Lesson 3

Question 1

What is CAGE framework

Answer 1

It’s an analysis method to study the four dimensions of international distance between two countries: Cultural, Administrative, Geographic and Economic. When an organization expands globally, it helps in assessing the market differences.

Question 2

What are entry mode strategies?

Answer 2

They are methods by which firms enter foreign markets, ranging from exporting to forming joint ventures, licensing, franchising or establishing wholly owned subsidiaries.

Question 3

What is Global integration?

Answer 3

It refers to the efficiency gained by standardizing producs and processes across international markets, minimazing local adaptation.

Question 4

What is Global-Local dilemma?

Answer 4

It is the tension between the need for global standardization and the need for local adaptation of products and services.

Question 5

What is global sourcing?

Answer 5

It involves procuring goods and services from locations that provides the greatest cost and quality advantages globally.

Question 6

What do we mean by global strategy?

Answer 6

It involves treating the world as a single market, where products and services are largely standardized.

Question 7

International strategy

Answer 7

This is a more broad category that involves both global strategies and strategies taylored to specific local conditions.

Question 8

Local responsiveness

Answer 8

Refers to adapting products and services to meet the specific needs of a local market.

Question 9

What is Peter’s Diamond?

Answer 9

It’s a model that explains why certain industries within specific countries or regions develop competitive advantages.

Question 10

What is staged international expansion model?

Answer 10

It’s a stepwise approach where companies progressively increase their commitment to foreign markets based on experience and knowledge. Firms often start with low-commitment modes (like exporting) and gradually increase their involvement as they gain knowledge and experience in the market.

Question 11

What is Yip’s Globalization Framework?

Answer 11

It’s a framework that identifies four drivers of internationalization- market drivers, cost drivers, government drives and competitive drivers.

Question 12

What do we use to identify the drivers of internationalization?

Answer 12

We use Yip’s globalisation framework. it analyses 4 drivers:
* Market drivers
* Cost drivers
* Government drivers
* Competitive drivers

Question 13

Yip’s Globalisation Framework

Can you explain market drivers?

Answer 13

market drivers include the standardization of customer across countries and the presence of global customer, which create opportunities for firms to meet similar demands worldwide.

Question 14

Can you explain cost drivers?

Answer 14

Firms can reduce costs by expanding internationally, leveraging economies of scale and tapping into country-specific cost advantages such as cheaper labour or favourable logistics.

Question 15

Can you explain government drivers?

Answer 15

Government trade policies, technical standards, and incentives for foreign direct investment can either facilitate or inhibit a firm’s international expansion. Free trade agreements and reduced trade barriers play an important role here.

Question 16

Can you explain competitive drivers?

Answer 16

Competitive pressures, including global competitors’ strategies and market interdependencies (Change in one market has influence on the others), push firms to expand internationally. Firms must also respond to competitor moves in international markets to protect their global positioning.

Question 17

Can you explain Porter’s Diamond Model?

Answer 17

Provides a framework for understanding how certain nations develop competitive advantages in specific industries:
1. Factor Conditions: These include natural resources, labor, and infrastructure. For example, Switzerland’s multilingual workforce and high-quality education system give it an edge in the banking sector.
2. Demand Conditions: Nations with sophisticated and demanding consumers often lead in innovation. For instance, Japan’s technology and automotive industries thrive due to the demanding nature of its domestic consumers.
3. Related and Supporting Industries: Clusters of related industries can provide a competitive edge. Silicon Valley’s ecosystem of tech companies, universities, and venture capital firms illustrates how these factors work together to create competitive advantage.
4. Firm Strategy, Structure, and Rivalry: Competitive domestic industries force firms to improve continuously. German companies in the engineering sector, for example, benefit from fierce local competition that drives technical excellence.

Question 18

What are the two major locational advantages? (value system)

Answer 18

• Cost advantages
• Unique local capabilities

Question 18

Strategies that emerge from global-local dilemma: global strategy

Answer 18

This strategy seeks to achieve global efficiency by standardizing products and services across markets. Firms like IKEA or industries like the steel industry exemplify this approach by offering the same products worldwide with minimal local adaptation.

Question 19

Strategies that emerge from global-local dilemma: transnational strategy

Answer 19

A hybrid strategy, it seeks to balance the need for global integration and local responsiveness. BMW, for example, adapts its cars to local markets while leveraging global supply chain efficiencies. The globalization vs. localization dilemma often leads to overlapping strategies, making it difficult to fully commit to a single approach. Balancing the pressures of global integration with the need for local adaptation is a complex task, as pursuing one direction might conflict with the other. Successfully navigating this dilemma requires careful consideration of trade-offs, where businesses must find the right balance between standardizing their operations for global efficiency and customizing their offerings to meet local demands.

Question 20

Strategies that emerge from global-local dilemma: multi-domestic strategy

Answer 20

In contrast to the global strategy, this approach prioritizes local responsiveness by tailoring products to each market. Nestlé, for example, adapts its products to fit local tastes and preferences, such as offering different brands and flavors in various countries.

Question 21

Strategies that emerge from global-local dilemma: export strategy

Answer 21

Firms use their home-based production facilities to export goods internationally, with little adaptation to local markets. Watch industry for example.

Question 22

Defender’s reactiveness (Competitors retaliation)

Answer 22

likely to be influenced by the market’s attractiveness to the defender but also by the extent to which the defender is working with a globally integrated, rather than multi-domestic, strategy. A defender will be more reactive if the markets are important to it and it has the managerial capabilities to coordinate its response

Question 23

Defender’s clout (Competitors retaliation)

Answer 23

is the power that the defender is able to muster in order to fight back. Clout is typically a function of share in the particular market, but might be influenced by connections to the powerful local players, such as retailer and government.

Question 24

What are the four entry mode strategies ranked by commitment and risk?

Answer 24

1. Exporting: This is the least risky entry mode, where firms sell their home-country products abroad. It requires minimal investment but offers little control over how products are marketed or sold locally. 2. Licensing/Franchising: Firms grant rights to local entities to produce or sell their products. This lowers the firm’s risk but also limits its control over operations. 3. Joint Ventures: In this mode, a firm partners with a local entity to share ownership, risks, and profits. Joint ventures offer a middle ground, balancing control with risk-sharing. 4. Wholly Owned Subsidiaries: The most committed entry mode, where a firm either acquires an existing business or builds its operations from scratch in the foreign market. This gives the firm full control but involves higher costs and risks.

Question 25

Subsidiaries roles and strategies

Answer 25

-Black Hole (High Importance, Low Resources) This quadrant represents locations or markets that are strategically important but where the organization has low resources or capabilities. Typically, this indicates a challenging position, as the market is important, but the organization lacks the ability to compete effectively or leverage local opportunities. Organizations often aim to either invest to strengthen resources in this area or reassess their involvement due to the high cost of maintaining a presence without adequate resources. -Strategic Leader (High Importance, High Resources) This is the ideal position, where the market is both strategically important and the organization has high levels of resources and capabilities. Markets or locations in this quadrant are often considered priority areas for growth and innovation, as the organization has both the need and the ability to make a significant impact. Companies typically invest heavily and focus on leading the market in these areas. -Implementer (Low Importance, Low Resources) Markets or locations here are of low strategic importance, and the organization has low levels of resources. The focus in these areas is generally on maintaining a basic presence and operational efficiency rather than strategic growth. These markets may not be a priority for investment but are maintained to support operational functions or as part of a broader network. -Contributor (Low Importance, High Resources) This quadrant represents markets where the organization has high resources and capabilities, but the strategic importance is relatively low. These areas might contribute specific expertise, resources, or innovations that benefit other parts of the organization. Companies may leverage these locations as centers of excellence, R&D hubs, or support centers for other regions, even if the local market itself isn't a high priority. Strategic Implications This matrix helps companies decide where to allocate resources and determine the strategic role of each market. For example:

Question 26

What are the three key methods for firms to achieve growth?

Answer 26

- Organic development - Mergers and acquisition (M&A) - Strategic alliances

Question 27

What is the company trying to achieve through M&A, organic development and strategic alliances?

Answer 27

It's trying to expand, innovate, diversify or consolidate their operations in response to changing markets.

Question 28

What is organic development?

Answer 28

It's a strategy method for growing the firm through internal means, leveraging its own resources and capabilities. It is considered the least risky method.

Question 29

What are advantages and disadvantages of organic development?

Answer 29

Advantages: - knowledge and learning - spreding investment - strategic indipendence - no availability constraint - cultural fit Disadvantages: - too slow for rapid growth - too limited to enter high competitive markets

Question 30

What are mergers and acquisition?

Answer 30

Mergers and acquisitions involve the combination of two organizations. In a merger, two firms of similar size join forces to create a new entity, whereas in an acquisition, one firm purchases another, gaining full control.

Question 31

What are the strategic motives for M&A?

Answer 31

1. Extension: Expanding geographic reach or product lines. For instance, Canadian Pacific Railway's acquisition of Kansas City Southern created a railway network connecting Canada to Mexico. 2. Consolidation: M&A can reduce competition, increase market power, and generate efficiencies by pooling resources or cutting redundant operations. 3. Resources and Capabilities: Acquisitions allow firms to access new technologies, talents, or capabilities, as seen in high-tech companies like Apple acquiring startups to boost innovation.

Question 32

What are the financial motives for M&A?

Answer 32

1. Financial Efficiency: Acquisitions can improve the financial stability of a target by using the acquirer’s financial resources to pay off debts. 2. Tax Efficiency: Acquiring firms can benefit from more favorable tax regimes by merging with or acquiring firms in lower-tax regions. 3. Asset Stripping: Some acquirers purchase firms with the intent to sell off valuable assets separately, profiting from the sale.

Question 33

What are the managerial motives for M&A?

Answer 33

1. Personal Ambition: Managers may pursue M&A for personal gain, driven by incentives tied to company growth or share prices. 2. Bandwagon Effects: Managers might feel pressure to acquire because rivals are doing so, fearing that not doing so could make their company a target for acquisition.

Question 34

How is the acquisition process of a company?

Answer 34

1. Growth Strategy: The acquirer must define its strategic goals and ensure that an acquisition aligns with its overall strategy. 2. Target Search and Choice: Potential targets are assessed for strategic fit (whether they align with the acquirer’s goals) and organizational fit (whether the two firms’ cultures and systems are compatible). 3. Bid Negotiation: Pricing and conditions are agreed upon. Acquirers often pay a premium above market value to secure control. Here we have the completition of the acquisition process and the change of ownership. After there is the post acquisition process: 4. Integration: The post-acquisition integration is critical to success. The acquirer must decide how closely to integrate the target firm, balancing the need for autonomy with the desire for synergy.

Question 35

What is a post integration matrix?

Answer 35

The Post-Acquisition Integration Matrix highlights the different approaches to integrating a newly acquired company based on strategic interdependence and the need for organizational autonomy: 1. Absorption: The acquired firm is fully integrated into the acquirer’s structure and systems, usually when strategic interdependence is high, and autonomy is not necessary. 2. Preservation: The acquired firm is left mostly autonomous, typically in conglomerate deals where strategic integration is low. 3. Symbiosis: Both firms learn from each other, sharing resources while maintaining a high degree of autonomy. This approach is complex but can generate the most value. 4. Intensive Care: The acquirer focuses on turning around a failing company with minimal integration beyond financial controls.

Question 36

What are strategic alliances?

Answer 36

Strategic alliances involve collaboration between firms to achieve shared objectives. Unlike M&A, alliances do not involve full ownership changes, and firms remain independent entities.

Question 37

What are the motives for strategic alliances?

Answer 37

1. Scale Alliances: Partners combine resources to achieve economies of scale in production or procurement, reducing costs and sharing risks. 2. Access Alliances: Firms partner to access each other’s capabilities, such as distribution networks, technology, or market access. For instance, Western companies often form alliances with local firms in countries like China and India to enter new markets. 3. Complementary Alliances: Partners combine complementary strengths to cover their individual weaknesses. A famous example is the Renault-Nissan alliance, where both companies benefit from each other’s expertise in different areas. 4. Collusive Alliances: In some cases, alliances are formed to reduce competition or control market prices, although such alliances are often illegal in many industries.

Question 38

On what strategic alliances depends?

Answer 38

- time - co-evolution -trust