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IB - Essential only > Session 5 > Flashcards

Session 5 Flashcards

brief

1
Q

What is a strategy? (2)

A
  1. Actions that managers take to attain the goals of the firm.
  2. Goal is to maximize the value of the firm for owners and shareholders.
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2
Q

What is profitability?

A

Rate of return a firm makes on its invested capital. (ROI)

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3
Q

Determinants of enterprise value? (2)

A
  1. Profitability
  2. Profit growth
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4
Q

How to increase profitability? (2)

A
  1. Reduce costs
  2. Add value and raise prices
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5
Q

How to increase profit growth? (2)

A
  1. Sell more to existing customers
  2. Enter new markets
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6
Q

What is value creation (3)?

A
  • Measured by difference between a firm’s costs of
    production and the quality that consumers perceive in
    its products.
  • The more value customers place on a firm’s
    products, the higher the price the firm can charge
    for those products.
  • Measured by the difference between V (value) and
    C (cost).
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7
Q

Porter’s 2 strategies for creating value and attaining a
competitive advantage?

A
  1. Low costs
  2. Differentiation
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8
Q

Strategic positioning (Porter)? (3)

A
  1. Firm should be explicit about its strategic emphasis regarding value creation (differentiation) and low cost
  2. Firm should configure its internal operations to
    support that strategic emphasis
  3. Efficiency frontier shows all positions a firm can adopt regarding adding value to the product and low cost.
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9
Q

How can firm maximize profitability? (3 + 1 thing must ensure)

A
  1. Pick a position on the efficiency frontier that is viable
    because there is enough demand to support that choice.
  2. Configure its internal operations so that they support that position.
  3. Make sure firm has the right organization structure in
    place to execute its strategy.

Strategy, operations, and organization of firm must all
be consistent with each other if it is to attain a competitive
advantage and garner superior profitability

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10
Q

What are value creation activities? (7)

A
  • Production.
  • Marketing and sales.
  • Materials management.
  • R&D.
  • Human resources.
  • Information systems.
  • Infrastructure.
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11
Q

What is included in primary activities? (4)

A
  1. Design, creation, and delivery of the
    product.
  2. Marketing, support, and after-sale service. (mtk and sales increases perceived value and discover customer needs)
  3. R&D is concerned with design of products and
    production processes.
  4. Production is concerned with the creation of a
    good or service.
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12
Q

What do support activities do?

A

Provide inputs that allow the primary activities to
occur

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13
Q

What is included in support activities and why? (4)

A
  • Information systems (can alter efficiency and effectiveness with which a firm manages its other value creation activities.)
  • Logistics controls (transmission of physical materials through the value chain.)
  • Human resources (ensures company has the right mix of skilled people; ensures adequate training, motivation, and compensation.)
  • Infrastructure (includes organization structure, control systems, and culture of the firm.)
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14
Q

4 advantages of global expansion?

A

i. Expand potential size of market for domestic products.
ii. Realize location economies.
iii. Realize greater cost economies from experience effects.
iv. Earn a greater return-on-investment.

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15
Q

Characteristics of core competencies (2) and their link with global expansion?

A
  1. That Can exist in any of firm’s value-creation
    activities.
  2. Are bedrock of a firm’s competitive advantage.
  • Successful firms transfer core competencies to foreign markets where indigenous competitors lack comparable competencies.
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16
Q

What are location economies (3)?

A
  • Economies that arise from performing a value
    creation activity in the optimal location for that
    activity.
  • Can lower costs of value creation and help the firm
    achieve a low-cost position.
  • Can enable a firm to differentiate its product
    offering from those of competitors.
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17
Q

What is global web and what does creating one do? (3)

A
  • When different stages of the value chain are
    dispersed to locations around the globe where
    value added is maximized or costs of value are
    minimized.
  • Should create a competitive advantage.
  • Should be able to better differentiate product offering
    (thereby raising perceived value, V) and lower cost
    structure (C) than a single-location competitor.
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18
Q

Caveat of creating a global web? (4)

A

Transportation costs, trade barriers, plus political and
economic risk complicate the benefits of location
economies.

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19
Q

What is experience curve (effect)?

A

Systematic reductions in production costs that have been observed to occur over the life of a product

20
Q

What factors explain experience curve? (2)

A
  1. Leaning effects
  2. Economies of scale
21
Q

What are learning effects?

A
  • Labor productivity and management efficiency.
22
Q

What are economies of scale (3)?

A
  • Lowers a firm’s unit costs and increases its
    profitability.
  • May not be possible unless firm serves global
    markets.
  • Bargaining power with the firm’s suppliers
    increases.
23
Q

What is strategic significance of experience curve? (1+1.1+1)

A
  • Moving down the experience curve allows a firm to
    reduce its cost of creating value and increase
    its profitability.
  • Rapid movement down experience curve
    increases cost advantage.
    - Firm that serves a global market from a single location
    can build accumulated volume more quickly.
  • An established low-cost position can act as barrier
    to new competition.
24
Q

Why leverage subsidiary skills?

A
  • In mature multinationals, development of valuable
    skills can occur in foreign subsidiaries.
  • Leveraging skills created within subsidiaries and
    applying them to other operations within the firm’s
    global network may create value.
25
Q

What should managers do so that multinational enterprise leverages subsidiary skills? (4)

A
  1. Recognize that valuable skills that lead to
    competencies can arise anywhere within the firm’s
    global network, not just at the corporate center.
  2. Establish an incentive system that encourages
    local employees to acquire new skills.
  3. Have a process for identifying when valuable
    new skills have been created in a subsidiary.
  4. Act as facilitators, helping transfer valuable skills
    within the firm.
26
Q

How can firms increase profitability and profit growth? (4)

A
  • Entering new markets where competitors lack
    similar competencies.
  • Lowering costs and adding value to product
    offering through location economies.
  • Exploiting experience curve effects.
  • Transfer of valuable skills between subsidiaries.
27
Q

What are 2 major pressures companies face?

A
  • Reduce your cost
  • Be locally responsive
28
Q

What are cost-reduction pressures (def not ex)?

A

Require a firm to try to lower the costs of value
creation

29
Q

When are low cost pressures the strongest (in what cases)? (4)

A
  1. Commodities
  2. Industries where major competitors based in low costs locations
  3. Industries where there is persistent excess capacity
  4. Industries where consumers are powerful and face low switching costs
30
Q

Aspects of local responsiveness? (4)

A
  1. Differences in Customer Tastes and Preferences
  2. Differences in Infrastructure and Traditional Practices
  3. Differences in Distribution Channels
  4. Host-Government Demands
31
Q

What is “differences in Customer Tastes and Preferences aspect”? (2)

A
  • Customer demands for local customization are on the decline worldwide in some markets.
  • Significant differences in consumer needs, wants, tastes still exist across cultures.
32
Q

What is “difference in infrastructure and traditional practices” aspect?

A
  • May require the delegation of manufacturing and
    production functions to foreign subsidiaries.
    • Example: technical standards (110 V vs 240 V).
  • Traditional practices also often vary across nations.
33
Q

What is “Differences in Distribution Channels” aspect?

A
  • May necessitate delegation of marketing functions
    to national subsidiaries.
34
Q

What is “Host-Government Demands” aspect? (2)

A
  • Economic and political demands by host-country
    governments.
  • Threats of protectionism, economic nationalism,
    and local content rules dictate that international
    businesses manufacture locally.
35
Q

What is rise of regionalism and what does it imply (2)?

A
  • Tendency toward the convergence of tastes,
    preferences, infrastructure, distribution channels,
    and host-government demands with a
    broader region composed of two or more
    nations.
    - Examples: European Union, North America, Latin
    America.
  • Ability to standardize a product within a region
    allows for greater scale economies and lower costs.
36
Q

What are 4 international strategies + 1 example for each?

A
  1. Global standardization. (Intel)
  2. Localization strategy. (Nissan cube..?)
  3. Transnational strategy. (Caterpillar)
  4. International strategy. (xerox)
37
Q

What is Global standardization strategy? (5)

A
  • Looks to reap cost reductions that come from
    economies of scale, learning effects, location
    economies.
  • Goal is to pursue low-cost strategy on global scale.
  • Production, marketing, R&D, and supply chain
    activities are concentrated in a few favorable
    locations.
  • Avoids customization.
  • Makes sense when there are strong pressures for
    cost reductions and demands for local
    responsiveness are minimal.
38
Q

What is localization strategy? (3)

A
  1. Customizes goods or services so they are a good
    match to tastes and preferences in different national
    markets.
  2. Most appropriate when:
    * Substantial differences across nations
    regarding consumer tastes and preferences.
    * Cost pressures are not too intense.
  3. Customization limits the ability to capture the cost
    reductions associated with mass-producing a
    standardized product for global consumption.
39
Q

What is a transnational strategy? (3.2)

A
  1. Achieve low costs, differentiate product offerings to
    account for local differences, foster multidirectional
    flow of skills between subsidiaries.
  2. Makes most sense when demands for local
    responsiveness are high but cost pressures are
    moderate or low.
  3. Places conflicting demands on the company:
    • Differentiating product to respond to local demand in different geographic markets raises costs, which runs counter to goal of reducing costs.
    • Complex and challenging to achieve.
40
Q

What is international strategy? (3.1)

A
  • Taking products developed for domestic market
    and selling them internationally with minimal
    local customization.
  • For firms with low-cost pressures and low pressures
    for local responsiveness.
  • Tend to centralize product development
    functions such as R&D at home but establish
    manufacturing and marketing functions in
    each major country or geographic region in
    which they do business.
    • Resulting duplication may raise costs.
41
Q

Which one(s) of the 4 strategies are the less viable when competitors emerge?

A
  • International
  • Localization
42
Q

Which one(s) of the 4 strategies are do firms usually switch to when competitors emerge?

A
  • Global standardization
  • Transnational
43
Q

What are effects of lowering of barriers to cross border trade and investment?

A
  • Easier to realize location economies and global web
    of productive activities; increased attractiveness of
    global standardization strategy and transnational
    strategy.
44
Q

Effects of increased barriers to cross border trade? (3)

A
  • More difficult to attain location economies; harder
    to establish global web of productive activities.
  • More challenging and less attractive to implement
    global standardization strategy and transnational
    strategy.
  • Economic nationalism may make localization
    strategy necessary, or a multiregional version of a
    localization strategy.
45
Q

Effects of exogenous shocks on strategy? (3)

A
  • War, terrorism, the impact of climate change, or the
    emergence of novel diseases could easily change
    the trade and investment environment and affect
    strategic choices.
  • Global supply chains are vulnerable to disruption.
  • Increases attractiveness of localization strategy
    based either on national, or regional, trading blocs.

IB - Essential only (4 decks)

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