Final studying Flashcards
(201 cards)
1
Q
What is international expansion?
A
Expansion into multiple geographic market to leverage investments in tangible and intangible resources
2
Q
What tests must a firm pass to justify an increase in corporate scope (horizontal, vertical or international)?
A
The Better off test and the ownership test.
3
Q
What are the two sources of competitive advantage that lead to passing the better off test?
A
Economies of scope and cross-selling benefits.
4
Q
What is the equation for economies of scope?
A
Cost formula here
5
Q
what is the main goal of a company’s strategy?
A
to provide a superior long-run return on investment
6
Q
What are the two ways to gain a long-run return on investment?
A
Through competitive advantage or attractive industry structure
7
Q
What are the two types of competitive advantage?
A
Superior competitive positioning and operational effectiveness
8
Q
By which two mechanisms does a firm capture value?
A
To raise buyer value (or WTP) or lowering cost (SOC)
9
Q
What three factors drive the financial performance of a firm?
A
macroeconomic conditions, industry structure and competitive positioning.
10
Q
What are Porter’s 5 forces?
A
Substitutes, Rivalry, threat of new entry, supplier power and buyer power
11
Q
What does VRIO stand for?
A
Valuable, real, inimitable, organization
12
Q
What is positive sum competition?
A
When firms in an industry choose to compete in areas that different from each other. Like, instead of fighting over all the flights, one airline may specialize in short ones and another airline may specialize in long ones
13
Q
What are the two sources of competitive advantage?
A
Differentiation, lower cost
14
Q
How do operational effectiveness and competitive positioning differ with regards to the productivity frontier?
A
Operational effectiveness can get you TO the productivity frontier; competitive positioning helps you pick your best position along that frontier.
15
Q
What support activities help explain a firm’s competitive advantage?
A
Firm infrastructure, HR management, Technology development, procurement
16
Q
What primary activities help explain a firm’s competitive advantage?
A
Inbound logistics, operations, outbound logistics, marketing and sales and after-sales service.
17
Q
How does a firm add value?
A
They must do something unique and valuable. If the firm were gone tomorrow, no one would be able to perfectly copy the activity.
18
Q
Can a firm create competitive advantage by simply improving an activity?
A
No–CA comes from the coordination across activities–it’s an integrated set of choices.
19
Q
How does competitive advantage work in varying industry conditions?
A
To create CA, you have to have a strategy that neutralizes the unattractive features of the industry and takes advantage of the attractive ones.
20
Q
What are the 3 types of fit that matter when creating or testing a strategy for a firm?
A
Internal fit, external fit and dynamic fit
21
Q
What model can we use WITH the 5 forces to explain an industry?
A
Supply and demand curve
22
Q
For what is supply and demand useful?
A
1) Predicting prices and quantities in some markets, 2) anticipating the effects of changes that shift supply or demand, 3) forcing you to think carefully about marginal and average costs.
23
Q
What implicit assumptions of the supply and demand model make it difficult to use for strategic purposes?
A
It assumes products are identical, that there are many small buyers and sellers in the market (who are by definition price-takers, not setters) and that everyone has full information.
24
Q
Why might industry rivalry be intense?
A
1) competition is on the basis of easy-to-match attributes ESPECIALLY price, 2) competitors can’t maintain price discipline, 3) behavioral considerations
25
In what ways might competition on the basis of easy-to-match attributes cause rivalry?
1) products are barely distinguishable, 2) brand identities are weak, 3) buyers have ready access to information about products
26
What does it mean if "competitors can't match price discipline"?
It means that the immediate benefits of undercutting competitors are large, and the long-run costs of undercutting are small.
27
What conditions lead to there being immediate benefits to undercutting competitors?
customers can switch among providers easily and cheaply, there is excess capacity, industry growth is slow, fixed costs are high, relative to marginal costs (which means there will be vigorous competition for incremental customers.)
28
What are examples of small long-run costs of undercutting competitors?
Undercutting is hard to detect, retaliation is difficult to muster, is hard to direct only at the target and is delayed, the industry is fragmented, with no real leader to spearhead retaliation, and players are not likely to face one another again in the future
29
What kinds of behavioral considerations for firms may lead to intense rivalry?
Competitors have a diversity of backgrounds and don't understand each other well (there may not be any pre-set norms); competitors despise one another.
30
How does trench warfare inform rivalry amongst businesses?
Live and let live; mutual non-competition
31
What makes buyers or suppliers powerful?
1) there are only a handful who purchase in bulk; 2) they have a number of alternative products and sources available; 3) the costs of switching among suppliers are modest; 4) buyers can integrate backwards (or make it themselves); 5) they have good information
32
For what reasons might buyers' and suppliers high price-sensitivity affect a firm?
1) if the input accounts for a large portion of total costs; 2) the input has little effect on the quality or performance of the buyer's own product; 3) the cost associated with the input failing are low (so reputation for reliability matters little); 4) providers are not distinguished by much other than their prices; 5) they have razor-thin margins
33
What is a substitute to a product?
They can be direct substitutes, like jam for jelly, or even just doing without.
34
Why are substitutes for a product a problem?
They limit demand and put a ceiling on prices.
35
When are substitutes particularly threatening to a firm\?
When they have favorable price-performance or are for a significant fraction of customers.
36
What are typical uses of industry structure analysis?
-understand current profitability levels; -identify forces that must be countered in order to achieve superior profitability; -test decision to enter an industry; -test the decision to exit an industry; -assess the effect of major change in environment (e.g., deregulation); -identify ways to alter industry structure; -identify attractive segments within an industry
37
What are typical steps in an industry analysis (using the five forces)?
1) define the industry (what's in? what's out?)
2) identify the players (customers, competitors, suppliers)
3) Assess the strength of each force
4) conduct a sniff test (is the assessment in line with actual profitability? Are more profitable players better positioned vis-a-vis competitive forces?)
5) Assess recent and future changes in each force
38
How does the "value net" analyze the industry environment?
It looks at the focal firm in relation to its' buyers, suppliers, competitors and complementors.
39
What are common pitfalls and things to avoid when analyzing an industry?
Failing to define the industry clearly; confusing transient effects with structural forces; ignoring changes in structural forces; assuming that competitive forces cannot be altered; confusing evidence of a force with its underlying cause (like blaming customer power on customer price sensitivity rather than exploring the root causes of price sensitivity); ignoring the full range of substitutes; paying equal attention to all the forces
40
What is an emergent strategy?
An emergent strategy is a pattern of action that develops over time in an organization in the absence of a specific mission and goals, or despite a mission and goals. It's like an amoeba being poked: it moves, but it's because of the stimuli and the response to the stimuli, not because of its intrinsic motivation to move.
41
By what other name might an emergent strategy by know?
Realized strategy
42
What industries are examples of intense forces?
Airlines, textiles, hotels
43
What is the result if the forces are intense?
Almost no company earns attractive returns on invesment
44
What industries are examples of benign market forces?
Software, soft drinks, toilettries
45
What is the result if industry forces are benign?
Many companies are profitable
46
What is the most useful way to use the 5 forces framework?
Combine it with intuition.
47
What are the five qualitative tools that surround the 5-forces framework?
1) supply and demand analysis
| 2) Marginal and fixed cost analysis
48
How can we use a supply and demand analysis within the 5-forces framework?
We broadly apply the logic to understand the effects various events or conditions may have--drops in demand or supply, increases in same, inelastic vs. elastic demand,
49
How do we apply the marginal and fixed costs tool to the 5-forces framework?
Ex: should an airline let a customer on for $50 right before take off? Your decisions would be different if you had very low marginal costs than if you had very high marginal costs.
50
What three types of fit should a company strive for in order to attain/maintain competitive positioning?
External fit (how it fits within the industry and market), internal fit (do the activities work together to drive a wedge between WTP and SOC?) dynamic fit (are the activities VRIO? Is the system of activities logical?)
51
What is a competitor analysis?
The process by which a firm investigates current or potential rivals in order to predict the nature of their likely actions and using these predictions to shape current decision-making.
52
What is the goal of a competitor analysis?
A favorable competitive outcome; could be long- or short-term, like a successful product introduction or long-term like a sustainable competitive advantage
53
What are the elements of a competitor analysis?
1) Game theory: defines the competitive decision problem and predicts outcomes;
2) Behavioral theory: identify possible rival cognitive biases and behavioral biases and consider the cognitive shortcuts they may be using
3) Analysis framework: Thinking about what info you need to fill in the blanks for what you know; what information will reveal your rivals' payoffs and biases
4) data sources--where you're going to get all this info you need (public, private, signals)
54
What types of information might one want when analyzing the cognitive framework of their rival?
Goals, strategy, assumptions, capabilities
55
Implicit in game theory is that those who play the game well must do what else well?
KNOW the game they're playing. The rules, the strategies, etc.
56
What is a dominant strategy?
When a player has an optimal payoff, regardless of the other player's choice
57
What is an equilibrium?
Outcomes in which neither player has an incentive to unilaterally deviate from his or her choice of action.
58
Is a decision tree a sequential or simultaneous game?
Sequential
59
Is a matrix game sequential or simultaneous?
simultaneous
60
For what types of business decisions might a simultaneous game be played?
advertising, pricing, production quantities
61
What is a static game?
A game in which each player moves in turn
62
what is a dynamic game?
A game in which there are lots of moves and inter-related decisions being made at the same time
63
What is "bounded rationality"?
When you don't have the time, willingness or ability to conduct a competitor review, and you end up relying on heuristics
64
What is the endowment effect?
When you value something more when you own it than when you don't. (Think rental car)
65
What is the status quo bias?
In situation A, I prefer a to b. In situation b, I prefer b to a. (think psychic and physical switching costs)
66
How is "attempting to justify past actions" a cognitive bias?
You often end up throwing money after bad just to make it seem like a past decision wasn't so bad--not just abandoning it now.
67
What is the sunk cost fallacy?
When you make decisions that seek to cover a cost that's already sunk. Now it doesn't matter. you can't get it back.
68
What is nonrational escalation of commitment?
Power struggle, price war, totally committed to a losing strategy; sold out the whole route
69
What is representative bias?
When you say, "the few examples with which I am familiar mean that everything in the world is just like this."
70
How is overconfidence a behavior bias?
You can overestimate your own capabilities or underestimate your competitors'
71
What is confirmation bias?
Prooftexting. FInding only the parcel of info that supports my points.
72
When conducting a competitor analysis, what questions must we consider?
What drives the competitor (future goals and assumptions held about itself and the industry); and what the competitor is doing and is going to do (current strategies and capabilities (both strengths and weaknesses).
73
What is a positive externality of pricing in complementor situaitons?
Complementors have a lower cost jointly than they would individually; when they price together, they can think about the entire demand curve--not just their own.T They're able to capture a synergy
74
How can coordination help complementors?
Price coordination helps to maximize joint products and release coordination raises WTP and shifts demand outward.
75
What is coopetition?
"Competing with complementors": because both parties have a claim on the value. Whoever captures more value will have better bargaining power.
76
Why do industry and market conditions matter in coopetition?
Because if one party can capture more value, they'll have more bargaining power, and maybe even will freeload.
77
How do we model our coopetitors actions?
1) conduct an economic analysis of their behavior, think through their incentives. Predict what they WILL do to determine what you SHOULD do.
2) Conduct a behavioral analysis/organizational analysis for their motivations, biases, etc.
78
How do we solve a simultaneous game?
We find an equilibrium
79
How do we solve a sequential game?
We start at the right and work backwards
80
In what ways does a repeated game differ from a single game?
can facilitate coordination--have to keep working together; Staves off reneging; misinterpretations of action can be disastrous.
81
Under what conditions are cooperative outcomes most likely? Having at least how many of these conditions is ideal?
1) few players
2) long time horizons
3) Standard products
4) transparent pricing
5) similar costs
Want at least three of these; they all reduce the risk of miscommunication
82
What is an early mover advantage?
When you can shape the game by forcing the hand of later movers
83
Why must a commitment to a strategy be credible?
Because it allows you to pre-empt another's best move, and there influence their strategy.
84
When firms meet repeatedly, does the benefit of credible commitments increase, decrease or stay the same?
The benefits increase; but the problem of credibility does not disappear. You must still maintain that "trust"
85
What is one way to make a credible commitment?
Irrevocable tie yourself to an outcome. Burn the boats. Requires you to REALLY understand the game you're playing AND the one your rival thinks you are.
86
In game theory, why do we use BOTH behavioral analysis AND economic analysis?
Because IRL, players' actions are interdependent. You can't just look at things on paper and expect them to work out like that in real life.
87
What are questions we ask ourselves about our competitor when playing a game?
What are their objectives?; what are they maximizing? is it profits? is it something else?; who is the decision-maker? what is his incentives? What biases might he have?; do they have different assumptions about the future than I do?; is this part of a larger game?
88
Do we only consider the payoff interdependencies between us and our rival?
No--we think broadly about interdependencies in the entire market.
89
What players other than me and my rival have interdependencies that may be affected by this game?
Buyers, complementors, suppliers, competitors, gov't bodies, media organizations, public interest groups
90
How do we know what other groups to consider when doing a game theory analysis?
We ask if our actions affect their payoffs, and if their actions affect OUR payoffs. If the answers are both yes, then game on!
91
What is allocentrism?
Being able to look at the world from many different points of view
92
Why is allocentrism important in game theory?
We must be able to consider our rivals positioning, their biases, strategies, the way they're viewing the situation, etc.
93
If you're not adding any value to a market, why might competitors not want you entering anyways?
Just because you can't capture it doesn't mean you can't divert it from someone else- either inadvertently or on purpose
94
What should you do if your entry into a market shifts the value-capturing dynamics?
Get paid to play! Whoever you're shifting value towards needs to pay you to do it. You're running a monopoly on competition! Understand your effect on value creating and value division and exploit it.
95
If you're in an industry where you aren't adding any value, why should you do?
Understand the effect you have on value-creating and value-division and exploit it. Get paid to value-divide.
96
When should you engage in a price war?
Only if you're the lower-cost competitor. Why would you moon the giant? It's like fighting a land war in Asia
97
What is corporate strategy?
A set of choices about multi-market activities
98
How is corporate strategy different from competitive strategy?
Competitive strategy is about choices contained only in one market; corporate strategy is about choices in multi-markets
99
What is corporate advantage?
When corporate strategy increases business units' competitive advantage above and beyond what they could otherwise achieve
100
What is corporate scope?
The markets in which the corporation maintains a competitive presence
101
How can a corporation maintain a presence in multiple markets?
They can buy businesses outright, engage in a joint venture or alliance with another corporation to serve the market, or they can sign a contract with a firm already in the market
102
What is the better off test?
It asks if the product of the two businesses is greater that the sum--did they achieve synergies by being together?
103
Does a company need to pass the better off test in order to benefit from maintaining a presence in multiple markets?
Yes. they must pass the better off test. If they didn't they would be better off NOT being in the market
104
What is the ownership test?
It asks if owning the business produces more of a competitive advantage than another arrangement would produce.
105
How does the pricing of the Nintento Wii allows for price discrimination?
By pricing the console low and the games at a cost, the casual gamer can pay $300 for a console and $80 for 4 games, while a hard-core gamer can pay $300 for a console and $800 for 40 games.
106
What is a two-sided market?
a market in which two distinct groups of users interact with each other through a platform.
107
What does the platform provide to the two-sided market?
The infrastructure an rules that facilitate the two groups' interactions; may be physical or virtual
108
Why is the platform valuable to the users?
Because it allows them to interact with the other side.
109
What are examples of two-party platforms?
Shopping malls, auctions, video game consoles
110
What are cross-side network effects?
they exist when the value of the platform to a user on a given side depends on the number of users on the other side
111
Are cross-side network effects typically positive or negative?
positive
112
What are same-side network effects?
they exist when the value of the platform to a user on a given side depends on the number of users on the same side.
113
Are same side network effects usually positive or negative?
They can be either
114
How can we determine if there are same-side network effects?
we ask the question "how do users on a given side value having more users on the same side, holding the number of users on the other side fixed?
115
In an online market like Etsy, who are the two-sides that are connected?
The buyers and the sellers
116
Are cross-side network effects in a online marketplace like Etsy positive or negative?
Positive in both directions
117
Are same side network effects in an online marketplace like Etsy positive or negative?
both positive and Negative on the side of the sellers and neutral on the side of the buyers
118
Who are the two-sides that are connected by two-party network like the yellow pages?
Consumers and advertisers
119
What are the cross-side effects in a two-party network like the Yellow Pages?
Advertisers value more consumers; consumers value fewer advertisers
120
What are the same-side network effects in a two-sided network like the Yellow Pages?
Neutral o consumer side; negative on advertiser side
121
Who are the two-sides that are connected by two-party network like an online auction?
Buyers and sellers
122
What are the cross-side effects in a two-party network like and online auction?
positive in both directions
123
What are the same-side network effects in a two-sided network like an online auction?
negative on both sides
124
Who are the two-sides that are connected by two-party network like a shopping mall?
Shoppers and retailers
125
What are the cross-side effects in a two-party network like a shopping mall?
positive in both directions
126
What are the same-side network effects in a two-sided network like shopping malls?
negative in both directions
127
Who are the two-sides that are connected by two-party network like credit cards?
consumers and retailers
128
What are the cross-side effects in a two-party network like credit cards?
positive in both directions
129
What are the same-side network effects in a two-sided network like credit cards?
Neutral on the shopper side; neutral or negative on retailer side
130
Who are the two-sides that are connected by two-party network like a one-of-a-kind show?
shoppers and artists
131
What are the cross-side effects in a two-party network like a one-of-a-kind show?
positive in both directions
132
What are the same-side network effects in a two-sided network like a one-of-a-kind show?
negative in both directions
133
Who are the two-sides that are connected by two-party network like video game consoles?
players and game developers
134
What are the cross-side effects in a two-party network like video game consoles?
positive in both directions
135
What are the same-side network effects in a two-sided network like video game consoles?
positive to player side; negative on developer side
136
What is the chicken and egg problem?
You need buyers to attract sellers; you need sellers to attract buyers (or other types of users on a two-sided network platform)
137
What are strategies that can be used to combat the chicken and egg problem?
cheap hardware or infrastructure, development costs for sellers; in-house development of product first to attract buyers; providing backward compatibility with whatever platform you're trying to replace; moving first (especially if platform is innovative); managing expectations about the time and resources it will take to attract users
138
Why is it more complicated to price for users of a two-sided network than for a traditional market?
Each side will be charged its own price; in a conventional market, when you adjust the price of ice cream, you affect the amount of ice cream you sell and in turn, your revenue. In a two sided market, when you adjust the price of the rent on a ice cream kiosk in a mall food court, you not only affect the ability of sellers to rent space from you, you also affect the value of your mall to shoppers, who can no longer get the dippin'-dots they so much love. Your pricing must account for this.
139
How do platforms typically adjust for pricing issues in a two-sided market?
while not necessary, the practice is to subsidize one side of the network while the other side is used to generate revenue for the platform
140
What are factors to consider when pricing the two sides in a two-sided network?
1) which side is more price sensitive?
2) which side's WTP is more sensitive to the number of users on the other side?
3) Which side needs to produce quality?
4) How important is the user to attracting users on the other side?
141
Why are complementors often crucial to two-sided markets?
They are critical to creating WTP for a platform--they drive quality and quantity
142
What is a concern with including complementors in a 2-sided network?
They then have a claim on the value created by the platform; the division of value will be a function of the bargaining power of each side
143
What are examples of 2-sided markets that have "tipped"?
Windows; Blu-Ray; eBay; pdf
144
What are examples of 2-sided markets that have not "tipped"?
Recent video game generations; credit cards; smartphones; ebook readers
145
What are factors that affect the likelihood of tipping?
1) how expensive is it for users to affiliate with more that one platform?
2) How positively strong are the same- and cross-side networks?
3) Is there scope for functional differentiation between platforms? Do users have a strong preference for special features?
146
What is envelopment?
It is when one platform provider enters into another's market by bundling its own platforms functionality with that of the target
147
What are examples of successful envelopment in two-sided networks?
Microsoft (Windows Media Player) --> RealPlayer; Apple (itunes and appstore) --> Palm Pilot, Game Boy, Kindle
148
When do envelopment attacks most often succeed?
When the target's and attackers users overlap significantly, or the attackers can harness price discrimination benefits, or economies of scope are high
149
Is envelopment a form of horizontal or vertical diversification?
horizontal
150
What are examples of unsuccessful envelopment attempts?
Google (Knoll) --> Wikipedia; eBay (Billpoint) -->PayPal
151
How is understanding industry vital to strategy?
You must understand where the firm fits in, the historical path it has taken, where it is likely heading
152
How does the concept of competitive dynamics relate to strategy?
the firm must know if it should differentiate/segment itself vs. undergo head-on rivalry with it's competitors
153
What two parties do newspaper connect?
readers and advertisers
154
what two parties do HMOs link?
patients and health-care providers
155
How does a platform's profitability change over time?
Successful platforms enjoy increasing returns to scale. users will pay more for access to a bigger network, so margins improve as user bases grow
156
How does increasing returns to scale affect what the industry looks like?
You get a handful of large platforms, like with credit cards
157
Why do companies frequently fail in two sided network?
managers make assumptions and decisions that may be appropriate for traditional markets, but are wholly inappropriate for two-sided networks.
158
What factors must managers consider when designing their platforms' business model in a two-sided network?
How to price their platform; how to manage winner-take-all dynamics; how to deal with competitive threats from adjacent markets that have the ability to offer a multiplatform bundle
159
What is the ultimate goal of subsidizing one side in a network?
Generating cross-side network effects
160
How should a manager cope with platform competition?
1) determine whether the networked market is destined to to be served by a single platform; 2) decide whether to fight or share
161
In order to successfully tip the market towards a platform, what advantages might a platform have?
1) cost or differentiation advantages; 2) pre-existing relationship with prospective users; 3) Reputation (Microsoft--ruthless); 4) Deep pockets
162
Is it better to be a late or early mover in a network platform battle?
Late mover advantages may matter more; You can avoid the pioneers positioning mistakes, be better placed to incorporate the latest technology into product designs or be able to reverse engineer the pioneer's products and beat them on cost.
163
What is an example of a late-mover in a network platform battle who won BECAUSE they were a late mover?
Google; took advantage of the problems of previous browsers--created clean desktop, plaid listing model of advertising revenue on search enging
164
In what two sets of circumstances is it a mistake to try and amass users as quickly as possible?
1) when the business isn't readily scalable. 2) platform-mediated networks are prone to boom or bust valuation cycles
165
What is convergence?
When envelopment opportunities blur market boundaries.
166
What are examples of convergence?
smartphone => video, music; Collision course between convergences: eBay has paypal, skype, craigslist. Google has Google checkout, google talk and google base
167
What are strategies for dealing with the threat of envelopment?
1) Change business models: switch your subsidy side, or offer services to help facilitate transactions across a two-sided network; 2) Find a bigger brother: find a big company to bundle with or attach yourself to something with huge switching costs; 3) sue: anti trust laws for two-sided networks are still in dispute
168
What makes two products complements?
If each drives up demand for the other.
169
How will concerns of cannibalization slow innovation by industry incumbents?
An incumbent must weigh the profits it will gain from sales of the new offering with the profits it will lose from lower sales of its existing product
170
How do you describe how you found an equilibrium?
You say "the equilibrium is (x,y) because each firm has a dominant strategy of picking that point.
171
What should you do if the question on the exam changes potential payoffs?
Re-draw the tree with new payoffs and play the damn game again
172
What is horizontal diversification?
Simultaneous ownership of 2 or more units that utilize a similar set of tangible and intangible resources.
173
How can we know if horizontal diversification will pass the better off test?
If there are economies or scope, or if the firm can realize cross-selling benefits
174
When do we usually see economies of scope?
When a corporation owns a multi-purpose asset hat is not fully utilized in production of a single product. Those assets can be tangible, like manufacturing plants or distribution channels, or intangible, like skills or R&D
175
Why must a company pass the ownership test AND the better off test?
Because it may be able to realize economies of scope or cross-selling benefits with a partner, but that doesn't mean they need to own them.
176
What is the fundamental paradox of information?
The prospective purchaser cannot know the value of the information (or trade secret) until the information is revealed, at which time, he will no longer be willing to pay for it.
177
When would the issue of an intangible asset not provide for a firm passing the ownership test?
When the value of the intangible is recognized by both parties.
178
How does one satisfy the ownership test?
Only if there is the presence of obstacles to a successful contractual relationship.
179
If we can write a contract that works for both of us, and allows us to pass the better-off test together, should one of us buy the other?
No--the ownership test will not be satisfied
180
What is vertical integration?
When one corporation owns business units that make inputs for other business units within the corporation.
181
Who is upstream in a vertically integrated relationship?
The firm who makes inputs for the other
182
Who is downstream in a vertically integrated relationship?
The firm who receives inputs from the other
183
How can two companies considering vertical integration pass the better-off test?
Usually, if two companies tailor their assets to exchanges with each other, this is an indication that the better-off test may be fulfilled, especially if one firm doesn't have an incentive to avoid reneging on a promise
184
How can two companies considering vertical integration pass the ownership test?
if enforcing specific prices, quality or terms of delivery are difficult to specify in a contract, then the ownership test may be fulfilled
185
Why do we see more firms with a broad scope in developing countries than in developed ones?
Because it is often difficult to enforce contracts in developing countries, which makes it much easier to pass the ownership test.
186
What is forward vertical integration?
When a corporation starts a firm to provide a down- or upstream partner for another of it's businesses.
187
Why should acquisition be the strategy of last resort when considering an increase in corporate scope?
As scope increases, so does heterogeneity in requirements, goals and beleifs across business units; trying rewards to individual business unit performance becomes more difficult; resource allocation becomes about "favorites" instead of market forces; combining cultures is difficult; overpaying is common
188
Must both conditions of the better off test be passed in order for the test to be satisfied?
No--as long as the net impact is positive, only one needs to be passed
189
How might meeting in multiple markets change the strategy of two firms game theories?
It makes for a more credible threat when you know you're going to meet each other again; also, it provides more chances for meetings, and you start to trust or distrust your rival appropriately
190
What is the "better-off" testing question we ask about global expansion?
Does the presence of the corporation in a given geographic market improve the total competitive advantage of business unites over and above what they could achieve on their own?
191
What is the ownership question we ask about global expansion?
Does ownership of the business unit in a geographic market produce a greater competitive advantage than an alternative arrangement would produce?
192
How can firms pass the better-off test in global diversification?
Realizing cost differences, economies of scale and exploiting industry knowledge around the world.
193
How can firms pass the ownership test in global diversification?
If the asset being transferred from one country to another is intangible or difficult to define, or if the fundamental paradox of information will apply, especially if a contract is very hard to enforce.
194
How can offshoring help a firm?
By streamlining their production processes and supply chains globally, they can lower costs
195
What product qualities do well with offshoring?
Lightweight, high-value components; cheap and easy to ship; few governmental or organizational barriers
196
What three factors determine the course of globalization in an industry or company?
Production, regulatory and organizational
197
How does production factor into globalization?
It determines a industry's potential to disaggregate its value chain
198
What are the two factors that determine whether or not a company should PRODUCE globally?
relocation sensitivity and location-specific advantages
199
What factors can limit globalization for a company or an industry?
internal management structures, incentive systems and unionization
200
What are the five stages of globalization?
1) market entry; 2) product specialization; 3) value chain disaggregation; 4) value chain reengineering; 5) creation of new markets
201
In what ways can companies realize cost savings through globalization?
cheap labor; cheaper inputs
