International Business Strategy (IB)

Question 1

According to Cullen & Parboteeach (2010), what are the five drivers for globalization?

Answer 1

A) technology
B) trade liberalization and increased movements of people and resource
C) global products and customers
D) global competition
E) political changes

Question 2

According to Cullen & Parboteeach (2010), one of the drivers of globalization is technology. Explain briefly why this is.

Answer 2

Enhanced coordination between HQ and subsidiary: the increased use of technology allows companies to manage globally dispersed operations more effectively. In the contemporary world, an MNE can manage its multiple subsidiaries around the world in a more coordinated manner, with the help of technology such as various communication tools - making firm globalization a significantly more feasible option than before the rise of IT.

Better ability to reach customers: Technology enables companies to reach customers around the world, enabling them to sell their products in markets where it has no physical presence.

Question 3

According to Cullen & Parboteeach (2010), one of the drivers of globalization is trade liberalization and the rise of trade agreements and blocs. Explain briefly why this is.

Answer 3

The general liberalization of trade and the rise of trade agreements and blocs also serve as amplifying factors for globalization. The introduction of regional trade blocs such as the EU has eliminated barriers to trade and to labor and resource mobility, thus diminishing the importance of borders and making globalization a more attractive endeavor than before.

This may be exemplified by an MNC being able to transfer employees within its subsidiary network in EU, and thereby allow better knowledge transfer through inter-subsidiary visits.

Question 4

According to Cullen & Parboteeach (2010), one of the drivers of globalization is global products and customers. Explain briefly why this is.

Answer 4

Today, we see an increasing introduction of “global” products, which with minor to no adaptation can be marketed worldwide. Customers everywhere are looking for similar products to meet their similar needs. This enhances a company’s ability to enter foreign markets with smaller capital and resource commitments required for such a move. Examples of such products include the iPhone. Thus, the increased customer acceptance of global products has eased the process of globalization for many companies.

Question 5

According to Cullen & Parboteeach (2010), one of the drivers of globalization is global competition. Explain briefly why this is.

Answer 5

Companies in many industries have optimized their supply and value chains, locating their activities where it makes business sense. As the increased globalization has led to companies being exposed to global competition, these firms must enhance their efficiency or gain access to superior capabilities in order to remain competitive - which in turn further amplifies the globalization trend.

Question 6

According to Cullen & Parboteeach (2010), one of the drivers of globalization is political change. Explain briefly why this is.

Answer 6

The political changes in recent decades have opened up many countries that before were less open to international trade and entry of foreign companies. This has essentially created new attractive markets for MNEs to enter, thus facilitating globalization

Question 7

From the semi-globalization/ regionalism view, why do firms not fully expand globally? What are arguments staying within one’s region?

Answer 7

Staying within one’s home region allows the firm to exploit scale and scope advantages.

Regional firms do move beyond their local home market, which permits them access to foreign customers, suppliers, and R&D. Thus, they still get some of the advantages that follow international expansion.

Meanwhile, they are limiting their risks connected to conducting global operations, such as management of subsidiaries that are geographically distant from the HQ.

Question 8

According to Porter (1997), antecedents to rivalry include positional and structural. What are the 7 examples mentioned in class of how these two antecendents may create rivalry?

Answer 8

1) players have similar strength and market positions
2) the pie is fixed: the market has no/limited growth, and firms can only sustain or grow by stealing market share from others
3) high fixed cost structures in the industry
4) excess production capacity
5) low demand/ ability for product differentiation (–> focus on cost leadership)
6) high strategic stakes
7) high barriers to exit the market

Question 9

According to Porter (1997), antecedents to rivalry include positional and structural. One of the 7 examples mentioned in class is that HIGH FIXED COST structures lead to increased/ sustained rivalry. Explain why this is

Answer 9

High fixed cost structures in an industry will likely imply that firms are operating close to full capacity. Thus, in times of downward demand fluctuation, companies will have excess production capacity, which serves as an incentive for the players to engage in price cutting to enable a higher demand. This price cutting is a manifestation of rivalry.

Question 10

According to Porter (1997), antecedents to rivalry include positional and structural. One of the 7 examples mentioned in class is that FIXED PIE leads to increased/ sustained rivalry. Explain why this is

Answer 10

Fixed pie refers to when a market is either in decine/ steady state or with very limited growth. This entails that companies operating in this industry are forced to steal market share from competitors in an effort to grow - which in turn facilitates rivalry.

Question 11

According to Porter (1997), antecedents to rivalry include positional and structural. One of the 7 examples mentioned in class is that SIMILAR MARKET POSITIONS AND STREGNTHS lead to increased/ sustained rivalry. Explain why this is.

Answer 11

In a market where several competitors are equally strong and occupy similar market positions, this creates a linkage between such players, and an incentive for them to engage in competitive attagks and responses in order to steal and maintain the strengh/position.

Question 12

According to Porter (1997), antecedents to rivalry include positional and structural. One of the 7 examples mentioned in class is that MAJOR BARRIERS TO EXIT lead to increased/ sustained rivalry. Explain why this is

Answer 12

When it is difficult to exit the market (can be all types of barriers such as strategic, financial and emotional barriers), this forces companies to stay in the market even though the market may be unprofitable. Firms may concurrently engage in extreme tactics (e.g., price competition)

Question 13

According to Porter (1997), antecedents to rivalry include positional and structural. One of the 7 examples mentioned in class is that HIGH STRATEGIC STAKES lead to increased/ sustained rivalry. Explain why this is.

Answer 13

High strategic stakes materializes in markets that are of particular great importance to several players. This can e.g., be due to high local customer sophistication, high supply of local talent, abundance of relevant resources, etc. In this case, players are incentivised to occupy top positions and grab market share - which fosters rivalry.

Question 14

According to Kilduff (2019) behavioral antecedents is a cause of rivalry. What are the 3 underlying factors for this creation of rivalry?

Answer 14

1) Similarity over time
2) repeated competition
3) evenly matched players

Question 15

According to Kilduff (2019) behavioral antecedents is a cause of rivalry. One os the underlying factors for this rivalry creation is SIMILARITY OVER TIME. Explain briefly why this is?

Answer 15

Similarity over time of competitors entails that firms have a certain degree of commonality with regard to e.g., market position and product offering. Such commonality over time leads to increased social comparison pressures, which in turn fosters management’s psychological involvement in the rivalry - which may further spill over to the organizational culture.

Question 16

According to Kilduff (2019) behavioral antecedents is a cause of rivalry. One os the underlying factors for this rivalry creation is REPEATED COMPETITION. Explain briefly why this is?

Answer 16

Repeated competition leads to the sustainability/ creation of rivalry. If players have been engaged in repeated competition over time, it created an increased incentive to outperform the rival.

Question 17

According to Kilduff (2019) behavioral antecedents is a cause of rivalry. One os the underlying factors for this rivalry creation is when firms are EVENLY MATCHED. Explain briefly why this is?

Answer 17

When firms are currently or has for a longer period of time been evenly matched, this leads to increased rivalry intensity.

Question 18

How does internationalization link to rivalry?

Answer 18

Internationalization can amplify the rivalry between firms. Rivals that compete in one market are very likely also competing as rivals in other geographical markets. The underlying reasoning for such patterns is that rivals are likely to imitate each others actions, e.g., in the context of market entry decisions in order to avoid the competitor establishing a overly strong position in that market.

Question 19

What is meant by multipoint competition?

Answer 19

Multipoint competitions refers to when firms compete with each other in several markets at once.
This is typically a by-product of fierce competition, where rivals have market commonality in combination with resource similarity. Because the rival is aware, motivated and able to respond to attacs, they tend to follow each other into new markets.

Question 20

What is Competitive Assymetry? Provide a practical example of this.

Answer 20

Competitive Assymetry refers to when competitors have assymetric perceptions of oneanother. Specifcially, each pair of companies have a unique and directional competitive relationship in terms of market commonality and resource similarity.

This can be well exemplified by Coca Cola and Harboe. Whilst Harboe views Coca Cola as its main competitor, this is not equivalent to CC’s perception of Harboe. Concurrently, the likelihood that CC will attack HB is different from the likelihood of HB will attack from CC. The same holds for likelihood of response.
Whilst there is large market commonality makes HB aware and motivated to respond, the low resource similarity is low, with CC having superior resources, reduces HB’s ability to respond to an attack.

Question 21

Following is true about fierce competition:
A) it is only manifested if rivals have high market commonality and high resource similarity.
B) it can also be manifested if rivals have high market commonality but low resource similarity.
C) Harboe does not view Cocal Cola as a fierce competitor
D) resource similarity is a more important determinant for rivalry intensity than is market commonality

Answer 21

B) it can also be manifested if rivals have high market commonality but low resource similarity.

All other options are wrong.
A) wrong bc. B is right
C) Harboe view CC as fierce competitor, but CC does not view Harboe the same way
D) market commonality is a more important determinant for rivalry intensity than resource similarity is

Question 22

Explain how market commonality and resource similarity affect competitive attack and response.

Answer 22

High market commonlity entails that the competitor is aware in the event of an attack, and is motivated to respond to the attack amid the same focus on markets of operation.
High resource similarity (e.g., by amount and type) makes a competitor able to respond to competitive attacks.

Question 23

Explain the relationship between the likelihood of attack and likelihood of response. Give an example.

Answer 23

The likelihood of attack is inversely correlated with the likelihood of response of the competitor. That is, if the two competitors have high market commonality and high resource similarity, both firms will be aware, motivated and able to respond, making it less attractive for any of them to initiate an attack.

Example: Pepsi co. and Coca Cola will likely not find it attractive to attack each other, given high market comonality and resource similarity.

Question 24

According to Chen & Stucker 1997, what are the 5 other factors affecting the likelihood of cross-border competitive attack?

Answer 24

1) global MNC strategy (as opposed to multi-domestic strategy)
2) wholly-owned subsidiaries (as opposed to licensing and franchising)
3) management with international experience
4) first-mover advantages
5) second-mover advantages

Question 25

According to Chen & Stucker 1997, one of the factors affecting the likelihood of cross-border competitive attack is GLOBAL MNC STRATEGY, as opposed to multi-domestic strategy. Why is this?

Answer 25

When a company is a global MNC, following a global strategy, as opposed to multidomestic, the strategic actions and positions can be coordinated across multiple geographical markets, and each position is to be seen as nodes to a larger global network. That is, the entire world market is seen as the competitive arena. Thus, with a global strategy, there is a higher likelihood of cross-border competitive engagement.

Question 26

According to Chen & Stucker 1997, one of the factors affecting the likelihood of cross-border competitive attack is MANAGMENET WITH INTERNATIONAL EXPERIENCE, as opposed to multi-domestic strategy. Why is this?

Answer 26

An MNC with managers who have international experience has better ability to both attack and respond to competitive attacks in foreign markets. That is, the experience and knowledge about foreign markets allows the firm to make more informed decisions with regard to competitive engagements.

Question 27

According to Chen & Stucker 1997, one of the factors affecting the likelihood of cross-border competitive attack is WHOLLY-OWNED SUBSIDIARIES, as opposed to franchising and licensing. Why is this?

Answer 27

With wholly-owned subsidiaries, the MNC is able to better coordinate and control actions across borders. This in turn eases the MNC's ability to execute attacks and responses in different markets. For instance, it is easier for CC to respond and retaliate to Pepsi's competitive attack (e.g., introduction of a new flavor), than it is for McD to respond to Burger King's attack (introduction of a new burger), because the latter example is a franchise-based internationalization.

Question 28

According to Chen & Stucker 1997, one of the factors affecting the likelihood of cross-border competitive attack is FIRST-MOVER advantage. Why is this?

Answer 28

First-mover advantages allows the incumbent firm to enjoy benefits such as greater customer loyalty, above average returns and high market share - until a response has been executed by a competitor. Thus, if a company enjoys significant first-mover advantages, the rival is incentivised to enter that same market, with the motive being to limit the first-mover advantages of the competitor.

Question 29

According to Chen & Stucker 1997, one of the factors affecting the likelihood of cross-border competitive attack is SECOND-MOVER advantage. Why is this?

Answer 29

By observing one's rival being the first-mover in a particular market, the second-mover may be able to learn from the first'mover's successes and mistakes. This increase the attractivenes for the second firm to enter the same market at a later point in time.

Question 30

According to Yu and Canella (2007), factors influencing the speed of competitive response include GEOGRAPHICAL. Explain why this is.

Answer 30

Geographical distance between the MNC and its subsidiaries may decrease the ability for the MNC to be aware and realize when an attack has been executed by its competitor. That is, the greater the distance between the MNC home country and the initiating country, the lower is the ability to detect when an attack has been initiated - which reduces the speed of competitive response. The lack of geographical proximity between HQ and subsidiary also hinders knowledge-tranfer, which in turn limits the resources of the firm - decreasing the firm's respond capabilities and speed hereof.

Question 31

According to Yu and Canella (2007), factors influencing the speed of competitive response include SUBSIDIARY OWNERSHIP. Explain why this is.

Answer 31

If an MNC has expanded internationally throug the creation of wholly-owned subsidiaries, this entails higher control and coordination between the nodes in the network, as opposed to a franchise and licensing agreement. With higher control and coordination, the MNC is able to respond to competitive attacks in a faster manner. As way of example, the MNC may implement subsidiary management incentives, increasing the motivation for that entity to act in compliance with the goals of the holistic firm. For instance, this is more difficult for McD than it would be for Coca Cola.

Question 32

Other host-country response speed determinants unclude the strategic importance of the initiating country and the multi-market rivalry situation. Elaborate why this is.

Answer 32

1) The strategic importance of initiating country: how big is our response motivation? In general, response will happen at some point, but the speed and strategic importance is typically higher when the initiating country is the same as the response country (“within-country”). But this is especially the case if the initiating country is one of particular strategic importance. 2) The multi-market rivalry situation: if the company and its rival are present in multiple countries, responses may occur in the initiating country or in a different country - which increases the response speed (amid ability to respond in markets that are e.g., geographically closer or with fewer government constraints)

Question 33

Which of the following is NOT a characteristic of a slow cycle market? A) The time between launch of a new product (attack), exploitation and counterattack by competitor is measured in years B) After product launch, the initiating company is able to enjoy returns from sustained competitive advantage for a few years before a counterattack is initiated C) Every action (introduction of new product) can be considered as both an attack and a counterattack simultaneously D) The aircraft industry is an example of a slow cycle market. E) All options are correct

Answer 33

WRONG: C) Every action (introduction of new product) can be considered as both an attack and a counterattack simultaneously - This is the case for a fast-cycle market. A) In slow cycle markets, the time it takes from the launch of a product, exploitation and counterattack by competitor is measured in years. B) After product launch, the initiating company is able to enjoy returns from sustained competitive advantage for a few years before a counterattack is initiated D) Aircraft industry: it takes long time to develop a new aircraft model, and by the time the competitor launches a new similar model, you have already been able to enjoy some good returns.

Question 34

Which of the following is NOT a characteristic of a fast-cycle market? A) The time between attack (product launch) to exploitation to counterattack is measured in months B) By the time the returns of the first product starts diminishing amid counterattack, the initiating firm has already moved on to introducing a new product (new attack) C) Every action of the firm is perceived as a response and an initiating action for the new product cycle (attack) simultaneously. E) The clothing industry is an example of fast-cycle market F) All options are correct

Answer 34

F) All options are correct! A) The time between attack (product launch) to exploitation to counterattack is measured in months B) By the time the returns of the first product starts diminishing amid counterattack, the initiating firm has already moved on to introducing a new product (new attack) C) Every action of the firm is perceived as a response and an initiating action for the new product cycle (attack) simultaneously. E) The clothing industry is an example of fast-cycle market

Question 35

According to Tallman et al. 2018, the three components in a business model composition describe how companies create value using its resources and capabilities. Name the components

Answer 35

1) value proposition 2) value creation and delivery 3) value capture and allocation

Question 36

According to Tallman et al. 2018, one of the three components in a business model composition describe how companies create value using its resources and capabilities is VALUE PROPOSITION. Which of the following statements hold true? Choose 1-4 A) Value proposition can be industry-focused or firm-focused approach B) With industry-focused value proposition, firms compete for market positions. Firms aim at occupying a certain position in the market that allows them to deliver greater performance and unique value to customers (low cost, price leadership or some type of niche) - Essentially, it highlights the importance of finding a gap in the market compared to the rest of the industry in order to create any value. C) With firm-focused approach, the competition between firms centers around delivering superior value to customers through obtaining valuable assets (resources and capabilities). D) In the context of international business, it is of great importance to take into account that value propositions must be adapted according to the different dynamics across markets (customer demand, supplier capabilities, competition, etc.)

Answer 36

All options are true

Question 37

According to Tallman et al. 2018, one of the three components in a business model composition describe how companies create value using its resources and capabilities is VALUE CREATION AND DELIVERY. Which of the following statements hold true? Choose 1-4 A) Value creation is a component in a business model that tells us how a firm's assets are to be aligned and put to use to address the customer needs - how the firm can utilize its resources and capabilities to create value. B) The value creation component of a business model tend to apply for the MNC across all its markets with no significant need for adaptation. C) The value creation component of a business model should ideally be adapted according to the specific market amid varying customer needs D) Value delivery concerns how the firm is to market, sell and service the product - it seeks to answer the question: "how do we deliver the value we have created?"

Answer 37

WRONG: B) The value creation component of a business model tend to apply for the MNC across all its markets with no significant need for adaptation. INSTEAD: C) The value creation component of a business model should ideally be adapted according to the specific market amid varying customer needs

Question 38

After uncovering customers’ needs (value proposition) and understanding how such value is created and delivered, it is relevant to look at how the company is to capture the value and internalize that value so that even more value can be created - this is the value capture and allocation. Following is true about value creation and allocation. Choose 1-4 A) Value capture refers to when a firm makes a sale and a profit. B) Value capture may be measured by setting a target for profitability in different markets, which in turn may differ across markets amid the presence in every individual market having a distinct strategical or operational rationale. An appropriate measurement method is of importance, since it indicates to the firm how much value is captured C) Value allocation concerns how the firm is to properly allocate the captured value within its network of units, enabling further improvement of the business model components and enhanced value creation. D) Value allocation and value internalization refers to the same thing

Answer 38

All 4 are correct

Question 39

Define product strategies and competitive strategies, and state the differences between the two types of strategies.

Answer 39

Product strategeis refers to decisions concerning the product mix/ product portfolio of the company, and whether this assortment should be adapted according to the specific market in which it operates. Competitive strategies refers to decisions concerning the localization of value chain activities. According to the OLI-framework, different locations offer different location advantages (e.g., cost advantages, resource abundance, relevant knowhow and specialization). Thus, an MNC will find it sensible to locate its activities according to where it makes best business sense. The difference is that the former concerns product mix decisions and the latter concerns value chain activities localization decisions.

Question 40

Define Global competition and global business, and state the differences between the two according to Hamel and Prahalad (1985).

Answer 40

Global competition is about pursuing a global brand and securing distribution channels that are global in nature, and battling global competitors. All this while, there is NO REQUIREMENT for establishment of physical entities around different locations to pursue global competition, Global business, as opposed to global competition, DOES REQUIRE investment in physical subsidiaries in offshore locations in order to achieve the efficiencies/ cost savings connected to scale that is non-obtainable in the home-market.

Question 41

Define product mix and product adaptation, highlighting the difference between the two in the context of product strategy.

Answer 41

Product mix: refers to the portfolio of products that a company offers across each of the different markets it operates in. I.e., this concerns the decision of whether the MNC is to offer the same standardized product mix or one that is tailored to the specific market Product adaptation: concerns decisions about whether the MNC should offer standardized products across the markets where the given product is supplied, or whether it should adapt it to better meet local demand and preferences. The difference: product mix concerns the product portfolio whilst product adaptation concerns whether to adapt a given product according to local requirements.

Question 42

For the following three companies, state whether each of them have high/low product mix differentiation and high/low product adaptation: A) Coca Cola B) McDonalds C) iPhone (Apple) D) A tourist store (assuming one brand owns stores in different countries)

Answer 42

A) Coca Cola: no product mix differnetiation & yes product adaptation (sugar content is different from country to country) B) McDonalds: yes product mix differentiation & no product adaptation for products that are offered across the world (cheeseburgers are the same in every location) C) iPhone (Apple): no product mix differentiation & no product adaptation D) A tourist store (assuming one brand owns stores in different countries): yes product mix differentiation and yes product adaptation

Question 43

Name an advantage of offering the same product mix across countries (with or without adaptation)

Answer 43

The advantage of offering the same product mix, (with or without adaptation) is that it allows the company to focus on perfecting and marketing a specific set of products, rather than diluting this focus and resources on different varieties of products in each market.

Question 44

Drivers of local responsiveness result in products/services tailored toward individual markets What are the drivers for local responsiveness?

Answer 44

Different local preferences: one of the fundamental drivers for product localization/adaptation to the local market is when the needs and preferences of local consumers are different from other markets. Such differences might be national or regional, and ,ay be driven by different cultures, tastes, norms, etc. Import subsittution/ local regulations: today, multiple countries have imposed regulations that requires foreign firms to at least manufacture a certain proportion of its product in the host-country in order to sell the product to local customers. When firms must set up production amid such regulation (import substitution), they might as well adapt the product no matter how big/small this adaptation might be.

Question 45

Drivers for global integration results in product being standardized across different markets where they are offered. Name and explain these drivers for global integration

Answer 45

Little/no variation customer preferences: when consumers have low and insignificant demand for local adaptation of a product across markets, it is sensible for the MNC to pursue global integration (product standardization) as a product strategy - this allows for saving of unnecessary adaptation costs, incl. marketing. Cross-country arbitrage: firms can by offering the same products across multiple markets reduce costs per unit produced and improve the quality from learning effects all of which are made possible due to scale and scope advantages.

Question 46

Explain what multicountry/regional competition is, and how mutlicountry strategy fits into such competitions dynamics.

Answer 46

In multicountry competition, every country market is self-contained – i.e., competition in one market is independent from competition in a different market. In each of these different markets, an MNE will face • Different competitors, competitive positions, customer preferences, the need for different product offerings and thus different rivals With multicountry competition/ independent competition, the MNC needs a strategy that addresses the need of each market individually (multicountry/regional strategy), taking into consideration the fact that in most of these markets, the competitive dynamics and business environment being different

Question 47

Name an example of a company in multicountry comeptition and explain why multicountry strategy is applicable for that firm.

Answer 47

Whirlpool embarked many issues with its global expansion, since it became evident that the home appliances industry was characterized by multi-country competition to a higher degree than initially expected. The types of prevalent distributors, main competitors and consumer preferences varied widely across markets, which made it clear that a multicountry strategy was necessary. In essence, Whirlpool would have benefitted from formulating and executing more country/location specific strategies, taking into account the immense differences of the competitive landscape and business environment across countries.

Question 48

Explain what global competition is, and how global strategy fits into such competitions dynamics.

Answer 48

In global competition, prices and competitive positions are strongly interlinked across markets. The MNC faces essentially the same main competitors and rivals in many different markets, and the whole world is to be perceived as the competitive arena. Meanwhile, the MNC will also typically face very similar customer preferences from one market to another. In the context of global competition, it becomes sensible for the MNC to execute global strategies, which enable it to organize worldwide operations in a coordinated manner. That is, strategic actions are coordinated across multiple geographical markets, and each position of a subsidiary is to be seen as a node in the larger global network. Globak strategies can help the MNC achieve a certain global competitive position by (i) achieving global scale and building global presence, (ii) defend domestic position (iii) overcoming national fragmentation.

Question 49

Name an example of a company in global comeptition and explain why global strategy is applicable for that firm.

Answer 49

One example of a company in global competition is Coca Cola. Across its different world markets, there is little variation in customer preferences of the Coca Cola soft drink, and its competitive position is strong in every market it is present in. Regardless of geographical location, it faces competition with its rival, Pepsi Co, and the two competitors essentially view the entire world as the competitive arena. For CC, a global strategy is applicable, sine this enables the MNC to initiate attacks such with initiatives such as cross-subsidization. Meanwhile, it enables the firm to respond faster and retaliate any attacks from Pepsi - either in the initiating country or another.

Question 50

According to Hamel and Prahalad (1985), there are three main types of global competitive strategies. Name these

Answer 50

1) building global presence and scale 2) defend domestic position 3) overcoming national fragmentation

Question 51

According to Hamel and Prahalad (1985), there one of the three types of global competitive strategies is BUILDING GLOBAL PRESENCE AND SCALE. Explain what the rational of this strategy is, and how it may be achieved.

Answer 51

Building global presence concerns an MNC’s achievement of capability to manufacture their product/service to be sold globally at a beneficial scale. For an MNC to obtain worldwide cost competitiveness through beneficial manufacturing and development scale, it must achieve a minimum world market share - it must build a global presence. Building global presence through can be achieved through cross-subsidization, which refers to reducing prices in a strategically important market in the short term. This enables the MNC to obtain greater market share and reduce margins for competitors in those countries where it is executed. If the competitor loses margins, it is less able to invest in its R&D, which may lead to its loss of competitive position.

Question 52

According to Hamel and Prahalad (1985), one of the three types of global competitive strategies is BUILDING GLOBAL PRESENCE AND SCALE, which in turn can be enabled through cross-subsidization. Give and example of an MNC executing such strategy with the goal of obtaining higher market share.

Answer 52

An MNC executing a strategy of building global presence thorugh cross-subsidization is Uber. In some of the important markets, the firm sponsored part of customers' rides and provided additional income to its drivers with the goal of achieving greater market share in these locations.

Question 53

According to Hamel and Prahalad (1985), one of the three types of global competitive strategies is BUILDING GLOBAL PRESENCE AND SCALE, which in turn can be enabled through cross-subsidization. Give and example of an MNC executing such strategy with the goal of diminishing competitors' margins.

Answer 53

If Coca Cola executing a cross-subsidization initiativ, lowering its prices in the a market where Pepsi has the superior market share , this would likely force Pepsi Co. to respond by the the same in order not to lose significant chunks of market shares - resulting in lower margins.

Question 54

According to Hamel and Prahalad (1985), one of the three types of global competitive strategies is DEFENDING DOMESTING POSITION. Explain what the rational of this strategy is.

Answer 54

``` Defending domestig (home-market) position concerns the MNC's ability to retaliate against its competitor, either in the home market, or in another foreign market. Retailiation in turn, refers to the effort of the MNC to obtain/maintain a certain level of market share in a specific location in order to be able to influence the behavior of key global competitors. ``` E.g., with only 2-3% share in the foreign market, the firm may be too weak to influence the pricing behavior of its foreign rival.

Question 55

According to Hamel and Prahalad (1985), one of the three types of global competitive strategies is OVERCOMING NATIONAL FRAGMENTATION. Explain what the rational of this strategy is.

Answer 55

Overcoming national fragmentationrefers to the effort of an MNC rationalizing its value chain activity locations - it makes decisions about where to locate its value chain activities such as R&D, production and services, based on RATIONAL considerations rather than e.g., historic reasons - taking into account specific location-specific advantages. Furthermore, overcoming national fragmentation also concerns distribution decision-marking among subsidiaries - that decisions are made at the location that makes most sense rationally for that particular decision.

Question 56

According to Hamel and Prahalad (1985), one of the three types of global competitive strategies is OVERCOMING NATIONAL FRAGMENTATION. Give and example of an MNC executing such strategy.

Answer 56

An example of an MNC overcoming national fragmentation is IBM. The firm moved its global procurement functions in 2006 from NY at their HQs to China. This location has been chosen because it is sensible that from at least the cost and distribution POV, China is a better location of this specific function.

Question 57

According to Hamel and Prahalad (1985), one of the three types of global competitive strategies is OVERCOMING NATIONAL FRAGMENTATION. Explain what this means in the context of decision-making.

Answer 57

Overcoming national fragmentation concerns (beyond value chain localization) also the allocation of decision-making power to where it makes best sense rationally. It might make sense to allocate some degree of decision-making autonomy to some subsidiaries, even in a global strategy. That is, despite the overall strategy of the MNC being coordinated with the rest of the network, some local decisions may be better made by the subsidiary that is has more insight into the local market.

Question 58

According to Ghemawat (2005), MNCs can follow five regional strategies concerning the localization of value chain activities. Name these three

Answer 58

1) home-based strategy 2) portfolio strategy 3) hub strategy 4) platform 5) mandate

Question 59

According to Ghemawat (2005), MNCs can follow five regional strategies concerning the localization of value chain activities. One of these is HOME-BASED STRATEGY. Explain what this is, and give an example.

Answer 59

In the home-base strategy, the most upstream functions in the value chain is located in the home region, including activities such as R&D and manufacturing as well as sales. Typically, the sales function is distributed across the world beyond the home region, and products are sent from the home-region manufacturing facility. Some adjustment/adaptation of the products may take place, but the bulk/main part of the product is made in the home region. Example: ZARA, where its R&D, and until recently, its manufacturing, are located in Europe. In fact, most of the manufacturing took place relatively close to ZARA’s R&D and HQ in Spain. Meanwhile, functions such as sales are distributed across other regions too in addition to the home-region.

Question 60

According to Ghemawat (2005), MNCs can follow five regional strategies concerning the localization of value chain activities. One of these is PORTFOLIO STRATEGY. Explain what this is, and give an example.

Answer 60

In a portfolio strategy, the MNE moves out some of the upstream-functions into other regions, e.g., part of manufacturing, while some of the manufacturing is yet kept at home. The R&D function is typically still kept in the home-region, but the output of R&D is transferred to the other foreign manufacturing plants. Sales takes place worldwide. Example: Toyota, which has in addition to R&D, manufacturing and sales functions in its home region, also has expanded sales functions and manufacturing plants into other world regions. The output from the home-based R&D function is feeding into manufacturing facilities in foreign regions. Meanwhile, the output from the home-region manufacturing facility feeds into both the home region and its foreign regions.

Question 61

According to Ghemawat (2005), MNCs can follow five regional strategies concerning the localization of value chain activities. One of these is HUB STRATEGY. Explain what this is, and give an example.

Answer 61

In the hub configuration, in addition to manufacturing and sales being located in foreign regions, the MNE also starts locating R&D functions outside its home-region. Sometimes, this happens as a by-product of an M&A transaction between companies - where the acquired firm has established R&D and manufacturing in foreign region. Example: Fiat Chrysler was born out of a merger. For that reason, the Chrysler part (with HQ in US), maintained its integrated value chain (=R&D, manufacturing and sales) in US. Meanwhile, FIAT kept the corresponding integrated value chain in its home region in Europe. • In fact, one reason for the merger was amid Chrysler wanting to get access to the small-car-technology that FIAT had. Thus, the outputs from R&D in Europe is fed into the manufacturing in US.

Question 62

According to Ghemawat (2005), MNCs can follow five regional strategies. One of these is PLATFORM STRATEGY. Explain what this is, and give an example.

Answer 62

With the platform strategy, the MNE manufactures a number of basic platforms that are to be utilized in multiple of its markets worldwide. The aim is to reduce the number of basic worldwide platforms, and by this, to reduce the variability in manufacturing, but at the same time, not sacrificing the product variation required across markets. A platform can vary from industry to industry, and refers to the base of a product that is similar across different final products, and allows firms to differentiate the final product at a later stage in the supply chain (delayed differentiation). Example of platform: Volkswagen utilizes the same platform for multiple different cars. In fact, VW has only 3 standard platforms by which its entire portfolio of cars are built from.

Question 63

According to Ghemawat (2005), MNCs can follow five regional strategies. One of these is MANDATE STRATEGY. Explain what this is, and give an example.

Answer 63

The mandate strategy refers to when regions supply specific products, and these regions perform roles that are unique within the organizational network. That is, the roles performed and the products manufactured are specific and unique across different regions. Meanwhile, the output of each region is used throughout the entire organization. Each subsidiary has a mandate of performing a specific role.

Question 64

Consider the following case: Novo Nordisk focuses on developing products that treat diabetes. NN has a subsidiary in China, which attacks diabetes from the bacterial perspective. This is the only subsidiary within NN that specializes in this specific approach, while other subsidiaries perform research in other areas. As such, the Chinese subsidiary performs a unique role within the network. The learnings and R&D outputs created in this subsidiary are used throughout the entire company. Annually, NN holds organization-wide conferences, where knowledge is shared and transferred. Which type of regional strategy does NN follow? 1) home-based 2) portfolio 3) hub 4) platform 5) mandate

Answer 64

Mandate

Question 65

According to Ghemawat (2005), MNCs can follow a MANDATE STRATEGY. What is the main disadvantage of such strategy?

Answer 65

With a mandate strategy, each of the regions that the MNC operates in plays a unique role of significant importance of the firm's holistic success (amid specialization of a particular area that the given region has a mandate to). This essentially gives the regions power over resources and capabilities that they have developed - and exposes the entire organization to immense dependency to that region. If that region for some reason fails to collaborate, the entire organization can essentially be shut down.

Question 66

According to Ghemawat (2005), what is the difference between a HUB STRATEGY and MANDATE STRATEGY?

Answer 66

The difference between the mandate and hub strategies lies in the fact that in HUB, subsidiaries have different roles and perhaps different products manufactured in different regions – while these outputs CAN be used in other regions, the given subsidiary focuses predominantly of the region it is located. As for the mandate strategy, each region plays a crucial role for the entire organization, and serves as one important node in the whole organizational network. That is, the output from each subsidiary is use throughout the organization.

Question 67

According to Carr (2003), technology can offer significant value from its operational impact on firms. How? Provide an example.

Answer 67

Oftentimes, the most obvious value that technology offers is thorugh its operational impact. That is, through technology, firms can enhance the efficiency and thereby reduce costs and the time spent on different activities. Example: artificial intellegence (AI) provide immense efficinecy gains for companies utilizing it in their operations. One example is when commercial banks are to evaluate the credit rating of clients. By applying AI and machine learning, the process of this evaluation does no longer require human labor as an input, which significanlty reduces the cost and time associated with the evaluation process.

Question 68

According to Carr (2003), technology can, beyond operational value, offer strategic value through the creation of strategic advantages. Define strategic advantage in the context of technology.

Answer 68

A Strategic advantage is obtained by a company when it is able to implement a value creating strategy that is not simultaneously implemented by a current or potential competitor. In the context of technology, firm may obtain strategic advantage by having access and ability to employing technology in ways that current and potential competitors do not - which in turn can translate into a competitive advantage for the firm.

Question 69

According to Carr (2003), early adopters of a certain technology may gain competitive advantage. One of the ways in which strategic value can be created through technology by early adopters is if the technology is proprietary. How so?

Answer 69

Proprietary technology refers to a state where only the owner/creator of a given technology has license to utilize it. Specifically, early adopters of a certain type of technology can protect that with patent. By shielding off the possibility of competitors to utilize such technology, the firm can obtain competitive advantage by being the only company able to extract value from it.

Question 70

According to Carr (2003), early adopters of a certain technology may gain competitive advantage. One of the ways in which strategic value can be created through technology by early adopters is if the technology entails high development and labor costs. Why so? Provide and example.

Answer 70

High development and labor costs are often associated with new technology development. The capital investment required to implement that technology might be what essentially separates a good value-creating adoption of technology from the rest. Example: the computer mouse was developed at Xerox (famous for copiers and printers). However, they never commercialized the product due to high costs. Instead, Steve Jobs took the mouse and made it an important part of early Apple computers.

Question 71

According to Carr (2003), early adopters of a certain technology may gain competitive advantage. One of the ways in which strategic value can be created through technology by early adopters is if there is a lack of standards surrounding a given technology. Why so?

Answer 71

Lack of standards surrounding tech, where different firms compete using slightly different variations of the same technology, and the one getting ahead technologically, also gets ahead strategically. The winner of such "standard wars" would face generally higher demand for their technology. I.e., they would receive strategic advantage.

Question 72

According to Carr (2003), early adopters of a certain technology may gain competitive advantage. In following example, identify in which way strategic advantage is obtained (i.e., prioprietary tech, high costs, lack of standards, innovative uses): - CD and DVDs were both winners of so-called “standard wars”. With every new generation, the storage capacities of these discs increased. - Many companies were involved in the development of the technology surrounding these discs. But it is not enough to have the technological creation of the disc, data/ content was needed. - Thus, the tech companies got together with content creators (e.g., movie studios) who provided content to be distributed on those discs. - Different technological companies and the content creators came together in so-called “consortiums”. Each of these consortiums were competing in standard wars. - Whenever one consortium got ahead, the companies in that winning consortium got ahead strategically, receiving superior demand and licensing requests - they enjoyed strategic advantage.

Answer 72

Lack of standards: when different firms pursue slight variations of the same technology. Whenever one firm got ahead technologically, it would also get ahead strategically amid superior consumer demand.

Question 73

According to Carr (2003), early adopters of a certain technology may gain competitive advantage. One of the ways in which strategic value can be created through technology by early adopters is if technology is put to use in innovative ways. How so? Provide an example.

Answer 73

Innovative uses: early adopters can put technology to innovative uses. The company that does this will enjoy competitive advantage. Example: in the future, one may expect that real estate brokers will start utilizing virtual reality as a substitute to taking potential buyers visiting apartments and houses physically in the early stage of the process. This may come to serve as a strategic advantage if potential buyers could visit e.g., 10 homes virtually in 30 minutes, as opposed to only one physical tour.

Question 74

Competitive advantage through technology does not last indefinitely: other companies will invest and innovate, and eventually catch up on the advantages associated with being an ealy adopter. The main message by Carr (2003) is that any new technology at best provides only TEMPORARY competitive advantage. TRUE/ FALSE

Answer 74

TRUE

Question 75

Barlett and Ghoshal (1986) proposes four different types of subsidiary roles within an organization based on two dimensions. Which?

Answer 75

1) importance of the loca market: can be due to size, technological sophistication, prominence of a particular industry creating clusters (e.g., luxury goods from Italy) 2) competence of the subsidiary: how advanced is the subsidiary and resources and capabilities does it possess?

Question 76

According to Barlett and Ghoshal (1986), if a subsidiary has high competence and the market in which it is located is of high strategic importance to the firm - which role does this subsidiary play? Describe the role.

Answer 76

High competence + high importance of market = strategic leader. A subsidiary with a strategic leader role not only implements the corporate strategy of the MNC, but also participate in the development of it. The subsidiary is able to observe developments in one of the highly important markets, and possess capabilities that are valuable to the organization as a whole.

Question 77

According Barlett and Ghoshal (1986), if a subsidiary has high competence but the market in which it is located is of low strategic importance to the firm - which role does this subsidiary play? Describe the role.

Answer 77

High competence + low improtance of the market = contributor A subsidiary playing the contributor role has some distinctive skills, which the MNE can utilize across the entire organization. This could be unique product development capability, special manufacturing capability, unique human capital, etc. Due to lack of importance or size of the local market, the primary role of this subsidiary is feed the rest of the organization by transferring its know-how and skills.

Question 78

According Barlett and Ghoshal (1986), if a subsidiary has low competence but the market in which it is located is of high strategic importance to the firm - which role does this subsidiary play? Describe the role.

Answer 78

Low subsidiary competence + high importance of local market = black hole A black hole subsidiary is underdeveloped and inferior to its local competitors. For such subsidiaries, it is the main goal that it oberserves the actions of local competitors to seek to learn and improve - and thereby aim at moving from a black hole toward a strategic leader role.

Question 79

According Barlett and Ghoshal (1986), if a subsidiary has low competence and the market in which it is located is of low strategic importance to the firm - which role does this subsidiary play? Describe the role.

Answer 79

Low subsidiary competence + low market importance = implementer A subsidiary acting as an implementer plays a rather insignificant role. The mandate of this subsidiary is mainly to adapt the MNE’s global products such that it meets the local market demand and preferences. This often does not require significant competence from the subsidiary.

Question 80

Based in the framework introduced by Birkinshaw & Morrison 1995, which of the following characteristics are NOT TRUE for a hierarchy ("M-form")? A) Critical resources are concentrated at the top (HQ) B) The HQ is responsible for making strategic decisions and to monitor and control the other divisions/subsidiaries C) Subsidiary control is implemented through financial/ calculative metrics. E.g., the HQ imposing budget constraints and performance requirements D) Subsidiaries make primarily operational-oriented decisions, and are not involved in the strategic decisions making. E) Overall, benefits to a hierarchy structure is that it ensures faster decision-making and the ability for the MNE to ensure that the entire organization complies with the strategy formulated by HQ. By extension, transaction costs are lowered amid less lateral communication between subsidiaries. F) It better enables subsidiaries to "do the right thing" G) It better enables subsidiaries to "do things right"

Answer 80

WRONG: F) It better enables subsidiaries to "do the right thing" Instead, a hierarchy structure ensure higher chance of subsidiaries "doing things right" (G)

Question 81

Based in the framework introduced by Birkinshaw & Morrison 1995, which of the following characteristics are NOT TRUE for a heterarcy ("decentralization")? A) The decision-making authority is brought closer to where the decisions are to be implemented - i.e., subsidiary level B) A subsidiary has deeper insight into that particular market in which operates, thus being better positioned to make the the right decisions relating to that market C) if resources are dispersed across the organization, it is sensible to push decision-making authority onto those subsidiaries with specific resources. D) Subsidiary control is implemented through norms - the MNC seeks to impose the company's mission/ longer term strategic goals on the subsidiaries. E) It better enables subsidiaries to "do the right thing" F) It better enables subsidiaries to "do things right" G) Matrix structures are common in heterarchy H) There is more lateral communication in heterarchy than hierachy (inter-subsidiary communication)

Answer 81

WRONG: F) It better enables subsidiaries to "do things right" Instead, heterarchy enables subsidiaries to "do the right thing" - because the decision-making authority is granted to local suppliers, who are better equipped to make the right decisions concerning its local market.

Question 82

What is a matrix-structure?

Answer 82

A matrix structue can be of two dimensions: product lines and geography. Product line matrix structure: when each business unit within a company is responsible for a particular category of products (e.g., a food company as Nestlé has several BUs, with some focusing on beverages, nutrition, pet care, etc.). Geography-based matric structure: matrix structures can be based on geographical units, with each BU focusing on a specific geographical area.

Question 83

Explain the difference on value of competencies of upstream vs. downstream subsidiaries for the organization.

Answer 83

Beyond the capability of the subsidiary and the importance of the market in which it operates, another determinant for a subsidiary’s value is the functions that it performs from a value chain perspective. Upstream competence is often more “universal” and transferable to other markets. Subsidiaries with such competence is more valued within the organization amid its relatively higher importance. • Upstream functions: E.g., R&D and manufacturing Downstream competence is often more local-for-local and highly contextualized. Subsidiaries performing such functions are less valued within the organization, and sometimes, these functions are even outsourced. • Downstream functions: E.g., marketing, sales

Question 84

Define subsidiary autonomy

Answer 84

Subsidiary autonomy refers to the degree to which a foreign subsidiary of an MNC has strategic and operational decision-making authority (O'Donnell, 2000).

Question 85

What are the advantages of subsidiary autonomy? Connect your answer to the Holacracy case (Contect)

Answer 85

Multiple advantages are connected to subsidiary autonomy, both in the operational and strategic form, as evidenced by Contect (Holacacy case): * Agility of local subsidiaries: enabling ability to better and faster respond to local circumstances since decisions are made by the entity that will implement it amid the removal of bureaucracy that in principle are unnecessary. * A motivator leading to employee retention/ recruitment through opportunities: autonomy to subsidiaries increases the motivation of local managers talents. This can serve as a positive factor for talent recruitment and retention. * Freeing up management capacity at HQ: allowing the HQ to focus on the “big-picture” decisions and freeing the management from smaller operational and strategical issues that the subsidiary could have solved themselves. This also decreases the risk of sub-optimal decisions made by management amid bounded rationality.

Question 86

What are the disadvantages of subsidiary autonomy? Connect your answer to the Holacracy case (Contect)

Answer 86

Multiple advantages are connected to subsidiary autonomy, both in the operational and strategic form. However, also disadvantages exist from subsidiary autonomy, as evidenced by Contect (Holacacy case): * Lack of HQ control and oversight: in consistency with the arguments against heterarchy (Birkinshaw & Morrison, 1995), autonomy boosts the subsidiary’s ability to “do the right thing” but also hinders the HQ to ensure that subsidiaries “do things right”. With autonomy, the HQ gives up a significant degree of control of business is conducted in foreign markets. * Risk of damage of the entire organization: with autonomy follows the risk that the entire organization suffers from reputational damage from any misstep of foreign subsidiaries. This may be exemplified by the Russian subsidiary at Contect, which had engaged in questionable actions such as fraud, leding to the entire Contect brand being harmed. * Empire building (from too much autonomy): can materialize when the management of a foreign subsidiary pursue its own interest as opposed to the interest of the holistic firm.

Question 87

Which of the following characteristics are true about business groups? Choose 1-4. 1) business groups is a network of several semi-autonomous firms with the MNC (HQ and subsidiaries) on one hand, and a larger network of companies on the other hand in a CROSS OWNERSHIP 2) the corporate governance structure is often complex and entail lack of transparency 3) the entities in the business group pursue different objectives 4) the entities in the business group are legally independent 5) the entities in a business group is called "affiliates"

Answer 87

3) WRONG: instead: the entities of a business group pursue mutual objectives. All other options are correct Business groups can be defined as a network of several semi-autonomous firms. The network ties together MNCs (HQs and subsidiaries) on one hand, to a larger network of companies on the other hand in a cross-ownership. This is often characterized by complex corporate governance structures that lack transparency. The entities within a business group pursue mutual objectives, but remain legally independent.

Question 88

What are the factors facilitating the rise (antecedents) of business groups?

Answer 88

Weak “factor markets”: refers to lack of resources, such as financing, people, technology in specific locations, which can result in the rise of business groups. • Business groups can lead to the creation of internal markets, where the resources that are abundant in one location/ at one affiliate, can be transferred to another location/ affiliate. This is true for both financial resources (transfer of capital) and e.g., human resources (transfer of personnel and know-how). ``` Weak institutions (institutional voids): if local laws governing business transactions don’t exist or are poorly enforced. E.g., you cannot take your supplier or customers to court if they break the contract - this can result in the rise of business groups. • With weak institutions, entering into a contract with an entity outside of the business group (e.g., supplier) can be risky and entail high transaction costs – which serves as an incentive to business group creation. ```

Question 89

Name some of the advantages that are connected to business group product diversification.

Answer 89

1) Stronger internal markets within the business group is created, with the ability for affiliates to supply a greater variety of resource to the entire network, vice versa. 2) Allows companies within the group to extend competitive advantage and brand into new industries (example: Google extends its brand into banking business) 3) Reduces risk: investments are spread across a wide portfolio of business, and cyclicality in one industry may be offset by upside in another.

Question 90

Name a disadvantages that is connected to business group product diversification

Answer 90

In practice, product diversification in business groups can harm performance – both for the entire group and for individual affiliates. This is in fact a common complaint about business groups.

Question 91

Define institutional voids (Rottig 2016)

Answer 91

Institutional voids refers to the absence or underdevelopment of some formal institutions. By extension, markets with institutional voids are also characterized by unpredictable institutional changes. This is likely that factor of highest impact for MNCs, as they move into a non-western market, since it faces more undertanty and higher risk, which by extension increases the transaction costs of conduction business in the presence of institutional voids.

Question 92

Institutional voids materialize in countries where there is no (lack of) information to assess quality of goods/ services. Provide an example of this.

Answer 92

ELEVATORS For a building owner to install an elevator, that elevator must be certified and regularly inspected by a dedicated authority. This is how riders of the elevator know that it is functioning and safe to use. Such information about the quality of goods and services are in Western countries often obtained through third-party institutions or intermediaries. In non-western and underdeveloped markets, these intermediaries may not exist.

Question 93

Institutional voids materialize in countries where the government predominantly pursues political or social goals, at the expense of economic efficiency. Provide an example of this.

Answer 93

Example: In Venezuela, gas prices has stayed flat for many years, despite a immense inflation of the price worldwide. In Venezuela, the government is regulating the gas price with the goal of maintaining social stability, which happens at the expense of economic efficiency.

Question 94

Institutional voids materialize in countries with a poor-functioning judicial system/ poor contract enforcement. Why might this be an obstacle for an MNC operating in such markets?

Answer 94

A well-functioning judicial system is important for a multitude of reasons. One particular example is that if the MNC enters into a contract with a counterparty, it must be able to act in the event of contract breach, by taking the counterparty to court. In markets where e.g., judges can be bribed, this option would no longer be viable for the firm.

Question 95

Institutional pressures by local governments in non-western market, stemming from their stronger social and political orientation as opposed to economic efficiency, can often put foreign MNCs at a disadvantage. Provide a specific example of such pressure and response by an MNC.

Answer 95

Institutional pressure by host country governments in emerging markets may be exemplified by the case of India. The local government demands almost complete control over the development of the automobile industry, and allows the assistance of MNC only through JV and minority partnerships (Harvard Business Review). This has affected multiple global car manufacturers having an interest in setting up activities in India, including Ford. As response, the MNC can either choose to adapt to the at times unreasonable requests, or it can choose to withdraw from/ not enter the market. In Ford’s case, the company chose to adapt, and entered the market through a 50/50 JV with M&M.

Question 96

According to George et al, (2016) the institutional environment in Africa can be characterized by three overall characteristics. Which?

Answer 96

1) Weak institutions 2) Broad linguistic and ethnic diversity across African countries 3) The dominance of tribal leaders in local communities

Question 97

According to George et al, (2016) one if the characteristics of the institutional environment in Africa is weak institutions. Elaborate this and how it affects MNCs.

Answer 97

Weak institutional environment implies higher uncertainty and risk connected to business conduct in African countries. This in turn increase the transaction costs of firms. As a result, MNCs can choose to enter through a JV. A local partner is better placed to navigate the institutional environment and work its way around institutional voids, than the MNC is and thereby, some autonomy can be valuable. JV aso entails that the MNC gets to know the local environment before committing fully into that market with a greenfield investment.

Question 98

According to George et al, (2016) one if the characteristics of the institutional environment in Africa is the wide linguistic and ethnic variety. Elaborate this and how it affects MNCs.

Answer 98

Ethnic and linguistic variety among the African countries leads to: • Increase costs of doing business for an MNC, because it needs to adapt to a wide variety of ethnicity and linguistic – which impacts demand from customer. • MNCs can adopt languages that are spoken across different countries in Africa, which can enhance ties with local stakeholders.

Question 99

According to George et al, (2016) one if the characteristics of the institutional environment in Africa is the importance of tribal leaders. Elaborate this and how it affects MNCs.

Answer 99

Tribal leaders play an important role in African countries, and are often seen as decision-makers in local communities. They Influence many economic and political aspects, and sometimes even take precedence over institutions. MNCs are well-advised to work with them – treating them as partners.

Question 100

According to Bruton et al. (2015), Government control have both positive and negative effects on company performance. Name some of the disadvantages:

Answer 100

* When the state supports SOEs that are inefficient and loss-making: Because governments in emerging markets often have strong social orientations, and SOEs might be seen as a way to enhance social goals rather than achieving good economic performance. With the assurance of governmental protection and support, the SOE will lack incentive to aim at higher efficiency and performance. * Lack of punishment for bad decisions of SOEs: SOEs that have state guarantees are free to make investment decisions as they see fit. Sometimes, these might be poorly evaluated. However, the SOEs will be not be fairly punished by the market, because the government stands behind it as a security net.

Question 101

According to Bruton et al. (2015), Government control have both positive and negative effects on company performance. Name some of the advantages:

Answer 101

* State subsidies such as preferential tax treatment, etc. creates better business conditions for SOEs than other private companies. * Government can serve as an important customer: SOEs can service the government directly or indirectly by doing business with other SOEs. With the government being a significant customer that is highly loyal, some degree of performance assurance is provided.

Question 102

Define "resources" according to Barney (1991)

Answer 102

Accoring to Barney (1991), resources can be defined as the tangible and intangible assets and capabilities that a firm possesses that enables the organization ot pursue value-creating strategies. These include, but are not limited, tp orgsainzaitonal processes, information, knowledge and firm attributes.

Question 103

According to Barney (1991), which types of "resources" exist?

Answer 103

1) physical capital resources 2) human capital resources 3) organizational capital resources

Question 104

According to Barney (1991), physical capital resources is one of the three types of "resources". Briefly explain what this is, and provide an example.

Answer 104

Physicsl capital resources refer to the tangible assets that a form possesses. Examples of such include plant, equipment, and raw materials.

Question 105

According to Barney (1991), human capital resources is one of the three types of "resources". Briefly explain what this is, and provide an example.

Answer 105

Human capital resources refers to the training, experience, intellegence and network of relationships of the firm's managerds and employees. Such resources are either obtained through the firm-specific training, or it is captured during the recruitment of FTEs.

Question 106

According to Barney (1991), organizational capital resources is one of the three types of "resources". Briefly explain what this is, and provide an example.

Answer 106

Organizational capital resources refers to the intangible resources possessed by a company. Examples of such include reporting structures, the planning process, controlling and coordination processes and systems.

Question 107

From the following list, classify the resources into the types that Barney (1991) proposes: 1) reporting structure 2) raw materials 3) employee know-how 4) organizational planning process 5) a manager's network of relationship

Answer 107

1) reporting structure - organizational capital resources 2) raw materials - physical capital resources 3) employee know-how - human capital resources 4) organizational planning process - organizational capital resources 5) a manager's network of relationship - human capital resources

Question 108

Define "competitive advantage" and "sustained competitive advantage" and highlight the difference between the two (Barney, 1991).

Answer 108

Competitive advantage: a strategy that is not implemented by a current or potential competitor. Sustain competitive advantage: a strategy that is not and CANNOT be implemented by a current or potential competitor. The difference is essentially that a sustained competitive advantage eliminates the risk of competitor duplication of that same strategy and shileds off the corresponding benefits from current and potential competitors. Competitors might have tried to duplicate it, but have failed.

Question 109

According to Barney's (1991) definition of sustained competitive advantage, which of the following statements are incorrect? 1) it refers to when the focal firm has implemented a strategy that is not and cannot be implemented by a current or future competitor 2) different from competitive advantage, a sustained competitive advantage eliminates the risk of comeptitor duplication 3) competitors might have tried to duplicate the strategy, but have failed 4) sustained competitive advantage also refers to the fact that the compeittive advantage can be sustained for a long time (indefinitely) 5) sustained competitive advantage can be destroyed by significant changes in the environment (industry shocks) or changes in the VRIN attributes of resources

Answer 109

WRONG: 4) sustained competitive advantage also refers to the fact that the compeittive advantage can be sustained for a long time (indefinitely). Sustain competitive advantage does not necessarily mean that the firm will be the only one able to execute the given strategy forever. This is because sustained competitive advantages can be upended/ destroyed by changes in the industry (shocks) - when VRIN attributes of resource change.

Question 110

According to Barney's (1991) definition of VRIN resources, define what V stands for and how it is linked to competitive advantage.

Answer 110

Valuable resources allow a firm to implement strategies that improve its EFFICIENCY and EFFECTIVENESS. These resources can be deployed by a firm to some useful purpose that is value-creating. The asset being valuable is required for reaching sustained competitive advantage. But with the asset being only characterized by valuable (lacking the other attributes), the firm can at best reach competitive parity.

Question 111

According to Barney's (1991) definition of VRIN resources, define what R stands for and how it is linked to competitive advantage.

Answer 111

Rare resources refers to when a valuable resource I deployed by “a small number” of players in an industry. That is, varying across industries, if the number of firms possessing the valuable resource is lower that what is needed to reach a perfect competition, it is considered rare. If an asset is valuabel and rare, but does not have the two remaning attributes, the company may achieve temprorary competitive advantage.

Question 112

According to Barney's (1991) definition of VRIN resources, define what I stands for and how it is linked to competitive advantage.

Answer 112

Imperfectly imitable resources refers to those resources of a company that cannot be imitated by competitors. This can be due to it being too expensive, path dependence, legal reasons such as patent protection, or simply due to the competitors' lack of knowledge about what resource actually creates comeptitive advantage of the focal firm. If the resource is both valuable, rare, imperfectly imitable (and non-substitutable), the firm can achieve sustained competitie advantage.

Question 113

If a company does not have any resources that possess any of the VRIN characteristics, which situation will it be in with regards to comepttive advantage and returns?

Answer 113

Competitive disadvantage and below average returns

Question 114

If a company has resources that are valuable but has none of the remaining VRIN attributes, which situation will it be in with regards to comepttive advantage and returns?

Answer 114

Comeptitive parity and average returns at best

Question 115

If a company has resources that are valuable, rare and non-substitutable, but not imperfectly imitable, which situation will it be in with regards to comepttive advantage and returns?

Answer 115

Temporary competitive advantage and average/ above average returns.

Question 116

If a company has resources that have all the VRIN attributes, which situation will it be in with regards to comepttive advantage and returns?

Answer 116

Sustained competitive advantage and above average returns.

Question 117

Define "dynamic capabilities" based on the Dynamic Capabilities Framework by Teece et al. (1997)

Answer 117

Dynamics capabilities refers to a firm’s ability to integrate, build and redeploy resources and competencies continuously in response to changing conditions of the market, in order to achieve/ maintain competitive advantage. In essence, this perspective argues that the competence and success of a firm depends on the SPEED and INTENSITY with which it can PROFIT from changes in the industry. What determines this speed of profitability is dynamic capabilities.

Question 118

In the Dynamic Capabilities Framework by Teece et al. (1997), which of the following are determinants of competitive advantage? Choose 1-5 1) Processes 2) Plan 3) Position 4) People 5) Path

Answer 118

1) Processes 3) Position 5) Path

Question 119

In the Dynamic Capabilities Framework by Teece et al. (1997), one of the determinants of competitive advantage is PROCESSES. Explain what this is.

Answer 119

Processes: Managerial or organizational routines -->“The way things are done” at the organization. It differs across organizations how processes are adopted and implemented at individual firms.

Question 120

In the Dynamic Capabilities Framework by Teece et al. (1997), one of the determinants of competitive advantage is POSITION. Explain what this is.

Answer 120

Positions: Current, specific assets such as technology, intellectual property, customer base, and relations with external actors such as suppliers.

Question 121

In the Dynamic Capabilities Framework by Teece et al. (1997), one of the determinants of competitive advantage is PATH. Explain what this is.

Answer 121

Path relates to which strategic alternatives (possibilitites) thhe firm has in order to advance in its strategic position. By extension, the future path of the firm also depends on the absence/ presence of path dependency.

Question 122

According to Teece et al. (1997), what makes it difficult to become a dynamic firm?

Answer 122

To become a dynamic firm, the company must have dynamic capabilitites that equips it with the ability to redeploy/ reconfigure its assets and capabilities in a way that allows it to profit (fast and intensely) from changing industry dynamics. Such dynamic capabilities can be difficult to acquire (buy) for multiple reasons (difficult to price and difficult to transfer capabilities). Consequently, the firm must build such capabilities - which in turn can be very time and effort demanding. All this while, path dependecy also plays an improtant role in the ease/difficulty of obtaining new capabilities.

Question 123

According to Teece et al. (1997), what is meant by replication and imitation? Highlight the difference between the two.

Answer 123

Replication refers to the ability of a firm to redeploy/ reconfigure certaint assets and capabilities to another setting within the organization. An example of this is the transfer of know-how between subsidiaries. Imitation refers to the ease/ difficulty it is for competitors of the focal firm to imitate the deployment of assets and capabilities. Difference: the former relates to within-firm redeployment, whilst the latter refers to inter-firm imitation.

Question 124

According to Teece et al. (1997), REPLICATION can be difficult. What are the barriers to replication? Are these higher/ lower than barriers to IMITATION?

Answer 124

TACIT-KNOWLEDGE: Replication can be difficult in the event that the redeployment of resources in another setting requires transfer of tacit knowledge. As opposed to explicit knowledge, tacit knowledge is more difficult to explain and thereby transfer and replicate. LOCATION-BOUND: if the asset is highly location-bound, i.e., that it is contextual and predominantly applicable in one/ few locations, such assets can be difficult to replicate and transfer. For IMITATION, the barriers to replication still apply, but on top of this, it faces additional barriers: PROTECTION OF IP RIGHTS: if the asset is legally protected, this makes it immensely more difficult for a competitor to imitate the assets of the comepting firm. CAUSAL AMBIGUITY: it might be difficult to figure out from the outside what particular resource leads to a certain competitive advantage, and how to deploy that resource. This serves as another barrier to imitation.

Question 125

According to Prahalad & Hamel's definition (1990) "CORE COMPETENCIES" is: Select 1-4 right options 1) class of product functionality 2) a set of competencies in the form of know-how, skill and resources that is hard to imitate 3) it can be deployed in many markets or products, now and in the future - it is replicable 4) can provide significant consumer benefit

Answer 125

ALL OPTIONS ARE CORRECT

Question 126

Explain the process of going from core competencies to end products.

Answer 126

A core competency of a company entails that it has some resources/capabilitites that grants it specialization and competitive advantage. This can be in the form of knowledge, skills or resources. Such core competencies centers around a class of product functionalitites that can be deployed in core product. Core products are embodiments of core competencies. At this stage, the company seeks to maximize its market share for that specific core product. End product are extensions of the core product. These are the final products that are marketed to customers. The firm may utilize its core products to develop a range of different end products (umbrella of products).

Question 127

Give an example of a core competency

Answer 127

ECCO: is specialized and has immense knowledge within the field of leather production and tannery, and has developed techniques that are cutting-edge and hard for competitors to imitate. Its core products comprise of leather, which is an embodiment of ECCO's core competence being high-quality tannery and production. The end product utilizes the technology from its core products (an extension of core products), and take form of leather shoes, car seats, furniture and leather accesories (such as those used by Humac).

Question 128

Discuss some of the disdavantages and vulnerabilities that are connected to JiT and international supply chains.

Answer 128

JiT and Agile manufacturing entail multiple advantages, including lower waste and expenses connected to stock holding. However, such systems are implemented at the expense of resilience, and can lead to the supply chain becoming overly vulnerable to disruptions. In recent times, the materialization of climate change and increase of extreme weather events has led to growing instances of disruptions of international supply chains. The vulnerability of supply chains was further demonstrated during the immense disruptions and production shortages that was caused by the pandemic. Amid the low stock-keeping that a system like JiT entails, MNCs with global supply chains are even more exposed to disruptions.

Question 129

Provide a specific example of an MNC that faced supply chain disruptions amid too much agility and JiT-mentality - and how it has responded after C19

Answer 129

Manufacturing plants of several major carmakers and their parts suppliers are co-located in the Chinese city of Wuhan, the COVID epicenter. Honda Motor, which has major factories there, faced immense disruptions in its supply chain as the pandemic hit. Evidently, for the general automotive industry, the need for a “just-in-case” mentality has risen. Multiple car manufacturers, including Toyota (the initial implementor of JiT), has implemented a just-in-case buffer system, where critical components to its products are stored.

Question 130

Which factors are of particular importance when deciding on location for manufacturing?

Answer 130

1) Country factors 2) Product factors 3) Government policies 4) Organizational issues

Question 131

Country factors is one of those that are of particular importance when deciding on location for manufacturing. Explain why.

Answer 131

The characteristics of a host country and its corresponding location-advantages is of importance when making a location choice. Location-advantages might include: • Lower cost: labor, land, etc. • Infrastructure quality: including foundational infrastructure such as availability of electricity, water, good roads, fast internet, etc, but also the infrastructure with regard to education, healtcare and housing. • Country-of-origin effect: some countries are associated with certain products qualitites and characteristics: Japan is associated with high- quality electronics. Thus, manufacturing TV in Japan can serve as a quality stamp. • Resource availability: both in terms of raw material resources and human resources such as qualified labor.

Question 132

Product factors is one of those that are of particular importance when deciding on location for manufacturing. Explain why.

Answer 132

Product factors as a factor for manufacturing location decision is specific to the product that the given plant is to produce. Considerations in this regard can be: - Value-to-weight ratio: depending on the bulkiness and weight of a product, it may be sensible to locate manufacturing facilities accordingly. For large and heavy product, it is rational to locate manufacturing closer to the end market, taking into account the transportation costs. For smaller, easy-to-transport products, it might make sense to centralize production an achieve higher economies of scale and scope. - Degree production technology specialization: if the given product requires very specific technology, it may be required to manufacture at a certain scale in order to be efficient. This in turn affects the number of manufacturing plants (the degree of centralization) that is optimal. - Customer feedback: if the product is under development and will benefit from feedback from local customers, it makes sense to locate production near those customers.

Question 133

Government policies is one of those that are of particular importance when deciding on location for manufacturing. Explain why.

Answer 133

The local host country government can either serve as a attracting or repelling force in the context of location decision. Specifically, elements that can make a host country less attractive include: political instability, corruption, high trade barriers to other countries, which all lead to higher uncertainty and transaction costs. On the other hand, factors that can make a host country more attractive is if the government imposes incentives for MNCs to locate production locally. These can include tax breaks or subsidies as a means to attrackt foreign FDI.

Question 134

Organizational issues is one of those that are of particular importance when deciding on location for manufacturing. Explain why.

Answer 134

The business strategy: determines whether the firm is looking to make products cheaply or if it more heavily emphasizes quality, or differentiation (cost leadership vs. quality vs. differentiation). These objectives affects the location choice. Organizational structure: degree of hierarchy vs. heterorchy: in the case of the former, and if the firm does not have much experience in managing manufacturing subsidiaries in foreign countries, it might locate a new plant cloder to home country.

Question 135

Define institutions from the organizational institutional persepctive.

Answer 135

Institutions, in its broadest form, can be defined as the "rules of the game". Specifically, they refer to the expectations and requirements that firms (and individuals) must adhere to in order to thrive in a given society. From the organizational institutional perspective, three pillars of institutions exist: legal, normative and cognitive cultural.

Question 136

Define the regulative institutional pillar, and how it functions. Name an example of a manifistation of this.

Answer 136

The regulative institutional pillar refers to the rules, regulations and policies that promote certain types of behavior whilst restricting others. By extension, one may distinguish between the regulatory pillar in societies, organizations or on an international level. How it works: through ENFORCEMENT and COERCION. There are tangible and clear consequences of not conforming to the institutional rules, regulations and policies. On the international level, the enforcement and coercion in the context of trade are taken care of by organizations such as WTO. Example: • Regulatory pillar in society: traffic laws • Regulatory pillar in organizations: company’s confidentiality policies • Regulatory pillar at international level: intergovernmental agreements such as with WTO

Question 137

Define the normative institutional pillar, and how it functions. Name an example of a manifistation of this.

Answer 137

The normative pillar concerns the social norms, values and beliefs that are socially shared and carried out by individuals. How it works: the way that the normative pillar is adopted in a society is through MORAL SUPPORT and through what is collectively seen as the “CORRECT” way of doing things (endowed through e.g., school, religion or government). Example: In DK, people have high standards when it comes to the environment and pollution. An indicator is the waste sorting practice being widely implemented within the Danish society. This points to the general Danish belief that is "we should meet the need of the present without compromising future generations' ability to meet theirs". This has over time become a norm shared by most people in DK.

Question 138

Define the cognitive-cultural pillar, and how it functions. Name an example of a manifistation of this.

Answer 138

The cognitive-cultural pillar refers to the generally shared perceptions of what is typical or taken for granted, including cognitions, schemas, frames and shared knowledge. How it works: through the imitation of activities that have CULTURAL SUPPORT – those that are taken for granted. Example: some countries drive on the lhs of the road whilst others drive on the rhs. There is no clear disadvantage/advantage to any of the two, but has through the years become something “taken for granted”.

Question 139

Name the main difference between the normative and cognitive-cultural pillar of institutions.

Answer 139

The normative pillar concerns the social norms, values and beliefs that are adopted conciously by a society or a group of people. These are over time indoctrinated into the particpants of the society. In exchange for behaving in ways that are perceive as "the correct way", one can achieve MORAL SUPPORT. The cognitive-cultural pillar refers to percetions, cognition, schemas, frames and knowledge generally shared by individuals in a society. The enforcement of this pillar happens through CULTURAL SUPPORT. The difference: with the normative pillar being enforced through moral support, it means that these "correct" actions, norms and values can be rationally explained. Meanwhile, the cognitive-cultural pillar is enforced through cultural support, meaning that there is a degree of path dependency - which may not be fully rationally explainable today.

Question 140

Why are measures for the pillars of institutions useful?

Answer 140

Measures for each of the pillars of institutions are useful for understanding the institution in a given country/ society functions. By extension, it can provide an MNC with some insight into which markets that is better suited than others to enter.

Question 141

Name two measures for the regulative pillar of institutions

Answer 141

For each of the three pillars, one may formualte and collect data that one evaluates to be representative measures for each pillar. Busenitz et al. (2000) conducted a survey utilizing self-formulated questions for each of the institutional pillars in the context of entrepreneurship. Following are two more general measures for the regulative pillar: 1) World Economic Forum's Global Comeptitiveness Report publishes some indicators describing the regulatory pillar, incl. tax rates, labor regulations, property rights, IP protection, trade tariffs. 2) World Bank’s Governance Indicators: describing regulations from several perspectives such as regulatory quality.

Question 142

Name two measures for the normative pillar of institutions

Answer 142

For each of the three pillars, one may formualte and collect data that one evaluates to be representative measures for each pillar. Busenitz et al. (2000) conducted a survey utilizing self-formulated questions for each of the institutional pillars in the context of entrepreneurship. Following is one more general measure for the normative pillar: World Bank’s World Governance Indicators: government transparency and corruption, indicating how well the regulative dimension of institutions work, which one can argue depends on the norms and attitude in a society.

Question 143

Name two measures for the cognitive-cultural pillar of institutions

Answer 143

For each of the three pillars, one may formualte and collect data that one evaluates to be representative measures for each pillar. Busenitz et al. (2000) conducted a survey utilizing self-formulated questions for each of the institutional pillars in the context of entrepreneurship. Following are two more general measures for the cognitive-cultural pillar: 1) Based on Hofstede’s dimensions: when comparing two countries with respect to cultural distance and different cultural dimension. 2) Differences in languages and religions can be used as proxies for differences in culture across countries.

Question 144

What are the different levels of institutions?

Answer 144

1) world level/ region level 2) country-level 3) industry level 4) organizational level 5) department level

Question 145

Explain the concept of institutional embeddedness

Answer 145

Institutional embeddedness refers to the fact that different levels of institutions influence each other. Such influence may be top-down or bottom-up. In the former case, the higher layers of institutions affect the institutions of lower layers. Fx., institutions at country-level influence institutions on the industry or firm level. For an MNC, each subsidiary must conform to the local regulations, norms, and tradtions. Institutions of lower levels can also affect institutions of higher levels: e.g., several companies can come together and set/ influence the institutions of their industry.

Question 146

Define legitimacy and how it can be achieved. Why is this important to firms?

Answer 146

Legitimacy refers to the acceptance of an entity through its comformance to rules, norms and the culture. Legitimacy is gained thorugh isomorphism (becoming similar). Over time, this leads to the convergence of similar organizational structures and behavior. Legiticmacy is important, or rather necessary in order for the firm to thrive under given "rules of the game"/ institutions. By extension, legimitacy is indirectly linked to firm profitability.

Question 147

To the following three pillars of institutions, what is the corresponding type of isomorphism? 1) regulative pillar 2) normative pillar 3) cognitive-cultural pillar

Answer 147

1) regulative pillar = coercive isomorphism 2) normative pillar = normative isomorphism 3) cognitive-cultural pillar = mimetic isomorphism

Question 148

Explain the relationship between the strength of the rule of law and entry mode into that host country by an MNC.

Answer 148

The degree of resource commitment has a concave relationship with the strength of the rule of law. More specifically, when the rules of laws (law enformcement) is very weak, the uncertainty related to that market is correspondingly higher, in which case the MNC will choose an etnry mode that is of low resource commitment. As the strenght of rule of law become stronger, the MNC will gradually choose an etnry mode of higher resource commitment - but only up to a certain point (sweet spot = wholle owned subsidiary), where if the strength of rule of law increase beyond, the MNC will committ less. The argument is that by very strong rule of law, it becomes a larger burden for the MNC to understand and gain insight into the regulative isntitutions. As it faces stronger coercive isomorphic pressures, it is more difficult for it to achieve legitimacy.

Question 149

What is coercive isomorphism? Which institutional pillar does it relate to, and which kind of isomorphic pressure does it exert? And what is the legitimation mechanism?

Answer 149

Coercive isomorphism relates to the regulatory pillar of institutions. Companies, in the market they operate, face isomophic pressures in the form of rules, laws and regulations, exerted from the regulative pillar of institutions. The corresponding legitimation mechanism is to comform to such formal rules.

Question 150

What is normative isomorphism? Which institutional pillar does it relate to, and which kind of isomorphic pressure does it exert? And what is the legitimation mechanism?

Answer 150

Normative isomorphism relates to the normative institutional pillar, which concerns beliefs, norms, values and moral obligations. The isomorphic pressures that firms face include local consumer preferences, tastes and expectations to the firm. The legitimation mechanism for such pressure is to adapt to what is locally perceived as "correct". Example: porcelain dolls from Japan not being popular in other western markets due to easy breakage and saftey reasons.

Question 151

What is mimetic isomorphism? Which institutional pillar does it relate to, and which kind of isomorphic pressure does it exert? And what is the legitimation mechanism?

Answer 151

Mimetic isomorphism relates to the cognitive-cultural pillar of institutions. This concerns the cognition and culture found in a given market or a given organization. Specifically, one may look at mimetic isomorphism from two perspectives - country and firm: Country perspective: the isomorphic pressure exerted by the cognitive-cultural institution takes form of uncertainty about cultural suitability of a firm and its practices. The corresponding legitimation mechanism is to observe and imitate local competitors (do what others do). Firm-perspective: the isomorphic pressure stem from the cognitive schemas in the organization, and takes form of habits and inertia of the organization. The corresponding legitimation mechanism is through imprinting (persistence of past path elements). With this perspective, the goal is to achieve legitimacy in the eyes of its employees.

Question 152

Explain the relationship between the normative similarity between countries, and likelihood of an MNC from one of those countries to expand into the other.

Answer 152

High normative similarity indicates that the difference in the norms, values and belifs is small bewteen two countries. This in turn entails lower need for adaptation (less effort put into the legitimization mechanism).

Question 153

One of legitimation mechanisms in mimetic isomorphism is imitation. Why and when can imitation be useful for companies? Name and briefly describe two types of imitation.

Answer 153

The usefulness of imitation: stems from it being a legitimation mechanism in response to the mimetic pressures exerted by the cognitive-cultural institutional pillar. Specifically, firms imitate others is that the late-movers assume that the first-movers have absorbed the risks and costs associated with a particular move. There are two types of imitation: - Frequency-based imitation: has a “follow the crowd” attitude – when a firm imitates what most other firms do. - Trait-based imitation: has a “follow the successful” attitude – when a firm imitates what other successful firms have done. E.g., the most prestigious firms in their industry.

Question 154

Define structural holes and explain how bridging that hole can be beneficial to the parties involved.

Answer 154

Structural holes exist in social networks when there is a lack of a direct contact or tie between two or more entities (Burt, 1992). The entities that lack the connection likely have differences in terms of resources and specialization, and could potentially benefit greatly from interaction, which in turn could lead to new opportunities for both parties. Firms that occupy this hole and foster the interaction between the two otherwise unconnected entities can allow the aforementioned benefits to materialize. Concurrently, the structural hole occupant can enjoy benefits from being in that position themselves. Example: Ekomate's contact to final clients facilitated by trade organizations/ champer of commerce.

Question 155

Define strategic networks (Jarillo, 1988)

Answer 155

Strategic networks are networks orchestrated around mutually rewarding (win-win) arrangements between the participating companies. Companies in the strategic network create long-term arrangement with a specific purpose of seeking to sustain or enable competitive advantage for the involved parties. Yet, all the firms in the network are independent of each other and pursue their own individual strategies.

Question 156

What is the primary strategic benefit of being part of a strategic network for AN INDIVIDUAL FIRM?

Answer 156

For an individual company, joining a network is better than not to. This is due to the ability for each of the companies to engage in transactions with the rest of the network, with great trust that counterparties within the network will deliver. With one important characteristic of strategic network being that parties are engaged in long-lived relationships, this at best eliminates the risk of opportunistic behavior. Concurrently, firms in the strategic network have more confidence in specializing in what they are best at, and outsourcing what other participants are specialized in - leading to greater efficiency.

Question 157

What is the primary strategic benefit of strategic networks for the ENTIRE NETWORK?

Answer 157

Jarillo (1988) argues that each individual transaction in the network is zero-sum: what the buyer gains, the supplier loses. However, over the long run, because the relationships between the buyers and suppliers are repetitive, and both parties are engaged in a long-term relationship, firms in the network are incentivized to invest in the success of the other parties. This may result in a non-zero-sum relationship between companies. BUT this benefit of the network is only played out in the long-run, and it is not an automatic, but rather a possible, benefit of a strategic network.

Question 158

Define "embeddedness" and name the different types of embeddedness

Answer 158

Embeddedness refers to the fact that things happen in certain ways due to a given context. FOUR types of embeddedness: 1) cognitive embeddedness 2) political embeddedness 3) structural embeddedness 4) cultural embeddedness

Question 159

What is meant by COGNITIVE EMBEDDEDNESS?

Answer 159

Cognitive embeddedness: when actors (people/ firms), exist in a certain informational context, and there are limits to what they know. Beyond these limits, there is uncertainty. However, there is a degree of complexity and cost associated with obtaining information that would reduce that uncertainty. Consequently, actors act based on the information that they have.

Question 160

What is meant by POLITICAL EMBEDDEDNESS?

Answer 160

Political embeddedness: the political context in which actors exist

Question 161

What is meant by STRUCTURAL EMBEDDEDNESS?

Answer 161

Structural embeddedness: social networks and relationships within which actions occur – that constraint or promote some actions.

Question 162

What is meant by CULTURAL EMBEDDEDNESS?

Answer 162

Cultural embeddedness: the cultural context – things that have one meaning in one cultural context, may have a different meaning in another cultural context.

Question 163

What are the general benefits of embeddedness?

Answer 163

Embeddedness implies advantages primarily due its promotion of trust. When two parties of a transaction are both embedded in the same context (cognitive, political, cultural), they are more likely to trust each other. This trust occurs amid recipriocity: each party expect that the other will at some point pay back any favor that the first party provided. With trust and reciprocity, transaction costs decrease due to the lower need for verification mechanisms such as monitoring and contract drafting.

Question 164

What is the disadvantage of embeddedness?

Answer 164

On the negative side: embeddedness in a common context might give rise to certain OBLIGATION or impose certain norms that CONSTRAIN BEHAVIOR. I.e., you might be obliged to do something bc. of that shared context.

Question 165

What is the consequence of "too little embeddedness"?

Answer 165

Too little embeddedness (not embedded): means that there is no trust between network members – each party pursues its own interest, and the entities are not embedded in a social network. • The result is AMORAL INDIVIDUALISM: entailing high transaction costs This leads to poor economic returns driven by very high transaction costs.

Question 166

What is the consequence of "too tight embeddedness"?

Answer 166

Too tight embeddedness (over-embedded): means that ties within the network are very tight, but the ties to entities outside of the network is very limited (the degree of closure of the network is high). • The result is AMORAL FAMILIALISM: actors are locked into this network, and many mutual obligations arise. Also, cognitive limitations occur, where information that contradicts the mainstream view in the network is rejected. This leads to poor economic returns driven by very high degrees of mutual obligations and constraining norms

Question 167

Explain the considerations that a firm must make when deciding on whether to use the market (buy) of hierarchy (make).

Answer 167

hierarchy: the firm incurs higher costs of production of a product that it is not specialized in. I.e., if another entity in the market is more specialized i, that outside entity is able to produce it at lower cost and likely better quality than the focal firm. On the flipside, hierarchy entails lower transaction and coordination costs stemming from drafting of formal contracts and monitoring compliance. All this while, the price of the good and the coordination with respect to delivery is determined internally at the firm internally. With market: the firm incurs lower production costs amid its ability to enter a contract with another entity being specialized in production of that specific good, bringing down production costs, whilst allowing each firm to focus attention and resources on what they are best at. On the other hand, transaction costs rise with using the market, since there is the need for drafting of formal contracts, more frequent monitoring of compliance amid the higher uncertainty. All this while, the price and coordination with respect to delivery is now determined by the market. By extension, the focal firm becomes more dependent on its supplier, entailing lower control over its value chain.

Question 168

Define Bounded Rationality.

Answer 168

Bounded rationality is about information available to, and the ability to make sense of that data, is limited for decision-makers. That is, it assumes that decision-makers make their decisions that they perceived as being optimal, given their information availability and their ability to make sense of that information.

Question 169

In the context of bounded rationality, explain what is meant by unknown unknowns and provide an example

Answer 169

Unknown unknowns: Often, we know where information is missing, but sometimes, we have “unknown unknowns” – we don’t know some of the factors that should be considered when making a decision, so we don’t know what we don’t know or what we are supposed to know. Example: as the Novel Covid-19 spread throughout our planet, the world was faced with a multitude of unknown unknowns, including how this virus was to be contaminated, cured and how to limit the risk of infection by developing a vaccine. With no recent prior experience with pandemics, and with no experience with Covid-19 at all, country government officials had no benchmark of what decisions are right or wrong.

Question 170

In the context of bouned rationality, even with perfect information and data availability, making sense information can be difficult. Provide an example of this.

Answer 170

The CEO of an MNC is presented with a multitude of different information on a daily basis and is expected to make sense of that information overload and make the right decisions. However, even if all relevant information were available, the CEO would be faced with limitations to the ability to make sense of that information. Another example: a customer at a restaurant makes a suboptimal decision because he felt rushed by the waiter.

Question 171

Define asset specificity and provide an example of it.

Answer 171

Asset specificity refers to when some assets are specific to a certain transaction or firm. Specifically, the usefulness of such assets are very limited when applied to another context. One example of asset specificity is physical aset specificity. This refers to when some resources/inputs are specifically designed to a given purpose, and thereby, it is difficult to reconfigure and repurpose these to another task. Consider a supplier investing in specific machinery with the purpose of supplying an intermediate good for Apple's new iPad. If Apple were to cancel the contract, that specific machine would not be useful for another transaction.

Question 172

What are the different types of asset specificity?

Answer 172

1) site-specificity - difficult to move resource to other locations (raw materials) 2) physical asset specificity - one asset cannot be used to another purpose 3) human asset specificity - FTEs have specialized knowledge/skills that are difficult to transfer (implicit) or it is not useful for other purposes 4) time specificity - the asset will not be useful beyond a certain time frame (perishable products such as flowers, stock price info)

Question 173

Define opportunism and provide an example of it.

Answer 173

Opportunism refers to when one party of a transaction acts opportunistically - prusing self-interest, possibly at the expense the interest of others. This may materialize in the form of breach of agreement or violation of shared norms, and constitutes to additional transaction costs because safeguarding from it can be done through draft of formal contracts. Example: when equipment manufacturers that supply automotive manufacturers have to invest in assets such as IT systems, that are highly specific to that transaction (asset specificity). To limit the risk that the auto manufacturer will switch to another supplier after the investment in that asset (opportunistic behavior), it can safeguard such situations by drafting a formal contract.

Question 174

Define heuristics and name the types of heuristics in decision-making

Answer 174

Heuristics come into play when individuals are faced with limited (incomplete information), and thus must resort to estimation of relevant factors and intuition to make the decision. Types of heuristics: - representativeness heuristics - availability heuristics - anchoring & adjustment heuristics

Question 175

Define Representativeness Heuristic and provide an example of this

Answer 175

Representative heurstics manifest when the individual is to evaluate whether A belongs to class B based on how well A resembles the characteristics of B, vice-versa. Specifically, representativeness bias occur when the individual makes the decision whilst disregarding prior outcomes, frequency and sample size. Example: A study asked sample participants to evaluate which job profession that an individual, Steve, and were given the information that he is shy and quiet. The respondents were asked to choose between librarian, athlete, or farmer. With only this information (imperfect information), people tend to ignore the relative frequency of different jobs (e.g., there are more athletes than librarians).

Question 176

Define Availability Heuristic and provide an example of this

Answer 176

Availability heuristic materialize when individuals make decisions based on how easy it is for that individual to remember and recall instances of occurrence and the ease of search. Specifically, the availability bias is the human tendency to think of example that are readily top-of-mind rather than considering what might actually be the case. Example: A study asked “do more English words start with ‘r’ or have ‘r’ as the third letter?” In this case, t it was easier for people to recall words that start with ‘r’ than have ‘r’ as the third letter – even though the latter is more common.

Question 177

Define Anchorign and Adjustment Heuristic and provide an example of this

Answer 177

Anchoring and adjustment heuristic occur when individuals are to make decisions on the basis of a given starting point. This starting point are then frequently used as the benchmark for the decision and the basis from which adjustment happens, thus affecting the final outcome. This adjustment is then often found to be insufficient as it leans overly toward the starting point. Evidence show that the outcome depends on the starting point. Example: