Lecture 5: Int'l Business Strategies

Question 1

What is the external strategic management model

Answer 1

Positioning in industry
structure- Industrial
Organization (IO) background
If industry structure has perfect
competition–> low profits, but if
imperfect –>
5 forces model Porter –(MGCR 423
Strat Mgmt)
• Industry rivals
• Threat of new entrants
• Suppliers
• Buyers (& channels)
• Threat of substitutes

-Positioning –> cost leadership,
differentiation, focus

Question 2

What is porter’s 5 forces model?

Answer 2

• Industry Rivals (degree of rivalry among established firms)
• Threat of new entrants
• buyer power
• supplier (and channel) power
• threat of substitutes

Question 3

what is the internal based view of the firm? Ie what is the internal strategic management model?

Answer 3

resource-based view
-capabilities/competencies

-Barney (VRIN model)
• Competencies create value when Highly Valued by customers.
• Capabilities are Rare.
• Capabilities are Inimitable (hard to copy)
• Capabilities are Nonsubstitutable
(can’t be replaced by another capability with similar function)

Question 4

def. strategy

Answer 4

can be defined as an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage

Question 5

def. competitive advantage

Answer 5

Firm achieves a competitive advantage
by implementing a value-creating strategy that current and potential competitors are not simultaneously implementing and
that competitors are unable to duplicate, or find too costly to imitate,

Question 6

def. above-average returns

Answer 6

returns that exceed returns that investors expect to earn from other investments with similar levels of risk (investor uncertainty about the economic gains or losses that will result from a particular investment)
– In other words, above average-returns exceed investors’ expected levels of
return for given risk levels

Question 7

describe porter’s five forces model

Answer 7

• An effective competitive strategy takes offensive or
defensive action to create a defendable position against
the five competitive forces.
– identifying “attractive industry” through five forces
model and analysis of “mobility” barriers
– positioning the firm so that its capabilities provide defence
– influencing the balance of forces through strategic
moves to improve the firm’s relative position
(offensive)
– anticipating shifts in factors underlying forces before rivals

Question 8

What are the four key assumptions of the resource-based view?

Answer 8

1. Firms acquire different resources (tangible & intangible);
2. Firms develop unique capabilities based on how they combine and use resources;
3. Resources and certain capabilities are not highly mobile across firms
4. Differences in resources and capabilities form the
   bases of competitive advantage and a firm’s
   performance rather than its industry’s structural characteristics.

Question 9

what are a firm’s most important source of competitive advantage?

Answer 9

core competencies

Question 10

what should core competencies of a firm, in addition to the analysis of its general, industry, and competitor environments do?

Answer 10

drive its selection of strategies to achieve a sustainable

competitive advantage that will enable it to earn above-average returns

Question 11

how does a firm create value

Answer 11

By exploiting their Core Competencies or Competitive Advantages, and by innovatively bundling and leveraging their
resources and capabilities

Question 12

how is value measured

Answer 12

• product performance characteristics

* product attributes for which customers are willing to pay

Question 13

how is sustainability of a competitive advantage affected?

Answer 13

– rate of core competence obsolescence because of environmental change
– availability of substitutes for the core competence
– imitability of the core competence

Question 14

What are the four key assumptions of the industrial-organization model?
SCP: industry structure => firm conduct =>
performance

Answer 14

1. The external environment imposes pressures and
   constraints that determine strategic choices;
2. Similarity in strategically relevant resources causes
   competitors to pursue similar strategies;
3. Resource differences among competitors are shortlived due to resource mobility across firms; and
4. Strategic decision makers are rational and engage in
   profit-maximizing behaviors

Question 15

What are the four positioning strategies (3 main)?

Answer 15

• Overall Cost Leadership
• Differentiation
• Focus
• Integrated cost leadership/differentiation strategy

Question 16

def. cost leadership

Answer 16

– An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors
• Relatively standardized (commoditized) products
• Features broadly acceptable to many customers
• Lowest competitive price

Question 17

def. differentiation

Answer 17

integrated set of actions taken to produce goods or services (at an
acceptable cost) that customers perceive as being different in ways that
are important to them
• Emphasize non-standardized products
• Appropriate when customers value differentiated features more than they value
low cost

Question 18

def. focus (as a positioning strategy)

Answer 18

– An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment
• Particular demographic, segment, geographic market

Question 19

what are they key strategy elements of cost leadership?

Answer 19

• Scale-efficient plants
• Control of overheads
• Avoidance of marginal customer accounts

Question 20

What are the resource and organizational requirements for cost leadership?

Answer 20

• Access to capital
• Process engineering skills
• Frequent reports
• Tight cost control
• Specialization of jobs & functions
• Incentives for quantitative targets

Question 21

what are the key strategy elements for differentiation?

Answer 21

• Emphasis on branding
• Brand advertising
• Design
• Service
• Quality

Question 22

what are the resource and organizational requirements for differentiation?

Answer 22

• Marketing
• Product engineering
• Creativity
• Product R&D
• Qualitative measurement &
incentives
• Strong cross-functional coordination

Question 23

What are the three sources of competitive advantage in internationalization?

Answer 23

• Global Efficiencies
• Leveraging competencies /learning worldwide
• Multinational Responsiveness Flexibility

Question 24

describe global efficiencies as a source of competitive advantage

Answer 24

Global economies of scale Comparative advantage of

location

Question 25

describe leveraging competencies/learning worldwide as a source of competitive advantage

Answer 25

Use people, ideas and core competencies | globally; Create knowledge via international scope

Question 26

describe multinational responsiveness flexibility as a source of competitive advantage

Answer 26

responsiveness and flexibility toward customers and key stake holders

Question 27

what competitive advantage arises from leveraging competencies and learning world wide?

Answer 27

• Transferring capabilities or competencies – Firm capabilities that competitors can not easily imitate or substitute • Transferring distinctive competencies – Companies with distinctive competencies can realize large returns by expanding to global markets where competitors lack similar competencies and products • Competencies can be created anywhere within a multinational’s global network of operations – Learning worldwide from clusters, subsidiaries, suppliers, buyers, rivals, adjacent sectors

Question 28

What competitive advantage arises from global efficiencies?

Answer 28

- Location efficiencies - Economies of scale - Economies of scope

Question 29

def. economies of scale

Answer 29

having operations in more than one country increases total volume of production, allowing production facilities to operate more efficiently to yield lower costs per unit • Also experience curve (“learning”) effect

Question 30

def. economies of scope

Answer 30

logistics, brands, intellectual property -IP, also linked to knowledge leverage) occur when producing more than one type of products reduces cost

Question 31

what competitive advantage arises from multinational responsiveness/flexibility

Answer 31

• Realising international growth through adaptation to local conditions – Local tastes & customs – Local regulations – Local needs – Local demographics & physical factors- southern vs northern Europe • Average person height  height of kitchen counter  height of dishwasher

Question 32

What are the two conflicting pressures of IB strategy?

Answer 32

global integration local responsiveness

Question 33

describe pressures for global integration

Answer 33

– Globalization of markets • Multilateral & regional reduction in trade barriers • If homogenization of consumer demand, then compete on price – Maximize efficiency gains of standardization on homogeneous tastes

Question 34

describe pressures for local responsiveness

Answer 34

– Divergent consumer tastes & preferences due to culture, history, nationalism, economic distance, distribution channels – Host government policies • Variations in product, service standards • Business, health, environment, financial regulations • Local content pressure – Optimize effectiveness of addressing heterogeneous local demands

Question 35

Motives for Global Integration

Answer 35

* Standardize products & processes to maximize scale, experience and learning effects * Capitalize on converging consumer preferences -could be luxury goods * Source materials & inputs globally * Provide uniform service to all customers * Directly engage global rivals * Build global image with universal message * Exploit integration efforts of transnational institutions * Leverage expanding cross-national connectivity * Respond to the ongoing globalization of markets * Exploit improvements in global logistics & communications

Question 36

Motives for local responsiveness

Answer 36

* Customize products & services to local preferences * Promote a local profile to satisfy national customers / stakeholders * Tap local inputs, capabilities and competencies * Adapt products / services to local customers, culture and values * Directly engage local rivals * Tailor marketing message to local values * Build local goodwill by supporting national goals, symbols & agenda * Adjust products & processes to digital divide * Adapt to local political, historical, economic and cultural circumstances * Accommodate differences in distribution channels & services

Question 37

What are the 4 types of international business strategies? describe them in terms of pressure local responsive and flexibility and pressure for global efficiencies and standardization

Answer 37

Global Strategy: - high pressure for global efficiencies - low pressure for responsiveness International strategy: "home replication" -low global efficiencies -low pressure for local responsiveness transnational strategy: - high global efficiencies - high local responsiveness Localization strategy - low global efficiencies - high local responsiveness

Question 38

def. global strategy

Answer 38

The firm views the world as single marketplace. Primary goal is to create standardized products - high pressure for global efficiencies - low pressure for responsiveness

Question 39

def. transnational strategy

Answer 39

The firm attempts to combine the benefits of global scale efficiencies with the benefits of local responsiveness - high global efficiencies - high local responsiveness

Question 40

def. international strategy

Answer 40

“home replication” The firm uses the core competency or firm-specific advantage it developed at home - low global efficiencies - low pressure for local responsiveness

Question 41

def. localization strategy

Answer 41

“multidomestic strategy” The firm operates as a collection of relatively independent subsidiaries focusing on domestic market - low global efficiencies - high local responsiveness

Question 42

describe international strategy (more details)

Answer 42

(“home replication”) – Management sees overseas operations as leveraging competencies from home country operations into competitive positions abroad – create value by applying competencies to foreign markets where rivals lack such competencies. – Centralized HQ control, formal planning and control, tight HQ-Sub linkage – HQ manages transfer of skills & expertise from parent company to international units – Foreign operations led by expatriates from home country – low pressure for local responsiveness & low pressure for global integration Examples in text: Google, P&G, Nucor, Harley Davidson, Baidu, Apple, Carrefour, Facebook, Tesco

Question 43

describe localization strategy (more details)

Answer 43

(“Multidomestic”) – Management sees overseas operations as portfolio of independent businesses adapted to national preferences & conditions – extensive customisation: maximum local responsiveness – production, marketing, R&D in EACH market – low experience curve effects and location economies – Informal HQ-subsidiary relationship; subsidiaries have high autonomy – High cost structure – high pressure for local responsiveness & low pressure for global integration Examples in text: Unilever, Nestle, McDonald’s, Johnson & Johnson, Pfizer, Embraer, Ranbaxy

Question 44

describe global strategy (more details)

Answer 44

– Management sees the world as one market – Target universal needs / wants that support selling standardized products / services worldwide – Low cost strategy based on volume & cost reduction; value chain configuration built on location economics; products may be high quality (LVMH) – Target global niches in which firm’s standardized products have a wide appeal and competitive advantage based on price/quality ratio – Most strategic assets, resources, responsibilities and decisions are centralized – tight HQ coordination of decisions, resources, information – low pressure for local responsiveness & high pressure for global integration Examples in text: Toyota, Canon, Haier, Caterpillar, Cemex, Infosys, Walmart, Huawei, IKEA, LVMH, Amex, Cisco

Question 45

describe transnational strategy (more details)

Answer 45

– Complex process of leveraging specialized core competencies and promote firm-wide learning across the world – coordination and cooperation in an environment of shared decision making – Balancing concentration to tap location economies for low cost strategy and dispersion to meet local preferences – maintaining & coordinating global learning & knowledge flows as key challenge to drive innovation – high pressure for local responsiveness & high pressure for global integration Examples in text: GE, Tata, Zara, IBM, SAP

Question 46

what firm changed strategies over time? describe it

Answer 46

Ikea 1.International: IKEA going into Europe 2. Global: IKEA initial entry into US & Japan 3. Localization: adapting to US and 2nd entry Japan 4.Transnational: IKEA attempting to share knowledge across firm to respond and lower costs

Question 47

describe responsiveness vs. differentiation (McDonald's example)

Answer 47

If McDonald’s is adapting to local culture in India, for example, by offering vegetarian burgers instead of beef burgers, it is being responsive to the local culture. The vegetarian burger is differentiated from what is served in the US, but it is likely not differentiated from what is served in India by local and international rivals

Question 48

def. differentiation

Answer 48

– a strategy that aims to create a product | (or service) that stands out from your competitors’.

Question 49

def. responsiveness

Answer 49

a strategy that aims to create a product (or service) that responds to local conditions. how a firm "responds" to culture

Question 50

def. frugal innovation

Answer 50

innovation that aims to radically lower the price for products aiming at bottom-of-the-pyramid consumers --an attempt to reach the 4 billion poorest at bottom of pyramid

Question 51

What are the three stages of the International Product Life Cycle (IPLC) (Vernon)?

Answer 51

1. New Product Stage 2. Maturing Product Stage 3. Standardized Product Stage

Question 52

What are the four aspects of Porter's Theory of National Competitive Advantage (National Diamond)?

Answer 52

1. Factor conditions 2. demand conditions 3. related and supporting industries 4. firm strategy, structure, and rivalry

Question 53

describe Vernon's product life cycle theory

Answer 53

Describes the evolution of marketing strategies; attempt to explain industry location poorly explained by Heckscher–Ohlin theory • New products first developed and produced in innovating industrialized country • As demand grows, production begins to shift to other industrialized countries • As the market in advanced nations matures, the product becomes standardized and price becomes a more important factor: – Innovating country moves from exporter to importer of the product

Question 54

describe the stages of the IPLC?

Answer 54

– New product - production in home country, export to other countries – Maturing product -rivals emerge in other industrialized countries, some production shifts to other industrialized countries, some imports to home country – Standardized product cost major competitive factor; assembly shifts to emerging markets, home country imports the product

Question 55

what are some limitations of the IPLC? Exceptions

Answer 55

– Luxury goods whose consumers are price insensitive & tend to view production in low cost country as lower luxury – Products with rapid innovation & short life cycles may not benefit from shift to low-cost location (some “fast-fashion” items) – Product cycles located near rare specialists (medical equipment, pharma)

Question 56

what are some limitations of the IPLC? overtaken by globalization aspects

Answer 56

– Simultaneous introduction of products in many parts of the world – Multi-directional value chain off-shoring, near-shoring, re-shoring etc. – Increase in globally dispersed production that characterizes many current products • Components come from different countries • Assembly in different countries

Question 57

what are some limitations of the IPLC? too ethnocentric ?

Answer 57

Increased number of products / services with global leadership by firms based in emerging markets • Consumer electronics in S. Korea (formerly classified as developing economy) • Alibaba & Didi in China • M-Pesa (Safaricom) in East Africa (mobile phone money)

Question 58

describe Porter's National diamond

Answer 58

• Competitively successful industry sectors arise from the interaction of four country and firm specific elements – Factor conditions - similar to factor endowment but emphasis on upgrading factors- education, infrastructure – Demand conditions -emphasis on sophisticated demanding customers. – Related and supporting industries -cluster / agglomeration of rivals, suppliers, supporting industries as in Silicon Valley-proximity aids flow of ideas & innovation. – Firm strategy, structure, and rivalry -vigorous domestic rivalry helps firms become competitive. plus – Chance – Government

Question 59

describe factor conditions

Answer 59

``` • Basic factors (similar to Heckscher-Olin factor endowment) – natural resources – climate – Location – Demographics ``` BUT Must be supported by advanced factors to maintain success ``` • Advanced factors – communications – skilled labor – research – technology ```

Question 60

describe demand conditions

Answer 60

* Size * Sophistication * Demanding customers

Question 61

describe related and supporting industries

Answer 61

• Provide advantage in innovation and upgrading through: – quick and constant flow of information – ongoing exchange of ideas and innovation – Successful industries within a country tend to be grouped into clusters of related industries

Question 62

describe firm strategy, structure and rivalry

Answer 62

* Vigorous domestic rivalry improves a company’s competitiveness. * The intense competitiveness of the Japanese market forces manufacturers to continually develop and fine-tune new products

Question 63

what is the virtual diamond?

Answer 63

different aspects of the diamond in different countries

Question 64

what are some policy implications with the national competitive advantage (national diamond) theory?

Answer 64

– Promoting trade liberalization is in the best interests of the home country to promote vigorous domestic rivalry – Not always in the short-term interest of the firm • Contrast with Porter’s earlier work in Competitive Advantage – Porter argues governments can’t choose and create dynamic clusters, yet he argues for government attention to clusters (upgrading factor endowments & infrastructure) and government role as demanding customer (e.g. environmental / safety standards that might give competitive advantage abroad)

Question 65

describe the internalization theory

Answer 65

Internationalization will take place through internalization (common ownership across borders) when administrative costs of undertaking activity in-house are lower than transaction costs of undertaking the activity through the market

Question 66

def. transaction costs

Answer 66

costs associated with negotiating, monitoring, and enforcing a contract