Common Themes Flashcards
(43 cards)
Describe the VRIN Framework/Barney’s Model
This follows the RBV approach, with the view that the following characteristics of a resource are necessary in order to produce a sustained competitive advantage:
1. Valuable- the resource must generate value for the firm.
2. Rare- ideally, unique if it is to generate value.
3. Inimitable: Cannot be copied
4. Non-Substitutable: Cannot be substituted
These are the necessary values a sustained competitive advantage would have, however this does not mean it is the ONLY requirements needed (depends on the context).
What is a Strategy Tripod?
This is the combination of the industry-, resource-, and institution-based view to provide a more robust understanding of strategy.
- [industry-, resource-, and institution-based view] –> Strategy –> Performance
Describe Porters Five Forces
Porters five forces strategy follows the industry-based view with the belief that firms must position themselves against these five external, environmental forces:
* The threat of entry
* The threat of rivalry
* The threat of substitutes
* The threat of powerful suppliers
* The threat of powerful buyers
Describe the resource-based view (RBV)
The RBV focuses on the internal resources of the organisation in considering the source of competitive advantage.
It suggests that it is unique clusters of resources that determine profitability.
Performance differences are explained by looking inside the organisation.
What are the 2 types of isolating mechanisms associated with a sustained competitive advantage? (2,4)
- Impediments to imitation
- Legal restrictions (patents, trademarks, copyrights)
- Superior access to inputs and customers
- Market Size and Scale Economies
- Intangible barriers to Imitation (ambiguous link between resource and advantage,
historical circumstance, social complexity)
- Early-Mover Advantages
- Learning curves
- Reputation and buyer uncertainty (people prefer to buy what they know, i.e.
Starbucks) - Buyer switching costs (apples ecosystem)
- Network effects (the more people that use it, the more attractive the product
becomes)
Network Externalities (Effects)
This is where consumers place a higher value on a product if other consumers use it. –> Very common with Apple products.
Describe the Institution-based View
The institution-based view highlights the importance of formal institutions (laws, regulations, etc…) and informal institutions (cultural values, norms, traditions) in explaining firm performance.
Why do firms internationalize? Dunning (1992) (3)
- Market Seeking: the search for new customers and new markets
- Resource Seeking: Natural or Advanced, searching for resources within a country.
(raw materials vs knowledge spillover) - Efficiency Seeking: search for efficiency from technology or regulation.
Describe the Born Global Model (3)
Firms can either be “Born Global” or “non-Born Global”.
Due to an increase in information and technology Born Global firms can directly enter even very distant markets almost immediately, without having to build a domestic base.
- Origin: Born Global firms often start out in small markets, which forces them to internationalize early on.
- Markets: They supply global niche markets–> Forces them to internationalize to achieve scale, or to pursue significant first mover advantages.
- Customers: They tend to have multinational customers, often internationalize simply to follow their customers (piggy-backing).
Non-Born Global firms cannot successfully internationalize in the same way.
Give the 3 aspects of the Generic Country Attractiveness Framework
1) Country risk analysis
2) Market Opportunities
3) Industry Opportunities
Describe the CAGE Model
The CAGE model focuses on distance as the main source of risk:
- Cultural Distance
- Administrative and political distance
- Geographic distance
- Economic/wealth distance
Describe the ‘Country Risk’ analysis factor of the Country Attractiveness framework (4)
1) Country risk analysis:
A. Political Risks (Asset destruction, asset spoliation)
B. Economic Risks (Economic growth, inflation, input costs, exchange rates)
C. Cultural Risks (Hofstede)
D. Operational Risks (Employee risks, operational risks)
Describe the ‘Market Opportunities” analysis factor of the Country Attractiveness framework (3)
2) Market Opportunities:
A. Market Size
B. Market Growth (long term investments focus more on forecasts)
C. Market Quality (what is the range of inequality and how may that affect the
product performance)
Describe the ‘Industry Opportunities’ analysis factor of the Country Attractiveness framework (3)
3) Industry Opportunities:
A. Industry Competitive Structure (Porters 5 forces)
B. Resource Endowments (The 3 types of resources: Human, Physical, Operational)
C. Investment Incentives Granted by Government
Define transaction costs and state their categories: (3)
Transaction costs are the costs of making an economic trade:
1. Search and information costs
2. Bargaining costs
3. Policing and enforcement costs
Are financial costs considered transaction costs?
No
Transaction Cost Economics (TCE) suggests when internalizing: (2)
- Activities are internalized wen the transaction costs of internalization are lower than the costs outsourcing.
- Activities are out-sourced when the transaction costs of outsourcing are lower than the ones internalizing.
Where do transaction costs come from? (2) Define each
- Bounded Rationality - The capacity of humans formulating and solving complex problems is limited. Our decisions are “bounded”, therefore, the choices we make are rational, but not optimal.
- Bounded Reliability - humans are self-interested individuals. When faced with the decision to enrich oneself, or to enrich another, a rational individual will choose to enrich himself.
For a particular transaction, the level of additional transaction costs depends on 3 critical factors. Explain each one:
- Asset specificity- the more specific the value that is generated from the asset, the fewer the potential suppliers, and therefore the higher rental costs. High asset-specificity implies the transaction should be done internally.
An example would be a newspaper printing press vs a computer. As a newspaper
printing press has one specific purpose, the supply is lower, and therefore there are
higher rental costs.
Therefore it would be a strategic move for the company to buy the newspaper
press than outsource it. - Uncertainty / Complexity- The higher the level of uncertainty towards a transaction, the higher the transaction costs.
An example may be the cost of accumulating knowledge, higher contracting costs,
etc… - Frequency - High frequency of use implies that the costs can be spread over each use. High frequency transactions are better suited internally.
Referring to the Newspaper press, if you were to print 1 newspaper, this would
seem like poor investment, however, printing 1,000,000 papers would be a better
strategic decision.
Who is the agent in the principle-agency theory?
The agent is someone that you hire/rent to do a job for you.
What is the Agency theory?
This theory describes a problem that arises when the managers and shareholders have different goals.
When does the principal-agent problem arise? (1) What challenge may the Principle face from this? (1)
- the principal pays the agent for performing certain acts that are useful to the principal and costly to the agent.
This means that the principle and the agent have different objectives:
the agent wants it ‘done’, and the principal wants it ‘done right’. - there are elements of the performance that are difficult (or costly) for the principal to observe.
This means that the principle cannot distinguish between good and bad agents, or between ‘done’ and ‘done right’.
The “agency cost” is the sum of the (3)
- Bonding Cost: Cost of establishing the relationship
- Residual Cost: Difference between what the agent did and what the principle would have done
- Monitoring cost: Costs incurred by the principle to mitigate the loss caused by the agent.
What increases agency costs?
- Information Asymmetry
- Uncertainty
