ch. 7 Flashcards
(17 cards)
demand conditions (diamond of national advantage)
the home market’s demand for the industry’s product or service
factor endowments (diamond of national advantage)
a nation’s position in the factors of production
relating support industries (diamond of national adv.)
the presence, absence, and quality in the nation of supplier industries
firm strategy, structure, and rivalry (diamond of national adv.)
the conditions in the nation for which companies are created, organized, and managed, as well as the nature of domestic rivalry
Motivations for international expansion
-increase market size
-take advantage of arbitrage
-optimize the location of value-chain activities (performance enhancement, cost reduction, and risk reduction)
International Expansion Risks
-Political risks
-Economic risk and counterfeiting
-Currency risks
-Management risk
Outsourcing
using other firms to perform value-creating activities that were previously performed in-house; change of ownership of activity (does not specify geographic location)
Offshoring
Shifting a value-creating activity from a domestic location to a foreign location (doesn’t change ownership necessarily)
Hidden costs of offshoring
-high # of hours to product the same product
-more training and supervision costs
-intellectual property risks
-wage inflation
Global strategy
High pressures to lower costs, low pressures for local adaptation
strength: economies of scale
weakness: dependence on a single facility
(ex: Sony)
International strategy
Low pressures to lower costs, low pressures for local adaptation
Strength: leverage knowledge and core competencies
Weakness: limited ability to adapt to local markets
(Ex: Merck)
Trans-national strategy
High pressures to lower costs, high pressures for local adaptation
Strength:adapts products to local markets
Weakness: High managerial challenges for knowledge transfer
(ex: McDonalds)
Multi-domestic strategy
Low pressures to lower costs, high pressures for local adaptation
Strength: adapts products to local markets
Weakness: Low cost savings
(ex: Kraft)
Wholly owned subsidiary
business in which a multi-national company owns 100% of the stock
strength: possibly highest return
risk: most expensive and risky
Licensing
Contract for the right to use intellectual property
strength: little risk and need to invest
risk: forgoes potential revenues and profits
Franchising
Contract for the right to use intellectual property + monitoring and training
strength: little risk and need to invest
risk: forgoes potential revenues and profits
Exporting
Producing goods in one country to sell them in another country
strength: inexpensive to enter foreign markets
risk: difficult to meet local market needs
