Final Exam Flashcards
what is international business?
Business activity that crosses national borders, and interactions between business and international environments
what is international management
The process of planning, organising, directing and controlling an organisation involved in cross-border activities or functions outside its domestic environment
what is international strategy
Intended and emergent initiatives taken by managers to enhance the performance of firms in international environments
what is international business activity?
- The sum total of all business transactions that cross borders
- Includes a firm’s suppliers, distributors, and customers
- Is impacted by a range of national and global regulators
- At its simplest level it is the consumption of goods and services purchased from another country
- One estimate of the total value of international business is:
– $19 trillion in goods and US$4.6 trillion in services annually
– $5.3 trillion in foreign exchange transactions every day
what is globalisation
- A driving force and a context for international business activity
– The trend towards greater interdependence among national institutions and economies
– This term is often used in a very broad way to cover a range of trends
– Includes globalisation of markets, production and service
what are the drivers of globalisation?
Two macro factors seem to underlie the trend towards greater globalisation
– Declining trade and investment barriers: the decline in barriers to the free flow of goods, services and capital.
– The role of technological change: particularly the dramatic developments in recent years in communication, information processing and transportation technologies.
what is the globalisation of markets?
– The trend towards greater interdependence among national institutions and economies
– This term is often used in a very broad way to cover a range of trends
– Includes globalisation of markets, production and service
what is the globalisation of production?
The dispersal of production activities to locations around the world that are:
* Low-cost
* High-quality producers of a particular good * Co-located with essential process inputs
Offshoring as a form of outsourcing
what is the globalisation of services?
- Services are typically consumed at the same time and place that they are produced, but technology can overcome geographic constraints
– Call centres in India and Philippines (BPO)
– Data and text exchange via email or intranet
– Virtual design facilities
what are regional trading blocks?
- The Triad
– Western Europe (EU – 1958, 1992)
– North America (USMCA) - NAFTA 2.0? – Asia (ASEAN - 1967) - Other Regions, e.g.
– Australia and New Zealand (CER - 1983)
– Commonwealth of Independent States – Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Uzbekistan (Turkmenistan, Ukraine, Georgia)
– South Asian Free Trade Area - Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka - 1.8 billion
– Mercosur - Argentina, Brazil, Paraguay, Uruguay, Venezuela, Bolivia, plus associates Chile, Columbia, Ecuador, Guyana, Peru, Suriname
what is the north america trade agreement
- The free trade agreement between the United States, Canada and Mexico (USMCA) has created a single market of nearly 500 million consumers.
what is the european union
- Largest and most integrated common market in the world – 27 countries with 447 million consumers.
- 20 member states have adopted common currency and monetary policy.
- Most people still think of themselves as British, French, Danish or Italian, and are wary of giving up too much power to centralised institutions, or of giving up their national culture.
what is ASEAN
- ASEAN (Association of Southeast Asian Nations) is a regional intergovernmental organization comprising 10 Southeast Asian countries, founded in 1967 to promote economic cooperation, political stability, and cultural exchange.
- Its members include Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar, and Cambodia.
- ASEAN aims to foster regional integration through initiatives like the ASEAN Economic Community (AEC), which seeks to create a single market for goods, services, investments, and labor.
- The group also engages in security cooperation through the ASEAN Regional Forum (ARF) and collaborates with external partners like China, Japan, and India through mechanisms such as ASEAN+3 and ASEAN+6
Is globalisation terminally ill?
– Sustainability of locating production in low labour cost countries
– Brexit
* Sovereignty
* Immigration cultural dilution?
– USA attitude toward the former TPP
– European countries’ attitudes toward asylum seekers
– Security and terrorism
what is indo-pacific agreement
- Largest Trade Agreement: RCEP is one of the world’s largest trade agreements, covering 15 Asia-Pacific countries and 30% of global GDP.
- Members: Includes 10 ASEAN nations and key trade partners like China, Japan, South Korea, Australia, and New Zealand.
- Purpose: Aims to reduce trade barriers and improve market access, fostering regional supply chain integration and economic cooperation.
- Geopolitical Significance: Strengthens economic ties in Asia-Pacific and is seen as a counterweight to other trade agreements like the CPTPP.
plan, action, theory
what is strategy?
- Origin-Greek word (strategos) - art of the general – Application to business dates to the 1960s
- Strategy as Plan - strategy is explicit, rigorous formal planning
- Strategy as Action - strategy is a set of flexible, goal- oriented actions
- Strategy as Theory – strategy is a set of principles setting out how to compete successfully
- One firm’s strategies may not work in all situations
what are strategy models?
- Industrial Organisation (I-O) Model
– Identify an attractive industry and implement strategy dictated by that industry’s characteristics
– Branson: Virgin group
– Musk: Tesla Motors, SpaceX, Twitter - Resource Model
– Use organisational capabilities to compete against rivals
– Apple, 3M
what are the three perspectives on strategy?
- industry based competition
- firm-specific resources and capabalities
- institutional conditions and transitions
what is strategy?
- The actions that managers take to attain company goals.
- These usually are to be profitable (the rate of return concept) and realise profit growth (the percentage increase in net profits over time).
- Attaining these requires managing ‘value creation’ or performing activities that increase the value of goods and services to customers.
- This is by aligning a strategic fit between the operations that contribute to a firm’s value chain (that is, primary and support activities), its organisational structure (its locus of control and coordination), control metrics (to achieve KPIs), system of rewards and incentives (for performance), decision-making processes, culture (norms and values), and people (HR strategies).
what are the activities of a value chain in a manfucturing firm?
primary:
- r&d
- inbound logistics
- production
- outbound logistics
- marketing and sales
- after sales service
= value added
supporting activities:
- firm infrastructure
- human resource management
what is strategic fit?
The totality of a firm’s organisation,including formal organisational structure, control systems and incentives, organisational culture, processes and people
what are the approaches to exploiting world markets?
- Globalisation
– the establishment of worldwide operations and the development of standardised products and marketing. - Localisation
– local markets are linked together within a region, allowing more local responsiveness and specialisation
what are the four corporate level international strategies?
- global standardisation
- transnational
- international
- localisation
what are the pressures to globalise?
The degree to which companies need to integrate and coordinate all of their value chain activities on a worldwide basis to achieve global efficiencies and better respond to competitive threats:
– High production costs.
– Declining tariffs, which encourage trading across borders and open up new markets.
– Increasing competitive pressure (often resulting from regional trading blocs).
– The ICT explosion, which makes the coordination of remote operations easier and also increases the commonality of consumer tastes.
what are the pressures to localise?
The degree to which companies need to tailor their products or services to satisfy local market demands:
– Unique consumer preferences resulting from cultural or national differences.
– Localised business development to counter aggressive local competition.
– Government regulation (eg pricing, advertising, HRM practices)
what are international strategy choices?
- International Strategy
– A basic strategy in industries with relatively low pressures for global integration and local responsiveness, often involving the export of specialised products or services developed in a firm’s home market. - Global Strategy
– Goals and directions are set out on a worldwide basis to maximise efficiencies with little customisation of products or services across markets. - Multi-domestic Strategy
– Goals are developed and implemented independently for specific countries because of a high need for local responsiveness. - Transnational Strategy
– A firm moves key activities to wherever they can be carried out best while still adapting to local product or service preferences.
what are porter’s five generic strategies?
- cost leadership
- differentiation
- integrated cost leadership/differentiation
- focused cost leadership
- focused differentiation
what is cost leadership strategy?
– An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors
* lowest competitive price
* features acceptable to many customers * relatively standardised products
what is differentiation strategy?
- An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them
– Non-standardised products for customers who value differentiated features more than they value low cost
– The success of a firm’s differentiation strategy depends on its ability to continuously and consistently upgrade the differentiated features
– Ability to charge premium prices
what is focus strategy?
- An integrated set of actions designed to produce or deliver goods or services that serve the needs of a particular competitive segment (or niche)
– Focused cost leadership strategy
– Focused differentiation strategy - Firms can serve a particular segment of an industry more effectively than industry-wide competitors
– Competitor firms may overlook small niches
– The firm lacks resources needed to compete in the broader
market
what is integrated cost leadership/differentiation strategy?
– An appropriate choice for firms possessing the core competencies to produce somewhat differentiated products at relatively low prices
– A firm that successfully uses the integrated cost
leadership/differentiation strategy must be able to:
– readily adapt to external environmental changes
– concentrate simultaneously on two sources of competitive advantage: cost and differentiation
– Build competence and flexibility in several value chain activities
what are the elements of organisational structure?
- Workspecialisation
- Departmentalisation
- Chain of command
- Span of control
- Centralisation
- Formalisation
what are network organisation structures?
- Emergent form – attracting interest and experimentation
- Generally involve external entities, e.g.
– Strategic partners
– Outsourced functions – Contractors
when is organisational change and design needed?
- Clashes among divisions, subsidiaries, or individuals over territories or customers
- Duplication of administrative or personnel services, sales offices, account executives
- An increase in overseas customer service complaints
- A shift in operational scope
- Conflict between overseas and domestic staff
- Centralization leads to excessive and, thus, misused or misunderstood data
- Unclear reporting relationships
what is market entry strategy?
Factors in the selection of a market entry method:
– The firm’s objectives for foreign markets.
– The business environment in specific foreign countries targeted for entry.
– The firm’s technical, managerial, financial capabilities and resources.
– The competitive context in targeted foreign markets.
– Attributes of products or services for targeted markets.
– The risk–reward equation associated with entering a particular foreign market.
what is international market entry choice?
Degree of Control
How much “say” an entry mode offers over strategic and
operational decisions.
Resource Commitment
The resources required to pursue a particular entry mode.
Dissemination Risk
The risks of having proprietary technology or expertise fall into the hands of a foreign partner.
Systematic Risk
The economic and political risks present in foreign markets.
what are Entry strategy alternatives (in order of ascending risk)
Exporting
Licensing
Franchising
Contract manufacturing
Turnkey operations
Management contracts
International joint ventures (IJVs)
Wholly owned subsidiaries
what are international entry strategies?
**Exporting **
advantages: Low risk, No long-term assets, Easy market access and exit
critical success factors: Low risk, No long-term assets, Easy market access and exit
licensing
advantages: No asset ownership risk, Fast market access, Avoids regulations and tariffs
sucess factors: Quality and trustworthiness of licensee, Transferability of IP, Host-country royalty limits
franchising
advantages: Little investment or risk, Fast market access, Small business expansion
success factors: Quality control of franchisee and franchise operations
what is a franchise agreement?
- takes for as written agreement, oral agreement or implied agreement
- in which a person (the franchisor) grants to another person (the franchisee) the right to carry
on the business of offering, supplying or distributing goods or services in Australia under a
system or marketing plan substantially determined, controlled or suggested by the
franchisor or an associate of the franchisor; and - under which the operation of the business will be substantially or materially associated with a
trade mark, advertising or a commercial symbol - under which, before starting or continuing the business, the franchisee must pay or agree to
pay to the franchisor or an associate of the franchisor an amount including,
what is a system?
- Detailed compensation and bonus structures for selling products.
- Centralised bookkeeping and record-keeping computer operations.
- Assistance conducting ‘opportunity’ meetings.
- Comprehensive advertising and promotional programs.
- Schemes for appointment of distributors, direct distributors, district directors, regional directors or zone directors.
- Rights to screen and approve promotional materials.
- Prohibitions on repackaging of products.
- Suggestions for retail prices charged for products.
- Division of states into marketing areas.
- Establishment of sales quotas.
international entry strategies - contract manufacturing
A contract manufacturer is a manufacturer that contracts with a firm for components or products. It is a form of outsourcing. A contract manufacturer performing packaging operations is called copacker or a contract packager.
advantages: Limited cost and risk Short-term commitment
success factors: Reliability and quality of local contractor Operational control and human rights issues
international entry strategies - turnkey operations
Turnkey operations refer to a type of project or business arrangement where a company or contractor is hired to design, build, and fully equip a facility or infrastructure, ready for immediate use. Once the project is completed, it is handed over (“turned over”) to the client, who can “turn the key” and begin operations without any additional setup or installation.
advantages: Revenue from skills and technology where FDI is restricted
success factors: Reliable infrastructure
Sufficient local supplies and labor Repatriable profits
Reliability of any govt. partner
international entry strategies - management contracts
Management contracts are an international market entry strategy where a company (the contractor) provides management expertise or operational services to a foreign company (the client) for a specified period, without the contractor owning any equity in the foreign business.
advantages/ sucess factors : Low-risk access to further strategies
success factors:
Low-risk access to further strategies
international entry strategies - joint ventures
A joint venture (JV) is two or more companies from different countries come together to create a new, jointly owned business entity. Each partner contributes resources such as capital, technology, and expertise, while sharing the profits, losses, and control of the venture.
advantages; Insider access to markets Share costs and risk Leverage partner’s skill base, technology, local contacts
success factors: Strategic fit and complementarity of partner, markets, products
Ability to protect technology Competitive advantage
Ability to share control
Cultural adaptability of partners
international entry strategies - wholly owned subsidiaries
A wholly owned subsidiary is when a company (the parent company) establishes a fully owned business operation in a foreign country. The parent company maintains 100% control over the subsidiary, owning all the equity and managing its operations directly.
advantages:
Realise all revenues and control
Global economies of scale
Strategic coordination
Protect technology and skill base
Acquisition provides rapid entry into established market
critical success factors:
Ability to access and control economic, political and currency risk.
Ability to get local acceptance Repatriation of profits?
what is cage framework?
distances between countries that companies should address when crafting international strategies. It may also be used to understand patterns of trade, capital, information, and people flows
1. cultural distance
2. administartive distance
3. geographical distance
4. economic distance
what is cultural sensitivity
Cultural distance matters most when…
– Products have high linguistic content (e.g. TV programmes)
– Products matter to cultural / national identity (e.g. food)
– Products vary in terms of size / standards (e.g. cars)
– Products carry country-specific quality standards (e.g. wine)
what is administrative sensitivity
- Governments will have highest involvement in industries that:
– Produce staple goods
– Produce ‘entitlement’ goods
– Exploit natural resources
– Are large employers or large government suppliers – Are national ‘champions’
– Vital to national security
– Subject to high sunk costs
what is geographic sensitivity
- Geography plays a more important role when – Product has a low value-to-weight ratio
– Products are fragile or perishable
– Local supervision and operational requirements are high
what is economic sensitivity
- Economic differences have the biggest impact when:
– Nature of demand varies with income level
– Economies of standardisation or scale are limited
– Labour and other factor cost differences are important – Distribution or business systems are different
– Companies need to be responsive and agile
what are reasons to apply the CAGE framework
- Make differences visible
- Understand the liability of ‘foreignness’
- Assess natural ownership and compare foreign competitors
- Compare markets
- Discount by distance
what are business systems ?
- Complex, adaptive systems for doing business in the context of a society
- Affected by
– Economy
– Culture
– Societal experiences – World markets
– Technology change
what is the meaning behind business systems?
- Rationale
– Why people work - Identity
– Individualist or collectivist
*Authority
– Power distance
what is order in institutions
- Capital
– Sources and allocation of money - Human capital
– Identification and development of talent, labour market - Social capital
– Trust in people or systems
what is coordination - structure and systems
- Ownership
– Holding assets and controlling their use - Networks
– Relationships between entities - Management
– Approach and style
what are the two types of logics?
- Material logics (economic realities)
– Factor endowments – Technology
– Input costs - Ideational logics (new ideas)
– External ideas, norms, values, attitudes, systems
what are regional features of asian business systems
- Migration waves
- History
- Dominant internal influences
– Chinese civilisation
– Taoism, Confucianism - External influences
– British, French, Dutch, Portuguese, Spanish, American – Islam, Christianity
what are thinking patterns in business systems
- The Object
– People from Western cultures tend to focus on analysis * facts, categorisation, individuals, motives, perspectives etc - The Field
– People from many other cultures tend to focus on synthesis - the relationships between these things and their environment
what is the business system of japan?
- Meaning
– Firms exist to keep people employed – Almost “tribal” loyalty - Order
– Banks are there to provide capital to industry
– Permanent employment
– Trust - interpersonal and institutional - Co-ordination
– Large business groups
– keiretsu - A keiretsu is a set of companies with interlocking business relationships and shareholdings that dominated the Japanese economy in the second half of the 20th century
– Privately owned small to medium firms
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what is the business system of china
- Meaning
– Cardinal Confucian relationships - Order
– Command economy
– Increasing private enterprise since 1978 - Co-ordination
– Increasing autonomy in State Owned Enterprises (SOE) – Stock market
– Hong Kong special economic zone
– One country, two systems
what is the business system of south korea
- Cultural Influence: Confucian values shape the business system, emphasizing a sense of duty and a strong work ethic.
- Work Hours: South Koreans have the second-longest working hours in the OECD.
- Trust: Low institutional trust; interpersonal relationships are more significant in business interactions.
- Labor Market: Distinction between regular and non-regular employees is prominent.
- Chaebols: Large business groups dominate export industries.
- SMEs: Around 87% of South Koreans are employed by small to medium enterprises.
Government - Role: Reduced government control in the economy since the 1980s.
what is environmental scanning?
- The process of gathering information and forecasting relevant trends, competitive actions, and other factors that will affect operations in geographic areas and business sectors of potential interest.
- Includes
– External - Information about the society in which a business operates
- Information about competitors and the competitive environment
- Information about consumer trends – Internal
- Information about internal resources and capabilities
what is enacted environment?
managements perception or representation of task and general environments
why scan the environment?
*The external environment of a business is constantly changing (regulatory, competitive, social, economic, etc.)
* The resources available to a business are constantly changing (financial, technological, etc.)
* Good businesses must adapt to,or influence, their environments - failure to do this can lead to the demise of the organisation
* Scanning allows organisations to identify opportunities and gain first-mover advantage
* Scanning allows organisations to identify impending threats and mitigate against them
what are problems with scanning?
The most common mistake people make is to collect a lot of possibly useful and possibly relevant information, present it in some sort of list or table, make no real attempt to analyse what it all means for the business, and then ignore it anyway when making plans.
scanning techniques
- Conventional methods:
– Market research - focus groups
– Desk research - Government statistics * Industry statistics
- Industry studies
- Some alternative methods:
- Correlation / regression analyses * Scenario building
what are drivers and trends
- Drivers (factors that influence trends)
– Rapid developments in ICT, artificial intelligence
– Environmental degradation
– Demographic changes
– Conflicts / deteriorating geopolitical situations - Trends
– Increased security legislation, IP legislation, privacy legislation, etc.
– Sustainability initiatives - Reducing carbon footprints (lower energy usage, recycling, etc)
– Personalisation of products and services
– Reframing trade relationships, nationalism, etc.
Trends can give rise to potential threats and opportunities
what are frameworks for scanning the external environment
- General Environment
– PESTEL - Industry
– Porter’s Five Forces - Threats from competition, suppliers, customers, new entrants, substitute products
- Task environment
– Customers, suppliers, competitors, labour market, regulators, pressure groups, etc.
what are opportunity categories?
- products or services
- markets
- channel
- timeliness
what are the threat categories
- Financial
- Competitors
– Existing and potential - Regulators
- Pressure groups
- New products
analyse organisational resources
– Financial, physical & technological resources
– Human resources
– Business systems
– Business relationships
assessing risk factors
Environment
– Political (regulators)
– Economic
– Social
– Technological
– Legal
– Environmental
– Competitors
– Suppliers
– Customers
– New entrants
– Substitute products
The Business
– Money
– People
– Systems
– Relationships
assesing risk - LIE
- Likelihood x Impact = Exposure
- Assessment made for each risk factor
- For example…High risk = 3, Moderate risk = 2, Low risk = 1
what is industry competition?
Industry:
– A group of firms producing products (goods and/or services) that are similar to each other
Theories of industry competition
– Perfect competition (rarely observed)
* Smith(1776)–invisiblehandofthemarketsetsprices
– Innovation and Imitation equilibrium
– Industrial organisation (IO) economics model
* Industry environment determines structure
* Industry structure determines strategy and firm performance (below, at, or above average)
* Known as the structure-conduct-performance (SCP) model
what are factor conditins of porter’s diamond of comp adv
– Basic factors (natural resources, labour, etc.)
– Advanced factors (digital communications systems, highly
educated workforces, etc.)
– Generalised factors - required by all org’s (roads / highways,
access to capital, etc.)
– Specialised factors that are most valuable in specific uses (e.g.
skilled port workers who specialise in the handling of bulk chemicals)
- Nations with both advanced and specialised factors are likely to nurture new firms that become strong global competitors.
- Ironically, nations often develop advanced and specialised factors because they lack critical resources (e.g. South Korea, Japan)
what are demand conditions of porter’s diamond of comp adv
– Nature and size of buyers’ needs in the home market for an industry’s products & services.
– Size of this segment can create demand sufficient to justify the construction of scale-efficient facilities.
porters diamon of comp adv
what is related and supporting industries
– National firms can develop competitive advantage when industries that provide materials or components that support the primary industry
– E.g. in Italy, the national pride of the country’s designers has spawned strong industries in sports cars, fashion apparel and furniture.
porter’s diamond of comp adv
firm strategy structure and rivalry
– Patterns of firm strategy, structure, and competitive rivalry among firms in an industry vary between nations:
For example:
– In Japan and Germany, there is a predominance of engineers in top management. In the USA, top management is dominated by finance specialists -> strategic focus is quite different.
– In the USA, competition among computer manufacturers and software producers has favoured the development of these industries.
– In Japan, intense domestic competition gives rise to high quality goods, rapid process improvement and product development, and well developed advanced factors.
how can gov policy affect demand
- enforcing product standards
- influencing rivalry by regulation and antitrust (anti-competition) laws
- impacting on the availability of highly educated workers and advanced transportation infrastructure.
Porter’s four attributes, government policy and chance work as a reinforcing system, complementing each other and creating in combination the conditions appropriate for competitive advantage.
what is the five forces framework
– Developed from the SCP model in 1980 by Michael Porter
– A key proposition:
* The firm’s performance depends on the degree of competitiveness of the five forces within an industry
* The stronger and more competitive these forces are, the less likely the firm is able to earn above-average return, and vice versa
- Not all industries are equal in terms of their potential profitability
- The task for strategists is to assess the opportunities (O) and threats (T) underlying each competitive force affecting an industry, and then estimate the likely profit potential of the industry
- The challenge is to stake out a position that is strong and defensible relative to the five forces
porters five forces
rivalry among competitors
- Numbers of competitors (concentration)
- Relative size of competitors (balance)
- Industry growth rate
- Fixed costs vs variable costs
- Product differentiation
- Buyers switching costs
- Diversity of competitors
- Exit barriers
determinants of buyer power
- Number of buyers relative to sellers
- Product differentiation
- Switching costs to use other products
- Buyer’s profit margins
- Buyer’s use of multiple sources
- Buyer’s threat of backward integration
- Seller’s threat of forward integration
- Importance of product to the buyer
- Buyer’s volume
porters five forces
intensity of rivalry among competitors
Typical actions indicative of intense rivalry include:
– Price wars
– Proliferation of new products
– High-cost (to the firm) competitive actions
porters five forces
determinants of supplier power
- Supplier concentration
- Availability of substitute inputs
- Importance of supplier input to buyer
- Supplier’s product differentiation
- Importance of industry to suppliers
- Buyer’s switching costs to other inputs
- Supplier’s threat of forward integration
- Buyer’s threat of backward integration
porters five forces
threats of new entrants
- Barriers to entry
– Government policies
– Capital requirements
– Access to distribution channels
– Economies of scale
– Product differentiation - Incumbent’s defense of market share 3. Industry growth rate
porters five forces
threat of substitues
- Complete or partial substitute
- Relative price of substitute
- Relative quality of substitute
- Switching costs to buyer
what is intergration
- One way to reduce the threats posed by the competitive forces
- Horizontal (lateral) integration – Acquire similar businesses
- Vertical integration
– Acquire firms involved in other steps of the value chain - Forward integration – later steps
- Backward integration – earlier steps
what are the positives of the five forces framework
- For strategic practice, the industry-based view provides:
– A systematic foundation for industry analysis and competitor analysis, to which a more detailed examination can be added
– A set of answers to the four fundamental questions in strategy
– An argument that industry-specific conditions play an important role in determining firm performance
what are resources, capabilities and core competencies
- Resources
– Assets of a firm - Capabilities
– Activities that the firm can undertake - Core competencies
– Activities that the firm can perform as well as, or better than its competitors
what are resources, capabilities and the value chain
- Different resources are required at different stages along the “Value Chain”
– The functional activities within the firm that create value in the goods and services produced - Components of the Value Chain
– Primary activities - Are directly associated with the development, production, and distribution of goods and services
– Support activities - Assist in the accomplishment of primary activities
how does VRIO apply to the resource based view?
* Value: do the resources and capabilities add value?
– Necessary for a competitive advantage
– Perception of the customer
* Rarity: how rare are the valuable resources and capabilities?
– Valuable, but common, not an advantage
– Valuable and rare can lead to temporary advantage – If everyone has it, you can’t make money from it
* Imitability
– Easier to imitate tangible resources/capabilities than intangible ones
– Why is imitation so difficult?
* Hard to acquire in a short time what competitors have developed over a long time
* Events earlier in time affect future events
* Difficult to identify causal determinants of performance
− Valuable, rare, but imitable resources/capabilities -> temporary advantage
− Only valuable, rare and hard-to-imitate resources/capabilities -> sustained competitive advantage
* Organisation
– How is a firm organised to develop and leverage the full potential of its resources and capabilities?
* Using complementary assets effectively * Managing social complexity effectively
– Invisible relationships can add value & make imitation more difficult
what are tangible and intangible resources and capabilities?
* Tangible
– Resources and capabilities that are observable and easily quantified
– Broadly organised in three categories:
* Financial
* Physical
* Technological
* Intangible
– Resources and capabilities not easily observed or difficult (or impossible) to quantify
– Examples include: * Human
* Innovation
* Relationships
what is a financial tangible resources?
- The capacity to attract investors, fund growth or survive business shocks
measure:
Liquidity ratios: eg Current ratio (current assets/current liabilities) – 2:1 is a reasonable benchmark
Gearing ratios: eg Debt to equity ratio (total debt/shareholders’ equity) – acceptable benchmarks vary greatly across industries, and trend or capacity to sustain a ration over time may be better ways to assess this ratio Profitability ratios: eg Return on Assets (Net income/Average total assets x 100) – should be better than the risk free rate of return
Valuation ratios: eg Price to earnings ratio (share price/earnings per share) – again, varies greatly, but a benchmark around 15 may be appropriate
what is physical tangible resources
- Ownership or control of buildings, equipment, patents, stockpiles of raw materials
measure:
- Market value of asset
- Age of asset
- Condition of asset
what are human intangible resources
- Expertise and engagement of key employees, associates, sub- contractors or affiliates
measure:
- Education, technical or professional qualifications, or experience Employee turnover
- Industrial dispute history
- Compensation packages relative to competitors
- Safety history
- Training budget
- Innovation profile
what is relationships as an intangible resource?
- Reputation, recognition and standing with key stakeholders
measure:
- Brand recognition
- Repeat custom
- Consistency of financial performance
- Capacity to charge a price premium
- Extent of relationship “network”
what is corporate - capabilities
- Planning/Organising/Leading/ Controlling
- Consists of Financial management, Leadership, Management of partnerships and relationships
measure:
- Analysis of planned to outcome gaps
what is research & development?
Capacity to generate new products and services
measure:
- Basic research expertise
- New ideas per employee
- Percentage of new ideas selected for funding
- Revenue generated divided by implementation cost of new ideas
- Percentage of revenue generated by new ideas
what is a capability - product/service design/marketing/sales and distribution
**product/service design: **
- Market acceptability of new products or services
- measures by positive responses on blogs
marketing
- capacity to bring new products or services to the market
- measures by sales trends
sales & distribution:
- the logistics of getting the product or service to customers in a way that meets their expectations
- measured by quality and effectiveness of customer service
what are core competencies?
- Things that an organisation can do better than, or at least as well as competitors
- Capabilities that are
– Valuable to customers
– Rare
– Not easily Imitable
– Exploited effectively by the organisation
what is an institution
− “Humanly devised constraints that structure human interaction” (North, 1993)
− “Regulatory, normative, and cognitive structures and activities that provide stability and meaning to social behavior” (Scott, 2014)
what are the emergence of global institutions
General Agreement on Tariffs and Trade (GATT)
An international treaty that committed signatories to lowering barriers to the free flow of goods across national borders; predecessor to the WTO.
World Trade Organization (WTO)
Responsible for policing the world trading system and ensuring that nations adhere to the rules established in WTO treaties. Some 164 nations accounting for 97% of world trade are WTO members.
International Monetary Fund (IMF)
Created to maintain order in the international monetary system.
examples of global institutions
**World Bank **(International Bank for Reconstruction and Development)
Set up to promote economic development
United Nations (UN)
Maintains international peace and security
Develops friendly relations among nations
Cooperates in solving international problems and promotes respect for human rights
Acts as a centre for harmonising the actions of nations
what are formal and informal institutions
Institutional framework - formal and informal institutions governing individual and firm behavior - supported by three pillars (regulative, normative, cultural-cognitive)
− Formal institutions - laws, regulations, rules - supported by the regulatory pillar (the coercive power of governments)
− Informal institutions - norms, cultures and ethics - supported by the normative and cognitive pillars
how do institutions reduce uncertainty?
– Relational contracting - informal, relationship-based, personalised exchanges, or
– Arm‘s length transaction - formal, rule-based, impersonal exchange with third party enforcement
institution-based view of strategy
- The relationship between strategic choices and institutional frameworks can be critical
- Porter’s “diamond” model explains competitive advantage of globally leading industries in different countries, but has been criticised for ignoring history and institutions
- Strategic choices are selected within and constrained by institutional frameworks in developed economies
- Striking differences between institutions in developed and emerging economies has pushed the institution-based view to the forefront
Institution view propositions
- Managers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional framework.
- While formal and informal constraints combine to govern firm behavior, in situations where formal constraints are unclear or fail, informal constraints will play a larger role in reducing uncertainty to managers and firms.
what is culture
- Institutions are a function of the culture
- The culture of a society comprises the shared values, understandings, assumptions, and goals that are learned from earlier generations, imposed by present members of a society, and passed on to succeeding generations.
National culture - Hofstede
Individualism v collectivism
– degree to which individual goals are valued over group goals
Power distance
– extent to which unequal power distribution is accepted
Uncertainty avoidance
− degree to which ambiguity is tolerated
Masculinity v femininity
− achievement (assertiveness, competitiveness, materialism) v nurturing
Long term v short term orientation
− Degree to which the society focusses on planning and thrift
Indulgence v restraint
− Degree to which people’s desires are restrained by social norms
The big issues of culture
- Identity
– Unique individual or a group member? - Hierarchy
– Are people born equal or with a rank? - Role
– Warrior or carer? - Novelty
– Are unfamiliar things dangerous or interesting? - Time
– Live for today or build for tomorrow?
Cultural context
Context
– Background information (other than what is said or written) that helps one understand and perceive others.
High-Context versus Low-Context Cultures
– High-context cultures put great weight on background information whereas low-context cultures view it as extraneous.
– High-context cultures
* Feelings and thoughts are not explicitly expressed
* The listener has to read between the lines and interpret meaning
– Low-context cultures
* Feelings and thoughts are expressed in words, and information is more readily available
The strategic role of ethics
- From the institution-based view, ethics falls under the Normative and Cultural-Cognitive Pillars
- Ethics: Norms, principles, and standards of conduct that govern individual and firm behavior
- All agree - ethics can make or break a firm
- Value of an ethical reputation is magnified during crisis
Views on business ethics
- Ethical theories fall into two categories – Teleology (consequence)
– Deontology (moral duty) - Managing Ethics Overseas
– What is ethical in one country may be unethical or illegal in other countries - Two perspectives on dealing with ethical dilemmas overseas:
– Ethical relativism - “when in Rome, do as the Romans do”
– Ethical imperialism - absolute belief that “there is only one set of Ethics, and we have it!”
Utilitarian approach
- The ethical concept that moral behaviour produces the greatest good for the greatest number.
- Using simple economic costs and benefits to help make decisions.
Individualism approach
- The ethical concept that acts are moral when they promote the individual’s best long-term interests, which ultimately leads to greater good
- Often perceived as gratifying immediate self-interest
- Promotes behaviour towards others that fits standards of behaviour that people want shown towards themselves
Moral rights approach
- The ethical concept that moral decisions are those that
best maintain the rights of those people affected by them - People have fundamental rights and liberties that cannot
be taken away such as:
– The right to free consent
– The right to freedom of speech
Justice approach
- The ethical concept that moral decisions must be based on standards of equity, fairness and impartiality
- Concepts of:
– Distributive justice: Different treatment of people not be based on arbitrary characteristics
– Procedural justice: Requires rules be administered fairly
– Compensatory justice: Compensation for the cost of their injuries by the party responsible
Marketing - what is it?
- The performance of business activities that direct the flow of goods & services from producers to consumers
- getting the right G & S’ to the right people at the right place, time and price with the right communication and promotion
- human activity directed at satisfying needs and wants through exchange processes
Services (characteristics)
- Services…
– are variable
– are intangible
– are perishable
– are inseparable from the provider
– often involve the customer as an integral
part of the provision of the service
four 4ps of marketing
- promotion - communicating value
- product - creating value
- place - delivering value
- price - capturing value
what are the main 3 ps of service marketing
- people
- All persons who play a part in the service delivery & influence buyers’ behaviour
* People who provide cues to the customer regarding the nature/value of the service - physical evidence
* The environment in which the service is offered
* Tangible representations of value:
* Brochures
* Premisedesign/features
* Brandname,logo,etc - process
* The procedures, mechanisms and flow of activities by which the service is delivered
* Service process can be complex and time consuming
* Standardising processes is important
Market positioning
- Meeting the Competition
– no real advantage - Beating the Competition
– short term advantage - Countering the Competition
– long term advantage
Competitive advantage
- To have a competitive advantage an offering must be:
– of value to the customer
– better than most other competitors’ offerings – difficult to copy
Pricing strategies
- A perceived cost is any expected negative outcome of a proposed exchange perceived by a target customer.
- Consumers balance expected benefit with expected cost to them.
- What is pricing objective?
– Profit maximisation?
– Usage maximisation?
– Full cost recovery?
Three main pricing strategies:
- Cost-oriented (take into account all costs and add a mark up)
- Competition-oriented (going rate)
- Demand-oriented (where demand is such that a premium or a discount can be applied)
- Other strategies include:
- Promotional pricing
- Market disincentivisation
- Social equity
Distribution channels
- For an exchange to take place, organisations must make direct or indirect contact with customers.
- For services, this means making the service available where and when the customer can utilise it.
- Organisation’s task is to create time and place utility for the customer.
- A distribution channel is a conduit for bringing organisation and customer together at some place and time in order to facilitate a transaction
Distribution channels - examples
- Specific buildings - (office, store, showroom, etc.)
- Salesforce
- Independent intermediaries
– e.g. distribution agencies - Telephone contact
- Advertising media
- Direct mail / messaging
Distribution issues
- Organisation has to decide how much time and place utility to offer as part of its marketing mix
- Direct vs indirect marketing
- Length and breadth of channel structure (nbr of levels between org and customer)
- Allocation of functions -
who handles the channel flows i.e. information, goods, money - Co-ordination and control of channel members
International marketing
- Since 1960s, assumption was that globalisation would lead to converging needs and tastes, and that marketing could be standardised to save on costs.
- More recently, researchers have argued that markets are actually becoming more diverse.
- More local products and brands now stand alongside global products and brands.
- Generally, standardisation (of marketing programs) is most feasible among nations which are economically alike.
- Why do needs and tastes continue to diverge? - because culture, to a large degree, ensures it.
- e.g. Europe’s single market and common currency were supposed to lead to homogenisation in food, clothes and TV programs - reality is quite different.
- Cultural values stability. Convergence of economic systems and incomes, but not values.
- Increased discretionary income freedom to express according to own, specific value patterns.
international marketing
Why are marketers & advertisers reluctant to accept this fact
– Marketers united by a wish for change (new trends mean new business).
– Most MNCs are from US or UK, or have Anglo-American management (highly individualistic). Implies universalism – they often only see similarities, not differences.
– Proponents of cultural differences do not have much empirical evidence to refer to.
– Cultural values are difficult to vocalise. Cross-cultural studies which can be applied to marketing are few and far between.
Value systems & Hofstede - examples
- Mineral water consumption is higher in countries with high UAI.
- Internet usage - nbr of ISPs per 10,000 population correlates significantly with high IDV, low PDI and low UAI
- Cars - people in countries with high UAI prefer to buy brand new cars.
- Education, science and leisure pursuits (quality of life) strongly correlate with a low MAS.
market research - equivalence factors
- construct - are we studying the same phenomena in brazil, india and britain
- scalar - do the scores on consumers in the US, Argentina and japan have the same meaning
- measurement - are the phenomena in france, singapore and south africa measured in the same way
- sampling - are the samples used in hong kong, china and romania equivalent
Global marketing strategy
- Global marketing emphasises four major activities:
– cost efficiencies resulting from reduced duplication of efforts
– opportunities to transfer products, brands, and ideas across subsidiaries in different countries
– emergence of global customers such as global teens, hipsters, global elite, etc.
– better links between national marketing infrastructures, which paves the way for a global marketing infrastructure that results in better management and reduced costs
Global market segmentation
- the process of identifying specific segments - country groups or individual consumer groups across countries - with homogeneous attributes who are likely to exhibit similar buying behavior.
- Important because:
– different products are in different stages of the product life cycle at any given time
– the internet allows product information to be disseminated very rapidly and in unequal proportions across different countries
– Target segments (should have measurability, size, accessibility, actionability, growth potential)
Global market segmentation
- Traditional bases for segmentation:
– demographics
– psychographics / culture
– geography - Some emerging bases:
– product diffusion patterns – response elasticities
Niche markets
- Niche markets will almost always require additional information
- For some niche markets national measures will be less relevant than market segment measures
human resource management
- Attract an effective workforce
- HRM planning
- Job analysis
- Forecasting
- Recruiting
- Selecting - maintain an effective workforce
* Wage and salary
* Benefits
* Labour relations
* Separations - develop an effective workforce
* Training
* Development
* Appraisal
responsibilities for IHRM professionals
- a wider variety of external variables that must be taken into account when making decisions
- having to manage a wider and more diversde mix of employees in the workforce
- a larger portfolio of human resource activities and functions
- more direct exposure to international risk issues
International staffing policies
Ethnocentric staffing approach
– key managerial positions filled with people from headquarters – ie, parent-country nationals (PCNs).
Polycentric staffing approach
– local managers – host-country nationals (HCNs) – are hired to fill key positions in their own country.
Geocentric (global) staffing approach
– the best managers are recruited from within or outside of the company, regardless of nationality – i.e. third-country nationals.
selection of expatriate managers
- Job factors
- Cultural empathy, flexibility and adaptability to cultural change
- Spouses and dependents situation
- Independence and self-reliance
- Leadership ability
- Language training
- Age, experience and education
- Motivation for a foreign assignment
- Physical and emotional health
Causes of expatriate failure – Tung 1982
USA:
* Spouse cannot adjust
* Manager cannot adjust
* Other family problems
* Manager’s personal / emotional maturity
* Manager’s inability to cope with additional responsibilities
Japan
* Manager’s inability to cope with additional responsibilities
* Difficulties with new environment
* Personal / emotional problems
* Lack of technical competence
* Spouse cannot adjust
Further expatriate issues
*Selection based on headquarters criteria rather than assignment needs
* Inadequate preparation, training ,and orientation prior to assignment
* Alienation or lack of support fromheadquarters
* Inability to adapt to local culture and working environment
* Insufficient compensation and financial support
* Poor programs for career support and repatriation
Culture shock
- State of disorientation and anxiety about not knowing how to behave in an unfamiliar culture
- Caused by the trauma people experience in new and different cultures. They lose the familiar signs and cues that they had used to interact in daily life and must learn to cope with a vast array of new cultural cues and expectations.
Stages of culture shock
- Honeymoon
– positive attitudes and expectations, excitement, and a tourist feeling prevail - Irritation and hostility
– crisis stage when cultural differences result in problems at work, at home, and in daily living - Gradual adjustment
– period of recovery in which the “patient” gradually becomes able to understand and predict patterns of behavior, use the language, and deal with daily activities, and the family starts to accept their new life - Positive adjustment
– stage at which the manager and family members grow to accept and appreciate local people and practices and are able to function effectively in two cultures
Readjustment problems
- The longer the duration of an offshore assignment, the
expatriate has being reabsorbed into the home office.
more difficulty the expatriate has being reabsorbed into the home office - The “out of sight, out of mind” syndrome
- Organisational changes made during the time the individual was abroad may make one’s position redundant
- Technological advances in the parent headquarters may render one’s existing skills and knowledge obsolete
Transition strategies
- Repatriation Agreements
- The firm tells the individual how long he or she will be overseas and promises to give the individual, on return, a job that is mutually acceptable
Support systems for successful repatriation
- A mentor program to monitor the expatriate’s career path while abroad and upon repatriation
- The establishment of a special organisational unit for the purposes of career planning and continuing guidance for the expatriate
- A system of supplying information and maintaining contacts with the expatriate so that he or she may continue to feel a part of the home organisation.
Phases in the expatriate transition process
- The exit transition from the home country, the success of which will be determined largely by the quality of preparation the expatriate has received
- The entry transition to the host country, in which successful acculturation (or early exit) will depend largely on monitoring and support
- The entry transition back to the home country or to a new host country, in which the level of reverse culture shock and the ease of re-acculturation will depend on previous stages of preparation and support
Good practices used by companies in international assignments
- They focus on knowledge creation and global leadership development
- They assign overseas posts to people whose technical skills are matched or exceeded by their cross-cultural abilities
- They end expatriate assignments with a deliberate repatriation process
Employee performance appraisal: the global challenge
- Core Questions
– Rely on a standardised set of policies, procedures and practices when managing and appraising employee feedback worldwide?
– Rely on a dispersed set of systems aligned with local business and management practices in the places where it does business?
– Use a blended performance appraisal and management approach to keep local practices intact?
Performance management
- Need to consider
– Fostering productivity
– Supervision
– Performance appraisal
– Managing poor performance
– Managing conduct - Additional level of complexity for international situation
Evaluating foreign-born employees
- Evaluation Issues
– The impact and influence of local cultural values and context on effective delivery of feedback.
– Conflicts that occur when an implicit and informal culture meets an explicit and formal performance evaluation system
Remuneration & conditions
- Pay & taxation
- Superannuation
- Conditions
- Illness and injury management
- Should take into account cost of labour in a global market, and cost of living in specific assignment location
Expatriate compensation package - salary
– Home rate/home currency
– Local rate/local currency
– Salary adjustments or promotions
– home or local standard
– Bonus – home or local currency, home or local standard
– Stock options
– Inducement payment/hardship premium – percentage of salary or lump sum payment, home/local currency
– Currencyprotection
– Global salary and performance structures
Expatriate compensation package - allowances
– Cost-of-living allowances
– Housing standard
– Education
– Relocation
– Perquisites
– Home leave
– Shipping and storage
