IB Final Flashcards
What is Globalization?
The widening/deepening of interdependent relationships among people from different nations
What are the 7 main drivers of globalization?
- Rise in and application of technology
- Liberalization of cross-border trade and resource movements
- development of services that support IB
- Growth of consumer pressures
- Increase in global competition
- Changes in political situations and government policies
- Expansion of cross-national cooperation
What kinds of technology can increase globalization
Transportation and communications both improvement
Why have governments reduced trade restrictions (3 reasons)?
- citizens want greater variety of goods/services at lower prices
- competition spurs domestic producers to become more efficient
- hope to induce other countries to lower their barriers in turn
What is a born-global company?
companies that start with a global focus
Why would a government pursue cross-national cooperation?
- To gain reciprocal advantages
- To attack problems jointly that one country alone can’t solve
- To deal with areas of concern that lie outside the territory of any nation (antarctica, oceans, outer space)
3 criticisms of globalization
- Threats to national sovereignty
- Environmental stress
- Growing income inequality and personal stress
3 reasons why companies engage in IB (bonus 4th)
- Sales Expansion
- Resource Acquisition
- Risk Reduction
- Learning
Pursuing international sales usually increases the… (2)
potential sales and potential profits
3 reasons company may pursue foreign sales
lower costs
new/better products
additional operating knowledge
International operations may reduce risk by (2)…
smoothing sales and profits
preventing competitors from gaining advantages
What are the 3 IB operating modes
merchandise exports/imports
service exports/imports
investments
most popular IB mode
merchandise exports and imports
3 examples of service exports/imports
- Tourism and transportation
- Service performance (i.e. engineering)
- Asset use (royalty for logo use, franchising)
2 types of IB investment
FDI and Portfolio Investment
2 key components of portfolio investment
noncontrolling interest of a foreign operation
extension of loans
What is an MNC
a company with foreign direct investments
Why may a company seek markets?
large size and economies of scale
lower input costs due to large size
scale economies in shipment, distribution, and promotion
access to low-cost financing
What external factors can affect an IB’s success
- Physical factors (geography, demography)
- Institutional factors (culture, politics, law, economy)
- Competitive factors (number/strength of suppliers, customers, and rival firms)
2 types of physical factors in operating environment
geographic, demographic
4 types of institutional factors in operating environment
political policies, legal policies, behavioral factors, economic forces
3 types of institutional factors in operating environment
product strategy, resource base/experience, competitor capability
what is competitive product strategy
competing through cost or product differentiation
collaborative arrangements
companies working together, such as:
joint venture
licensing agreements
mgmt contracts
minority ownership
long-term contracts
joint venture
an operation in which 2 or. more companies share ownership (also non-equity joint ventures
licensing agreement
contract where firm allows others to use some assets, such as trademarks, patents, copyrights, or expertise
MNC=MNE?
true
reshoring/rightsourcing
firms bringing operations back to their home countries from abroad
2 types of operating modes
self-conducted operations
collaborative operations
6 criteria for selecting mode of entry
- Firm’s marketing objectives
- Firm’s size
- Government encouragement/restrictions
- Product quality requirements
- Risks: Political or economic
- Control needs
2 ways in which geographic distance has shrunk
- Containerization + Intermodal shipping of containers
- Telecommunications revolution
6 Advantages of producing in foreign countries (rather than exporting)
- Production abroad cheaper than at home
- Transportation costs too high for moving goods/services internationally
- When companies lack domestic capacity
- When products/services need to be altered substantially to gain sufficient consumer demand abroad
- When governments inhibit the import of foreign products
- When buyers prefer products originating from a specific country
4 equity arrangements with foreign production
- Wholly owned
- Partially owned with remainder widely held
- Joint ventures (can be both)
- Equity alliances
4 non-equity arrangements
- licensing
- franchising
- management contracts
- turnkey operations
6 collaborative arrangements + 2 non-collaborative
Collaborative:
- joint ventures
- equity alliances
- licensing
- franchising
- mgmt contracts
- turnkey operations
Non-collaborative:
- wholly owned
- partially owned w/remainder widely held
4 reasons for a company to make a wholly owned FDI
market failure
internalization theory
appropriability theory
freedom to pursue global objectives
why is collaboration appealing as an entry strategy?
a firm may reduce its liability of forgiveness
collaboration only works if… otherwise we should use wholly owned FDI
management can find an associate knowledgeable about the host country at acceptable terms, which may be impossible since such companies may be inadequately equipped to deal efficiently with the entry company’s tech, or don’t know enough about entering company
market failure reason for wholly owned FDI
failure of market to connect firms as collaborators will entice a company to enter with wholly owned operations only if it perceives having operating advantages to overcome its liability of forgiveness
what is internalization
control through self-handling of operations
4 reasons why internalization may reduce costs
- different operating units within the same company are likely to share a common corporate culture, which expedites communications
- company can use its own managers, who understand and are committed to carrying out its objectives
- company can avoid protracted negotiations with another company on such matters as partner responsibilities and how each will be compensated for contributions
- company can avoid possible enforcement problems
appropriability strategy
the idea of denying rivals access to resources
Advantages of acquiring an existing operation
- gaining vital resources that are otherwise hard to develop
- making financing easier at time
- adding no further capacity to the market
- avoiding start-up problems
4 reasons why companies may choose greenfield expansion
- host governments discourage acquisitions
- easier to finance
- available acquisitions are performing poorly
- personnel in acquisitions are performing poorly
- personnel in acquiring/acquired firms may not work well together
5 general motives for collaborative arrangements
- spread and reduce costs
- enable companies to specialize in their competencies
- avoid competition
- secure vertical and horizontal links
- gain knowledge
4 motives for collaborative arrangements specific to IB
- gain location-specific assets
- overcome legal constraints
- diversify geographically
- minimize exposure in risky environments
2 times it’s cheaper to contract to a specialist
- small volume
- when the other company has excess capacity
resource-based view of the firm holds that…
each company has a unique combination of competencies
Scale alliances
aim to provide efficiency for partners by pooling similar operations, such as airlines have done by combining lounges
Link alliances
Firms use their partners complementary resources to expand into a new business
Vertical alliance
Connects members in a value chain.
I.e. supplier and merchant
Horizontal alliance
Enables each partner to extend its product offerings on the same level of the value chain
Coopetition
Collaboration while competing
examples of seeking resources
ability to access raw materials overseas and shift production oversear
examples of reducing risk by going internationally
financial flexibility
ability to shift production overseas
examples of learning by going internationally
information advantages
managerial experience and expertise
what are the advantages of multinational corporation (internalization) (7)
• Superior technical know-how, e.g.
– Technology, marketing, resource extraction
- Ability to leverage existing reputation, brand image, goodwill
- Large size & scale economies
- Managerial experience & expertise
- Ability to locate activities elsewhere:
- Information advantages
- Risk diversification across countries
Why is large size/scale economies good for an MNC
– Increases bargaining power
– Scale helps cover high fixed costs in capital intensive industries
– Lower input costs due to scale
– Logistics, distribution & promotion scale economies
– Lower financing costs and lower credit risk
potential disadvantages of MNC (internationalization)
- Business risks: foreign exchange risk (which may be hedged)
- Host-country regulations
- Different legal systems
- Political risks – major regulatory shift may be greater risk than nationalization, war etc.
- Operational difficulties e.g. adapting to local business practices
- Cultural differences
- Coordination costs
the link between internationalization and performance is:
weak
gravity model
firms engage in higher volume of business with countries that are close (less distant) from the home country along the various measures of distance
what entry mode has least commitment and lowest degree of control
export
what entry mode has most commitment and highest degree of control
wholly-owned operation
acquisition vs greenfield
Advantages of exporting
– Lower cost – Lower risk
Disadvantages of exporting
– May compete with low-cost location
manufacturers.
– Possible high transportation costs.
– Tariff barriers.
– Possible lack of control over marketing reps.
what is licensing
collaborative alliance
– granting the right to intangible property
(technology, work methods, patents, copyrights, brand names, or trademarks) to another entity for a specified period of time
2 pros and 3 cons of licensing
pros:
- reduces development costs/risks
- overcomes restrictive investment barriers
cons:
- lack of control
- cross-border licensing may be hard
- creating a competitor
what is franchising
collaborative alliance
– Similar to licensing but more control
• Reduces costs and risk of establishing
enterprise.
• May prohibit movement of profits from
one country to support operations in
another country.
what is turnkey
collaborative alliance
– contractor agrees to handle every detail of the project and then turn the project over to the
purchaser
– No long-term interest in the foreign country.
– May create a competitor.
what is contract manufacturing
collaborative alliance
– outsourcing of
manufacturing to other
firms
what is a management contract
collaborative alliance
– managerial assistance,
technical expertise in
exchange for monetary
compensation
greenfield vs brownfield
both wholly-owned subsidiaries. Green is building new facilities and brownfield is buying existing assets in a foreign countries.
3 advantages of wholly owned subsidiary
– No risk of losing technical competence to a competitor.
– Tight control of operations.
– Realize learning curve and location economies.
main disadvantage of wholly owned subsidiary
bear full cost/risk
3 advantages of greenfield strategy
– selection of site
– modern facilities
– clean slate (no debt • no outmoded equipment • labour problems)
4 disadvantages of greenfield strategy
– time
– land may not be available
– local constructions
– recruitment of locals
what is a strategic alliance
– Cooperative arrangement with potential or actual competitor (s)
3 advantages of strategic alliances
– Share fixed costs.
– Bring together skills and assets that neither company has or can develop.
– Establish industry technology standards.
Main disadvantage of strategic alliance
– Competitors get low cost route to technology and markets.
3 advantages of joint ventures
– Benefit from partner’s knowledge.
– Shared costs/risks with partner.
– Reduced political risk.
3 disadvantages of joint ventures
– Risk giving control of technology to partner.
– May not realize experience curve or
location economies.
– Shared ownership can lead to conflict.
how can you reduce opportunism by a partner in a joint venture (4)
- walling off critical technology
- establishing contractual safeguards
- agreeing to swap valuable skills and technologies
- seeking credible commitments
advantages of being a first-mover
– Preempt rivals and capture demand.
– Build sales volume.
– Move down experience curve before rivals and achieve cost advantage.
– Create switching costs
disadvantages of being a first-mover
– pioneering costs
– Changes in government policy.
biggest barrier to entering foreign markets
lack of understanding of foreign customers
licensing agreements may be used for…
patents, copyrights, trademarks, and other intangible property
t or f: Licensing agreements may be exclusive or non-exclusive
t
licensing often has an _____ motive
economic
why is licensing to subsidiaries common?
b/c of parent and subsidiary legal separation and the potential effect on taxes
dilemma of franchising
- inadequacy of local supplies may hamper global product uniformity
- the more global standardization, the less acceptance in the foreign countries
- the more adjustment to the foreign country, the less the franchisor is needed
foreign management contracts are used primarily when…
the foreign company can manage better than the owners
turnkey operations are most commonly performed by _______
industrial-equipment, construction, and consulting companies
turnkey operations are most commonly performed for _______
government agencies
turnkey operations generally differ from IB collaborations because they (3)
- may. beso large
- depend on top-level governmental contacts
- are often in very remote areas
2 companies from the same country joining together in a foreign market is an example of
joint ventures
a foreign company joining with a local company is an example of
joint venture
companies from 2 or more countries collaborating to create in a 3rd country is an example of
joint venture
can a private company and local government form a joint venture?
yes
what is an equity alliance
a collaborative arrangement in which at least 1 of the companies takes an ownership position (almost always minority) in the other(s). help solidify collaboration
5 factors for strain on collaborative arrangements
- relative importance to partners
- divergent objectives
- control problems
- comparative contributions and appropriations
- differences in culture
2 types of culture clashes
country and company
6 ways to help collaborative operations succeed
- fitting modes to country differences (pick right market)
- finding and evaluating partners
- negotiating agreements (the question of secrecy)
- controlling through contracts and trust
- evaluating continuously
- adjusting the internal organizations
which arrangement minimizes commitment
non-equity arrangement
Pressures necessitating organizational adjustments when collaborating (2)
- learning and its applications
- pressures from shifting collaborative modes
what is culture
System of values and norms that are
shared among a group of people
Core vs peripheral values
core: non negotiable, peripheral are flexible
cultural collision
when contact among divergent cultures creates problems
what are values
what a group believes to be good, right desirable
central to the functioning of society
deal-focus culture
people are primarily task oriented
relationship-focus culture
less compulsion to wrap things up than deal-focus, dealing with friends>dealing with business
3 shortcomings in interpreting cultural research
- Responses to questions about their culture may be over/understated, clouded by sarcasm etc.
- People rely on averages when there are variations (cultural looseness/tightness)
- People overlook changes (cultures evolve)
2 sources of change
- Choice (social and economic situations present people with new alternatives - ex: farm worker -> factory job)
- Imposition (cultural imperialism) -> westernization etc
2 reasons language may not be a unifying force
- many countries have multiple language groups
- many countries depend on a regional lingua Franca (not unique)
2 reasons why English has become the ‘international language of business’
- Native English language countries account for so much of world production
- It’s the world’s most important second language
Why has religion been a cultural stabilizer?
Because centuries of religious influence continue to shape cultural values even in those societies where the practice of religion has been declining
Example of religious adjustments in IB
McDonalds limits sales of beef/pork in India to not offend muslims and Hindus
2 factors that determine social stratification
- Individuals achievements/talents (meritocracy(
- Their group memberships
What is social stratification
Culture’s way of ranking people that creates hierarchies and influences a persons class, status, and financial rewards within that culture
Ascribed group memberships
an individual affiliation Determined by birth I.e. gender, race, caste etc
Acquired group memberships
an individual affiliation not determined by birth, such as Religion, political affiliation, educational place etc
Country by country attitudes vary toward (5)
Social connections
Race and ethnicity
Male and female roles
Rules and expectations based on age
Family ties
4 examples of work motivations
Performance and achievement
Hierarchies of needs
Expectation of success and reward
Materialism
Masculinity-femininity index
Measures attitudes toward achievement
High masculinity: live to work
High femininity: work to live
The hierarchy of needs theory of motivation
People try to fulfill lower level needs before moving on to higher level ones
Power distance
A measurement of employee preferences of interaction between superiors and subordinates
High power distance
People prefer little consultation between bosses and subordinates. They also prefer management styles that are either autocratic (ruling with unlimited authority), or paternalistic (regulating subordinates’ conduct by supplying their needs)
Low power distance
Prefer ‘consultative; management styles
High individualism
Preference to fulfill leisure time, build friendships, and improve skills independently of the organization
People w/ high individualism prefer to receive direct monetary compensation as opposed to fringe benefits, and prefer to engage in personal decision-making and on-the-job challenges.
‘Safe’ work environments motivate _______. Challenges motivate ________
Collectivists, individualists
High collectivism
Employees dependence on the organization through training, satisfactory workplace conditions, and good benefits.
Fulfilling security needs.
US is an example
4 types of risk-taking behavior
Uncertainty avoidance
Trust
Future orientation
Fatalism
Uncertainty avoidance
Being uncomfortable with ambiguity; people prefer following set rules. Also prefer staying with current employers for a long time.
Future orientation
Denotes a willingness to delay gratification in order to reap more in the future. I.e. retirement plans
Fatalism
If people are fatalistic, they’re less likely to accept the basic cause-and-effect relationship between work and reward (que sera sera)
Differences in perception of cues may result from (2)
Genetics and language
Low context cultures
US is an example
People generally regard information as relevant when it bears directly on the subject at hand
‘Get to the point’
High context culture
I.e. Japan
People understand/regard indirect information as important (understand indirect instructions)
Managers are helped by knowing whether cultures favour (4)
Focused or broad information
A particular way of classifying information
Sequential or simultaneous handling of situations
Handling principles vs. Small issues first
_________ _________ can improve a persons awareness and sensitivity
Cultural research
Monochronic cultures
People prefer to work sequentially
I.e. finish with 1 customer before moving on to the next
Polychronic
People comfortable multitasking
Idealism
Establishing overall principles before small issures
Pragmatic cultures
Focus on details more than abstract principles
I.e. US
Main problems in communicating across cultures 3
Translation of spoken and written language
Differences in word meanings
Silent language
Some ways to ensure proper translations
Get references for people who will be translators
Back translations (French to English to French)
Tone and words fit
Simple vocabulary
Avoid slang
Silent language and 5 examples
Host of spoken and nonspoken cues
Colour association, sense of appropriate distance, concept of time/punctuality, body language, and prestige cues
4 issues that affect degrees of successful adjustment
- The extent to which a culture is willing to accept the intro of anything foreign
- Whether key cultural differences are small/great
- The ability of individuals to adjust to what they find in foreign cultures
- The general management orientation of the company involved
T of F: Host cultures always expect foreigners to adjust to them
F
When doing business in a similar culture, companies usually have to make ________ adjustments, may _________ subtle differences
Fewer, overlook/ignore
Cultural distance
The average number of countries societies are apart on cultural dimensions
Culturally close: US and Canada
Culturally far: Canada and Thailand
Culture shock
The frustration that results from having to absorb a vast array of new cultural cues and expectations
Reverse culture shock
When people come home from a different country and are culture shocked from their own country
Change agents
People or processes that intentionally cause/accelerate social, cultural, or behavioural change)
8 approaches to successful change
- value systems
- resistance to too much change
- participation
- reward sharing
- opinion leadership
- biculturals as mediators
- timing
- learning abroad
Value systems implications
If something contradicts core values, it will likely not be accepted
One way to avoid problems is to discuss proposed changes with stakeholders ___ ________
In advance
Opinion leaders
Chanels of influence, people listen to them
civil law
a body of rules that delineate private rights and remedies, and govern disputes between individuals in areas like contracts, property, and family
commercial law
the area of law that governs the broad areas of business, commerce and consumer transactions
collectivism
perspective that the needs of the group take precedence over the needs of the individual, encourages dependence on the organization
common law system
a legal system based on tradicion, precedent, and custom and usage, in which the courts interpret the law based on those conventions; found in the UK and former british colonies
constitutional law
law that is created and changed by the people
country of origin
where products/services are created, which affects trade in that consumers may prefer to buy goods produced in one country rather than another usually because of quality perceptions or because of nationalism
criminal law
body of laws dealing with crimes against the public and members of the public
customary law system
a legal system anchored in the wisdom of daily experience or great spiritual/philosophical traditions
democracy
a political system that relies on citizens’ participation in the decision-making process
individualism
a construct comparing people’s preference to fulfill leisure time, build friendships, and improve skills independently and outside the organization as opposed to collectively and within the organization
intellectual property (IP) property
property in the form of patents, trademarks, service marks, trade names, trade secrets, and copyrights
intellectual property right (IPR)
ownership rights to intangible assets, such as patents, trademarks, copyrights, and know-how.
legal system
the rules that regulate behavior, the processes that enforce the laws of a country, and the procedures used to resolve grievances
mixed legal system
a legal system that emerges when 2 or more legal systems function in a country
political freedom
the right to participate freely in the political process
political ideology
the body of complex ideas, theories, and aims that constitute a sociopolitical program
political risk
potential changes in political conditions that may cause a company’s operating positions to deteriorate
political spectrum
a conceptual structure that specifies and organizes various types of political ideologies
political system
the system designed to integrate a society into a viable, functioning unit
rule of law
the principle that every member of a society must follow the same laws
rule of man
notion that the word and whim of the ruler, no matter how arbitrary, are law
theocratic law
a situation whereby a nation’s legal system is based on whatever religious text the ruling religion abides by
third wave of democratization
expression to capture the collective set of nations that moved from nondemocratic to democratic political systems during the 1970s through the 1990s
totalitarian system
a political system characterized by the absence of widespread participation in decision making and suppression of political/civil freedoms
bicultural
someone who has internalized 2 different national cultures
core values
values so strong that they are non negotiable
cultural imperialism
the imposition of certain elements of an alien culture
multicultural
description of someone who has internalized more than 2 national culture
why must managers study political and legal environments in foreign countries
to fit activities to local circumstances
goal and test of the political system
goal: integrating the diverse elements of a society
test: uniting society in the face of divisive viewpoints
_________ champions the primacy of the rights and role of the individual over the group
individualism
_________ advocates the primacy of the rights and role of the group over the individual
collectivism
a ______ _____ encapsulate the doctrine of political behavior and change. It outlines the procedures for converting ideas into actions
political ideology
Relationship between democracy and individualism
democracy and individualism are intrinsically related and mutually reinforcing; individualism legitimates principles of democracy and democracy supports standards of individualism
business implications of a democracy
in a democracy, MNEs have the freedom to invest and operate based on economic, not political, standards. Managers/consumers do what they want as long as it promotes commerce/trade
4 prominent types of democracies
representative
multiparty
parliamentary
social
4 types of totalitarianism
authoritarianism
fascism
secularism
theocracy
relationship between totalitarianism and collectivism
totalitarianism and collectivism are intrinsically related and mutually reinforcing; collectivism legitimates principles of totalitarianism and totalitarianism supports standards of collectivism.
business implication of totalitarianism
private enterprise, if allowed, supports state control of the economy. State is the majority owner of many companies.
3 types of political systems identified by Freedom House
free: open political competition, respect for civil liberties, independent civic life, and independent media. I.e. US
partly free: limited political rights and civil liberties. Corruption, wear rule of law. I.e. Guatemala
not free: few to no political rights and civil liberties. I.e. China
3 forces that powered past the third wave of democratization
- failure of totalitarian regimes to deliver prosperity
- improving communication technology
- economic dividends of political freedom
4 types of political systems according to the economist intelligence unit
full democracy (australia) flawed democracy (brazil) hybrid regime (cambodia) authoritarian regime (russia)
4 factors powering the resurgence of totalitarianism
- strong states support strong performance (political economy of growth)
- gaps in the principles and practices of democracy (rhetoric vs reality)
- economic insecurity following slowing growth
- escalating debate of the meaning of democracy
4 primary types of political risk, from least to most disruptive
- systemic
- procedural
- distributive
- catastrophic
systemic political risks
influence the macro business environment, affect the operation of all firms
procedural political risks
institutes impediments that constrain the flexibility of local operations. Micro risk. Can be managed by MNEs through monitoring industry developments, minding the relative contribution of their firms to the local economy, and promoting solid citizenship.
Distributive political risk
gradually eliminate the local property rights of foreign companies. Companies have to be vigilant and make sure they’re not TOO valuable
catastrophic political risk
devastates the business environment for all companies
3 components of modern legal systems
- constitutional law
- criminal law
- civil/commercial law
5 types of legal systems in the world today
- common law
- civil law
- theocratic law
- customary law
- mixed
4 operational concerns that managers face worldwide
starting a business
entering/enforcing contracts
hiring/firing workers
closing a business
T or F: The type of legal system in the country directly influences the standards of acceptable contracts
T
5 strategic concerns that managers face worldwide
- product origin and local content
- marketplace behavior
- legal jurisdiction
- product safety and liability
- intellectual property protection
the addition of a ____ __ ___ clause to contracts between different parties in different countries is an effective legal safeguard
choice of law
local content regulations
require that a certain % of intermediate goods used in the production process come from domestic suppliers
richer countries typically regulate business activities ____. Poorer countries typically regulate ____
less, more
T or F: Countries that observe the rule of law, as opposed to the rule of man, protect intellectual property less.
F
Capability
A distinct type of resource that improves the productivity of related resources owned by the firm
Concentrated configuration
The design of a value chain whereby a particular activity is performed in one geographic location and serves the world from it
Configuration
To set up, arrange, and disperse value activities to the ideal locations around the world so that the company can start and sustain operations
Core Competency
A special outlook, skill, capability or technology that runs through the firm’s operations, weaving together disparate value activities into an integrated value chain; Managers bundle resources and capabilities to create core competency
Dispersed configuration
The design of a value chain whereby a particular activity is performed in many geographic locations and serves the world market from any to all of its units
Global integration
The unification of distinct national economic systems into one global market
Global strategy
A strategy that increases profitability by achieving cost reductions from experience curves and location economies
Great by choice
The principle that managers’ choices are the basis of building and sustaining a high-performance enterprise in unpredictable, tumultuous, and fast-moving times.
Industry structure
The makeup of an industry: its number of sellers and their size distribution, the nature of the product, and the extent of barriers to entry
Integration-responsiveness (IR) grid
Schema that helps managers measure the global and local pressures that influence the configuration and coordination of value chains
International strategy
The effort of managers to create value by transferring core competencies from the home market to foreign markets in which local competitors lack those competencies
Liability of forgiveness
Foreign companies’ lower survival rate in comparison to local companies for many years after they begin operations
Location advantages
Cost advantages arising from performing a value activity in the optimal location
Location economies
Cost advantages arising from performing a value in the optimal location
Same as location advantage
Local responsiveness
The process of disaggregating a standardized whole into differentiated parts to improve responsiveness to local market circumstances
Localization strategy
An approach that emphasized responsiveness to the unique conditions prevailing in different national markets
Mission
Statement that defines the business, its objectives, and its approach to achieve them
Primary activities
The line activities that compose the value chain. Specifically, inbound logistics, operations, outbound logistics, marketing, and service
Strategy
An integrated and coordinated set of commitments of actions that reflects the company’s present situation, identifies the direction it should go, and determines how it’ll get there
Support activities
The general infrastructure of the firm that anchors the day-to-day execution of the primary activities of the value chain
Transnational strategy
Configuring a value chain to exploit location economies as well as coordinate activities to leverage core competencies while simultaneously responding to local pressures
Value
A measure of a firm’s capability to sell what it makes for more than the costs incurred to make it; the ultimate purpose of strategy
Vision
The idealization of what an MNE firm wants to be. It expresses, in broad terms, its ultimate goal.
Sense making
A collaborative process to promote a shared understanding
The idea of industry structure represents the interdependent relationships among (5)
Suppliers of inputs
Buyers of outputs
Substitute products
Potential new entrants
Rivalry among competing firms
Firm conduct
The choices a company makes regarding research, manufacturing, marketing, distribution, and the like that influence its profitability
T or F: Some firms find ways to exploit market imperfections to sustain success in spite of industry conditions
T
Managers bundle ________ and __________ to create a core competency
Resources, capabilities
Risks of cost leadership strategy (3)
- disruptive technologies change efficiency standards
- customers needs change
- cheaper, better products from rivals
4 risks of the differentiation strategy
- customers’ expectations change
- customers no longer see sufficient value to justify the price premium
- a rival introduces a newer, cooler, higher-performing alternative
- counterfeits that offer a cheaper imitation
Integrated cost leadership/differentiation strategy
Provides customers w. Relatively lower cost products that also have differentiated features
Key threat to the integrated cost leadership/differentiation strategy
Getting ‘caught in the middle’
What is the value chain made up of? 2
Primary activities that design, make, sell, and deliver the product
Support activities that implement the primary activities
5 Primary activities
Product design
Operations
Outbound logistics
Marketing
Services
4 Support activities
Materials and equipment
Firm infrastructure
Human Resources
Systems and solutions
Factors that influence the configuration of a value chain include
Business costs
Digitization
Economies of scale
Innovation context
Logistics
Resource costs
Robotics
Managers rely on ________ _______ to anticipate reconfiguring the value chain to changes in customers, industries, institutions, and environments
Scenario planning
Global integration vs local responsiveness
Global integration: standardize processes
Local responsiveness: tailor to each market
Motivations for global integration
Standardize products/processes to maximize scale, experience, and learning effects
Maximize productivity of resources, capabilities, and competencies
Exploit location effects
Capitalize on converging consumer preferences and universal needs
Build global image w/ universal message
Motivations for local responsiveness
Customize products and process to local customer preferences to optimize scale, experience, and learning effects
Satisfy host government requirements and regulations
Tailor marketing messages to local ideals
Respond to historical or geographic imperatives
Tap local resources, capabilities, and competencies
t or f: increasing standardization supports concentrating value chains
T
Key advantage of international strategy
Works well when an MNE’s products or processes speak to a universal customer preference
Key disadvantage of international strategy
Centralized decision making in the home country can misread local innovations
Key advantage of localization strategy
Tailors to unique features of consumer preferences etc. In a national market
Key disadvantage of localization strategy
By encouraging organizational overlap, it increases overhead expenses
Money has 3 inalienable features: it is
Difficult to acquire
Transient (quickly used)
Scarce
Key advantage of global strategy
Exploits economies of scale, learning effects, and location economies in order to translate theMNEs resources and capabilities into core competences that support cost leadership worldwide
Key disadvantage of global strategy
cost sensitivity - mnes have little latitude to customize processes/products to local conditions; each change reduces efficiency
Key advantage of transnational strategy
Best suited to respond to the emerging requirements of the global business environment
Key limitation of transnational strategy
Difficult to implement in practice, given the challenges of complicated agendas, high costs, and cognitive limits
boundaries (2 definitions)
in terms of political environments, an official or perceived point of separation that defines the boundary of a nation.
in terms of organization structure, horizontal constraints that follow from having specific employees only do specific jobs in specific units as well as the vertical constraints that separate employees into specific levels of a precisely stipulated command-and-control hierarchy
boundarylessness
state whereby companies build organizations that eliminate the vertical, horizontal, and external boundaries that impede information flows and hinder developing relationships
bureaucratic control
system whereby an organization uses centralized authority to install rules and procedures to govern activities.
Centralization
the degree to which high-level managers, usually above the country level, make strategic decisions and delegate them to lower levels for implementation
control systems
process by which managers compare performance to plans, identify differences, and, where found, assess the basis for the gap and implement corrective action; ensure that activities are completed in ways that support the company’s strategy
coordination by mutual adjustment
system whereby managers interact extensively with counterparts in setting common goals
coordination by plan
system that relies on general goals and detailed objectives to coordinate activities
coordination by standardization
system whereby rules and procedures apply to units worldwide, thereby enforcing consistency in the performance of activities in geographically dispersed units
coordination systems
systems that synchronize the work responsibilities of the value chain so that the company uses its resources efficiently and makes decisions effectively
decentralization
the degree to which lower-level managers, usually at/below the country level, make and implement strategic decisions
divisional structures
an organization that contains separate divisions based around individual product lines or based on the geographic areas of the markets served
functional structure
an organization that is structured according to functional areas of busness
globality
the state of affairs where one competes with everyone, from everywhere, for everything
Market control
system whereby an MNE uses external market mechanisms to establish internal performance benchmarks and standards
matrix structure
a structure in which foreign units report (by product, function, or area) to more than one group, each of which shares responsibility over the foreign unit
mixed structure
a structure that integrates various aspects of classical structures
neoclassical structure
applies different devices to resolve the shortcomings, such as conformity, rigidity, bureaucracy, and authoritarianism, often found in the classical formats of functional and divisional structures
network structure
neoclassical structure whereby a small core organization outsources value activities tolinked firms whose core competencies support greater innovation
organizational culture
the shared meaning and beliefs that shape how employees interpret information, make decisions, and implement actions
organization structure
the formal arrangement of roles, responsibilities, and relationships within an organization
organization
the specification of the framework for work, development of the systems that coordinate and control what work is done, and the cultivation of a common workplace culture among employees
unity-of-command principle
an unbroken chain of command and communication should flow from the CEO to the entry-level worker
vertical differentiation
the specification of the degrees of centralization and decentralization of decision-making in an organization
virtual organization
a form of company that acquires strategic capabilities by creating a temporary network of independent companies, suppliers, customers, and even rivals.
decisions made above the subsidiary level signify (centralization/decentralization)
centralization
decisions made below the subsidiary level signify (centralization/decentralization)
decentralization
in principle, decision-making should occur at the level of those who (2)
- are most likely affected by its outcome
- have the most direct knowledge of the situation
horizontally differentiating on the basis of product or geography installs a ______ structure
divisional
horizontally differentiating on the basis of business activity anchors the _______ structure
functional
limit of functional structure
constrains the development of cross-functional knowledge-generating and decision-making relationships.
headquarters
production marketing
prod EUR, prod ASIA. mark EUR, mark ASIA
functional
3 characteristics of divisional structure
- divide employees based on the product type, customer segment, or geographical location
- duplicate functions and resources among divisions
- fit the organizational demands of the MNE that manages conventionally differentiated activities
international division
- preferred when international activities represent a small share of its total activity
- international division is a separate unit with different country subsidiaries
limit of international divisions
can fan us vs them tensions
worldwide product divisional structure
- centralizes decision-making authority
- splits into products, then countries in each product
worldwide area division
- sales not dominated by a single country/region
- just split from headquarters to different areas
limits of worldwide product division
autonomy of each product division means that different subsidiaries from different product divisions within the same foreign country often report to different executives.
COORDINATION PROBLEMS CAN CAUSE INEFFICIENCIES
global matrix structure looks like
a matrix
5 things each MNE’s structure reflects
- market circumstances
- strategic choice
- value chain configuration
- administrative legacy
- executive preferences
classical structures emphasize the principles of _____ and _______.
Neoclassical structures emphasize the principles of _______ and ________
- command, control
- coordinate, cultivate
t or f: a virtual organization emphasizes boundaries
false. deemphasizes
challenge of coordination by standardization
differences in industry conduct and host-government attitudes complicate coordination by standardization
coordination by mutual adjustment depends on
managers interacting extensively w counterparts
3 types of control mechanisms
reports
visiting subsidiaries
information systems
clan control
uses shared values and ideals to moderate employee behavior
5 key features of a company’s organization culture
- values and principles of management
- work climate and atmosphere
- patterns of ‘how we do things around here’
- traditions
- ethical standards
deontological approach
an approach which asserts that moral reasoning occurs independent of consequences
foreign corrupt practices act (FCPA)
a law that criminalizes certain types of payments by US companies, such as bribes to foreign government officials
normativism
a theory stating that universal standards of behavior (based on people’s own values) exist that all cultures should follow, making nonintervention unethical
relativism
a theory stating that ethical truths depend on the groups holding them, making intervention by outsiders unethical. The belief that behavior has meaning and can be judged only in its specific cultural context.
stakeholders
the collection of groups, including stockholders, employees, customers, and society at large, that a company must satisfy to be successful
sustainability
the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs, while taking into account what is best for the people and the environment
teleological approach
an approach based on the idea that decisions are made based on the consequences of the action
utilitarianism
a consequences-based approach to moral reasoning that judges an action to be right if it does the most good to the most people
Equation for analyzing the effect of FDI on a host country’s BOP
B = (m-m1) + (x-x1) + (c-c1) Where B = bop effect M = import displacement M1 = import stimulus X = export stimulus X1 = export reduction C = capital inflow for other than import and export payment C1 = capital outflow for other than import and export payment
On the import side, the BOP is positive if the FDI results in
A substitution for imports
On the import side, the BOP is negative if the FDI results in
Increase in imports
The BOP effects in terms of capital flows for FDI
POSITIVE for the host country initially and NEGATIVE for the home country NEGATIVE for host country and POSITIVE for the home country later
Why are growth and employment effects not a zero-sum game
B/c MNEs may use resources that were unemployed and underemployed
3 levels of moral development
Preconventional Conventional Post conventional/autonomous/principled
4 Dimensions of a code of conduct
- setting a global policy that must be complied with wherever the company operates - communicating the code to employees, suppliers, and subcontractors - ensuring that policies are carried out - reporting results to external shareholders
Franchising
A contract in which a company assists another on a continuous basis and allows use of its trademark
Institutions
Systems of established and prevalent social rules that structure social interactions, such as languages, money, law etc
Licensing agreements
Contracts whereby firms allow others to use some assets, such as trademarks, patents, copyrights, or expertise
Management contracts
Arrangements in which a company provides personnel to perform management functions for mother organization
Offshoring
The dependence on production in a foreign country, usually by shifting from a domestic source
Reshoring
Firms bringing back operations to home countries (sometimes called rightshoring)
Royalties
Payments for the use of some assets, such as trademarks, patents, copyrights, or expertise
Turnkey operations
Construction projects performed under contract and transferred to owners when they’re operational
Consortium
An organization owned by more than 2 firms
Cross licensing
An arrangement we are by companies exchange technology or other and tangible property rather than compete with each other on every product and every market
Depencencia theory
A theory holding that emerging economies have practically no power in their dealings with MNEs
Ethnocentrism
Reflects the idea that conviction that one’s owns practises are superior to those of other countries
Polycentrism
Polycentric organization believes it should act abroad like companies there
Geocentrism
Integrates home and host country practises as well as introduces some entirely new ones Hybrid of host and home
Three company and management orientations
Polycentrism Ethnocentrism Geocentrism
6 hofstede dimensions
- Individualism vs. Collectivism 2. Power distance (low vs high) 3. Masculinity vs. Femininity 4. Uncertainty avoidance 5. Long-term orientation vs. Short-term orientation 6. Indulgence vs. Restriction
