IBS2018 Flashcards

Question

**When should one pursue global integration and when should one pursue local responsiveness?**

Answer 1

SALG * **S**cale-volume from internationalization * **A**ccess to supply and distribution channels * **L**ocation advantages * **G**lobal brand

Answer 2

* **Defend domestic position** * Companies trying to defend their domestic position are often shortsighted about the strategic intentions of their competitors. * _Rationale_ * Gain ability to retaliate * How * Attacking competitors on their offering or acquiring competitors. Having a strong home market is important to save up reserves that can be used to attack abroad = Domestic market is used as cash-cow. * **Overcome national fragmentation** * Companies expand geographically to built the sales volume necessary for world-scale investment in R&D and manufacturing while gaining access to local producers and market knowledge. * _Rationale_ * Rationalize R&D and production * How * Distribute decision-making among subsidiaries * **Build global presence** * _Rationale_ * Achieve capability to make and sell globally * How * Cross-subsidizing to reduce competitors margins + gain first-mover advantage * What is cross-subsidizing?: When a global company uses financial resources accumulated in one part of the world to fight a competitive battle in another market

Answer 3

* _Home-based_ strategy * Keeping the entire value chain besides sales in home region * _Portfolio_ strategy * Setting up or acquiring operations outside home region that report directly to home-base * _Hub_ strategy * Building regional bases that provide shared services. * Spreading fixed costs across a region * Regional HQ is NOT enough. You need a regional strategy to be hub. * \*_Platform_ strategy * Interregional spread of costs * You do not customize in the beginning of the manufacturing process. Instead, you have a platform that serves interregionally. You use the platform to customize to regions. * \*_Mandate_ strategy * Awarding some regions with broad mandates to supply particular products or perform particular roles for the whole organization

Answer 4

* _Home-based_ strategy * Keeping the entire value chain besides sales in home region * Work well when the economics of concentration outweigh the economics of dispersion (e.g. Zara).

Answer 5

* Portfolio strategy * Setting up or acquiring operations outside home region that report directly to home-base * Companies that adopt a portfolio strategy often struggle to deal with rivals in non-home regions. That's largely because portfolio strategies offer limited scope for letting regional - as opposed to local or global - considerations influence what happens on the ground at the local level.

Answer 6

* Hub strategy * Building regional bases that provide shared services for the region * Spreading fixed costs across a region * Regional HQ is NOT enough. You need a regional strategy to be hub. * Companies seeking to add value at the regional level frequently begin by adopting this strategy. * In its purest form, a hub strategy is simply a multiregional version of the home base strategy. * The challenge in executing a hub strategy is achieving the right balance between customization and standardization.

Answer 7

* Platform strategy * Interregional spread of costs = spread fixed costs across several regions * Regions add customizations * You do not customize in the beginning of the manufacturing process. Instead, you have a platform that serves interregionally. You use the platform to customize to regions. Example: Volkswagen produces a platform (part of the car) in a location and distributes around the world where the cars are finalized.

Answer 8

* Mandate strategy * Awarding some regions with broad mandates to supply particular products or perform particular roles for the whole organization * Roles and products are different by region but are used throughout the organization (globally) * Unlike in “Hub”, which are used within the region * This cousin of the platform strategy focuses on economies of specialization as well as scale. Potential problem with mandate strategy: * Local interest might “hijack” firm’s strategy = Entire company can be “shut down form a single point”

Answer 9

Innovation strategies = Structuring of innovation process within an organization * Closed ⇒ innovations made purely from internal R&D * Open ⇒ based on input and decisions of suppliers, customers, competitors and internal R&D.

Answer 10

That the firms investigated almost solely move one step at a time in their internationalization (ESTABLISHMENT CHAIN), where the steps are: n = no regular export activity a = selling via agent s = sales subsidiary p = production subsidiary

Answer 11

“Factors preventing the flow of information from and to the market” Cross-country differences in * Language * Education * Business practice * Culture and * Industrial / Economic development.

Answer 12

MNCs doing business abroad face costs from: * Unfamiliarity of environment * Cultural, political, economic differences * Need to coordinate across geographic distances ⇒ Somewhat similar to psychic distance.

Answer 13

Differences between the home and host countries on institutional dimensions * Regulative: * Selected indicators from World Bank, global competitiveness, (antitrust, political transparency, IP protection etc.) * Normative: * Government transparency, corruption, political risk * Cognitive-cultural * Based on Hofstede

Answer 14

* Market Knowledge * Needs * Capabilities * Strategies * Networks of firms * Recognition of opportunities * Reduction of uncertainty * Network position * Internationalization processes pursued within a network

Answer 15

* Relationship commitment decisions * May change entry mode or investment size * Two types of decisions * Augment existing relationships * Develop new relationships * Learning * Creation of knowledge * Trust-building

Answer 16

In the revisited model, the business environment is viewed as a web of relationships, a network, rather than as a neoclassical market with many independent suppliers and customers. * OUTSIDERSHIP in relation to the relevant network, more than psychic distance, is the root of uncertainty. ⇒ Also adding trust-building and knowledge creation to the change mechanisms of the model. ⇒ Now, our view is that successful internationalization requires a reciprocal commitment between the firm and its counterparts.

Answer 17

1. Firms internationalize gradually 1. First _in space_ by entering familiar countries and later less familiar countries 2. Secondly, _in commitment_ - do not commit too many resources at first (agents to subsidiary to production etc.) 2. Current knowledge and relationships (STATE) affect future decisions and actions (CHANGE aspects) 3. These future decisions in turn affect future relationships (CHANGE) = loop back to STATE

Answer 18

Starting the internationalization process by entering a country psychically close to home may result in failure due to wrong assumptions of similarity. Causes: * Overestimation of “closeness” * Managers overlook important differences * Assuming that one can simply transfer and extrapolate business model to a “similar” market Learnings: * Treat even psychically close markets as foreign markets * Test assumptions and perception prior to entry * Interpret data about the market correctly * Increase knowledge and understanding of other countries

Answer 19

* Treat even psychically close markets as foreign markets * Test assumptions and perception prior to entry * Interpret data about the market correctly * Increase knowledge and understanding of other countries

Answer 20

Causes: * Overestimation of “closeness” * Managers overlook important differences * Assuming that one can simply transfer and extrapolate business model to a “similar” market

Answer 21

* Firms that become international (resources & sales) at or shortly after inception. Two factors affecting early internationalization * Most often communications technologies * Typically small size where lack of tangible resources do not hamper international operations

Answer 22

* Management/Founders international experience * Low psychic and institutional distance between home and target country * Tech-based companies (born globals) * Global preferences

Answer 23

As sales grow, companies replace their agents with their own sales organization, and as growth continues they begin manufacturing in the foreign market to overcome the trade barriers.

Answer 24

The pattern that internationalization frequently started in foreign markets that were close to the domestic market in terms of psychic distance; defined as factors that make it difficult to understand foreign environments.

Answer 25

The 5 forces can be used to determine the level of rivalry between MNCs. Useful in competitor analysis and questions about the likelihood of attacks and responses.

Answer 26

* Several equally strong players (McD, BurgerKing) * Low growth in the market or no growth * High fixed costs * Excess production capacities (container shipping now) * Little opportunities for differentiation * High Strategic stakes * Major barriers to exit

Answer 27

Situations where firms compete against each other simultaneously in several markets.

Answer 28

* Chen = The FIRM * Porter = The INDUSTRY Chen finds that two firms in the same industry are not necessarily competitors. Fx. Coca Cola see Pepsi as the biggest competitor in Denmark and do not consider Harboe much, while Harboe considers Coca Cola.

Answer 29

The notion that a given pair of firms may not pose an equal threat to each other. Each firm will define competitors differently. Competition is not transitive, i.e. if A is a major competitor of B, and B is a major competitor of C, it does not necessarily follow that A is a major competitor of C. For example, Harboe might consider Coca Cola/Carlsberg as a main competitor while Coca Cola/Carlsberg don’t think about Harboe

Answer 30

Market commonality is firm specific, and it is considered from a focal firm’s point of view. Market commonality is defined as “the degree of presence that a competitor manifests in the markets it overlaps with the focal firm”,

Answer 31

Geography-based, customer-based OR product-based: Geographical market, customer segment, brand (p. 107)

Answer 32

Resource similarity is defined as “the extent to which a given competitor possesses strategic endowments comparable”, in terms of both type and amount, “to those of the focal firm”. Similar resources = most often also similar competitive advantages and competitive vulnerabilities.

Answer 33

“A competitive move that lead to firm acquiring its rival’s market shares or reducing their anticipated returns” (p 109). E.g. introducing a new product or entering a new market (customer-based, product-based or geography-based)

Answer 34

“A specific countermove, prompted by a rival’s attack, that a firm takes to defend or improve its share of profit position in the industry” (p. 109).

Answer 35

* High market commonality results in competitors being _aware_ and _motivated_ to respond * High resource similarity makes them _capable_ of responding 1. Reduce the likelihood of attack 1. As direct rivals put themselves at huge risk when attacking their direct competitor. It is bad for margins of both player 1. = Mutual forbearance hypothesis 2. if you expect a response, you are less likely to attack in the first place. 2. Increase the likelihood of a response 1. If you have been attacked, one is almost forced to respond promptly.

Answer 36

Competitors will respond to an action ONLY IF they are _aware_ of it and have the _motivation_ and capability to respond. * AWARE of the action and the host country where the attack took place * MOTIVATED to respond to the action and to defend or expand their global presence * CAPABLE of deploying resources to respond in host countries

Answer 37

If the resource strong firm attacks the other firm, the other firm will not be able to respond, because it does not have the resources. = Hence, not fierce competition even though they target same market.

Answer 38

One reason is * If company A is a global competitor,company A will have other markets to play in * Versus company B that is highly reliant on operating domestically Fx Coca Cola versus Harboe. If Harboe is squeezed out of the Danish market, they will have no business (therefore, they will likely have high motivation to respond), whereas if Coca Cola is squeezed out of the Danish market, they will just have the other markets.

Answer 39

A firm’s execution of competitive moves coordinated across various national markets against rivals. 1. Initiating competitive actions coordinated across national markets 2. Retaliating in national markets other than the one under attack 3. Offering responses coordinated across multiple national markets

Answer 40

WIGSFELL * **W**holly-owned subsidiaries * Rather than licensing, franchising etc. as you have better control of activities and can control incentives for managers more * **I**nternational experience of managers * Better knowledge of foreign markets * **G**lobal rather than multi-domestic MNC * When whole world is the competitive arena, it is easier to coordinate activities (diversification benefits and cross-subsidization) * **S**ize of organization * Small firms are quick, flexible and innovative * **F**irst- and Second-mover advantages * First = Above average returns until response + establishing market share and loyal customer base * Second = Learn from mistakes (customer reactions) * **E**ntry barriers are low * **L**ittle cultural differences 1. Between firm and competitor (similarity or resource endowments) 2. Between HQ and subsidiaries (better and faster inter-organizational coordination) * **L**ow diversity among local markets (“Global market” argument)

Answer 41

Fast-moving cycles (3-5 years) * FMCG * Fashion * Software products Slow-moving cycles (10 years) * Pharmaceuticals

Answer 42

* The time (days, months) between attack and response * A slow response results in larger loss of market share or lost profit opportunities In multi-market rivalry responses may occur in the initiating country or in a different country .

Answer 43

* **G**eographic distance * The farther away, the harder to recognize (awareness) * Takes time to transfer knowledge and resources * **S**ubsidiary control * The more control, the faster the response normally will be in the host country * **H**ost government constraints * Regulations and taxes ⇒ The environment might slow you down * **H**ome government constraints * Often help you as it makes it easier to make a response when you are the domestic player (period of protection) * **S**peed in host country * Faster if the initiating country is of strategic importance (motivation) * Faster if host country is the initiating country (faster response within-country) * Faster in multi-market rivalry situations (Chen’s basic argument = higher market commonality)

Answer 44

Firms obtain sustained competitive advantages by implementing strategies that exploit their internal strengths, through responding to environmental opportunities, while neutralizing external threats and avoiding internal weaknesses.

Answer 45

All assets, capabilities, organizational processes, firm attributes, information, knowledge etc. controlled by a firm THAT ENABLE (= some may prevent or be neutral) the firm to _conceive of and implement strategies_ that improve its efficiency and effectiveness (Draft 1983) ⇒ Need to be value-creating

Answer 46

* **P**hysical capital resources (VERY TANGIBLE) * Technology, Plants, equipment, geographic location, access to raw materials etc. * **H**uman capital resources * Training, experience, judgment, intelligence * Relationships and insights etc. of individual managers and workers. * **O**rganizational capital resources (MUCH MORE INTANGIBLE) * Reporting structures, planning, controlling, and coordinating systems * Informal relations among groups within a firm and between the firm and its environment

Answer 47

Competitive advantage * A strategy not implemented by a current or potential competitor Sustained competitive advantage * A strategy not implemented by a current or potential competitor * That **_CANNOT_ be implemented by a competitor** (nobody can duplicate the benefits) * NOT time-based (focused on the possibility of duplication) * Might be upended by structural changes in the industry when VRIN attributes of resources change.

Answer 48

* Firm resources * All assets, capabilities, organizational processes, firm attributes, information, knowledge etc. controlled by a firm THAT ENABLE (= some may prevent or be neutral) for the firm to conceive of and implement strategies that improve its efficiency and effectiveness (Draft 1983) * Types: * Physical * Human, and * Organizational resources * Competitive advantage * When it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. * Sustained competitive advantage * When it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors AND when these other firms are unable to duplicate the benefits of this strategy. (hence NOT time-based)

Answer 49

“A resource currently controlled by only a small number of competing firms” * Essentially If fewer firms possess a valuable resource than the number of firms needed for perfect competition in an industry, then that resource is considered rare.

Answer 50

* Recruitment of talent * Investments in R&D / Innovation * Acquisitions of companies possessing rare resources

Answer 51

Competitors cannot duplicate the benefits of the resource = They cannot imitate that resource.

Answer 52

1. Historical reasons 1. Path dependence 1. A firm that locates its facilities on what turns out to be a much more valuable location than was anticipated when the location was chosen possesses an imperfectly imitable physical capital resource 2. First-mover advantages 2. Causally ambiguous 1. Competitors don’t know if a resource leads to advantage = the competitors have a hard time realizing which resource is leading to the competitive advantage you have ⇒ so they don’t know the actions they should take in order to duplicate the strategies of firms with a sustained competitive advantage 2. Hence, it is also required that the firm itself does not understand what leads to this SCA ⇒ if a firm with a competitive advantage understands the link between resources it controls and its advantages, the other firms can also learn about that link, acquiring the necessary resources (if they are not imperfectly imitable for other reasons), and implement the relevant strategies, although it may take some time. 3. Socially complex 1. The resource generating a firm’s advantage is socially complex = based on resources interpersonal relationships, trust, culture etc. that are costly to imitate in the short term 2. Examples include the interpersonal relations among managers in a firm, a firm’s culture, a firm’s reputation among suppliers and customers. 3. Complex physical technology is not a part of this, as if one firm can acquire it, another can also do so. However, if one firm possesses social relations, culture, traditions etc. to fully exploit these technologies in implementing strategies, they may have a imperfectly imitable resource. 4. It is too expensive 5. Legal reasons (copyrights / IP)

Answer 53

A resource is substitutable WHEN other resources can be used for the _same purpose_ _From_ _paper_: two valuable firm resources (or two bundles of firm resources) are strategically equivalent when they each can be exploited separately to implement the same strategies. Substitutability can either be done through 1. SIMILAR resources that enables a competing firm to implement the same strategy 1. Though it may not be possible for a firm to imitate another firm’s resources exactly, it may be able to substitute a similar resource that enables it to conceive of and implement the strategies. 1. E.g. top management team of one company → exact team cannot be copied, but can develop own unique management team 2. VERY DIFFERENT firm resources can also be strategic substitutes. 1. E.g. managers in one firm may have a very clear vision of the future of their company because of a charismatic leader in their firm. 2. Managers in competing firms may also have a very clear vision of the future of their company, but this common vision may reflect these firm’s systematic, company-wide strategic planning process. 3. Both are strategically equivalent, so if more firms are capable of coming up with this common vision through a systematic company-wide strategic planning process, then the company with a charismatic leader does not have a sustained competitive advantage, even though the firm resource of a charismatic leader is probably rare and imperfectly imitable.

Answer 54

1. VALUABLE * It must be valuable in the sense that it exploit opportunities and/or neutralizes threats in a firm’s environment 2. RARE * It must be rare among firm’s current and potential competition 3. IMPERFECTLY IMITABLE * It must be imperfectly imitable = firms’ that do not already possess these resources cannot obtain them 4. NON-SUBSTITUTABLE * There cannot be strategically equivalent substitutes for this resource that are valuable but neither rare or imperfectly imitable = Non-substitutable

Answer 55

It is based on a resource that is both valuable, rare, imperfectly imitable and non-substitutable = VRIN.

Answer 56

* The firm’s **ability to integrate, build, and reconfigure internal and external competences** to address rapidly changing environments. * Dynamic capabilities thus reflect and organization’s ability to achieve new and innovative forms of competitive advantage given path dependencies and market positions.

Answer 57

Dynamic: * Capacity to renew competences so as to achieve congruence with the changing business environment * _From_ _paper_: “Capacity to renew competences so as to achieve congruence with the changing business environment; certain innovative responses are required when time-to-market and timing are critical, the rate of technological change is rapid, and the nature of future competition and market difficult to determine”. Capability: * A demonstrated and potential ability of an organization to perform against the opposition of circumstances or competition, whatever it sets out to do * _From_ _paper_: “The key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional competencies to match the requirements of a changing environment.”

Answer 58

* Five forces: * See the strategic problem in terms of industry structure, entry deterrence, and positioning * Game theoretical models: * See the strategic problem as one of interaction between rivals with certain expectations about how each other will behave * Resource-based view: * See the strategic problems in terms of focus in the exploitation of firm-specific assets

Answer 59

* It requires _continual redeployment_ of resources that reflect the changing conditions of the market (e.g. rapid technological changes)

Answer 60

Competence depends on * _Speed_ or _Intensity_ with which a firm is able to profit from changes in the market

Answer 61

* A capability must be honed to a user need * Unique * Difficult to replicate

Answer 62

* Organizational and managerial processes: * The way things are done in the firm (routines, patterns) * Or what might be referred to as its routines, or patterns, of current practice and learning * Positions: * Its current specific endowment of technology, intellectual property, complementary assets, customer base and its external relations with suppliers and complementors * Paths: * The strategic alternatives available to the firm, and the presence or absence of increasing returns and attendant path dependencies

Answer 63

Organizational and managerial processes: The way things are done in the firm (routines, patterns), or what might be referred to as its routines, or patterns, of current practice and learning. Organizational processes have 3 roles: 1. Coordination/integration (a static concept) 2. Learning (a dynamic concept) 3. Reconfiguration (transformational concept)

Answer 64

Positions: Its current specific endowment of technology, intellectual property, complementary assets, customer base and its external relations with suppliers and complementors There are eight specific kinds of assets: 1. Technological assets 2. Complementary assets 3. Financial assets 4. Reputational assets 5. Structural assets 6. Institutional assets 7. Market (structure assets) 8. Organizational boundaries

Answer 65

* Ordinary capabilities:’ * Supports the MNEs “technical fitness” by adopting best practices * Dynamic capabilities: * Display technological and market agility helping the organization stay fit and relevant

Answer 66

_Imitation is simply replication performed by a competitor._ Replication = Redeployment of resources from one concrete economic setting to another. Note that it is said that if self-replication is difficult, imitation is likely to be harder. The ease of imitation determines the sustainability of competitive advantages.

Answer 67

* Path dependencies * Technological opportunities

Answer 68

Replication = Redeployment of resources from one concrete economic setting to another. Difficult due to: * From tacit to explicit knowledge * Location or non-location bound resources * Learning (trial and error) If self-replication is difficult, imitation is likely to be even harder.

Answer 69

The idea that where a firm can go from here is a function of its current position and the paths ahead. = HISTORY MATTERS.

Answer 70

* You constantly have to be aware of changes and react to those changes (relation to Yu and Canella = Awareness, Motivation, Capability) * Some assets & competencies are not tradable = you have you build them yourself * Values * Culture * Firms are to some degree stuck with what they have now and live with their history * Path dependencies take time to form

Answer 71

Core competence = skills, knowledge etc. THAT…. 1. Is hard to imitate 2. Can be deployed in many markets or products now or in the future 3. Provides significant *PERCEIVED* consumer benefits Leads to durable competitive advantage. Typically _a few (max 5) core competencies_

Answer 72

* Short-term * Price/performance attributes of current product * Long-term * An ability to build at lower cost and more speedily than competitors * New and better products * Management’s ability to consolidate corporatewide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing opportunities = Relation to dynamic capability

Answer 73

* Smart R&D * Form alliances * Learn from others * Identify next generation competencies * Allows sensible internal distribution of resources * TIME (10 years+)

Answer 74

1. Does it provide potential access to a wide variety of markets? 2. Does it make a significant contribution to the perceived customer benefits of the end product? 3. Is it difficult for competitors to imitate?

Answer 75

* Core competence = Class of product functionality * Core products = Embodiment of core competencies * End products = Extensions of core products A corporation has to know whether they are winning or losing on each plane (determining if you are winning or losing is more difficult)

Answer 76

and... Dynamic capabilities are needed to respond to technological changes while resources that can lead to SCA can be destroyed by such changes

Answer 77

* Operational * Reduce costs * Reduce time * Strategic * Confer competitive advantage (Barney 1991) * Early adopters may gain competitive advantage (but does not last indefinitely as competitors will invest and catch up sooner or later) * At best, technologies provide TEMPORARY competitive advantages to the early adopters

Answer 78

A company that runs on the blockchain in a DECENTRALIZED way in which different individuals around the world contribute with their code to make the contracts happen. What you do not get it the branding, marketing etc. Fx. ride hailing on the blockchain * Contract 1: * Find a car closest to me that can take me to my destination * Contract 2: Pay the driver based on distance traveled * Last… driver & rider ratings recorded on the blockchain

Answer 79

* Speed up and increase transparency of supply chains * Enhance trust between parties * Speed up some organization processes through smart contracts

Answer 80

1. Supervised learning 1. A human is providing the labels ⇒ Telling the computer whether something is a car or not (if that is what it should determine) 1. Can be used for credit risk evaluation and image labeling 2. Unsupervised learning 1. You feed data and the computer generates some output ⇒ Fx. when Netflix or Amazon provide you recommendations “people who liked X also liked Y”, “people who bought X, also bought Y” 1. Can be sued for recommendation systems and machine translation 3. Reinforcement learning 1. Can be used for process control and cool robots

Answer 81

Highest-paid person’s opinion Classical issue in corporations ⇒ It destroys value

Answer 82

1. _Centralization_ * Advantages * Economies of scale * Easier to control * Two types: * UN Model * All subsidiaries are treated the same * Hierarchy * Key decisions are centralized 2. _Decentralization_ * Some subsidiaries report to and cooperate with both alliance partners, the HQ as well as other subsidiaries. 3. _Differentiation (Nohria and Ghoshal 1997)_ * Subsidiaries differ in size, age, resources, responsibilities and autonomy * Subsidiaries establish different relationships

Answer 83

* The more/higher upstream activities the subsidiary undertake activities in, the more power it has. * I.e. if a subsidiary has a production unit, it is likely more powerful than one who only has sales and marketing (which the subsidiary with production likely also has)

Answer 84

* **HQ Centric ( 1900-1960s)** * Home country innovates * Clear separation * Rest of the world sells * **Key markets (1970s-1980s)** * R&D sites in multiple regions (scanning but hard to transfer knowledge to HQ) * Empirically, we saw that growth was limited to a few key markets * **Democracy (1990s-2010s)** * New ideas can emerge anywhere in the world * In units close to customers, suppliers etc. * Local responsiveness and adaptation as a result of growing emerging markets and location-specific demands/preferences

Answer 85

1. Strategic leader 1. Highly competent national subsidiary + strategically important market 2. Serves as a partner of headquarters in implementing _and developing_ strategies → Not only implement, but also develop corporate strategy 2. The black hole 1. Important market 2. Small/undeveloped subsidiary; local rivals are better 3. Contributor 1. Has distinctive capabilities + strategically _unimportant/small market_ 2. → Use the subsidiary’s skills company-wide 4. Implementer 1. A national organization in a _less strategically important market_ that still has enough competence to maintain its local operation 2. → Focus on earning money in the market: _milking, milking, milking_

Answer 86

* Highly competent national subsidiary * Strategically important market * Serves as a partner of headquarters in implementing _and developing_ strategies * → Not only implement, but also develop corporate strategy (Similar to Birkinshaw and Morrison’s (1995) “World Mandate” (not asked for in body of knowledge))

Answer 87

* Important market * Small / undeveloped subsidiary where local rivals are better * → “Spy” on competitors to develop a full-fledged business * Markets in which a strong presence is needed in order to maintain the company’s global position ⇒ Often a large, sophisticated and competitive market like US or Japan

Answer 88

* Strategically unimportant/small market * Has distinctive capabilities * → Use the subsidiary’s skills company-wide (Similar to Birkinshaw and Morrison’s (1995) “Specialized Contributor” (not asked for in body of knowledge))

Answer 89

A national organization in a _less strategically important market_ that still has enough competence to maintain its local operation → Focus on earning money in the market: milking, milking, milking (Similar to Birkinshaw and Morrison’s (1995) “Local Implementer” (not asked for in body of knowledge))

Answer 90

* UPSTREAM * Often more “universal” and thus transferable * More valuable * Examples: * R&D * Manufacturing * DOWNSTREAM * Often highly contextualized = local-for-local * Less valuable * Examples * Marketing * Sales

Answer 91

The ability of units and subunits “*to* *take* *_decisions_ for themselves on issues that are reserved to a higher level in comparable organizations*” (Brooke 1984) It is the thus the _degree_ to which the foreign subsidiary of the MNC has _strategic and operational_ decision-making _authority_ (O’Donnell 2000)

Answer 92

* Empire building → subsidiary management acts: * For the benefit of their host country * For their _own_ benefit * May happen due to: * Host country laws * Customers requirements * When the subsidiary has specific resources and capabilities (principal-agent problem that _can destroy value_ for the MNC)

Answer 93

Operational autonomy = Implementation Strategic Autonomy = Strategy-development + Implemenation

Answer 94

Strategic autonomy = Autonomy of the foreign subsidiary to _part-take in strategy development_ on behalf of the organization. = Strategy-development + Implementation The more important the foreign subsidiary is, the more strategic autonomy it was found to have = World mandate.

Answer 95

Operational autonomy = Autonomy of the foreign subsidiary to take decisions necessary to conduct business and run operations in that particular market. = Implementation

Answer 96

Because any subsidiary needs operational autonomy to conduct their work = the explanation offered by Birkinshaw and Morrison (1995)

Answer 97

* Strategic autonomy does in fact differ between subsidiary role * World mandate with highest * Local implementer with lowest as would be expected * Purchases and sales from and to other corporate affiliates within the organization was substantially lower for _world mandates indicating less dependence_ on the MNC * Local implementers had a significantly lower level of international configuration for downstream activities (distribution, sales, service, advertising) (see graph) * World-mandate → most heterarchy like for subsidiary-parent relationship by virtue of its higher level of strategic autonomy + result of higher independence.

Answer 98

*_Traditional view_* * Dyadic HQ to subsidiary analysis * Clear separation between organization and its environment; suppliers, regulators etc. * Environment is exogenous

Answer 99

*_Network view of MNC_* * Geographically dispersed organizations with HQ and national subsidiaries * Management of a _network of subsidiaries_ with _diverse goals_ * They are _embedded in an external network_ of other organizations, customers, suppliers, market institutions and so forth. (Enmeshed) * The company depends on the environment for its survival * MNC’s structure and configuration of resources is affected by the environment = The MNC gains competitive advantages from scope advantage of the network.

Answer 100

*_Traditional view_* * Dyadic HQ to subsidiary analysis * Clear separation between organization and its environment; suppliers, regulators etc. * Environment is exogenous *_Network view of MNC_* * Geographically dispersed organizations with HQ and national subsidiaries * Management of a _network of subsidiaries_ with _diverse goals_ * They are _embedded in an external network_ of other organizations, customers, suppliers, market institutions and so forth. (Enmeshed)

Answer 101

* Subsidiaries differ in size, age, resources, responsibilities and autonomy * Subsidiaries establish different relationships 1. LOCAL-FOR-LOCAL 1. Marketing 2. Spread across DIFFERENT COUNTRIES 1. Raw materials 2. Talent pool 3. Concentrated in LEAD MARKETS 1. R&D This DIFFERENTIATED network approach to foreign subsidiaries thus opposes the UN model assumption of all subsidiaries being treated in a uniform matter. = Differentiated approach leads us back to Implementer, Contributor, Black Hole and Strategic Leader.

Answer 102

When “*subsidiaries rely on locally-owned resources that cannot be sourced from elsewhere”.*

Answer 103

Invest in better relationships/links between MNE and subsidiary, thereby limiting risk/dependence on the local possessors. Ways to achieve better links/relationships: * Allow for local responsiveness * This makes local managers able to respond to the unique environment and its preferences * Allow control flexibility * This makes local managers able to alter decisions to cope with emerging conditions in the local market = More freedom both enhances local managers flexibility, _enhances motivation_ and improves parent-to-subsidiary _relationship_.

Answer 104

* Resource-dependency: * Explains the importance of intra-corporate links i_n reducing external dependence_ * Dynamic capability * Explains the importance of intra-corporate links _in bolstering a subsidiary’s strategic adaptation to the host country environment_

Answer 105

1. Resource commitment 2. Intra-network information flow 1. The extent to which the subsidiary shares information with the rest of the MNE (HQ and other subsidiaries) 1. Important for gaining information and interpreting that information for both local managers and HQ 3. Local Responsiveness 1. The more understandable HQ is, the more freedom local managers have to make adaptations to the local market 4. Control flexibility 1. Concerns the extent of HQ control over subsidiary in budgeting, output and bureaucratic control mechanisms

Answer 106

The more unique the local environment and market is, the more freedom must be given to the local manager to succeed. Hence, the local environment will affect the company-to-subsidiary relationship in terms of: * **_Market opportunities_ = The more market opportunities** * The more resource commitment likely will be given * The more important information flow and learnings will be * The more local responsiveness will likely be allowed to succeed in the market * The more control flexibility will likely be given to pursue the emerging opportunities (budgeting, output and less bureaucratic control) * POSITIVE correlation between 4 links and subsidiary performance * **_Regulatory interference_** **= The stricter and the more complex local regulations are towards foreign businesses** * Resource commitment may be restricted to a certain minimum or maximum * NEGATIVE correlation between 4 links and subsidiary performance * **_Structural uncertainty_ = The higher the volatility of the local industry in local market** * * POSITIVE correlation between 4 links and subsidiary performance

Answer 107

Structural holes are the links between two groups of people who would benefit from exchanging information/engaging.

Answer 108

* Strong ties * Decision-making is highly influenced by strong ties * Often Social ties * Weak ties * The bridges over which innovations cross boundaries of social groups * Often business-professional ties

Answer 109

*“Networks are conceptualized as a mode of organization that can be used by managers or entrepreneurs to position their firms in a stronger competitive stance. That is why the term ‘strategic’ has been added to the ‘networks’”* * The networks should provide more benefits than the input put in. * An arrangement where activities are farmed out to the most efficient supplier while only keeping the activity in which one has a comparative advantage + lower transaction cost (TC) * Specialization is good for all suppliers as total cost is lowered

Answer 110

* To sustain their competitive advantage * = The network lets you focus on your competitive advantage and producing what you are specialized in and buy the rest * When you are in a network, your TCs are lower. Hence, you will specialize further and buy things in the market. * To reach more people easily + knowledge * Inputting less into the network than you gain in output from the network.

Answer 111

1. Hierarchical 1. Fully structured approach to organization building. Two-way communication through chains. 2. Mix 1. Partly structured organizational building 2. Sometimes skipping links in the organizational chain-structure 3. Mesh 1. Much less structured and more dynamic 2. The individual or individual department is in direct contact with whomever they need to be in contact with without using intermediary links

Answer 112

* Classic Market * an organizational arrangement where many players interact on a spot basis * Bureaucracy * the antagonistic labor-management relationship * a hierarchical organization but many of its characteristics-particularly those referring to transactions costs are those of an open market. * Strategic network * An arrangement where activities are farmed out to the most efficient supplier while only keeping the activity in which one has a comparative advantage + lower transaction cost (TC) * Specialization is good for all suppliers as total cost is lowered * **_A strategic network is superior_** BUT hard to achieve. * Clan * long-term relationships, carried out through non- specified contracts within the formal environment of an organization.

Answer 113

All companies, in the long-term, takes out a larger value than they put into the network Networks makes it possible to transact with _lower transaction costs_. = Saved time, better deals, more partnerships, larger revenues, more knowledge etc.

Answer 114

Embeddedness = things happen in a context * **Cognitive** * When rational economic action is limited by _uncertainty, complexity, and costs of information_ * **Political** * _The political context_ the economic action is carried out within * **Structural** * The _social networks and relationships_ economic exchanges takes place within * **Cultural** * Economic assumptions, rules and rationality are limited and shaped by _the cultural context; culture, norms_

Answer 115

* Pros * Networks and embeddedness makes it possible to transact with lower TC * Cons * Free-riding * Reciprocity ⇒ Obligations * Limit individual actions ⇒ You sort of have to adhere to the social pressure and the norms of that network ⇒ You might lose some adaptive capacity / lock-in effects

Answer 116

There is some optimal level of embeddedness found in the middle. Hence, there is not only decreasing benefits of the degree of embeddedness, it also turns negative = it can become over-embedded.

Answer 117

1. Bounded rationality 1. The idea that one cannot have complete information 2. Asset specificity 1. That assets are specific to a particular company AND 2. Assets produce the highest return when they are used together and for the original purpose 3. Opportunism 1. Self-interested behavior, even at the expense of others

Answer 118

The idea that one cannot have complete information * Seller often know more than the buyer (market for “lemons”) * Unknown unknowns = sometimes we don’t even know, that we are missing information * EVEN IF we have perfect information, it might not be enough as we might not have time to analyze it + sense-making of data can cause issues and biased interpretation

Answer 119

That assets are 1. Specific to a particular company 2. Assets produce the highest return when they are used _together and for the original purpose_ 1. Might be hard to use for other purposes * _Site specific_ _assets_ ⇒ things that cannot me moved or are only available in certain locations * _Physical asset specificity_ ⇒ designed for a single purpose and thus hard to repurpose * _Human asset specificity_ = specialized human skills. Hard to transfer between individuals * _Time specificity_ = value depends on when the asset reaches the consumer

Answer 120

* _Site specific_ _assets_ ⇒ things that cannot me moved or are only available in certain locations * _Physical asset specificity_ ⇒ designed for a single purpose and thus hard to repurpose * _Human asset specificity_ = specialized human skills. Hard to transfer between individuals * _Time specificity_ = value depends on when the asset reaches the consumer

Answer 121

Opportunism is self-interested behavior, even at the expense of others * Violating agreements or shared norms * Safeguarding against opportunism requires contracts, which are costly

Answer 122

* Reduce the _time_ of communicating information * Reduces the _cost_ of communicating information Hence * It _increases the number of alternatives_ to be considered, I.e. the number of potential suppliers to choose from. * Possibly increases the _quality_ of the selected alternative * Decreases the costs of _search and selection_ = _Lower TC leads to more firms going to the market rather than hierarchy (internal production)_

Answer 123

* Producers * Need to convince buyers to keep purchasing instead of submitting orders to the open market * Lock-ins can be an option to solve the issue * Buyers * Buyers get a higher number of alternatives to choose from (for example Made-in-china.com) * and IT helps choosing / filtering the suppliers

Answer 124

A safeguarding problem arises when a firm _deploys specific assets_ and fears that its partner _may opportunistically exploit_ these investments. Opportunism + Asset specificity.

Answer 125

An adaptation problem is created when a firm whose decision makers are limited by bounded rationality _has difficulty modifying contractual agreements to **changes** in the external environment_. Bounded rationality

Answer 126

A performance evaluation problem arises when a firm whose decision makers are limited by bounded rationality _has difficulty assessing the contractual compliance of its exchange partners._ Bounded rationality

Answer 127

* Structures and activities that provide _stability and meaning_ to social behavior (Scott, 1995) * The _rules of game_ in a society (North, 1990)

Answer 128

* Regulative: * Rules and regulations ‘that promote certain types of behavior and restrict others’ (mechanism in place to enforce in order to conform) * Normative: * Social norms, values, beliefs and attitudes that are _socially shared_ and carried out by individuals (“correct” way of doing things; moral support) * Cognitive-cultural: * Generally shared perceptions of what is typical or taken for granted (Imitation; cultural support)

Answer 129

* Regulative: * Rules and regulations ‘that promote certain types of behavior and restrict others’ (mechanism in place to **_enforce_** in order to conform) * Laws * Regulations * e.g. intergovernmental agreements, traffic laws * Policies * e.g. confidentiality policies

Answer 130

* Normative: * Social norms, values, beliefs and attitudes that are socially shared and carried out by individuals (“**_correct” way of doing things;_** moral support) * Social norms * Values * e.g. environmental attitudes * Beliefs * Assumptions _How it works?_ * Enforcement * Coercion

Answer 131

* Cognitive-cultural: * Generally shared perceptions of what is typical or taken for granted **_(Imitation; cultural support)_** * Cognitions * Schemas * Frames * Shared knowledge

Answer 132

* Normative pillar: can be rationally explained * Cognitive: can’t be explained rationally → can sometimes be combined if you don’t have sufficient data when doing research (you just distinguish between regulative and others/non-regulative)

Answer 133

* Trade-related and FDI * **T**rade & Tax reforms * **A**ccount liberalization = Financial account liberalization = Net increases and decreases in _ownership_ of a country’s assets * World Bank’s World Governance indicators, World Economic Forum’s Global Competitiveness Report, IMDs World Competitiveness Yearbook * **A**ntitrust regulation * **P**roperty right protection (IP) * **E**ase of doing business index

Answer 134

CEPPI * **_C_**orruption * **_E_**ducation level * **_P_**olitical risk/uncertainty * **_P_**rivatization level * **_I_**nvestment treaties

Answer 135

* Hofstede’s dimensions * Differences in languages * Differences in religions

Answer 136

1. World 1. UN → security council, agreements etc. 2. Country / Society 1. Laws (regulative) 2. Culture / Tradition 3. Industry / organizational field 1. Negotiation rules (normative) 2. Charters - industry organizations (normative) 3. Gender prefs (cognitive) 4. Production safety regulations (regulative) 4. Organization 1. Payment policies (regulatory) 2. Organizational culture (cognitive) 3. CSR (normative) 5. Organizational department / subsystem 1. Power distribution (normative) 2. Organizational chart (regulative)

Answer 137

In sociology, an **isomorphism** is a similarity of the processes or structure of one organization to those of another, be it the result of imitation or independent development under similar constraints (Wikipedia, 2018)

Answer 138

Businesses need legitimacy and credibility to survive and thrive. Legitimacy is **_gained from acceptance_** by conforming to rules and norms. Hence, legitimacy is gained through _isomorphism_ (= becoming similar to the environment) * Organizational structures are similar * Organizations behave similarly

Answer 139

* Coercive isomorphism * Businesses must _conform to_ the regulations in place (regulative pillar) * Normative isomorphism * Businesses must _adapt to_ the local environment/market and _act appropriately_ (Normative pillar) * Mimetic isomorphism * Businesses must _mimic/Imitate_ the host country in terms of its cognitive-cultural characteristics (Cognitive-cultural pillar).

Answer 140

= Isomorphism concerning the regulative pillar of institutions Businesses must _conform to_ the regulations in place. Examples - CONFORMING to: * Retail regulations: Pricing, store opening hours * Property rights * Contract enforcement

Answer 141

= Isomorphism concerning the _normative_ pillar of institutions Business must _adapt to_ the local environment/market and act appropriately. Examples: ADAPTING to: * Beliefs and moral obligations * Customer preferences and expectations * Accepted industry practices Implications * Internationalization (Relates to Psychic distance) - Greater likelihood of entry if similar * Product adaption

Answer 142

= Isomorphism concerning the _cognitive-cultural_ pillar of institutions Businesses must _mimic/Imitate_ the host country in terms of its cognitive-cultural characteristics. Isomorphic pressures on firms: * Uncertainty * Habits and inertia Examples: * Must make sure that the product or practice is culturally suitable * McD beef burgers in India = No good * Habits of the locals. Siesta at lunch time in Spain = well that’s how we do it then. * (Habits can be linked to path dependence)

Answer 143

They easily become quite close as with the normative and cognitive-cultural institutional pillars. The major difference is ADAPT vs. IMITATING.

Answer 144

Imitator = late-movers who assume that risks and costs have been absorbed by the first-movers. There are two types of MIMETICING/IMITATION by these late-movers: 1. **Frequency-based imitation** 1. “Follow the _crowd_” 2. **Trait-based imitation** 1. “Follow the _successful_” Implications for: * Entry mode * Locations * Practices Creates legitimacy * The more profit → The more legitimate

Answer 145

You give your vendors access to information about how much inventory you have left. Fx. a retailers lets its suppliers know about its inventory. When the inventory is low, the suppliers will know and always make sure the retailer has sufficient supply/inventory of goods. Benefits? * Reduces the overhead costs of vendors/retailers * Provides producers/suppliers with valuable sales information that _reduces dependability on forecasts_

Answer 146

* Share information * Reduce batch sizes * Stabilize prices * Minimize excessive orders

Answer 147

_Advantages:_ * Knowledge flow makes the supply chain more transparent and provide a better understanding of customer needs and value propositions * Broader knowledge about the full value chain result in better understanding of market trends and thus result in better planning and product development _Disadvantages:_ * Knowledge might be leaked to competitors * Supply chain partners compete about margins * Wanting partners to win, but not at own expense

Answer 148

Just-in-time manufacturing * Suppliers deliver products directly to the customer’s manufacturing facility * Delivers _based on customer demands_ = PULL inventory flow * With just-in-time manufacturing, the manufacturer must be able to quickly react to changing customer demands = _AGILITY is needed_ Benefits: 1. Lower inventory costs 2. Lower waste 3. Quick detection of quality issues before large inventories build up 4. Units are produced as they are needed

Answer 149

Joint sense making * Create “Common Understanding” of supply chain information that affects several firms * Both operational and strategic issues * Cross-company teams * Significant face-to-face communication (e.g. periodic meetings of logistics managers) Knowledge integration * Frequent information-driven readjustments of aspects of the supply chain relationship (e.g. formal contracts, technology used, user needs)

Answer 150

HIP = High dependency, International transport, Products sould-out * **_H_**igh dependency due to specialization * Fx. Kureha Corporation account for 70 % of the market for polymers, which are used for for example Ipod batteries * If a disaster hits that supplier, production will stop * Risk mitigation * Have multiple suppliers although you have to pay a slight price premium for the parts = This is a trade-off * **_I_**nternational transport time * Downtime / delays from international suppliers can become extra costly due to long transport time * Risk Mitigation * Move suppliers close to production * **_P_**roducts being sold-out/unavailable due to Just-in-Time and agile manufacturing * Risk mitigation * _Just-in-CASE_ buffer systems = This is again a trade-off

Answer 151

1. **_C_**ountry factors * Resource availability * Costs (labor etc.) * Infrastructure: * Electricity, water etc. * Services for employees (Healthcare, housing, education) * Country of origin effects (“Made in ..”) 2. **_R_**egulation (Government policies) * Political stability (elections, corruption etc.) * Trade policies (tariffs, trade barriers) * Investment incentives (lower taxes, land offers, job training) * Foreign trade zones (trade partners by geography + tariffs on import/export 3. **_O_**rganizational issues * Firm’s business strategy 1. Cost leadership vs. quality vs. differentiation * Organizational structure: 1. Centralized vs. decentralized 4. **_P_**roduct factors * Value-to-weight ratio * Transportation costs - heavy vs. light products * Required production technology * Customer feedback: Is it important to obtain and incorporate into production quickly

Answer 152

1. **Agility**: They are agile to react to sudden changes in demand 2. **Adaptability**: They adapt as environment and market changes over time 3. **Alignment**: They align interests of all members

Answer 153

1. Representativeness 1. Judging the likelihood of an outcome based on a) Prior outcomes; b) Predictability; C) Sample size 2. Availability 1. Deciding based on the ease of recalling instances/occurrences 3. Adjustments and anchoring 1. Deciding by starting with an initial anchor point value and adjusting from there

Answer 154

System 1 * Intuition * Usually flawed (include biases) or does not work * Automatic, unconscious, evolutionary ancient * Improved by “just living life” and experience System 2 * Complex computations; “Agency, choices, concentration” * Slow, conscious * Improved by skill acquisitions

Answer 155

The minimum world market share a company must capture to underwrite the approåriate manufacturing-scale and product-development effort _needed for global brand building._

Answer 156

The minimum market share the company needs in a particular country to be able to influence the behavior of key global competitors. For example, with only 2-3 % market share of the foreign market, a company may be too weak to influence the pricing behavior of its foreign rivals.

Answer 157

The competitive risks of having a national market share leadership - if that national leadership position is not accompanied by international distribution. Market leadership at home can create a false sense of security. = If a company uses its national market share leadership to support high price level, foreign competitors will enter the market and compete away the market leader’s profitability by offering lower prices. (These entrants must be confident that the local company has little freedom for retaliation)

Answer 158

* **First-mover** * Above-average returns until response * Customer loyalty * Established market share * **Second-mover advantage** * Learn from mistakes: e.g. customer raction