Download - Mba 531 week 5 - overview - chap 13 - 15
MBA 531Business in Today’s Global
Environment
Overview of Week 5 Textbook Readings: Chapters 13 - 15
Chapter 13
The Strategy of International Business
13-3
What Is Strategy?
A firm’s strategy refers to the actions that managers take to attain the goals of the firm
Firms need to pursue strategies that increase profitability and profit growth Profitability is the rate of return the firm
makes on its invested capital Profit growth is the percentage increase in net
profits over time
13-4
What Is Strategy?
To increase profitability and profit growth, firms can add value lower costs sell more in existing markets expand internationally
13-5
What Is Strategy?Determinants of Enterprise Value
13-6
How Is Value Created? To increase profitability, firms need to
create more value The firm’s value creation is the difference
between V (the price that the firm can charge for that product given competitive pressures) and C (the costs of producing that product) a firm has high profits when it creates more
value for its customers and does so at a lower cost
13-7
How Is Value Created?Value Creation
13-8
How Is Value Created?
Profits can be increased by
1. Using a differentiation strategy adding value to a product so that customers
are willing to pay more for it
1. Using a low cost strategy lowering costs
13-9
Why Is Strategic Positioning Important?
Michael Porter argues that firms need to choose either differentiation or low cost, and then configure internal operations to support the choice
So, to maximize long run return on invested capital, firms must pick a viable position on the efficiency frontier configure internal operations to support that position have the right organization structure in place to
execute the strategy
13-10
Why Is Strategic Positioning Important?
Strategic Choice in the International Hotel Industry
13-11
How Are a Firm’s Operations Configured?
A firm’s operations are like a value chain composed of a series of distinct value creation activities: production, marketing, materials
management, R&D, human resources, information systems, and the firm infrastructure
All of these activities must be managed effectively and be consistent with firm strategy
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How Are a Firm’s Operations Configured?
Value creation activities can be categorized as 1. Primary activities
R&D Production marketing and sales customer service
1. Support activities information systems logistics human resources
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How Are a Firm’s Operations Configured?
The Value Chain
13-14
How Can Firms Increase Profits Through International Expansion?
International firms can
1. Expand their market sell in international markets
1. Realize location economies disperse value creation activities to locations
where they can be performed most efficiently and effectively
13-15
How Can Firms Increase Profits Through International Expansion?
3. Realize greater cost economies from experience effects serve an expanded global market from a
central location
3. Earn a greater return leverage skills developed in foreign
operations and transfer them elsewhere in the firm
13-16
How Can Firms Leverage Their Products and Competencies?
Firms can increase growth by selling goods or services developed at home internationally
The success of firms that expand internationally depends on the goods or services sold the firm’s core competencies
13-17
How Can Firms Leverage Their Products and Competencies?
Core competencies - skills within the firm that competitors cannot easily match or imitate can exist in any value creation activity
Core competencies allow firms to reduce the costs of value creation and/or to create perceived value so that premium pricing is possible
13-18
Why Are Location Economies Important?
Location economies are economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be
By achieving location economies, firms can lower the costs of value creation and achieve a low
cost position differentiate their product offering
13-19
Why Are Location Economies Important?
Firms that take advantage of location economies in different parts of the world, create a global web of value creation activities different stages of the value chain are
dispersed to locations where perceived value is maximized or where the costs of value creation are minimized
13-20
Why Are Experience Effects Important?
The experience curve refers to the systematic reductions in production costs that occur over the life of a product by moving down the experience curve, firms
reduce the cost of creating value to get down the experience curve quickly,
firms can use a single plant to serve global markets
13-21
Why Are Experience Effects Important?
Learning effects are cost savings that come from learning by doing
When labor productivity increases individuals learn the most efficient ways to
perform particular tasks managers learn how to manage the new
operation more efficiently
13-22
Why Are Experience Effects Important?
The Experience Curve
13-23
Why Are Experience Effects Important?
Economies of scale - the reductions in unit cost achieved by producing a large volume of a product
Sources of economies of scale include spreading fixed costs over a large volume utilizing production facilities more intensively increasing bargaining power with suppliers
13-24
How Can Managers Leverage Subsidiary Skills?
Managers should1. Recognize that valuable skills that could be
applied elsewhere in the firm 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 to help transfer skills within the firm
13-25
What Types of Competitive Pressures Exist in the Global Marketplace?
Firms that compete in the global marketplace face two conflicting types of competitive pressures the pressures limit the ability of firms to
realize location economies and experience effects, leverage products, and transfer skills within the firm
Dealing with both pressures is challenging
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What Types of Competitive Pressures Exist in the Global Marketplace?
Two competitive pressures:
1. Pressures for cost reductions force the firm to lower unit costs
1. Pressures to be locally responsive require the firm to adapt its product to meet
local demands in each market but, this strategy can raise costs
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What Types of Competitive Pressures Exist in the Global Marketplace?
Pressures for Cost Reductions and Local Responsiveness
13-28
When Are Pressures for Cost Reductions Greatest?
Pressures for cost reductions are greatest1. In industries producing commodity type products that fill
universal needs (needs that exist when the tastes and preferences of consumers in different nations are similar if not identical) where price is the main competitive weapon
2. When major competitors are based in low cost locations
3. Where there is persistent excess capacity4. Where consumers are powerful and face low switching
costs
13-29
When Are Pressures for Local Responsiveness Greatest?
Pressures for local responsiveness arise from
1. Differences in consumer tastes and preferences strong pressure emerges when consumer tastes and
preferences differ significantly between countries
1. Differences in traditional practices and infrastructure strong pressure emerges when there are significant
differences in infrastructure and/or traditional practices between countries
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When Are Pressures for Local Responsiveness Greatest?
3. Differences in distribution channels need to be responsive to differences in
distribution channels between countries
4. Host government demands economic and political demands imposed by
host country governments may require local responsiveness
13-31
Which Strategy Should a Firm Choose?
There are four basic strategies to compete in international markets the appropriateness of each strategy
depends on the pressures for cost reduction and local responsiveness in the industry
13-32
Which Strategy Should a Firm Choose?
Four Basic Strategies
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Which Strategy Should a Firm Choose?
1. Global standardization - increase profitability and profit growth by reaping the cost reductions from economies of scale, learning effects, and location economies goal is to pursue a low-cost strategy on a
global scale This strategy makes sense when
there are strong pressures for cost reductions and demands for local responsiveness are minimal
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Which Strategy Should a Firm Choose?
2. Localization - increase profitability by customizing goods or services so that they match tastes and preferences in different national markets
This strategy makes sense when there are substantial differences across
nations with regard to consumer tastes and preferences and cost pressures are not too intense
13-35
Which Strategy Should a Firm Choose?
3. Transnational - tries to simultaneously achieve low costs through location economies, economies of scale, and learning effects firms differentiate their product across geographic
markets to account for local differences and foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of operations
This strategy makes sense when both cost pressures and pressures for local
responsiveness are intense
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Which Strategy Should a Firm Choose?
4. International – take products first produced for the domestic market and sell them internationally with only minimal local customization
This strategy makes sense when there are low cost pressures and low
pressures for local responsiveness
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How Does Strategy Evolve?
An international 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 structures would require a shift toward a transnational strategy
13-38
How Does Strategy Evolve?Changes in Strategy over Time
Chapter 14
The Organization of International Business
13-40
What Is Organizational Architecture?
Organizational architecture is the totality of a firm’s organization including
1. Organizational structure the formal division of the organization into subunits the location of decision-making responsibilities within
that structure centralized versus decentralized
the establishment of integrating mechanisms to coordinate the activities of subunits including cross-functional teams or pan-regional committees
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What Is Organizational Architecture?
2. Control systems and incentives control systems - the metrics used to
measure performance of subunits incentives - the devices used to
reward managerial behavior
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What Is Organizational Architecture?
3. Processes, organizational culture, and people processes - how decisions are made and
work is performed within the organization organizational culture - norms and values
that are shared among the employees of an organization
people - the employees and the strategy used to recruit, compensate, and retain those individuals and the type of people they are in terms of their skills, values, and orientation
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What Is Organizational Architecture?
To be the most profitable the elements of the organizational
architecture must be internally consistent the organizational architecture must fit the
strategy the strategy and architecture must be
consistent with each other, and consistent with competitive conditions
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What Is Organizational Architecture?
Organizational Architecture
13-45
What Are the Dimensions of Organizational Structure?
Organizational structure has three dimensions
1. Vertical differentiation - the location of decision-making responsibilities within a structure
2. Horizontal differentiation - the formal division of the organization into subunits
3. Integrating mechanisms - the mechanisms for coordinating subunits
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Why Is Vertical Differentiation Important?
Vertical differentiation determines where decision-making power is concentrated
Centralized decision making facilitates coordination ensures decisions are consistent with the
organization’s objectives gives managers the means to bring about
organizational change avoids duplication of activities
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Why Is Vertical Differentiation Important?
Decentralized decision making relieves the burden of centralized decision
making has been shown to motivate individuals permits greater flexibility can result in better decisions can increase control
13-48
Why Is Horizontal Differentiation Important?
Horizontal differentiation refers to how the firm divides into subunits usually based on function, type of business, or
geographical area Most firms begin with no formal structure, but as
they grow, split into functions reflecting the firm’s value creation activities - functional structure functions are coordinated and controlled by top
management decision making is centralized product line diversification requires further horizontal
differentiation
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What Is a Functional Structure?
A Typical Functional Structure
13-50
Why Is Horizontal Differentiation Important?
Firms may switch to a product divisional structure each division is responsible for a distinct
product line headquarters retains control for the overall
strategic direction of the firm and for the financial control of each division
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What Is a Product Divisional Structure?
A Typical Product Divisional Structure
13-52
What Happens When Firms Expand Globally?
When firms expand internationally, they often group all of their international activities into an international division
Over time, manufacturing may shift to foreign markets firms with a functional structure at home would
replicate the functional structure in the foreign market firms with a divisional structure would replicate the
divisional structure in the foreign market In either case, there is the potential for conflict
and coordination problems between domestic and foreign operations
13-53
What Is an International Division Structure?
One Company’s International Division Structure
13-54
What Happens Next?
Firms that continue to expand will move to either a
1. Worldwide product division structure - adopted by firms that are reasonably diversified allows for worldwide coordination of value creation
activities of each product division helps realize location and experience curve
economies facilitates the transfer of core competencies does not allow for local responsiveness
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What Is a Worldwide Product Division Structure?
A Worldwide Product Divisional Structure
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What Happens Next?
2. Worldwide area structure - favored by firms with low degree of diversification and a domestic structure based on function divides the world into autonomous geographic areas decentralizes operational authority facilitates local responsiveness can result in a fragmentation of the organization is consistent with a localization strategy
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What Is a Worldwide Area Structure?
A Worldwide Area Structure
13-58
How Does Organizational Structure Change over Time?
The International Structural Stages Model
13-59
What Is the Global Matrix Structure?
The global matrix structure – tries to minimize the limitations of the worldwide area structure and the worldwide product divisional structure allows for differentiation along two dimensions -
product division and geographic area has dual decision making - product division and
geographic area have equal responsibility for operating decisions
can be bureaucratic and slow can result in conflict between areas and product
divisions can result in finger-pointing between divisions when
something goes wrong
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What Is the Global Matrix Structure?
A Global Matrix Structure
13-61
How Can Subunits Be Integrated?
Regardless of the type of structure, firms need a mechanism to integrate subunits need for coordination is lowest in firms with a
localization strategy and highest in transnational firms coordination can be complicated by differences in
subunit orientation and goals simplest formal integrating mechanism is direct
contact between subunit managers, followed by liaisons
temporary or permanent teams composed of individuals from each subunit is the next level of formal integration
the matrix structure allows for all roles to be integrating roles
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How Can Subunits Be Integrated?
Formal Integrating Mechanisms
13-63
How Can Subunits Be Integrated?
Many firms use informal integrating mechanisms A knowledge network - network for transmitting
information within an organization that is based not on informal contacts between managers and on distributed information systems a non-bureaucratic conduit for knowledge flows must embrace as many managers as possible and
managers must adhere to a common set of norms and values that override differing subunit orientations
13-64
How Can Subunits Be Integrated?
A Simple Management Network
13-65
What Are the Different Types of Control Systems?
1. Personal controls –personal contact with subordinates most widely used in small firms
1. Bureaucratic controls –a system of rules and procedures that directs the actions of subunits budgets and capital spending rules
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What Are the Different Types of Control Systems?
3. Output controls – setting goals for subunits to achieve and expressing those goals in terms of objective performance metrics compare actual performance against targets and
intervene selectively to take corrective action
3. Cultural controls – exist when employees “buy into” the norms and value systems of the firm strong culture implies less need for other forms of
control
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What Are Incentive Systems? Incentives - devices used to reward behavior
usually closely tied to performance metrics used for output controls
should vary depending on the employee and the nature of the work being performed
should promote cooperation between managers in sub-units
should reflect national differences in institutions and culture
can have unintended consequences
13-68
What Is Performance Ambiguity?
Performance ambiguity exists when the causes of a subunit’s poor performance are not clear is common when a subunit’s performance is
dependent on the performance of other subunits is lowest in firms with a localization strategy is higher in international firms is still higher in firms with a global standardization
strategy is highest in transnational firms
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What Is the Link Between Control, Incentives, And Strategy?
Interdependence, Performance Ambiguity, and the Costs of Control for the Four International Business Strategies
13-70
What Are Processes?
Processes refer to the manner in which decisions are made and work is performed many processes cut across national
boundaries as well as organizational boundaries
processes can be developed anywhere within a firm’s global operations network
formal and informal integrating mechanisms can help firms leverage processes
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What Is Organizational Culture?
Organizational culture - the values and norms that employees are encouraged to follow
Evolves from founders and important leaders national social culture the history of the enterprise decisions that resulted in high performance
13-72
What Is Organizational Culture?
Organizational culture can be maintained through
hiring and promotional practices reward strategies socialization processes communication strategies
Organizational culture tends to change very slowly
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What Is Organizational Culture?
Managers in companies with a “strong” culture share a relatively consistent set of values and norms that have a clear impact on the way work is performed
A “strong” culture is not always good may not lead to high performance could be beneficial at one point, but not at another
Companies with adaptive cultures have the highest performance
13-74
What Is the Link Between Strategy And Architecture?
A Synthesis of Strategy, Structure, and Control Systems
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What Is the Link Between Strategy And Architecture?
1. Firms pursuing a localization strategy focus on local responsiveness they do not have a high need for integrating
mechanisms performance ambiguity and the cost of
control tend to be low the worldwide area structure is common
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What Is the Link Between Strategy And Architecture?
2. Firms pursuing an international strategy create value by transferring core competencies from home to foreign subsidiaries the need for control is moderate the need for integrating mechanisms is moderate performance ambiguity is relatively low and so is the
cost of control the worldwide product division structure is common
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What Is the Link Between Strategy And Architecture?
3. Firms pursuing a global standardization strategy focus on the realization of location and experience curve economies headquarters maintains control over most
decisions the need for integrating mechanisms is high strong organizational cultures are
encouraged the worldwide product division is common
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What Is the Link Between Strategy And Architecture?
4. Firms pursuing a transnational strategy focus on simultaneously attaining location and experience curve economies, local responsiveness, and global learning some decisions are centralized and others are
decentralized the need for coordination and cost of control is high an array of formal and informal integrating
mechanism are used a strong culture is encouraged matrix structures are common
13-79
How Are the Environment, Strategy, Architecture and Performance Related?
For a firm to succeed
1. The firm’s strategy must be consistent with the environment in which the firm operates
2. The firm’s organization architecture must be consistent with its strategy firms need to change their architecture to reflect
changes in the environment in which they are operating and the strategy they are pursuing
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How Can Firms Implement Organizational Change?
To implement organization change1. Unfreeze the organization through shock therapy
requires taking bold actions like plant closures or dramatic structural reorganizations
1. Move the organization to a new state through proactive change in architecture requires a substantial and quick change in
organizational architecture so that it matches the desired new strategic posture
1. Refreeze the organization in its new state requires that employees be socialized into the new
way of doing things
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How Can Firms Implement Organizational Change?
Organizations can be difficult to change because of the existing distribution of power and
influence the current culture managers’ preconceptions about the
appropriate business model or paradigm institutional constraints
Chapter 15
Entry Strategy and Strategic Alliances
13-83
What Are the Basic Decisions Firms Make When Expanding Globally?
Firms expanding internationally must decide
1. Which markets to enter
2. When to enter them and on what scale
3. Which entry mode to use exporting licensing or franchising to a company in the host
nation establishing a joint venture with a local company establishing a new wholly owned subsidiary acquiring an established enterprise
13-84
What Influences the Choice of Entry Mode?
Several factors affect the choice of entry mode including transport costs trade barriers political risks economic risks costs firm strategy
The optimal mode varies by situation – what makes sense for one company might not make sense for another
13-85
Which Foreign Markets Should Firms Enter?
The choice of foreign markets will depend on their long-run profit potential
Favorable markets are politically stable have free market systems have relatively low inflation rates have low private sector debt
13-86
Which Foreign Markets Should Firms Enter?
Less desirable markets are politically unstable have mixed or command economies have excessive levels of borrowing
Markets are also more attractive when the product in question is not widely available and satisfies an unmet need
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When Should a Firm Enter a Foreign Market?
Once attractive markets are identified, the firm must consider the timing of entry
1. Entry is early when the firm enters a foreign market before other foreign firms
2. Entry is late when the firm enters the market after firms have already established themselves in the market
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Why Enter aForeign Market Early?
First-mover advantages include the ability to preempt rivals by establishing a
strong brand name the ability to build up sales volume and ride
down the experience curve ahead of rivals and gain a cost advantage over later entrants
the ability to create switching costs that tie customers into products or services making it difficult for later entrants to win business
13-89
Why Enter aForeign Market Late?
First-mover disadvantages include pioneering costs - arise when the foreign
business system is so different from that in the home market that the firm must devote considerable time, effort and expense to learning the rules of the game the costs of business failure if the firm,
due to its ignorance of the foreign environment, makes some major mistakes
the costs of promoting and establishing a product offering, including the cost of educating customers
13-90
On What Scale Should a Firm Enter Foreign Markets?
After choosing which market to enter and the timing of entry, firms need to decide on the scale of market entry firms that enter a market on a significant scale make
a strategic commitment to the market the decision has a long term impact and is difficult
to reverse small-scale entry has the advantage of allowing a
firm to learn about a foreign market while simultaneously limiting the firm’s exposure to that market
13-91
Is There a “Right” Way to Enter Foreign Markets?
No, there are no “right” decisions when deciding which markets to enter, and the timing and scale of entry - just decisions that are associated with different levels of risk and reward
13-92
How Can Firms Enter Foreign Markets?
These are six different ways to enter a foreign market
1. Exporting – a common first step for many manufacturing firms later, firms may switch to another mode
1. Turnkey projects - the contractor handles every detail of the project for a foreign client, including the training of operating personnel at completion of the contract, the foreign client is
handed the "key" to a plant that is ready for full operation
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How Can Firms Enter Foreign Markets?
3. Licensing - a licensor grants the rights to intangible property to the licensee for a specified time period, and in return, receives a royalty fee from the licensee patents, inventions, formulas, processes, designs,
copyrights, trademarks4. Franchising - a specialized form of licensing in
which the franchisor not only sells intangible property to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business used primarily by service firms
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How Can Firms Enter Foreign Markets?
5. Joint ventures with a host country firm - a firm that is jointly owned by two or more otherwise independent firms most joint ventures are 50–50 partnerships
5. Wholly owned subsidiary - the firm owns 100 percent of the stock set up a new operation acquire an established firm
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Why Choose Exporting?
Exporting is attractive because it avoids the costs of establishing local manufacturing
operations it helps the firm achieve experience curve and
location economies
Exporting is unattractive because there may be lower-cost manufacturing locations high transport costs and tariffs can make it
uneconomical agents in a foreign country may not act in exporter’s
best interest
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Why Choose a Turnkey Arrangement?
Turnkey projects are attractive because they are a way of earning economic returns from the
know-how required to assemble and run a technologically complex process
they can be less risky than conventional FDI Turnkey projects are unattractive because
the firm has no long-term interest in the foreign country
the firm may create a competitor if the firm's process technology is a source of
competitive advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors
13-97
Why Choose Licensing?
Licensing is attractive because the firm avoids development costs and risks
associated with opening a foreign market the firm avoids barriers to investment the firm can capitalize on market opportunities
without developing those applications itself Licensing is unattractive because
the firm doesn’t have the tight control required for realizing experience curve and location economies
the firm’s ability to coordinate strategic moves across countries is limited
proprietary (or intangible) assets could be lost to reduce this risk, use cross-licensing agreements
13-98
Why Choose Franchising? Franchising is attractive because
it avoids the costs and risks of opening up a foreign market
firms can quickly build a global presence
Franchising is unattractive because it inhibits the firm's ability to take profits out of one
country to support competitive attacks in another the geographic distance of the firm from its
franchisees can make it difficult to detect poor quality
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Why Choose Joint Ventures?
Joint ventures are attractive because firms benefit from a local partner's knowledge
of the local market, culture, language, political systems, and business systems
the costs and risks of opening a foreign market are shared
they satisfy political considerations for market entry
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Why Choose Joint Ventures?
Joint ventures are unattractive because the firm risks giving control of its technology
to its partner the firm may not have the tight control to
realize experience curve or location economies
shared ownership can lead to conflicts and battles for control if goals and objectives differ or change over time
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Why Choose a Wholly Owned Subsidiary?
Wholly owned subsidiaries are attractive because they reduce the risk of losing control over core
competencies they give a firm the tight control in different countries
necessary for global strategic coordination they may be required in order to realize location and
experience curve economies Wholly owned subsidiaries are unattractive
because the firm bears the full cost and risk of setting up
overseas operations
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Which Entry Mode Is Best?Advantages and Disadvantages of Entry Modes
13-103
How Do Core Competencies Influence Entry Mode?
The optimal entry mode depends on the nature of a firm’s core competencies
When competitive advantage is based on proprietary technological know-how avoid licensing and joint ventures unless the
technological advantage is only transitory, or can be established as the dominant design
When competitive advantage is based on management know-how the risk of losing control over the management skills
is not high, and the benefits from getting greater use of brand names is significant
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How Do Pressures for Cost Reductions Influence Entry Mode?
When pressure for cost reductions is high, firms are more likely to pursue some combination of exporting and wholly owned subsidiaries allows the firm to achieve location and scale
economies and retain some control over product manufacturing and distribution
firms pursuing global standardization or transnational strategies prefer wholly owned subsidiaries
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Which Is Better – Greenfield or Acquisition?
The choice depends on the situation confronting the firm
1. A greenfield strategy - build a subsidiary from the ground up a greenfield venture may be better when the
firm needs to transfer organizationally embedded competencies, skills, routines, and culture
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Which Is Better – Greenfield or Acquisition?
2. An acquisition strategy – acquire an existing company acquisition may be better when there are
well-established competitors or global competitors interested in expanding
The volume of cross-border acquisitions has been rising for the last two decades
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Why Choose Acquisition?
Acquisitions are attractive because they are quick to execute they enable firms to preempt their competitors they may be less risky than greenfield ventures
Acquisitions can fail when the acquiring firm overpays for the acquired firm the cultures of the acquiring and acquired firm clash anticipated synergies are slow and difficult to achieve there is inadequate pre-acquisition screening
To avoid these problems, firms should carefully screen the firm to be acquired move rapidly to implement an integration plan
13-108
Why Choose Greenfield?
The main advantage of a greenfield venture is that it gives the firm a greater ability to build the kind of subsidiary company that it wants
But, greenfield ventures are slower to establish
Greenfield ventures are also risky
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What Are Strategic Alliances?
Strategic alliances refer to cooperative agreements between potential or actual competitors range from formal joint ventures to short-
term contractual agreements the number of strategic alliances has
exploded in recent decades
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Why Choose Strategic Alliances?
Strategic alliances are attractive because they facilitate entry into a foreign market allow firms to share the fixed costs and risks of
developing new products or processes bring together complementary skills and assets that
neither partner could easily develop on its own help a firm establish technological standards for the
industry that will benefit the firm
But, the firm needs to be careful not to give away more than it receives
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What Makes Strategic Alliances Successful?
The success of an alliance is a function of1. Partner selection A good partner
helps the firm achieve its strategic goals and has the capabilities the firm lacks and that it values
shares the firm’s vision for the purpose of the alliance
will not exploit the alliance for its own ends
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What Makes Strategic Alliances Successful?
2. Alliance structure The alliance should
make it difficult to transfer technology not meant to be transferred
have contractual safeguards to guard against the risk of opportunism by a partner
allow for skills and technology swaps with equitable gains
minimize the risk of opportunism by an alliance partner
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What Makes Strategic Alliances Successful?
3. The manner in which the alliance is managed
Requires interpersonal relationships between
managers cultural sensitivity is important
learning from alliance partners knowledge must then be diffused through
the organization