Test 3

Final Exam

Chapter 11

Chapter 11

11

Define Strategy

A planned set of actions that managers take to make best use of the firm’s resources and core competences, to gain a competitive advantage

6 ways to enter a market (low risk → high risk)

1. Exporting [low risk]

   1. Direct (best way - makes most money)

   2. Indirect (make it in the host country, have an agent/wholesaler in that country and is responsible for exporting it)

2. Franchise

3. License

4. Strategic Alliance

   1. 2 companies get together and form a partnership

5. Joint Venture

6. FDI/Subsidiaries [high risk]

   1. Building a plant in another country

International Strategy

Strategy carried out in two or more countries

Managers develop international strategies to:

• allocate scarce resources and configure value-adding activities on a worldwide scale

• participate in major markets

• implement valuable partnerships

• engage in competitive moves in response to foreign rivals

Firms should try to develop a competitive advantage. They should simultaneously strive for three strategic objectives:

1. Efficiency

2. Flexibility

3. Learning

Three strategic objectives to develop a competitive advantage→ Efficiency

Lower the cost of the firm’s operations and activities on a global scale

Three strategic objectives to develop a competitive advantage→ Flexibility

The agility to manage diverse country-specific risks and opportunities by tapping resources in individual countries and exploiting local opportunities

Three strategic objectives to develop a competitive advantage → Learning

Develop the firm’s products, technologies, capabilities, and skills by internalizing knowledge gained from international ventures

Essentials of Successful Global Firms

• Strategy

• Organizational Structure

• Organizational Processes

• Organizational Culture

• Visionary Leadership

Organizational Culture

The pattern of shared values, behavioral norms, systems, policies, and procedures that employees learn and adopt

Organizational Processes

“efficiencies”

Managerial routines, behaviors, and mechanisms that allow the firm to function as intended

Multi-Domestic Industry

An industry in which competition takes place on a country-by-country basis

Global Industry

An industry in which competition is on a regional or worldwide scale

Global Integration

Coordination of the firm’s value-chain activities across multiple countries to achieve worldwide efficiency, synergy, and cross-fertilization, to take advantage of similarities between countries

Local Responsiveness

Local responsiveness requires the firm to adapt to customer needs and the competitive environment

4 strategies emerging from the integration responsiveness framework

1. Home replication strategy

   1. replicating what you are doing at home

2. Multi-domestic strategy

   1. certain countries will have the same products and prices, but others don’t

3. Global strategy

   1. (each country is different. Use different strategies)?

   2. products, marketing, and company practices are relatively standardized

4. Transnational strategy

   1. different strategy within the same country

   2. “standardize where feasible; adapt where appropriate”

Chapter 12

12 - Global Market Opportunity Assessment

Global Market Opportunity

A favorable combination of circumstances, locations, or timing that offer prospects for exporting, investing, sourcing, or partnering in foreign markets

The Six Tasks of Global Market Opportunity Assessment (GMOA)

1. Analyze organizational readiness to internationalize

2. Assess the suitability of the firm’s products and services for foreign markets

3. Screen countries to identify attractive target markets

4. Assess the industry market potential, or the market demand, for the product(s) or service(s) in selected target markets

5. Choose qualified business partners, such as distributors or suppliers

6. Estimate company sales potential for each target market

The Six Tasks of Global Market Opportunity Assessment (GMOA) → Task 1 - Organizational Readiness:

• Analyze organizational readiness to internationalize to provide an objective assessment of the firm’s preparedness to engage in international business

  • achieved by examining company strengths and weaknesses for international business by evaluating availability in the firm or key factors

The Six Tasks of Global Market Opportunity Assessment (GMOA) → Task 2 - Product Suitability:

• Product/sourcing suitability

• Assess suitability of the firm’s products and services for foreign markets

• For each possible target market, identify the factors that may hinder market potential

The Six Tasks of Global Market Opportunity Assessment (GMOA) → Task 3 - Country Screening:

• Screen countries to identify target markets

• Look for the most profitable w/least risk

  • Risks (in order)

    • Political

    • Financial

    • Currency

    • Country

  • FDI → most profitable, most risky

Global sourcing

The practice of procuring finished products, intermediate goods, and services from suppliers located abroad

The Six Tasks of Global Market Opportunity Assessment (GMOA) → Task 4 - Assess Industry Market Potential:

• The firm estimates the most likely share of sales that can be achieved in each target country

Industry Market Potential

An estimate of the likely sales that can be generated by all firms in a particular industry during a specific time period

The Six Tasks of Global Market Opportunity Assessment (GMOA) → Task 5 - Choose foreign business partners:

• The firm decides on the type of foreign business partner, clarifies ideal partner qualifications, and then crafts an appropriate market entry strategy

  • “how are you getting your product in and out”

Types of Foreign Business Partners

• Exporters

• Licensing partners

• Franchising partners

• International collaborative ventures

The Six Tasks of Global Market Opportunity Assessment (GMOA) → Task 6 - Estimate Company Sales Potential:

• Firm estimates the most likely share of industry sales that the company can achieve, over a specific period of time, for each target market

• Determine the factors that will influence company sales potential

Company Sales Potential

An estimate of the share of annual industry sales that the firm expects to generate in a particular target market

Factors that determine company sales potential

• Intensity of the competitive environment

• Pricing and financing of sales

• Human and financial resources

• Partner capabilities

Chapter 13

13 - Exporting and Global Sourcing

Finish the saying: “A pint is a ________

A pint is a pound the world around

Exporting as an Entry Strategy

• low risk, low cost, and flexible

• export channels:

  • independent distributor or agent

  • firm’s own marketing subsidiary abroad

  • joint venture

High margin

• cost low, price high

  • export makes sense

Low margin

can’t export really

Examples of services that are exported

• Architecture

• Education

• Banking

• Insurance

• Entertainment

• Information

• Engineering

• Marketing

Advantages of Exporting (question on the test will be “which is not an advantage of exporting”)

• Increase sales volume; improve market share

• Generate better profit margins

• Increase economies of scale

• Diversify customer base

• Stabilize sales fluctuations

• Minimize the cost of foreign market entry

• Minimize risk

• Maximize flexibility

• Leverage the capabilities of foreign distributors and other business partners located abroad

Disadvantages of Exporting

• Offers fewer opportunities to learn about customers, competitors, and other aspects of foreign markets

• Firm must acquire and dedicate new capabilities in international sales contracts and transactions, international financing methods, and logistics and documentation, all of which can strain organizational resources

• Exposes the firm to tariffs and other trade barriers as well as fluctuation exchange rates → expensive

Grey Market

Unauthorized distribution (technically not illegal)

• ex. “sell to china”, exporter instead sells it in the US, and makes more money

Indirect exporting

• least risky

• Contracting with an intermediary in the firm’s home country to perform all export functions

  • Problem: once you give it to the exporter, you lose all control

Direct exporting

• Contracting with intermediaries in the foreign market to perform export functions

Countertrade

• similar to barter

• An international business transaction in which all or partial payments are made in kind rather than cash

  • usually used when a currency frequently fluctuates

Barter

Goods are directly exchanged, without the transfer of any money

Compensation deal

Payment in goods and cash

Counterpurchase

Entails two distinct contracts. In the first, the seller agrees to a set price for goods and receives cash from the buyer, contingent on a second contract in which the seller agrees to purchase goods from the buyer

Sources of Export Financing

• Commercial banks

• Distribution channel intermediaries

• Buyers

• Suppliers

• Government assistance programs

Sources of Information to Identify Potential Intermediaries

• Country and regional business

• Trade associations

• Government ministries and agencies

• Commercial attaches

• Branch offices of government agencies

Global Sourcing

Procurement of products or services from suppliers located abroad for consumption in the home country or a third country

Drivers of Global Sourcing

1. Technological advances in communication especially the internet and international telephony (aka a need)

2. Falling costs of international business

3. Entrepreneurship and rapid economic transformation in emerging market countires

Contract Manufactuing

Arrangement in which the focal firm contracts with an independent supplier to manufacture goods according to well-defined specifications (ex. Coca Cola, Nike, IKEA)

Chapter 14

Foreign Direct Investment and Collaborative Ventures - 14

Foreign Direct Investment (FDI)

Strategy in which the firm establishes a physical presence abroad by acquiring productive assets such as capital, technology, labor, land, plant, and equipment

International Collaborative Venture

A cross-border business alliance in which partnering firms pool their resources and share costs and risks of a venture

• sometimes called partnerships or strategic alliances

• may or may not build a plant, firms share resources to make a product

Joint Venture (JV)

A form of collaboration between two or more firms to create a jointly-owned enterprise

• cross border partnership

Service Mulitnationals

• Firms that offer services - such as lodging, construction and personal care - must offer them when and where they are consumed

  • Service firms either establish either a permanent presence via FDI or a temporary relocation of personnel

Popular FDI destinations

Advanced economies

Factors Relevant to Selecting Locations for FDI (MC questions)

1. Market factors

2. Human resource factors

3. Infrastructure factors

4. Profit retention factors

5. Economic factors

6. Legal and regulatory factors

7. Political and governmental factors

True or False: FDI is the most advanced, expensive, complex, and riskiest entry strategy

True

Key Features of Foreign Direct Investment

1. Represents substantial resource commitment

2. Implies local presence (country risk) and operations

3. Firms invest in countries that provide specific comparative advantages

4. Substantial risk and uncertainty

5. Direct investors deal more intensively with specific social and cultural variables in the host market

Economies of scale

The more you make, the cheaper your per product takes to make

Motives for Foreign Direct Investment

1. Market-seeking motives

2. Resource or asset seeking motives

3. Efficiency seeking motives

Market seeking motives for FDI

• Gain access to new markets or opportunities

• Follow key customers

• Compete with key rivals in their own markets

Resource or asset seeking motives for FDI

• Access raw materials

• Gain access to knowledge or other assets

• Access technological and managerial know how available in a key market

Efficiency seeking motives

• Reduce sourcing and production costs

• Locate production near customers

• Take advantage of government incentives

• Avoid trade barriers

Greenfield investment

The firm invests to build a new manufacturing, marketing or administrative facility, as opposed to acquiring existing facilities

Merger

Special type of acquisition in which two firms join to form a new, larger company

Acquisition

Direct investment or purchase an existing company or facility

Vertical Integration

The firm owns, or seeks to own, multiple stages of a value chain for producing, selling, and delivering a product

Horizontal Integration

The firm owns, or seeks to own, the activities involved in a single stage of its value chain

• manufacture same product and take market share

Chapter 15

Licensing, Franchising, and Other Contractual Strategies - 15

Contractual entry strategies in international business

Cross-border exchanges in which the relationship between the focal firm and its foreign partner is governed by an explicit contract

• You give them something, they give you something in return

Intellectual Property

Ideas or works created by firms or individuals, such as patents, trademarks, and copyrights

Licensing

An arrangement in which the owner of intellectual property grants another firm the right to use that property for a specified period of time in exchange for royalties or other compensation

Franchising

Arrangement in which the firm allows another the right to use an entire business system in exchange for fees, royalties or other compensation

Royalty

A fee paid periodically to compensate a licensor for the temporary use of its intellectual licensor for the temporary use of its intellectual property, often based on a percentage of gross sales generated from the use of licensed asset

Patent

Provides the right to prevent others from using an invention for a fixed period

Trademark

A distinctive design or symbol that identifies a product or service

• ex. Nike’s swoosh

Copyright

• Protects original works of authorship

• Typically covers works of music, art, literature, movies, or software

Licensing as a Foreign Market Entry Strategy

see diagram

Know-How Licensing

Involves a contract in which the focal firm provides technological or management knowledge about how to design, manufacture, or deliver a product of service

Main advantages of licensing

Advantages for licensor:

• Low investment

• Low involvement

• Low effort, once established

• Low-cost initial entry strategy

Disadvantages of Licensing

Disadvantages for licensor:

• Performance depends on the foreign licensee

• Licensor has limited control over its asset(s) abroad

• Runs the risk of creating a future competitor

  • easy to make similar products

Advantages of Franchising

Advantages for franchiser:

• Low investment

• Can internationalize quickly to many markets

• Low effort, once established

• Can leverage franchisees’ local knowledge

Disadvantages of Franchising

Disadvantages for franchiser:

• Maintaining control over franchisees may be difficult

• Franchiser has limited control over its assets abroad

• Risks creating a future competitor

Turnkey contracting

Arrangement where a firm plans, finances, organizes, manages, and implements all phases of a project abroad, and hands it over to a foreign country after training local personnel

• hospitals

• banks

• infrastructure

Counterfeiting

Copyright infringement

Chapter 16

Marketing in the Global Firm - 16

Marketing Mix (4 P’s of Marketing)

• Product

• Price

  • Selling price

  • Opportunity cost

• Place (distribution)

  • How will you get it to your customer

• Promotion

7 ways to segment a market

1. Demographic

2. Psychographic

3. Geographic

4. Geodemographic

5. Usage

6. Benefit

7. Generational

Global marketing strategy

A plan of action for foreign markets that guides the firm in deciding how to position itself and its offerings, which customer segments to target, and the degree to which it should standardize or adapt its marketing program elements

• Has target market and marketing mix in it

Market Segmentation

Process of dividing the firm’s total customer base into clusters that allows management to create unique marketing strategies for each group

Global Market Segment

A group of customers that share common characteristics across many national markets

• the more you can segment your market (while keeping costs low), the better you are

• the more you segment, the more the costs increase

Adaptation

Modifying elements of the marketing program to accommodate specific customer requirements in individual foreign markets

Standardization

Efforts to make marketing program elements uniform, so as to target entire regions of countries, or even the global marketplace, with a similar product or service

Adaptation is needed due to:

• Differences in national preferences

• Differences in living standards and economic conditions (PPP)

• Differences in laws and regulations

• Differences in national infrastructure

+ Adaptation is costly, some firms pursue a regional strategy

Benefits of Standardization (compared to Adaptation)

• Cost reduction

• Improved planning and control

• Ability to portray a consistent image and build global brands

Global Branding

• Adapt product to a region

• Used by most companies

Global Product Development

• Managers emphasize their commonalities across countries rather than the differences between them

  • Mix a product/service to the culture/surrounding region/PPP

International Pricing

Pricing is complex in international business due to multiple currencies, trade barriers, added costs, and typically longer distribution channelse