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MGCR 382 > Lecture 5: Int'l Business Strategies > Flashcards

Lecture 5: Int'l Business Strategies Flashcards

1
Q

What is the external strategic management model

A 
Positioning in industry
structure- Industrial
Organization (IO) background
If industry structure has perfect
competition–> low profits, but if
imperfect –>
5 forces model Porter –(MGCR 423
Strat Mgmt)
• Industry rivals
• Threat of new entrants
• Suppliers
• Buyers (& channels)
• Threat of substitutes

-Positioning –> cost leadership,
differentiation, focus

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2
Q

What is porter’s 5 forces model?

A
  • Industry Rivals (degree of rivalry among established firms)
  • Threat of new entrants
  • buyer power
  • supplier (and channel) power
  • threat of substitutes
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3
Q

what is the internal based view of the firm? Ie what is the internal strategic management model?

A

resource-based view
-capabilities/competencies

-Barney (VRIN model)
• Competencies create value when Highly Valued by customers.
• Capabilities are Rare.
• Capabilities are Inimitable (hard to copy)
• Capabilities are Nonsubstitutable
(can’t be replaced by another capability with similar function)

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4
Q

def. strategy

A

can be defined as an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage

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5
Q

def. competitive advantage

A

Firm achieves a competitive advantage
by implementing a value-creating strategy that current and potential competitors are not simultaneously implementing and
that competitors are unable to duplicate, or find too costly to imitate,

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6
Q

def. above-average returns

A

returns that exceed returns that investors expect to earn from other investments with similar levels of risk (investor uncertainty about the economic gains or losses that will result from a particular investment)
– In other words, above average-returns exceed investors’ expected levels of
return for given risk levels

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7
Q

describe porter’s five forces model

A

• An effective competitive strategy takes offensive or
defensive action to create a defendable position against
the five competitive forces.
– identifying “attractive industry” through five forces
model and analysis of “mobility” barriers
– positioning the firm so that its capabilities provide defence
– influencing the balance of forces through strategic
moves to improve the firm’s relative position
(offensive)
– anticipating shifts in factors underlying forces before rivals

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8
Q

What are the four key assumptions of the resource-based view?

A
  1. Firms acquire different resources (tangible & intangible);
  2. Firms develop unique capabilities based on how they combine and use resources;
  3. Resources and certain capabilities are not highly mobile across firms
  4. Differences in resources and capabilities form the
    bases of competitive advantage and a firm’s
    performance rather than its industry’s structural characteristics.
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9
Q

what are a firm’s most important source of competitive advantage?

A

core competencies

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10
Q

what should core competencies of a firm, in addition to the analysis of its general, industry, and competitor environments do?

A

drive its selection of strategies to achieve a sustainable

competitive advantage that will enable it to earn above-average returns

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11
Q

how does a firm create value

A

By exploiting their Core Competencies or Competitive Advantages, and by innovatively bundling and leveraging their
resources and capabilities

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12
Q

how is value measured

A
  • product performance characteristics

* product attributes for which customers are willing to pay

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13
Q

how is sustainability of a competitive advantage affected?

A

– rate of core competence obsolescence because of environmental change
– availability of substitutes for the core competence
– imitability of the core competence

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14
Q

What are the four key assumptions of the industrial-organization model?
SCP: industry structure => firm conduct =>
performance

A
  1. The external environment imposes pressures and
    constraints that determine strategic choices;
  2. Similarity in strategically relevant resources causes
    competitors to pursue similar strategies;
  3. Resource differences among competitors are shortlived due to resource mobility across firms; and
  4. Strategic decision makers are rational and engage in
    profit-maximizing behaviors
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15
Q

What are the four positioning strategies (3 main)?

A
  • Overall Cost Leadership
  • Differentiation
  • Focus
  • Integrated cost leadership/differentiation strategy
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16
Q

def. cost leadership

A

– An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors
• Relatively standardized (commoditized) products
• Features broadly acceptable to many customers
• Lowest competitive price

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17
Q

def. differentiation

A

integrated set of actions taken to produce goods or services (at an
acceptable cost) that customers perceive as being different in ways that
are important to them
• Emphasize non-standardized products
• Appropriate when customers value differentiated features more than they value
low cost

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18
Q

def. focus (as a positioning strategy)

A

– An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment
• Particular demographic, segment, geographic market

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19
Q

what are they key strategy elements of cost leadership?

A
  • Scale-efficient plants
  • Control of overheads
  • Avoidance of marginal customer accounts
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20
Q

What are the resource and organizational requirements for cost leadership?

A
  • Access to capital
  • Process engineering skills
  • Frequent reports
  • Tight cost control
  • Specialization of jobs & functions
  • Incentives for quantitative targets
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21
Q

what are the key strategy elements for differentiation?

A
  • Emphasis on branding
  • Brand advertising
  • Design
  • Service
  • Quality
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22
Q

what are the resource and organizational requirements for differentiation?

A 
• Marketing
• Product engineering
• Creativity
• Product R&D
• Qualitative measurement &
incentives
• Strong cross-functional coordination
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23
Q

What are the three sources of competitive advantage in internationalization?

A
  • Global Efficiencies
  • Leveraging competencies /learning worldwide
  • Multinational Responsiveness Flexibility
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24
Q

describe global efficiencies as a source of competitive advantage

A

Global economies of scale Comparative advantage of

location

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25
Q

describe leveraging competencies/learning worldwide as a source of competitive advantage

A

Use people, ideas and core competencies

globally; Create knowledge via international scope

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26
Q

describe multinational responsiveness flexibility as a source of competitive advantage

A

responsiveness and flexibility toward customers and key stake holders

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27
Q

what competitive advantage arises from leveraging competencies and learning world wide?

A

• Transferring capabilities or competencies
– Firm capabilities that competitors can not easily imitate or
substitute
• Transferring distinctive competencies
– Companies with distinctive competencies can realize large
returns by expanding to global markets where
competitors lack similar competencies and products
• Competencies can be created anywhere within a
multinational’s global network of operations
– Learning worldwide from clusters, subsidiaries, suppliers,
buyers, rivals, adjacent sectors

28
Q

What competitive advantage arises from global efficiencies?

A
  • Location efficiencies
  • Economies of scale
  • Economies of scope
29
Q

def. economies of scale

A

having operations in more than
one country increases total volume of production,
allowing production facilities to operate more
efficiently to yield lower costs per unit
• Also experience curve (“learning”) effect

30
Q

def. economies of scope

A

logistics, brands, intellectual
property -IP, also linked to knowledge leverage)

occur when producing more than one type of products reduces cost

31
Q

what competitive advantage arises from multinational responsiveness/flexibility

A

• Realising international growth through adaptation
to local conditions
– Local tastes & customs
– Local regulations
– Local needs
– Local demographics & physical factors- southern vs
northern Europe
• Average person height  height of kitchen counter  height of
dishwasher

32
Q

What are the two conflicting pressures of IB strategy?

A

global integration

local responsiveness

33
Q

describe pressures for global integration

A

– Globalization of markets
• Multilateral & regional reduction in trade barriers
• If homogenization of consumer demand, then compete on price
– Maximize efficiency gains of standardization on homogeneous tastes

34
Q

describe pressures for local responsiveness

A

– Divergent consumer tastes & preferences due to culture, history,
nationalism, economic distance, distribution channels
– Host government policies
• Variations in product, service standards
• Business, health, environment, financial regulations
• Local content pressure
– Optimize effectiveness of addressing heterogeneous local demands

35
Q

Motives for Global Integration

A
  • Standardize products & processes to maximize scale, experience and learning effects
  • Capitalize on converging consumer preferences -could be luxury goods
  • Source materials & inputs globally
  • Provide uniform service to all customers
  • Directly engage global rivals
  • Build global image with universal message
  • Exploit integration efforts of transnational institutions
  • Leverage expanding cross-national connectivity
  • Respond to the ongoing globalization of markets
  • Exploit improvements in global logistics & communications
36
Q

Motives for local responsiveness

A
  • Customize products & services to local preferences
  • Promote a local profile to satisfy national customers / stakeholders
  • Tap local inputs, capabilities and competencies
  • Adapt products / services to local customers, culture and values
  • Directly engage local rivals
  • Tailor marketing message to local values
  • Build local goodwill by supporting national goals, symbols & agenda
  • Adjust products & processes to digital divide
  • Adapt to local political, historical, economic and cultural circumstances
  • Accommodate differences in distribution channels & services
37
Q

What are the 4 types of international business strategies? describe them in terms of pressure local responsive and flexibility and pressure for global efficiencies and standardization

A

Global Strategy:

  • high pressure for global efficiencies
  • low pressure for responsiveness

International strategy:
“home replication”
-low global efficiencies
-low pressure for local responsiveness

transnational strategy:

  • high global efficiencies
  • high local responsiveness

Localization strategy

  • low global efficiencies
  • high local responsiveness
38
Q

def. global strategy

A

The firm views the world as
single marketplace. Primary
goal is to create standardized
products

  • high pressure for global efficiencies
  • low pressure for responsiveness
39
Q

def. transnational strategy

A

The firm attempts to combine the benefits of global scale efficiencies with the benefits of local responsiveness

  • high global efficiencies
  • high local responsiveness
40
Q

def. international strategy

A

“home replication”
The firm uses the core competency or firm-specific advantage it developed at home

  • low global efficiencies
  • low pressure for local responsiveness
41
Q

def. localization strategy

A

“multidomestic strategy”
The firm operates as a
collection of relatively
independent subsidiaries focusing on domestic market

  • low global efficiencies
  • high local responsiveness
42
Q

describe international strategy (more details)

A

(“home replication”)
– Management sees overseas operations as leveraging
competencies from home country operations into
competitive positions abroad
– create value by applying competencies to foreign markets
where rivals lack such competencies.
– Centralized HQ control, formal planning and control, tight
HQ-Sub linkage
– HQ manages transfer of skills & expertise from parent
company to international units
– Foreign operations led by expatriates from home country
– low pressure for local responsiveness & low pressure for
global integration
Examples in text: Google, P&G, Nucor, Harley Davidson, Baidu, Apple, Carrefour, Facebook, Tesco

43
Q

describe localization strategy (more details)

A

(“Multidomestic”)
– Management sees overseas operations as
portfolio of independent businesses adapted
to national preferences & conditions
– extensive customisation: maximum local
responsiveness
– production, marketing, R&D in EACH market
– low experience curve effects and location
economies
– Informal HQ-subsidiary relationship;
subsidiaries have high autonomy
– High cost structure
– high pressure for local responsiveness & low
pressure for global integration
Examples in text: Unilever, Nestle, McDonald’s,
Johnson & Johnson, Pfizer, Embraer, Ranbaxy

44
Q

describe global strategy (more details)

A

– Management sees the world as one market
– Target universal needs / wants that support selling standardized
products / services worldwide
– Low cost strategy based on volume & cost reduction; value chain
configuration built on location economics; products may be high
quality (LVMH)
– Target global niches in which firm’s standardized products have
a wide appeal and competitive advantage based on price/quality
ratio
– Most strategic assets, resources, responsibilities and decisions
are centralized
– tight HQ coordination of decisions, resources, information
– low pressure for local responsiveness & high pressure for global
integration
Examples in text: Toyota, Canon, Haier, Caterpillar, Cemex, Infosys,
Walmart, Huawei, IKEA, LVMH, Amex, Cisco

45
Q

describe transnational strategy (more details)

A

– Complex process of leveraging specialized
core competencies and promote firm-wide
learning across the world
– coordination and cooperation in an
environment of shared decision making
– Balancing concentration to tap location
economies for low cost strategy and dispersion to
meet local preferences
– maintaining & coordinating global learning &
knowledge flows as key challenge to drive
innovation
– high pressure for local responsiveness & high
pressure for global integration
Examples in text: GE, Tata, Zara, IBM, SAP

46
Q

what firm changed strategies over time? describe it

A

Ikea

1.International: IKEA going into Europe
2. Global: IKEA initial
entry into US &
Japan
3. Localization: adapting to US and 2nd entry Japan
4.Transnational: IKEA attempting to share
knowledge across firm to respond and lower costs

47
Q

describe responsiveness vs. differentiation (McDonald’s example)

A

If McDonald’s is adapting to local culture in India, for
example, by offering vegetarian burgers instead of
beef burgers, it is being responsive to the local
culture.

The vegetarian burger is differentiated from what is
served in the US, but it is likely not differentiated from
what is served in India by local and international rivals

48
Q

def. differentiation

A

– a strategy that aims to create a product

(or service) that stands out from your competitors’.

49
Q

def. responsiveness

A

a strategy that aims to create a product
(or service) that responds to local conditions.

how a firm “responds” to culture

50
Q

def. frugal innovation

A

innovation that aims to radically lower the price for products aiming at bottom-of-the-pyramid consumers

–an attempt to reach the 4 billion poorest at bottom of pyramid

51
Q

What are the three stages of the International Product Life Cycle (IPLC) (Vernon)?

A
  1. New Product Stage
  2. Maturing Product Stage
  3. Standardized Product Stage
52
Q

What are the four aspects of Porter’s Theory of National Competitive Advantage (National Diamond)?

A
  1. Factor conditions
  2. demand conditions
  3. related and supporting industries
  4. firm strategy, structure, and rivalry
53
Q

describe Vernon’s product life cycle theory

A

Describes the evolution of marketing strategies; attempt to explain industry location poorly
explained by Heckscher–Ohlin theory

• New products first developed and produced in
innovating industrialized country
• As demand grows, production begins to shift to
other industrialized countries
• As the market in advanced nations matures, the
product becomes standardized and price becomes a
more important factor:
– Innovating country moves from exporter to importer of
the product

54
Q

describe the stages of the IPLC?

A

– New product - production in home country, export to
other countries
– Maturing product -rivals emerge in other industrialized
countries, some production shifts to other industrialized
countries, some imports to home country
– Standardized product cost major competitive factor;
assembly shifts to emerging markets, home country
imports the product

55
Q

what are some limitations of the IPLC? Exceptions

A

– Luxury goods whose consumers are price insensitive & tend to view production in low cost country as lower luxury
– Products with rapid innovation & short life cycles may not benefit from shift to low-cost location (some “fast-fashion” items)
– Product cycles located near rare specialists (medical equipment, pharma)

56
Q

what are some limitations of the IPLC? overtaken by globalization aspects

A

– Simultaneous introduction of products in many parts of the world
– Multi-directional value chain off-shoring, near-shoring, re-shoring etc.
– Increase in globally dispersed production that characterizes many
current products
• Components come from different countries
• Assembly in different countries

57
Q

what are some limitations of the IPLC? too ethnocentric ?

A

Increased number of products / services with
global leadership by firms based in emerging markets
• Consumer electronics in S. Korea (formerly classified as developing economy)
• Alibaba & Didi in China
• M-Pesa (Safaricom) in East Africa (mobile phone money)

58
Q

describe Porter’s National diamond

A

• Competitively successful industry sectors arise from the
interaction of four country and firm specific elements
– Factor conditions - similar to factor endowment but emphasis on
upgrading factors- education, infrastructure
– Demand conditions -emphasis on sophisticated demanding
customers.
– Related and supporting industries -cluster / agglomeration of rivals, suppliers, supporting industries as in Silicon Valley-proximity aids flow of ideas & innovation.
– Firm strategy, structure, and rivalry -vigorous domestic rivalry
helps firms become competitive.

plus
– Chance
– Government

59
Q

describe factor conditions

A 
• Basic factors
(similar to Heckscher-Olin factor endowment)
– natural resources
– climate
– Location
– Demographics

BUT
Must be supported by advanced
factors to maintain success

• Advanced factors
– communications
– skilled labor
– research
– technology
60
Q

describe demand conditions

A
  • Size
  • Sophistication
  • Demanding customers
61
Q

describe related and supporting industries

A

• Provide advantage in innovation and upgrading
through:
– quick and constant flow of information
– ongoing exchange of ideas and innovation
– Successful industries within a country tend to be
grouped into clusters of related industries

62
Q

describe firm strategy, structure and rivalry

A
  • Vigorous domestic rivalry improves a company’s competitiveness.
  • The intense competitiveness of the Japanese market forces manufacturers to continually develop and fine-tune new products
63
Q

what is the virtual diamond?

A

different aspects of the diamond in different countries

64
Q

what are some policy implications with the national competitive advantage (national diamond) theory?

A

– Promoting trade liberalization is in the best interests of
the home country to promote vigorous domestic rivalry
– Not always in the short-term interest of the firm
• Contrast with Porter’s earlier work in Competitive
Advantage
– Porter argues governments can’t choose and create
dynamic clusters, yet he argues for government attention
to clusters (upgrading factor endowments &
infrastructure) and government role as demanding
customer (e.g. environmental / safety standards that
might give competitive advantage abroad)

65
Q

describe the internalization theory

A

Internationalization will take place through
internalization (common ownership across borders) when administrative costs of undertaking activity in-house are lower than transaction costs of
undertaking the activity through the market

66
Q

def. transaction costs

A

costs associated with negotiating, monitoring, and enforcing a contract

MGCR 382 (21 decks)

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