International Business Strategy (IB) Flashcards
According to Cullen & Parboteeach (2010), what are the five drivers for globalization?
A) technology B) trade liberalization and increased movements of people and resource C) global products and customers D) global competition E) political changes
According to Cullen & Parboteeach (2010), one of the drivers of globalization is technology. Explain briefly why this is.
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.
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.
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.
According to Cullen & Parboteeach (2010), one of the drivers of globalization is global products and customers. Explain briefly why this is.
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.
According to Cullen & Parboteeach (2010), one of the drivers of globalization is global competition. Explain briefly why this is.
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.
According to Cullen & Parboteeach (2010), one of the drivers of globalization is political change. Explain briefly why this is.
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
From the semi-globalization/ regionalism view, why do firms not fully expand globally? What are arguments staying within one’s region?
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.
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?
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
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
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.
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
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.
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.
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.
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
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)
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.
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.
According to Kilduff (2019) behavioral antecedents is a cause of rivalry. What are the 3 underlying factors for this creation of rivalry?
1) Similarity over time
2) repeated competition
3) evenly matched players
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?
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.
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?
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.
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?
When firms are currently or has for a longer period of time been evenly matched, this leads to increased rivalry intensity.
How does internationalization link to rivalry?
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.
What is meant by multipoint competition?
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.
What is Competitive Assymetry? Provide a practical example of this.
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.
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
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
Explain how market commonality and resource similarity affect competitive attack and response.
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.
Explain the relationship between the likelihood of attack and likelihood of response. Give an example.
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.
According to Chen & Stucker 1997, what are the 5 other factors affecting the likelihood of cross-border competitive attack?
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
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?
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.
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?
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.
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?
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.
According to Chen & Stucker 1997, one of the factors affecting the likelihood of cross-border competitive attack is FIRST-MOVER advantage. Why is this?
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.
According to Chen & Stucker 1997, one of the factors affecting the likelihood of cross-border competitive attack is SECOND-MOVER advantage. Why is this?
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.
According to Yu and Canella (2007), factors influencing the speed of competitive response include GEOGRAPHICAL. Explain why this is.
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.
According to Yu and Canella (2007), factors influencing the speed of competitive response include SUBSIDIARY OWNERSHIP. Explain why this is.
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.
Other host-country response speed determinants unclude the strategic importance of the initiating country and the multi-market rivalry situation. Elaborate why this is.
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)
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
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.
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
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
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
1) value proposition
2) value creation and delivery
3) value capture and allocation
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.)
All options are true
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?”
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
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
All 4 are correct
Define product strategies and competitive strategies, and state the differences between the two types of strategies.
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.
Define Global competition and global business, and state the differences between the two according to Hamel and Prahalad (1985).
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.
Define product mix and product adaptation, highlighting the difference between the two in the context of product strategy.
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.
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)
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
Name an advantage of offering the same product mix across countries (with or without adaptation)
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.
Drivers of local responsiveness result in products/services tailored toward individual markets
What are the drivers for local responsiveness?
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.
Drivers for global integration results in product being standardized across different markets where they are offered. Name and explain these drivers for global integration
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.
Explain what multicountry/regional competition is, and how mutlicountry strategy fits into such competitions dynamics.
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
Name an example of a company in multicountry comeptition and explain why multicountry strategy is applicable for that firm.
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.
Explain what global competition is, and how global strategy fits into such competitions dynamics.
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.
Name an example of a company in global comeptition and explain why global strategy is applicable for that firm.
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.
According to Hamel and Prahalad (1985), there are three main types of global competitive strategies. Name these
1) building global presence and scale
2) defend domestic position
3) overcoming national fragmentation
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
According to Ghemawat (2005), MNCs can follow five regional strategies concerning the localization of value chain activities. Name these three
1) home-based strategy
2) portfolio strategy
3) hub strategy
4) platform
5) mandate
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.
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.
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.
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.
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.
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.
According to Ghemawat (2005), MNCs can follow five regional strategies. One of these is PLATFORM STRATEGY. Explain what this is, and give an example.
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.
According to Ghemawat (2005), MNCs can follow five regional strategies. One of these is MANDATE STRATEGY. Explain what this is, and give an example.
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.
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
Mandate
According to Ghemawat (2005), MNCs can follow a MANDATE STRATEGY. What is the main disadvantage of such strategy?
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.
According to Ghemawat (2005), what is the difference between a HUB STRATEGY and MANDATE STRATEGY?
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.
According to Carr (2003), technology can offer significant value from its operational impact on firms. How? Provide an example.
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.
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.
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.
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?
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.
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.
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.
