industry Opportunities:
A. Industry Competitive Structure (Porters 5 forces)
B. Resource Endowments (The 3 types of resources: Human, Physical, Operational)
C. Investment Incentives Granted by Government

Question 15

Define transaction costs and state their categories: (3)

Answer 15

Transaction costs are the costs of making an economic trade:
1. Search and information costs
2. Bargaining costs
3. Policing and enforcement costs

Question 16

Are financial costs considered transaction costs?

Answer 16

No

Question 17

Transaction Cost Economics (TCE) suggests when internalizing: (2)

Answer 17

1. Activities are internalized wen the transaction costs of internalization are lower than the costs outsourcing.
2. Activities are out-sourced when the transaction costs of outsourcing are lower than the ones internalizing.

Question 18

Where do transaction costs come from? (2) Define each

Answer 18

1. Bounded Rationality - The capacity of humans formulating and solving complex problems is limited. Our decisions are “bounded”, therefore, the choices we make are rational, but not optimal.
2. Bounded Reliability - humans are self-interested individuals. When faced with the decision to enrich oneself, or to enrich another, a rational individual will choose to enrich himself.

Question 19

For a particular transaction, the level of additional transaction costs depends on 3 critical factors. Explain each one:

Answer 19

1. Asset specificity- the more specific the value that is generated from the asset, the fewer the potential suppliers, and therefore the higher rental costs. High asset-specificity implies the transaction should be done internally.
   An example would be a newspaper printing press vs a computer. As a newspaper
   printing press has one specific purpose, the supply is lower, and therefore there are
   higher rental costs.
   Therefore it would be a strategic move for the company to buy the newspaper
   press than outsource it.
2. Uncertainty / Complexity- The higher the level of uncertainty towards a transaction, the higher the transaction costs.
   An example may be the cost of accumulating knowledge, higher contracting costs,
   etc…
3. Frequency - High frequency of use implies that the costs can be spread over each use. High frequency transactions are better suited internally.
   Referring to the Newspaper press, if you were to print 1 newspaper, this would
   seem like poor investment, however, printing 1,000,000 papers would be a better
   strategic decision.

Question 20

Who is the agent in the principle-agency theory?

Answer 20

The agent is someone that you hire/rent to do a job for you.

Question 21

What is the Agency theory?

Answer 21

This theory describes a problem that arises when the managers and shareholders have different goals.

Question 22

When does the principal-agent problem arise? (1) What challenge may the Principle face from this? (1)

Answer 22

1. the principal pays the agent for performing certain acts that are useful to the principal and costly to the agent.
   This means that the principle and the agent have different objectives:
   the agent wants it ‘done’, and the principal wants it ‘done right’.
2. there are elements of the performance that are difficult (or costly) for the principal to observe.
   This means that the principle cannot distinguish between good and bad agents, or between ‘done’ and ‘done right’.

Question 23

The “agency cost” is the sum of the (3)

Answer 23

1. Bonding Cost: Cost of establishing the relationship
2. Residual Cost: Difference between what the agent did and what the principle would have done
3. Monitoring cost: Costs incurred by the principle to mitigate the loss caused by the agent.

Question 24

What increases agency costs?

Answer 24

1. Information Asymmetry
2. Uncertainty

Question 25

How can a firm expand to a foreign market? (agency theory)

Answer 25

1. Foreign Distributor (outsourcing)
2. Strategic Alliance (Co-developing)
3. Mergers and Acquisitions (Buying)

Question 26

How would a firm expand to a foreign market using a Foreign Distributor?

Answer 26

The firm would contract with an independent FD to minimize up-front risks (liability of foreignness and outsidership).
This is low risk, low investment –> Beachhead strategy
If it would be a success, the long-term strategy for the firm would be to take direct control and squeeze the FD out.

Question 27

What is the “beachhead strategy”

Answer 27

The responsibility is up to the FD as they are given more control of the strategic and marketing decisions.

Question 28

What is the agency problem associated with foreign distributors? (1) What can firms do about it? (2)

Answer 28

1. The agency problem is often that the FD underinvests as they are aware that they may be replaced in the long term.
2. The solution to this problem is:
   
   • Recognize that the phases are predictable
   • Ensure the interests between the firm and FD are aligned.

Question 29

What do firms gain with a Strategic Alliance?

Answer 29

1. Share risks and share costs
2. Access the partner complimentary resources
3. Further develop capabilities
4. Access scarce resources (such as human talent)

Question 30

What are the risks associated with Strategic Alliances? (3) What can firms do about it? (3)

Answer 30

Risks:
1. Outsourcing capabilities- Firms can become dependent on the partner, if that partner decides to stop developing these attractive skills or capabilities, the firm can suffer from this.
2. Learning Races- the “winner” gains the critical knowledge first, and they can end the alliance leaving the alternate party at a disadvantage.
3. Reverse entry - the partner gains enough knowledge to enter as a competitor.
Mitigations:
1. Limit its scope to a well-defined learning area
2. Have the alliance in a physically different location of firm’s.
3. Develop an Alliance-Specific Advantage (ASA), this is an advantage exclusively to the firm, meaning the partner cannot benefit from this.

Question 31

When are alliances preferred?

Answer 31

Each firm only needs a select few (subset) of resources held by the partner.
Acquisitions can be messy as it creates complications of disposing unusable, firm-specific resources.

Question 32

What are problems with M&As? (2)

Answer 32

1. Costs of integrating are often underestimated
2. Expected benefits are often over-estimated.

Question 33

What are Baron’s 4 I’s of the Non-Market Strategy?

Answer 33

1. Issues
2. Institutions
3. Interests
4. Information

Question 34

Describe the “issues” factor in Baron’s 4 I’s Framework

Answer 34

Issues are what non-market strategies address.
i.e. How do Chinese firms get the European Union to reduce import taxes

Question 35

Describe the “institutions” factor in Baron’s 4 I’s Framework

Answer 35

Institutions are the relevant set of bodies that the firm must interact with in the course of its non-market behavior.
i.e. In order for the Chinese firms to do profitable business in Europe, Chinese firms will have to engage with European Commission, Automotive Trade Associations, and the media.

Question 36

Describe the “interests” factor in Baron’s 4 I’s Framework

Answer 36

Interests are individuals and groups with preferences about, or stake in, the non-market discussion.
i.e. this would include the European public, populist parties, auto industry association.

Question 37

Describe the “information” factor in Baron’s 4 I’s Framework

Answer 37

Information pertains to what the interested parties know, or believe to know, about the matter in hand.

Question 38

Describe Oliver’s (1991) Non-Market Strategy (5,3)

Answer 38

1. Acquiesce = habit, imitate, comply
2. Compromise = balance, pacify, bargain
3. Avoid = conceal, buffer, escape
4. Defy = dismiss, challenge, attack
5. Manipulate = co-opt, influence, control

Question 39

Explain the different factors of the ‘Acquiesce’ tactics: (3)

Answer 39

Acquiesce =
- habit : follow the “taken for granted rules” (brand logo)
- imitate : Conforming to isomorphic pressures within the institution
- comply : Obeying the required values and norms

Question 40

Explain the different factors of the ‘Compromise’ tactics: (3)

Answer 40

Compromise
- balance : Obtain an acceptable compromise
- pacify : Conform to the norms in a minimal way
- bargain : Actively engage and negotiate an agreement

Question 41

Explain the different factors of the ‘Avoid’ tactics: (3)

Answer 41

Avoid
- conceal : disguise non-conformity
- buffer : do what is necessary to reduce firm scrutiny.
- escape : change the plan to something more suited (changing country)

Question 42

Explain the different factors of the ‘Defy’ tactics: (3)

Answer 42

Defy
- dismiss : when chances of getting caught are low, ignore the rules and values
- challenge : offense –> fight to challenge the rules and values
- attack : belittling institutionalized values and those that express them

Question 43

Explain the different factors of the ‘Manipulate’ tactics: (3)

Answer 43

Manipulate
- co-opt : integrate influential constituents that go against the scrutiny
- influence : shape values and criteria –> lobbying for example
- control : build power with the goal of dominating the institutional process –> funding politicians whose views are aligned with the firm.