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GCS > Strategy of Firms > Flashcards

Strategy of Firms Flashcards

1
Q

What are the 3 dimensions of scope?

A

Geographic
Product
What activities keep in-house/outsource

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2
Q

What drives scope?

A

Growth

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3
Q

What is the geographic dimension of scope?

A

How many counties they are going to operate in?

What level of penetration in each?

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4
Q

What is the product dimension of scope?

A

How many product lines

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5
Q

What is the in-house/outsource dimension of scope?

A

How much of the value chain is undertaken in-house/outscourced

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6
Q

What must the firm decide for Geographic scope?

A

Where
How
When

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7
Q

What to consider for where?

A

Location choice:
Location specific advantages
Cultural disadvantages
Risks Assessment

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8
Q

What to consider for how?

A

Entry mode:
Scale of entry
Mode of entry

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9
Q

What to consider for when?

A

Entry time:
First mover advantage
Early entry strategies

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10
Q

What are the four strategic goals of where to enter?

A

Natural resource seeking
Market seeking
Efficiency seeking
Innovations seeking

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11
Q

What are the location specific advantages of natural resource seeking?

A

Possession of natural resources and related transport and communication

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12
Q

What are the location specific advantages of market seeking?

A

Abundance of strong market demand and customer willing to pay

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13
Q

What are the location specific advantages of efficiency seeking?

A

Economies of scale and abundance of low cost factors

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14
Q

What are the location specific advantages of innovation seeking?

A

Abundance of innovative individuals, firms and universities

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15
Q

What are two ways of assessing country attractiveness?

A

Market drivers

Income Growth

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16
Q

What are market drivers?

A

Population and GDP per capita

Distribution of income important

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17
Q

What are three types of income growth?

A

Developing
Emerging
Newly industrialised

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18
Q

What is a developing economy?

A

Low income

Low growth

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19
Q

What is an emerging economy?

A

Low income

High growth

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20
Q

What is a new industrialised economy?

A

Moderately high income

High growth

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21
Q

According to the Institutional perspective on where to enter, what are the 4 considerations?

A
  • Regulatory Risks
  • Trade Barriers
  • Currency Risks
  • Cultural Differences
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22
Q

Importance of Regulatory Risks features

A

Adverse government policies

States much better disposed towards MNE’s

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23
Q

Trade Barriers features

A
  • Classic reason for switching from exporting to FDI
  • Governments may impose local content requirements
  • Tariff + non-tariff barriers e.g. safety inspection, local content requirement, entry mode restrictions
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24
Q

Currency Risks features

A

Overseas profits can be eroded if currency weakens

Geographic diversification may also help

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25
Q

Cultural differences features

A

Dimensions of culture

Hofstede

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26
Q

How to assess country risks?

A

PEST

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27
Q

What does PEST stand for?

A

Political
Economic
Socio-cultural
Technological

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28
Q

Examples of Political risks

A 
Legislation
Regulatory bodies
Funding
Trade policies
Wars and conflicts
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29
Q

Examples of Economic risks

A 
Home economy
Overseas economy 
General Tax
Market Cycles
Interest rates
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30
Q

Example of Socio-cultural risks

A 
Lifestyle
Demographics
Media
Ethical issues
Ethnics
Brand
Consumer attitudes
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31
Q

Example of technological risks

A 
Competing technology
Research funding
IT
Technology legislation
Licensing
Intellectual property
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32
Q

When to enter options?

A

Early entry

Late entry

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33
Q

What is early entry?

A

When an international business enters a foreign market before other foreign firms

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34
Q

What is late entry?

A

When an international business enters a foreign market after other foreign firms

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35
Q

What are first mover advantages?

A
  • Ability to preempt rivals and capture demand
  • Establish strong brand name
  • Build sales volume and ride experience curve ahead of rivals = cost advantage
  • Create switching costs that tie customers into products/services
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36
Q

What are first mover disadvantages?

A

Pioneering costs:

  • business failure due to ignorance of foreign environment
  • promoting and establishing
  • educating customers
  • sudden regulatory change
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37
Q

What are pioneering costs?

A
  • business failure due to ignorance of foreign environment
  • promoting and establishing
  • educating customers
  • sudden regulatory change
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38
Q

What is the experience curve?

A 
cost per unit |\
                      |  \
                      |    \\_\_\_\_\_\_\_\_
                      |\_\_\_\_\_\_\_\_\_\_\_
                         volume
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39
Q

Why does research suggest that the probability of survival increase if a firm enters a foreign market after several others?

A

Benefit from observing and learning from others mistakes

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40
Q

What are the two scales of entry?

A

Large scale

Small scale

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41
Q

Large scale benefit?

A

Strategic committment

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42
Q

Large scale entry drawbacks?

A

Limited strategic flexibility

Costly, huge potential lost

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43
Q

Small scale focus?

A

Accumulating experience- learn by doing

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44
Q

Small scale entry drawbacks?

A

Lack of strong strategic commitment

Difficulties in building market share

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45
Q

What are the types of modes of entry?

A

Non-equity

Equity

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46
Q

What are the two types of Non-equity modes of entry?

A

Exports

Contractual agreements

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47
Q

What are the two types of Equity modes of entry?

A

Joint Ventures

Wholly Owned Subsidiaries

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48
Q

What are the two types of Strategic Alliance modes of entry?

A

Contractual Agreements

Joint Ventures

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49
Q

What are the types of Export?

A

Direct exports
Indirect exports
others

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50
Q

What are the types of Contractual Agreement?

A

Licensing/Franchising
Turnkey projects
R+D Contracts
Co-Marketing

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51
Q

What are the types of Joint Venture?

A

Minority
50/50
Majority

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52
Q

What are the types of Wholly Owned Subsidiaries?

A

Greenfields
Acquisitions
Others

53
Q

What is the difference between equity and non-equity modes of entry?

A

Equity involves ownership, non-equity does not

54
Q

What are the OLI advantages?

A

Ownership
Location
Internationalisation
(Dunning)

55
Q

Is exporting equity or non-equity?

A

Non-equity

56
Q

What are the advantages of exporting?

A
  • Avoids cost of establishing manufacturing operations

- May help firm achieve experience curve and location economies

57
Q

What is location economies?

A

Optimal trade barriers and transportation

58
Q

How can exporting help achieve experience curve and location economies?

A

By manufacturing in a certain location that is centralised then exporting the firm will apply economies of scale from global sales volume
e.g. Sony TV, Honda and Toyota Japanese in US

59
Q

What are the disadvantages of exporting?

A
  • Exporting from home may be more expensive when lower cost manufacturing can be found abroad e.g. more favourable conditions for value creation
  • High transportation costs
  • Tariff barriers
  • Marketing/Sales and service activities take place through local agent - often carriers products for competing firms so divided loyalties appear
60
Q

What are turnkey projects?

A

A project in which the contractor/supplier agrees to handle every detail for a foreign client, including construction of new facilities and training of personnel
(Contractor fully responsible, client handed ‘key’ at end)

61
Q

Turnkey is found in what sort of countries/industries?

A
  • FDI restrictive countries

- Complex and expensive tech e.g. Chemicals, Pharmaceuticals, Metal and Petroleum refining

62
Q

Is turnkey equity or non-equity?

A

Non-equity

63
Q

Advantages of turnkey projects?

A
  • Allows focal firms/contractors to earn returns from process technology (construction)
  • Useful when host government regulations limit FDI
  • Less risky than conventional FDI
64
Q

Disadvantages of turnkey projects?

A
  • Don’t allow for long term presence in foreign country
  • May create a competitor, facilitate know-how spillover e.g. Western firms pass oil and gas to Saudi Arabia + Kuwait
  • Initial competitive advantage of firm passing to competitor
65
Q

Is Licensing equity or non-equity?

A

Non-equity

66
Q

What is licensing?

A

Arrangement whereby a licensor grants the rights to intangible property to another entity (licensee) for a specified period of time and in return receives a royalty fee

67
Q

What are some examples of intangible property for licensing?

A 
Inventions
Copyrights
Designs
Processes
Formulas
Trademarks
68
Q

Examples of licensing

A

Coca Cola trademark licensed to clothing manufacturers

69
Q

Advantages of licensing?

A
  • Firms doesn’t have to bear development costs and risk
  • Attractive for firms lacking capital to develop operations overseas
  • When firm is unwilling to commit financially to an unfamiliar/volatile foreign market
  • Used when firm has intangible property that might have business applications but doesn’t want to develop them itself
70
Q

Disadvantages of licensing?

A
  • Doesn’t give firm tight control over manufacturing, marketing and strategy that is required for experience curve and location economies (licensee sets up)
  • Competing in a global market might involve transfer of profits from one country’s licensee to another’s - licensing limits this
  • Risks associated with licensing tech know-how to foreign countries (easily loose control)
71
Q

Remedies of disadvantages of licensing?

A
  • Cross-licensing agreement which means both sides reveal know-how
  • Fuji-Xerox both sides take important equity stakes to align interests and ensure success (Xerox licensed to Fuji for 10 years with 5% royalty of sales)
72
Q

What is franchising?

A

A specialised form of licensing in which franchise not only sell intangible property (normally trademark) but also insists that the franchise agrees to abide by strict rules as to how it does business

73
Q

Features of franchising?

A
  • Tends to involve longer-term commitments
  • Franchiser will also assist franchisee to run business on an on-going basis
  • Tends to be trademarks e.g. McDonalds, KFC
  • Typically franchiser receives a royalty payment of a % of franchisees revenues
74
Q

What are the advantages of Franchising?

A
  • Firms relieved from many costs and risks of opening in foreign market on its own (typically franchisee takes costs and risks, good incentive to build profit quickly)
  • Service firms can build a global presence quickly at a relatively low cost and risk
75
Q

Who takes on costs and risks of franchising?

A

Typically franchisee, good incentive to build profit quickly

76
Q

What are the disadvantages of Franchising?

A
  • No need to consider coordination of manufacturing to achieve experience curve and location eocnomies
  • Quality control, geographical distance can make poor quality difficult to detect
77
Q

Way around quality control issues in franchising?

A

Set up a subsidiary in each country in which the firm expands e.g. JV, WOS
- McDonalds establishes master franchisee in many countries, JV between McD and local firm, partly owned so sets up own managers to monitor. KFC same.

78
Q

What sort of firms primarily use franchising?

A

Services firms

79
Q

What sort of firms primarily use licensing?

A

Manufacturing firms

80
Q

What are some of McDonalds strict rules on how Franchisees should operate?

A

Menu control
Cooking methods
Staffing policies
Design and Location

81
Q

McDonalds provides what to its franchisees?

A

Financial Assistance
Management Training
Organises Supply Chain

82
Q

What are joint ventures?

A

Entails establishing a firm that is jointly owned by two or more otherwise independent firms.
It is a new entity jointly created and owned
Most commonly 50/50

83
Q

Example of Joint Venture?

A

BMW + Toyota research into hydrogen fuel cells

KFC + Mitsubishi in Japan

84
Q

Advantages of Joint Ventures?

A
  • Benefits from local partner knowledge of host country e.g. competition, culture, language
  • High sharing of development costs and risks
  • Many country’s political considerations make JV’s only feasible mode
85
Q

Disadvantages of Joint Ventures?

A
  • Risk giving control of its technology to its partner
  • Doesn’t give tight control over foreign subsidiaries that is might need for global coordination
  • Can lead to conflicts for control, often arises with firms of different nationalities (Hofstede)
86
Q

How to minimise risk fo Joint Ventures?

A

By holding majority ownership, but this is difficult to be accepted by partner firm

87
Q

What is a Wholly Owned Subsidiary?

A

Parent company owns 100% of the stock of the entity located in a foreign country

88
Q

What are the two ways a wholly owned subsidiary can be done?

A

Greenfield

Acquisition

89
Q

What is Acquisition?

A

Acquire an established firm in host nation and use to promote its products

90
Q

What is Greenfield?

A

Set up a new operation in that country

91
Q

What are the advantages of wholly owned subsidiaries?

A
  • Reduces risk of losing control over competences e.g. high tech
  • Gives firm tight control over operations, necessary for strategic coordination e.g. sharing profits across countries
92
Q

What are the disadvantages of wholly owned subsidiaries?

A
  • Most costly method of serving a foreign market

- Effort to marry divergent corporate cultures

93
Q

What are strategic alliances?

A

Voluntary cooperative agreements between potential or actual competitors

94
Q

What are the two types of strategic alliances?

A

Contractual (non-equity based)

Equity based

95
Q

What are strategic networks?

A

Strategic alliances formed by multiple firms and are inherently more complex than single SA’s

96
Q

What are the advantages of strategic networks?

A
  • Reduce costs, risks and uncertainties
  • Gain access to complementary assets and capabilities
  • Opportunities to learn from partners
  • Possible to use alliance networks as real options
97
Q

What are the disadvantages of strategic networks?

A
  • Possibility of choosing wrong partner
  • Costs of negotiation and coordination
  • Possibilities of partner opportunism
  • Risks of helping nurture competitors (learning race)
98
Q

What are the range of strategic alliances?

A

From formal joint ventures to short-term contractual agreements

99
Q

What are strategic alliances a compromise between?

A

Contractual agreements nd long-term organisational solutions e.g. Mergers and Acquisitions

100
Q

Main disadvantage of going abroad?

A

Liability of Foreignness

101
Q

What is the Liability of Foreignness?

A

The inherent disadvantage foreign firms experiences in hose countries because of their non-native status

102
Q

Features of Liability of Foreignness?

A
  • Foreign firms are often discriminated against

- Difference in formal and informal institutions govern the rules of the game in different countries

103
Q

How to offset the Liability of Foreignness?

A

Firms often deploy overwhelming or dynamic resources and capabilities

104
Q

Two main growth strategies?

A

Geographic diversification
Product diversification
*Both equally important

105
Q

What is geographic diversification?

A

Expanding into new geographic markets

106
Q

What is product diversification?

A

Expanding into product markets

107
Q

Two types of geographic diversification?

A

Limited international scope

Extensive international scope

108
Q

What is limited international scope?

A

Geographically and culturally adjacent countries

109
Q

What is extensive international scope?

A

Beyond geographically and culturally neighbouring countries

110
Q

Two types of product diversification?

A

Product related diversification

Product unrelated diversificaiton

111
Q

What is product related diversification?

A

Entry into new markets and/or business activities that are related to a firms existing markets and/or activities

112
Q

What is product unrelated diversification?

A

Entry into industries that have no obvious product related connections to firms current lines of business

113
Q

What does product related diversification emphasise?

A

Operational synergy

  • Common technologies, marketing and manufacturing
  • Increases in competitiveness beyond what can be achieved in separate markets (2+2=5)
  • Known as economies of scale
114
Q

Firms that undertake product unrelated diversification are called what?

A

Conglomerates

115
Q

What is conglomeration?

A
  • Strategy of firms that undertake product unrelated diversification, intent to obtain financial synergies
  • Corporate HQ acts as ask informal capital market that channels finance to high potential and growth areas
116
Q

Merges and Acquisitions are a

A

Mode of entry and form of growth

117
Q

What are a mode of entry AND form of growth?

A

Mergers and Acquisitions

118
Q

What is an acquisition?

A

A transfer of the control, assets, operations and management from one firms (target) to another (acquire)

119
Q

What is a merger?

A

A combination of assets, operations and management of two firms to establish a new identity

120
Q

Features of Mergers and Acquisitions compared to Strategic Alliances

A

M+A:

  • Higher transaction costs
  • Practically irreversible
  • Enable firm to absorb + integrate targets strengths + acquire full control over how targets business is run
  • Can protect firms from partners opportunistic behaviour
  • More expensive (buy whole company, tangible + intangible assets)
121
Q

Joint Venture

Mergers and Acquisitions

A

1+1=3

1+1=1

122
Q

What is restructuring?

A

Adjustments to firm size and scope

Commonly referred to as reduction of size and scope

123
Q

What are the three forms of restructuring?

A

Downsizing
Downscoping
Refocusing

124
Q

What is downsizing?

A

Reducing number of employees

125
Q

What is downscoping?

A

Reducing scope of firm through divestitures

126
Q

What is divestiture?

A

Reduction of an asset or business through sale, liquidation, exchange, closure, or any other means for financial or ethical reasons
- Opposite of investment

127
Q

What is refocusing?

A

Narrowing scope of firm by focusing on a few areas

128
Q

Features of Strategic Alliances over Mergers and Acquisitions

A

SA:

  • Better options in situations where companies want short to medium term relationships - partners decide tenure of relationship
  • Flexibility to decide if want to continue collaborate
  • Don’t have full control
  • Need VRIO, gives partner opportunity to imitate, erodes CA

GCS (4 decks)

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