November 1 Flashcards
The 3 objects in international business the competitive advantage depends on?
- efficiency
- flexibility
- learning
Standartization vs. Differenziation
Standartization:
Pressure for integration and cost reduction
Differentiation:
Pressure for local responsiveness (Ansprechbarkeit)
When are
pressure for global integration and cost reduction are the greatest?
- industries which produce commoditiy type products (price is the main competitive weapon)
- whe major competitiors based in low cost locations
- where there is persistent excess capacity and price pressure
- where consumers are powerful and face low switching costs
Pressure for local responsiveness arise from?
- differences in consumer tastes and preferances
- differences in traditional practices and infrastrucuture
- differences in distribution channels
- host-government demands
Global Industries
vs.
Multidomestic
Industries
Global Industries:
- handful of major players that compete head-on in multiple markets
- competition takes place on a regional or worldwide basis
Multidomestic Industries:
- Unique set of competitiors in every industry
- competition takes place on a country-by-country basis
The four archetypes of international strategy:
- international strategy
- localization strategy
- global strategy
- transnational strategy
International Strategy
in Detail
(low cost pressure / low local responsiveness)
» Treatment of foreign markets
- Take products produced for the domestic market and sell them internationally with only minimal local customization.
- Markets with low competition, more homogenous and similar customer needs, niche markets
- Foreign markets are often similar to the domestic one (low psychic distance).
» Traditional MNC Cultural Orientation
- Ethnocentric: focus on values, processes and resources of the domestic company and replicate.
» Value Chain
- Critical elements of value chain stay centralized at home (R&D, procurement, production), local marketing and sales but under tight control from headoffice
- Generally no adaptation to foreign markets, products are marketed through intermediaries.
» Rationale
- Transferring core competencies of the company (products/services) to locations where local competitors lack them.
Localization Strategy
in Detail
(high responsiveness / low cost pressure)
» Treatment of foreign markets
- Increase profitability by customizing goods or services so that they match tastes and conditions in local markets (world as a grid of national markets).
- In local industries.
- Autonomous subsidiaries pursue local responsiveness and localized strategy.
» Traditional MNC Cultural Orientation
- Polycentric: focus on values and interests of the local culture in the served markets
» Value Chain
- Value Chain is flexibly organized according to needs of different national markets
- Critical elements are positioned in the local market (R&D, production, procurement,
marketing), decentralized and with authority to adapt to local market conditions.
» Rationale
- Minimizing political and exchange rate risks
- Greater prestige through local/customized elements
Global Standartization
Strategy in Detail
(High cost pressure / low local responsiveness)
» Treatment of foreign markets
- *- World is seen as single integrated market
- No or min differences in consumer preferences from country to country**
(“Why not make the same thing, the same way, everywhere?”)
- Traditional MNC Cultural Orientation
- Geocentric: focus on global values and universal needs
» Value Chain
- Concentration of critical value chain activities (R&D, production and marketing) in headquarters or in the few most favorable key locations, central control over operations.
- No or minimum customization applied.
» Rationale
- Increase profitability through minimum repetition, maximum efficiency and integration worldwide, improved quality through standardization.
Transnational Strategy
in Detail
(High Responsiveness / High cost pressure)
» Treatment of foreign markets
- Coordination approach: World is seen as a portfolio of regionally integrated markets, standardization-localization mix differs from region to region.
- Aggregation on regional level: consumer preferences from region to region
» Traditional MNC Cultural Orientation
- Regiocentric: Focus on integration in geographic markets and building an global network of operations.
- Facilitate global learning and knowledge transfer.
» Value Chain (Example)
- Scale economies through sourcing from reduced number of global suppliers, concentrate manufacturing in few key locations.
- Dispersed, subject to minimum efficiency standards, to meet local preferences.» Rationale
- Benefiting from both global integration and local responsiveness and leveraging global competencies: “standardize where feasible; adapt where appropriate”.
- Coordinate global competitive moves.
What are the problems with the
International Strategy and Localization Strategy
» An international (home replication) strategy may not be viable in the long term
- To survive, firms may need to shift to a global standardization strategy or a transnational strategy in advance of competitors
» Localization may give a firm a competitive edge, but if the firm is simultaneously facing aggressive competitors, the company will also have to reduce its cost structure
Internatinal Division
(Organigram aufzeichnen)
Geographic Area Structure
other Name: Global Area Division
(Organigram aufzeichnen)
Worldwide Functional Structure
other Name: Global Functional Divison
(Organigram aufzeichnen)
Global Product Strukture
other Name: Global Product Divison
(Organigram aufzeichen)
International Division
Suitable if?
- foreign markets are to be exploited opportunistically
- Foreign Sales / Total Sales is low -> start of the
internationalization
Global Area Divison
Suitable if?
- foreign markets are to be exploited systematically
- regional markets differ strongly from each other
- economies of scale are regional and even local
- foreign sales / total sales are high
Global Functional Divisions
Suitable if?
− Integration and cost pressures are high
− pressures for local responsiveness are comparatively low
− Organization by functional activities (production,
marketing)
Global Product Divisions
Suitable if?
other Name: worldwide product structure
− Integration and cost pressures are high
− pressures for local responsiveness are
comparatively low
− Organization by major product line
Bullwhip effect causes (6)
Free Return Policies: they order much and then cancel
Lack of communication (beetween supply chain partners)
False Demand Information (w/o involvment of customer requirement)
Special discounts (order in great quantities)
Not place order to supplier in real time
Disorganisation (each supply chain link (glied))
SCM:
Snowball Effect
•
Common issue in businesses
•
Starts from the upstream side of the supply chain (suppliers)
•
Variability of supply quantities delays increase moving downstream
=> delay in delivery to retailers/ customers
Global Sourcing:
Captive Sourcing v. contract manufacturing
captive sourcing: (firmeneigen)
sourcing from company owned production facilities
contract manufacturing:(fremd)
contract with an independent supplier (defined specifications)
Global sourcing
Procurement of products and services , from suppliers or
company owned subsidiaries , located abroad , for consumption
in the home country or a third country
–> captive sourcing or contract manufacturing
Value Chain
v
Supply Chain
Value Chain: Activites that add value to the product
–> value addition
Supply Chain: All activities involved in the procurement, logistics etc.
–> conveyance
Offshoring
vs.
Outsourcing
Offshoring
Relocation of a business process or entire manufacturing facility to a
foreign country
Outsourcing
Procurement of selected value adding activities , including
production of intermediate goods or finished products, from
independent suppliers
Business process outsourcing
Business process outsourcing (BPO)
Outsourcing of business service functions , such as accounting ,
human resource, travel services, IT services, customer service or
technical support to independent suppliers
Which value chain activites do firms usally internalize?
Firms usually internalize those value chain activities they consider a
part of their core competence , or which involve the use of proprietary
knowledgeand trade secrets theywant to control.
Likelihood of internalize this activities rather than outsourcing those activities
R&D, Design
Marketing and Branding
Manufacturing
Sales and Distribution
Customer Service
R&D, Design (high)
Marketing and Branding (high)
–> keep in the company
Manufacturing (medium)
Sales and Distribution (medium)
Customer Service (medium)
Manufacturing of Parts and Components (low)
–> externalize
Key Criteria for evaluating loctations for outsourcing
•
Availability of an appropriate labour force
•
Wage rates
•
Worker skill level
•
Language
•
Culture
•
Infrastructure
•
Legal system
•
Economic environment
•
Tariffs / Taxes
Benefits of Global Sourcing
Cost efficiency
•
Faster corporate growth
•
Access to qualified personnel
•
Improved productivity and service
•
Increased speed to market
•
Access to new markets
•
Technological flexibility
Risks of global sourcing
•
Lower than expected cost savings
•
Environmental factors
•
Weak legal environment
•
Inadequate or low skilled workers
•
Overreliance on suppliers
•
Risk of creating competitors
•
Erosion of morale and commitment among home country employees
Global sourcing Mangement: Good Practices
Go offshore for the right reasons
•
Get employees on board .
•
Choose carefully: captive souring vs contract manufacturing
•
Choose suppliers carefully
•
Emphasize communications & collaboration with suppliers
•
Safeguard interests
Difference
Facilitator
vs.
Distribution Channel intermediary
Facilitator
A firm or individual with special expertise in banking, legal advice, customs clearance or related
support services that assists focal firms in the performance of international business transactions.
Freight forwarders = logistics provider for international shipping
Distribution channel intermediary
A specialist firm that provides various logistics and marketing services for focal firms as part of
international supply chains, both in the home country and abroad.
Advances in Technology are the main drivers for international business
explain this four key words
- Information Technology
- Communications
- Manufacturing
- Transportation
Information Technology (IT)
Is the science and process of creating and using information resources.
Communications
The Internet, intranets, social media and e-mail, connect billions of people and companies. This can be used to promote services and products around the world. Has also opened the global marketplace
for SME and other firms that would lack the resources to do international business.
Manufacturing
Computer-aided design (CAD) of products, robotics and production lines have transformed manufacturing, mainly by reducing production costs. It also allows firms to adapt products more
efficiently to individual foreign markets.
Transportation
Firms consider the cost of transporting products when deciding either to export or manufacture abroad. The development of fuel-efficient jets and giant ocean-going freighters have greatly reduced shipping times and costs.
Explain the expression
“Reshoring”
Sometimes firms engage in reshoring (the return of manufacturing and services to the home country)
due to increased wages abroad and the desire to locate closer to key customers.
What are the main factors why Africa remains underdeveloped?
- poor commercial infrastructure
- lack of access to foreign capital
- high illiteracy (unable to read or write)
- government corruption
- the spread of AIDS
- wars
Name the 4 key components of ethical behavior
- sustainability
- gorporate governance
- corporate social responsibility (CSR)
- Ethics
Examples for unethical behaviour
Falsify or misrepresent contracts or financial statements
Pay or accept bribes or inappropriate gifts
Sweatshop conditions or otherwise abuse of employees
False advertising and other deceptive marketing practices
Engage in discriminatory pricing
Engage in harmful activities for the natural environment
Ethic:
Relativism
vs
Normativism
- *Relativism**
- *Is the belief that ethical truths are not absolute but differ from group to group**. According to this perspective, a good rule is “When in Rom, do as the Romans do.” Thus, a Japanese firm being against bribery, would nevertheless pay bribes in countries where the practice is customary and acceptable.
- *Normativism**
- *The belief that** ethical behavioral standards are universal, and firms should seek to uphold them consistently around the world. According to this view the Japanese firm who believes bribery is wrong will enforce this standard everywhere in the world.
Best Practice in Minimizing Currency Risk
(4)
Centralize currency management with the MNE
Monitor changes in key currencies
Monitor long-term economic and regulatory trends
Decide on the level of risk the company can tolerate
Banks
Banks are important players in the global financial sector. They raise funds by attracting deposits, borrowing money in interbank markets, or issuing financial instruments in the global money market of securities market.
Name the 5 Bank Types
- *Investment Bank** (underwrite stock and bond issues and advise on mergers)
- *Merchant Bank** (provide capital to firms. Does not service general public. Specializes in international operations)
- *Private Bank** (manages the assets of the very rich)
- *Offshore Bank** (located in jurisdictions with low taxation and regulation, Bermuda, Panama)
- *Commercial Bank** (deal mainly with corporations or are businesses)
International Monetary Fund (IMF)
Governed today by 188 countries, the IMF stands ready to provide financial assistance in the form of loans and grants to support programs intended to correct macroeconomic problems. The IMF has established a reserve known as the Special Drawing Right (SDR) to help manage currency valuation worldwide. Central banks may use SDRs to purchase foreign currencies to manage the value of its currency on world markets. The IMF focuses on countries economic performance and gives short-term loans to stabilize
exchange-rates.
the World Bank
Aims to reduce world poverty and is active in various development projects to bring water, electricity, and transportation infrastructure to poor countries. Is a specialized agency of the United Nations and is supported by some 187 member countries that are jointly responsible for how the institution is financed and how its money is spent. The World Bank emphasizes longer-term development and gives out long-term loans.
Types of Country Risk produced by Political Systems
(4)
- Government takeover of corporate Assets
- Embargoes and Sanctions
- Terrorism
- War, Insurrection, and Violence
What Culture is NOT
(3)
Not right or wrong: Culture is relative. People of different nationalities simply perceive the world differently.
Not about individual behavior: Culture is about groups. It refers to a collective phenomenon of shared values and meanings.
Not inherited (nicht geerbt): Culture comes from people’s social environment. No one is born with a shared set of values and attitudes.
Culture
Socialization
vs.
Acculturation
Socialization: The process of learning the rules and behavioral patterns appropriate to one’s society. Each society has do’s, don’ts, expectations, etc. that guide behavior of children as they mature.
Acculturation: The process of adjusting and adapting to a culture other than one’s own. It is commonly experienced by people who live in other countries for extended periods.
Visible Culture
vs.
Invisible Culture
Grafik
Comparative Advantage Principle
States that it may be beneficial for two countries to trade with each other
as long as one is relatively more efficient at producing goods or services needed by the other. The principle behind this theory is
free trade. It implies that a nation need not be the first-, second-, or even third-best producer of a product to benefit from international trade. A country needs to be only relatively capable in producing varies types of goods.
Multidomestic Strategy
Grafik
Transnational Strategy
Grafik
Global Strategy
Grafik
Factors to consider
by choosing a Location for FDI
Organisational Framework
for Marketing in the Global Firm
Marketing
7P’s
Marketing
Market Segmentation (1-3)
Global Marketing Strategy Mix
International Marketing
Adaption vs. Standartization
Marketing
Factors that affect international Pricing:
(4)
- Nature of the Market
(Income, local regulation, climate, infrastructure)
- Nature of the Product or Industry
(Specialized/high-end vs. ordinary products)
- Type of distribution system
(Distributers, FDI, direct sales)
- Location of the production facility
(Low-cost labor countries, FX fluctuactions)
Strategies to Combat International Price Escalation
1.
Shorten the distribution channel.
2.
Redesign product to remove costly features.
3.
Ship products unassable, as parts and components, to qualify for lower import tariffs
4.
Having products reclassified using different classification to qualify for lower tariffs
5.
Move production or sourcing to another country
Marketing
Pricing Strategies
(3)
Pricing Strategies (3)
- Rigid cost-plus pricing
fixed price for all export markets by adding a flat percentage to the domestic price to compensate for added cost for doing business abroad
- Flexible cost-plus pricing
set price to accomodate local market conditions, such as cusotmer purchasing power, demand, and competitor prices.
- Incremental pricing
set price to cover only variable costs (fixed costs are already paid form sales in the home or other countries)
Transferpricing
(explain)
Intra-corporate pricing
- pricing of intermediate or finished products exchanged among subsidiaries located in different countries
- may be used to shift profits from countries that restrict MNES from taking their earnings out of the country
- shift profits to low corporate tax country
Transfer Pricing: Characteristics of a Favored Subsidiary
International Marketing Communication/Promotion
Grafik
Marketing, Distribution
Which two approaches are the most common to international distribution
- Exporting Approach (distribution via independent firms)
- FDI based Approach (distribution via subsidiaries)
Free Market
Definition
- A free market is one where voluntary exchange and the laws of supply and demand provide the sole basis for the economic system, without government intervention
