Week 9 Global Strategy Flashcards
Define global strategy.
Expanding and competing in multiple countries.
What are international companies?
Subsidiaries support head country operations and sales. Similar to hub-and-spoke.
What are multinational or global companies?
All subsidiaries are integrated and benefit from economies of scope and scale. Similar to integrated alliance management.
How should a company assess whether to expand or not?
Better-off test
What is the better-off test?
It assesses whether the combination and coordination of activities across multiple countries enable more value to be created and claimed than with country-by-country operations?
Three characteristics that the better-off test analyzes.
a) Improvement of competitive environment or industry structure.
b) Widen wedge between WtP and cost.
c) Manage risk
What two things should a company evaluate when deciding where to expand?
Liability of foreignness and CAGE framework.
Define liability of foreignness.
The higher costs of doing business than local competitors.
Why do the liability of foreignness arise?
Unfamiliar local market conditions; unfamiliar legal, cultural, language environment; fewer local networks, distance challenges.
CAGE Framework: “C” and characteristics.
Cultural. Language, social norms, religions, ethnicities, social networks.
CAGE Framework: “A” and characteristics.
Administrative.Colonial ties, shared currency, political stability, government policies, institutional infrastructure.
CAGE Framework: “G” and characteristics.
Geographic. Physical distance, common borders, climates, transportation links.
CAGE Framework: “E” and characteristics.
Economic. Purchasing power, resource endowments, knowledge and information.
High control/Low risk modes of entry
Wholly owned subsidiaries, M&A, green field investments
Medium control modes of entry
JV, balanced equity, long-term contract
