International Business Final Exam Flashcards
Strategy
a planned set of actions that managers take to make the best use of the firm’s resources (land, labor, capital) and core competencies, to gain a competitive advantage (above avg. profit)
Strategy Involves:
SWOT analysis
Decisions
- customers to target
- What product lines to offer
- how best to contend with competitors
- how generally to configure and coordinate the firm’s activities around the world
International Strategy
Strategy carried out in two or more countries
Managers develop international strategies to:
Allocate scarce resources
Configure value-adding activities on a worldwide scale
Participate in major markets
implement valuable partnerships abroad
engage in competitive moves in response to foreign rivals
To become a globally competitive enterprise the firm should strive for three strategic objectives
Efficiency
Flexibility
learning
Efficiency
Lower the cost of the firm’s operations and activities on a global scale
Flexibility
the agility to manage diverse country-specific risks and opportunities by tapping resources in individual countries and exploiting local opportunities
Learning
Develop the firm’s products, technologies, capabilities, and skills by internalizing knowledge gained from international ventures
Essentials of successful global firms
- Visionary leadership
- Organizational culture
- Organizational processes
- Organizational structure
- strategy
Visionary leadership
A quality of senior management that provides superior strategic guidance for managing efficiency, flexibility, and learning
VL International mindset and cosmopolitan values:
Openness to, and awareness of, diversity across cultures
VL Willingness to commit resources:
Financial, human, and other resources
VL Strategic vision:
Articulating what the firm wants to be in the future and how it will get there
VL willingness to invest in human assets:
Emphasizing the use of foreign nationals, promoting multi-country careers, and training to develop international “supermanagers”
Organizational culture
the pattern of shared values, behavioral norms, systems, policies, and procedures that employees learn and adopt
-employees acquire the culture as the correct way to perceive, think, feel, and behave
-usually derives from the influence of founders and via firm history
-management should seek to build a global organization culture
+values of global perspective, cross-cultural skills, firm ethics and language, interdependence between headquarters and subsidiaries
Organizational processes
Managerial routines, behaviors, and mechanisms for:
-collecting information
-ensuring quality control
-payment systems
-internal coordination via global teams and global information systems
Strategy
Multi-domestic industry:
-and industry where competition takes place on a country-by-country basis
-firm specialization to meet specific conditions in each country (food, fashion, publishing)
-firm adaptation of its products and services is key to meet differences country characteristics
Global Industry:
-An industry where competition is on a regional or worldwide basis
-Customer need vary little from country to country
-Firm can offer more standardized offerings
Global Versus Local
Global integration
-coordination of a firm value chain activities across multiple countries
-take advantage of similarities
-standardize products and services
compete on regional or worldwide basis
-Goal: to achieve worldwide efficiency, synergy, and cross-fertilization of ideas
Local responsiveness
-Meet specific needs of buyers in individual countries
-firm adapts to customer needs and the competitive environment
-local managers can adjust marketing, practices, and offerings as needed
-Goal: to maximize sales and market share via local responsiveness
Integration-responsiveness framework
summarizes the balance between two basic strategic needs:
-to integrate value chain activities globally
-to create products and practices responsive to local market needs
Four strategies emerging from Integration-responsiveness framework
(Graph)
Global strategy
Transnational strategy
Home replication strategy
Multidomestic strategy
Home replication strategy
International business separate from domestic business
expansion abroad opportunity for incremental sales
products designed for domestic market and sold abroad
little interest in foreign markets
little knowledge to flow from foreign operations (one-way)
Multidomestic strategy
Firms develop subsidiaries in each foreign market
local managers able to operate as market requires
products adapted to suit local needs
independent operations to a great extent
Global strategy
HQ has control over all country operations
Goal to maximize efficiency, learning, and integration worldwide
products, marketing, operations standardized
R&D, manufacturing, and marketing often concentrated at HQ
view world as one large marketplace
Transnational strategy
coordinated approach mixing local responsiveness and global efficiency
combine advantages of multidomestic and global strategies
Flexible approach
-standardize where feasible
-adapt where appropriate
very challenging approach
Transnational strategy and IKEA
- some 90% of the product line is identical across more than two dozen countries. IKEA modifies some furniture offerings to suit tastes in individual countries
-An overall, standardized marketing plan is centrally developed at the firms headquarters in sweden, but is implemented with local adjustments
-Management decentralizes some decision-making to local stores, such as product displays and language to use in advertising
Organizational Structure
The reporting relationship inside the firm, “the boxes and lines” that specify the linkages among people, functions, and processes, allowing the firm to carry out its operations
-export department
-international division
-geographic area structure
-product structure
-functional structure
global matrix structure
Export department
-closely aligned with home replication strategy
-unit of firm changes with export operations; resource commitment small
-little involvement with foreign operations due to use of intermediaries
International division
-all international activities run by one division of the firm
-increased focus on international
-greater managerial expertise
-can fire competition between international and domestic units
Geographic area structure
-management and control pushed to individual geographic regions
-rather standardized products within regions
-greater responsiveness to regional customer needs
-regional versus worldwide focus, may loose efficiencies
Product structure
-organized based on product lines
-each product division responsibilities for producing and marketing products worldwide
-product expertise and knowledge sharing
duplication of some company activities (R&D,ACCR,HR)
Functional structure
Organized by functional area
Some HQ staff aids in coordinating activities
Challenging for coordination
Matrix Structure
Blends geographic, product
and functional structures
Goal is to gain the benefits
of global strategy and
responsiveness
Emphasizes
interorganizational learning
and knowledge sharing
Dual reporting – not good
High level of complexity
Foreign Market Entry Strategies
Importing or global sourcing
exporting
countertrade
foreign direct investment
Collaborative ventures
Licensing
Franchising
Importing or global sourcing
Procurement of products and
services from foreign sources
Exporting
Producing products or services in one country (often
the producer’s home country), and selling and distributing them
to customers in other countries.
Countertrade
International transaction in which all or partial
payments are made in kind rather than cash. The firm receives
other products in payment
Foreign direct investment
(F D I) implies establishing a
presence in the foreign market by investing capital and
securing ownership of a factory, subsidiary, or other facility
there
Collaborative ventures
include joint ventures in
which the firm makes similar equity investments
abroad, but in partnership with another company
Licensing
the firm allows a foreign partner
to use its intellectual property in return for
royalties or other compensation
Franchising
is common in retailing. McDonalds,
Dunkin’ Donuts, Century 21 Real Estate, and many
others have used franchising to internationalize
worldwide.
Factors to consider when choosing
a Foreign Market Entry Strategy
1.Goals and objectives
2. Control
3. Firm resources and
capabilities
4. Risk
5. Conditions in the
target country
5. Competition
6. Partners
7. Value-adding activities
8. Strategic importance
9. Characteristics of
product or service
Global Market opportunity
A favorable combination of circumstances, locations, or
timing that offer prospects for exporting, investing,
sourcing, or partnering in foreign markets.
Typical opportunities include the option to:
Sell/market products and services;
Establish factories or other production facilities to make offerings more
competently or cost-effectively;
Procure (source) raw materials or components, services of lower cost or
superior quality; and
Enter collaborative arrangements with foreign partners.
SIX TASKS OF GLOBAL MARKET
OPPORTUNITY ASSESSMENT (GMOA)
1.Analyze organizational readiness to internationalize.
2. Assess the suitability of the firm’s products and services for
foreign markets.
3. Screen countries to identify attractive target markets.
4. Assess the industry market potential, or the market demand,
for the product(s) or Service(s) in selected target markets.
5. Choose qualified business partners, such as distributors or
suppliers.
6. Estimate company sales potential for each target market.
- Organizational Readiness
(internal to the firm)
Assessing a firm’s readiness involves examining company
strengths and weaknesses for international business, by
evaluating availability in the firm of key factors, such as:
Appropriate financial and tangible resources.
Relevant skills and competencies.
Management’s commitment to internationalization.
Eliminate deficiency that hinder achieving firm goals
- Product suitability
Assessing suitability of the firm’s products and services for foreign
markets is achieved through evaluating the fit between the
offerings and foreign customer needs for each possible target
market:
Identify factors that may hinder market potential.
Determine how the offering may need to be adapted to the market.
Assess offering in terms of foreign customers characteristics, laws
and regulations, channel intermediary requirements and the nature
of competitors.
PRODUCTS WITH THE BEST
FOREIGN SALES PROSPECTS
Sell well in the domestic market. For example, Microsoft
Xbox, wireless headphones.
* Cater to universal needs. Such as a cancer drug, an energy
efficient refrigerator.
* Address a need not well served in foreign markets. For
example, mutual funds, mini notebooks.
* Address a new or emergent need abroad. For example, a
major earthquake creates urgent need for portable housing; A I
D S in Africa creates need for drugs and medical supplies
- Country Screening
Screen countries to identify target markets.
Goal is to reduce the number of countries to those that hold the
best potential (5 or 6)
For country screening Assess each country regarding
Size and growth rate
Market intensity (customer buying power)
Consumption capacity (size and growth rate of the middle class)
Country’s receptivity to imports
Infrastructure for doing business
Economic freedom
Country risk
Specific considerations
Cultural similarity with target market may matter. Some
firms target countries that are “psychically” similar in terms of
language and culture.
* Nature of information sought varies with product and
industry. For farming equipment, consider countries with much
agricultural land and farmers with higher incomes. For
semiconductors, target countries that manufacture computers.
* Targeting a region may make sense. For example, the
European Union, Latin America.
how to go about screening markets
- Gradual elimination
- start with list of countries and narrow list by increasingly specific info (macro to micro level analysis) - Indexing and ranking
-firms assign scores to countries based on their overall market attractiveness
-Attractiveness is based on a set of market-potential indicators and a ranking of each country in the indicators
Country screening for FDI
-Researchers who attempt to identify the best locations for FDI consider these:
-long term growth prospects for growth and sizeable returns
-cost of doing business, based on variable infrastructure, tax rates, wages, and worker skills
-country risk, including regulatory, financial, political, and cultural barriers, intellectual property protections
-competitive environment
-government incentives such as tax holidays, subsidized training, grants, or low-interest loans
Country screening for global sourcing
Global sourcing is the practice of procuring finished products, intermediate goods, and services from suppliers locates abroad
Look at factors such as:
-cost and quality of inputs
-stability of exchange rates
-reliability of suppliers
-presence of workforce with superior skills
- Assess Industry Market potential
The firm estimates the most likely share of sales that can be
achieved in each target country, including consideration of market
entry barriers. Firm should develop a 3 to 5-year forecast of industry
sales.
Assess industry market potential in each market by examining
such criteria as:
-Size and growth rate of the market, and industry trends.
– Tariff and nontariff trade barriers to market entry.
– Standards and regulations that affect the industry.
– Availability and sophistication of distribution.
– Unique customer requirements and preferences.
– Industry-specific market potential indicators.
Methods for estimating market potential
simple trend analysis-aggregate production
monitoring key industry specific indicators- industry drivers of market demand
monitoring key competitors- sales levels and market potential
following key customers around the world- likely sales in industry that firm supplies
tapping into supplier networks- assessing sales and competitor activity
attending international trade fairs- learning market characteristics and sales potential
- Choose foreign business partners
The firm decides on…
the type of foreign business partner
determines what value-adding activities must be performed by
foreign business partners
clarifies ideal partner qualifications
assesses and selects partners based on criteria such as
industry expertise, commitment to the venture, access to
distribution channels, financial strength, quality of staff, and
appropriate facilities.
then crafts an appropriate market entry strategy
- estimate company sales potential
The firm estimates the most likely share of industry sales
that the company can achieve over a specific period of time
Develop a 3 to 5 year forecast of its own sales in the target market
Forecast takes into account a range of factors (distribution, partner
capabilities, competition, pricing, risk tolerance of senior
managers)
Determine the factors that will influence company sales potential
FDI and collaborative ventures
FDI
International collaborative venture
Joint venture
FDI
Strategy in which
the firm establishes a physical presence abroad by
acquiring productive assets such as capital, technology,
labor, land, plant, and equipment.
International collaborative venture
A cross-border
business alliance in which partnering firms pool their
resources and share costs and risks of a venture
Joint venture
A form of collaboration between
two or more firms to create a jointly-owned enterprise
Factors relevant to selecting to selecting locations for FDI
Market factors
Human resource factors
Infrastructural Factors
Political and government factors
Profit retention factors
Legal and regulatory factors
Economic factors
Key features/ Characteristics of FDI
- Represents substantial resource commitment.
- Implies local presence and operations.
- Firms invest in countries that provide specific
comparative advantages. - Substantial risk and uncertainty.
- Direct investors deal more intensively with specific
social and cultural variables in the host market
FDI provides Economies of Scale
Falling fixed costs
Managerial resource efficiencies
Specialization of labor
Financial economies
Falling fixed costs
Many industries and productive
tasks have high per-unit fixed costs that decline the
more the task is performed. F D I helps concentrate
production and/or results in high sales volumes.
Managerial resource efficiencies
Highly
international firms employ a relatively fixed number of
headquarters staff across more subsidiaries and
affiliates
Specialization of labor
F D I facilitates hiring more
specialized workers, which increases efficiencies
Financial economies
Large firms with extensive
international operations usually can access capital at lower cost
Types of FDI Greenfield Investment vs. M&As
Greenfield Investment vs. M&As
Greenfield investment: The firm invests to build a
new manufacturing, marketing or administrative
facility, as opposed to acquiring existing facilities.
Merger: Special type of acquisition in which two
firms join to form a new, larger company.
Acquisition: Direct investment or purchase an
existing company or facility.
Types of FDI
Nature of Ownership
Equity participation: Acquisition of partial ownership in
an existing firm.
Wholly owned direct investment: Investor fully owns
the foreign assets
Equity joint ventures: Partnership in which a separate
firm is created through the investment of assets by two or
more parent firms that gain joint ownership of a new legal
entity.
Types of FDI
Level of Integration
Vertical integration: The firm owns, or seeks to own, multiple
stages of a value chain for producing, selling, and delivering a
product.
E.g., Toyota owns some Toyota car dealerships around the world. Ford
once owned steel mills that produced steel used to make Ford cars.
Horizontal integration: Arrangement whereby the firm owns, or
seeks to own, the activities involved in a single stage of its value
chain.
E.g., Microsoft acquired a Montreal-based firm that makes software used
to create movie animation.
International Collaborative Venture
A partnership between two or more firms.
* Includes equity joint ventures and non-equity,
project-based ventures.
* Sometimes called partnerships or strategic
alliances.
* Collaboration helps overcome the often substantial
risk and high costs of international business. It
makes possible the achievement of projects that
exceed the capabilities of the individual firm.
Organizing Framework
Corporate governance:
-Ethics
-Corporate social responsibility
-sustainability
Corporate governance
is
the system of governance,
which maximizes
shareholder wealth and
minimizes managerial
opportunism, thus enabling
ethical behaviors, CSR and
sustainability
Done via:
* Set values that guides
employees Code of Ethics
* Set the ground rules for
guiding behavior Code of
Conduct
Managerial opportunism
managers taking advantage for own-selfish needs
Ethics
Ethics are moral principles and values that govern the
behavior of people, firms, and governments, regarding right
and wrong.
Corruption
is the abuse of power to achieve illegitimate
personal gain.
Corruption is a major or severe concern in the global activities of a
large proportion of M N E s.
Bribery
is common and may take the form of grease
payments, small inducements intended to expedite decisions
and transactions, or gain favors.
Inappropriate Corporate Conduct
EX:
Falsify or misrepresent contracts or official documents.
Pay or accept bribes, kickbacks, or inappropriate gifts.
Tolerate sweatshop conditions or abuse employees.
Do false advertising or other deceptive marketing.
Engage in deceptive or discriminatory pricing.
Deceive or abuse intermediaries in the channel.
Undertake activities that harm the natural environment.
Intellectual property and infringement challenges
International patents and protections
Intellectual Property Rights (IP) – ideas or works that individuals or firms
create including:
Trademarks – distinctive signs and indicators that firms use to identify their
products or services
Copyrights – grant protections to the creators of music, art, books, software,
movies and tv shows
Patents – confer exclusive right to manufacture, use, or sell products or
processes
IP infringement comes in the form of piracy and counterfeiting,
unauthorized reproduction or use of copyrighted or patented work for
financial gain.
Other challenges
Fair competition
unfair competition
Fair competition
A free market whereby all players operate on a level paying field
Firms (competitors) compete on price, service, product offerings, etc. versus engaging in
unfair practices (predatory pricing
Unfair competition
Predatory Pricing
Dumping
Tacit collusion
deceptive pricing
Predatory Pricing
direct attempt to buy a major competitor to drive other companies out
of business by setting prices unrealistically low
Dumping
selling goods below costs in another country or pricing a product in one country
lower than the price of the product in another country. The goal is to capture market share in
the country with the low price (drive out competition)
Tacit collusion
actions that one firm takes that does not solicit a response from its
competitor(s); hence they (unspoken) agree to not compete (avoiding the opportunity to
price cut)
Deceptive Pricing
a marketer promotes one price, yet due to hidden fees, add-ons and
such, the actual price is much higher
Improper ethical behavior may result when…
Top management sets goals and incentives aimed at
promoting good outcomes (e.g., profits) that instead
encourage bad behaviors.
* Employees overlook unethical behavior in others because of
peer pressure or self-interest.
* Managers tolerate lower ethical standards in value-chain
activities performed by suppliers or third-party firms.
* Unethical practices are allowed to accumulate in the firm
slowly over time.
* Bad means are justified by good ends.
The value of ethical behavior
Ethical behavior is simply the right thing to do.
Often prescribed within laws and regulations.
Demanded by customers, governments, and the news media.
Unethical firms risk attracting unwanted attention.
Ethical behavior is good business, leading to enhanced
corporate image and selling prospects. The firm with a strong
reputation is advantaged in hiring and motivating employees,
partnering, and dealing with foreign governments.
Variations in Ethical Standards
Ethical standards vary from country to country
In China, counterfeiters may publish translated versions of
imported books without compensating the original publisher or
authors.
* In parts of Africa, accepting expensive gifts from suppliers is
acceptable.
* In the United States, C E O compensation is often 100 times
greater than that of low-ranking subordinates.
* Finland and Sweden ban advertising aimed at children, but
the practice is accepted in other parts of Europe.
Relativism
is the belief that ethical truths are not absolute
but differ from group-to-group; according to this perspective, a
good rule is, “When in Rome, do as the Romans do.
normativism
is a belief that ethical behavioral standards are
universal, and firms and individuals should seek to uphold
them consistently around the world. (United States)
Ethical Dilemma
Imagine you are a manager and visit a factory owned by an
affiliate in Colombia, and discover the use of child labor in the
plant.
You are told that without the children’s income, their families
might go hungry. If the children are dismissed from the plant,
they will likely turn to other income sources, including
prostitution or street crime.
What should you do? Make a fuss about the immorality of child
labor, or look the other way?
Corporate social responsibility
Corporate social responsibility (C S R): Operating a business
to meet or exceed the ethical, legal, commercial, and public
expectations of customers, shareholders, employees, and
communities.
Helps recruit and keep good employees.
Can help differentiate the firm and enhance its brands.
Cuts costs, as when the firm reduces packaging, recycles, cuts
energy usage, and minimizes waste in operations.
Helps the firm avoid increased taxation, regulation, or other
legal actions by local government authorities.
Sustainability
Meeting humanity’s needs without harming future generations. The
sustainable firm pursues three types of interests:
Economic interests refer to the firm’s economic impact on the localities
where it does business, such as regarding job creation, wages, and public
works.
Social interests refer to how the firm performs relative
to social justice, such as avoiding the use of child labor, sweatshops, as
well as providing employee benefits.
Environmental interests refer to the extent of the firm’s impact and harm to
the natural environment.
Examples of sustainable practices
Beneficial agricultural practices that do no harm.
Water conservation. Clean water is scarce worldwide.
Air quality protection.
Reduced energy and fuel consumption.
Increased use of solar and wind energy.
Improved work processes that improve sustainability reduce
costs and support the natural environment.
