MGMT 464 Final Exam SELU Honoree

Inevitable Imitation

- If someone has a great idea, people are going to copy it
- Plan for imitation

Examples of Innovation

- Electric cars & 3D printers

3 Questions to Ask That Lead to Embryonic/Growth Industry Strategies:

- Complementary Assets
- Height of Barriers to Entry
- Capable of Competitors

Complementary Assets Question:

- Do you have/Can you get a hold of the money, knowledge, assets, employees, etc. on your own?

Height of Barriers to Entry Question:

- Are these high enough so that others don't come in?

Capable of Competitors Question:

- How many competitors are capable of competing? Do they have the skills or access necessary to do so?

Strategies in Embryonic/Growth Industries to Profit from Innovation:

- Going It Alone - has required complementary assets, high barriers to imitation, very low number of capable competitors
- Entering Into an Alliance - has required complementary assets, high barriers to imitation, moderate number of capable competitors
- License the Innovation - does not have required complementary assets, low barriers to imitation, many capable competitors

Go It Alone Strategy:

- Has required complementary assets, high barriers to imitation, very low number of capable competitors

Entering Into an Alliance Strategy:

- Has required complementary assets, high barriers to imitation, moderate number of capable competitors

License the Innovation Strategy:

- Does not have required complementary assets, low barriers to imitation, many capable competitors

Mature industries are mainly ________ industries.

- Consolidated

Strategies to Deter Entry in Mature Industries:

- Product Proliferation
- Price Cutting
- Maintaining Excess Capacity

Product Proliferation Strategy to Deter Entry in Mature Industries:

- Proliferation - takes off in big numbers/exploded
- Extend product line/come up with a lot of different product

Price Cutting Strategy:

- Reduces amount of people thinking about coming in

Maintaining Excess Capacity Strategy:

- Have the ability to have more supply than demand due to a high fixed capacity (when demand increases, they already have the fixed capacity to cover it)

Strategies to Manage Rivalry in Mature Industries/Avoiding a Price War:

- Price-Signaling (tit-for-tat strategy)
- Price Leadership
- Non-Price Leadership

Price-Signaling/Tit-for-Tat Strategy:

- Way of conveying what you're going to do and why you're going to do it
- Letting competitors know you're going to lower prices
- Tit-for-tat: "If you lower prices, I'll lower prices. So you shouldn't do it."

Price Leadership Strategy:

- "Worst-named concept in the course"
- The company who is the "weakest" sets the price
- They have the highest costs in that industry
- All the other competitor companies benefit from this

Non-Price Leadership Strategy:

- Want to increase market share, but not by lowering prices
- Want to create the perception that your product is superior - increase advertising & sales promotion to increase brand recognition
- Can charge a higher price due to superior perception of product

4 Non-Price Competitive Strategies:

- Market Penetration
- Product Development
- Market Development
- Product Proliferation

Market Penetration Strategy:

- Existing product in an existing marketing segment

Product Development Strategy:

- New product in an existing marketing segment
- People pay more for products that are "new and improved"

Market Development Strategy:

- Existing product in a new marketing segment
- Get an existing product and get new people to buy it

Product Proliferation Strategy for Non-Price Competition:

- New product in a new marketing segment
- Get a new product and new people to fill in the gaps

Intensity of Competition in a Declining Industry is Determined By:

- The Severity/Speed of Decline
- Height of Exit Barriers
- Commodity Nature of the Product

The Severity of Decline:

- The slope of decline matters in our strategy
- Is it steep or slow?

Height of Exit Barriers in a Declining Industry:

- Keeps people in an industry who should have left
- Results in excess capacity (supply exceeds demand)
- Tremendous downward pressure on pricing

Commodity Nature of the Product in a Declining Industry:

- Undifferentiable/all the same
- Can only compete on price

4 Strategies for Declining Industries:

- Leadership Strategy
- Niche Strategy
- Harvest Strategy
- Divestment Strategy

Leadership Strategy (Declining Industry):

- Staying
- Aims at growing in a declining industry by picking up the market share of the companies that are leaving the industry

To follow a Leadership Strategy, the declining industry must have a ________ decline, ________ distinctive competency, ________ exit barrier, and ________ commodity.

- Slow
- Very high
- Lower
- Low

3 Ways to Follow a Leadership Strategy:

- Beat them - the 4 P's
- Buy them
- Raising the stakes

Niche Strategy (Declining Industry):

- Staying
- Focuses on those pockets of demand in the industry in which demand is stable or declining less rapidly than the industry as a whole

Harvest Industry (Declining Industry):

- Leaving
- When a company wishes to get out of a declining industry and perhaps optimize cash flow in the process
- Take cash flow in exchange for market share
- Put product on sale when going out of business and don't buy any more product for the store - liquidate the rest at the end
- EX: A "going out of business" sale

Divestment Strategy (Declining Industry):

- Leaving
- The company can maximize its net investment recovery from a business by selling it early before the industry has entered steep decline
- The sooner you get out, the better (assets are worth more today than later) - sell out early
- Ideally, find someone following a leadership strategy and sell to them

4 Reasons Companies Expand into Foreign Markets:

- To gain access to new customers
- To achieve lower costs and enhance the firm's competitiveness
- To capitalize on its core competencies
- To spread its business risk across a wider market base

Expanding into Foreign Markets - Gaining Access to New Customers:

- More money to be had outside of any 1 country
- Can also fund growth rates
- EX: Could be maturity stage in 1 country, but in a growth stage

Expanding into Foreign Markets - Achieving Lower Costs and Enhancing the Firm's Competitiveness:

- Economies of scale - increases volume
- Location economies - it matters where in the world certain things are done

Location Economies:

- Access to raw materials could be less, value creation, lower costs
- Necessary to differentiate/charge premium price
- EX: watches made in Switzerland, fashion designer in Paris, energy HQ in Houston, TX (world capital of energy)

Robert Reich:

- Wrote the book "Work of Nations" & made the term "global web"

Global Web:

- Find one place in the world where every level/segment in value chain is at its best

Expanding into Foreign Markets - Capitalizing on Core Competencies:

- Exploit competencies/advantages in other countries

Expanding into Foreign Markets - Spreading Business Risk Across a Wider Market Base:

- Less risk when stationed in several countries

Major Strategic Issues Unique to Competing Internationally:

- Whether to customize the company's offerings in each different country market to match the tastes and preferences of local buyers OR to offer a mostly standardized product worldwide
- Whether to employ essentially the same basic competitive strategy in all countries OR modify the strategy country by country
- Where to locate the company's production facilities, distribution centers, and customer service operations so as to realize the greatest location advantages (finding best location economy for each stage of the value chain)
- How to efficiently transfer the company's resource strengths and capabilities from one country to another in an effort to secure competitive advantage (Is it something able to be replicated in another country, or was it only something good in the home country?)

Advantages of International Operations:

- Firms can gain new customers for their products. (maturity in home country, but growth in other places)
- Foreign operations can absorb excess capacity, reduce unit costs, and spread economic risks over a wider number of markets.
- Foreign operations can allow firms to establish low-cost production facilities in locations close to raw materials or cheap labor. (using "global web" to find good places to lower costs)
- Competitors in foreign markets may not exist, or competition may be less intense than in domestic markets.
- Foreign operations may result in reduced tariffs, lower taxes, and favorable political treatment. (worried about protectionism, so getting in a joint venture, partnership, etc. in another country can help)
- Joint ventures can enable firms to learn the technology, culture, and business practices of other people and to make contacts with potential customers, suppliers, creditors, and distributors in foreign countries. (better together than apart)
- Economies of scale can be achieved from operation in global rather than solely domestic markets. Larger-scale production and better efficiencies allow higher sales volumes and lower-price offerings.
- A firm's power and prestige in domestic markets may be significantly enhanced if the firm competes globally. Enhanced prestige can translate into improved negotiating power among creditors, suppliers, distributors, and other important groups (become legitimized, get more respect, get more concessions)

Disadvantages of International Operations:

- Foreign operations seized by nationalistic factions
- Communication difficulties (language, cultural, value systems)
- Weaknesses of competitors abroad is often overestimated, and strengths underestimated
- Dealing with two or more monetary systems can complicate business
- Increased difficulty of learning and working with regional organizations (International Bank, IMF, Latin American Free Trade Area, EU, etc...)

T/F: It is very risky to be involved in foreign operations.

- True

Expropriation:

- Assets may be seized if a nation has a purpose for it (they either pay for it or they just take it)

"Nationalizing" an Industry:

- All companies in the industry in a country are now owned by that host country
- EX: Mexico nationalized oil

International Competitor vs. Global Competitor:

- The difference is the international competitive scope
- International: In a few nations
- Global: In dozens of countries

Fluctuating Currency Exchange Rates:

- There is a winner and a loser every time there's fluctuating exchange rates
- EX: $1.27:1 Euro to $1.10:1 Euro - the $ strengthened, the Euro weakened; Exports from US to Europe goes down b/c American goods are now more expensive to Europe; Europe exports more to the US

Multinational Competition vs. Global Competition:

- Multinational: Different markets of the world are unique
- Global: The world is 1 market and is the same everywhere

Profit Sanctuaries:

- The source of profit is due to some protected status in a market (strong market position is protected in that country/market)

Cross-Market Subsidization:

- Subsidized = Supports
- Use profit sanctuaries to subsidize/support another weaker location

Cost pressures and local responsiveness pressures are ________ opposed to one another.

- Diametrically

Pressures for Cost Reductions:

- Low cost
- Economies of Scale - Production, Advertising, Purchasing
- Standardization

Pressures for Local Responsiveness:

- Differentiation
- Under pressure to give the people what they want - custom, unique, etc.
- EX: Chinese & Mexican food in the US are locally responsive - it's not what they eat in China & Mexico

4 Categories of Unique Pressures that Make Companies More Locally Responsive:

- Differences in tastes and preferences
- Differences in infrastructure and traditional practices
- Differences in distribution channels
- Host government demands

Differences in Tastes and Preferences:

- Strategies are more towards locally responsive
- It is impossible to explain tastes and preferences

Theodore Leavitt:

- FACT - the world is getting smaller = tastes become homogeneous
- OPINION - depends on the product category

Differences in Infrastructure and Traditional Practices:

- Infrastructure - makes you be locally responsive (EX: driving on the left side of the road; different outlets in different countries)
- Traditional Practices - the way people live their lives

Differences in Distribution Channels:

- How things get to people
- EX: in the Philippines, Ivory Soap was sold door-to-door in a pretty box w/ a bow to look like a gift for someone

Host Government Demands:

- Product is different b/c the gov. says it has to be different
- EX: California emissions regulations; European car headlights

An International Strategy has ________ local responsiveness and ________ cost reductions.

- Low
- Low

International Strategy:

- How companies initially get into international business
- Initially an exporting strategy
- Attempt to sell products internationally with little to no change
- EX: Belgium chocolates; Rolex watches

Firms pursuing an international strategy are neither concerned about ________ nor ________.

- Costs
- Adapting to the local cultural conditions

Key Features of the International Strategy:

- Business objectives and competitive advantage relate primarily to the home market
- Products are produced in the company's home country then sent to customers all over the world
- Often referred to as an exporting strategy
- This strategy is often followed by small local businesses that are seeking to export resources to foreign markets.

A Global Strategy has ________ local responsiveness and ________ cost reductions.

- Low
- High

Firms pursuing a global strategy are under pressure to keep costs ________ but not to be ________.

- Down
- Locally responsiveness

Key Features of the Global Strategy:

- For such firms, variance in local preferences is not very important, but pricing is.
- Homogenized products to minimize costs and reach a broad audience
- Small adjustments needed to break into international markets

"Think Global, Act Local":

- Employ essentially the same basic competitive Generic Strategy in all country markets (low-cost provider everywhere)
- Give local managers the latitude to adapt the global approach as needed to accommodate local buyer preferences and be responsive to local market and competitive conditions. (Ability to tweak, not change completely)
- When companies adopt a global business strategy, they treat the world as one market and leverage economies of scale to boost reach and revenue.
- Global companies have little local variation, as products and services are homogenized to reduce costs while reaching as many people as possible.
- Usually, these companies have a central office or headquarters in their country of origin, while also establishing operations in foreign markets

A Multidomestic Strategy has ________ local responsiveness and ________ cost reductions.

- High
- Low

Multidomestic Strategy:

- Localized/Multinational/Multi-Country Strategy
- 180 degrees difference from Global Strategy
EX: Netflix; HG Heinz; Nestle

Key Features of the Multidomestic Strategy:

- Focus on establishing a presence and tailoring products to suit new markets
- Competitive advantage determined separately for each country

"Think Local, Act Local":

- A firm using a multi-domestic strategy does not focus on cost or efficiency but emphasizes responsiveness to local requirements within each of its markets.
- Employ localized strategies - one for each country market:
- Tailor the company's competitive approach and product offering to fit specific market conditions and buyer preferences in each country
- Delegate strategy making to local managers with firsthand knowledge of local conditions
- This includes considering foreign customs, traditions, and cultural traits
- With a multi-domestic business strategy, company headquarters are often maintained in the country of origin. However, the company may establish localized headquarters overseas from which they can more easily manage relations with foreign customers.

A Transnational Strategy has ________ local responsiveness and ________ cost reductions.

- High
- High

Transnational Strategy:

- Not sustainable long-term (being low cost & locally responsive) - not a good place to be
- EX: Coca-Cola - Only 2 countries where you can't buy coke: North Korea & Cuba

Key Features of the Transnational Strategy:

- Combination of global and multi-domestic strategies
- Allows the establishment of full-scale operations/value chain in foreign markets
- Companies have separate marketing, research, and development departments to respond to local customers
- Product or service is largely the same for different markets - locally responsive for market but product is standardized
- This means that the business is still operating from its headquarters in its country of origin, however, it also allows the company to expand with full-scale operations in foreign markets. (Marketing is same, product are different)
- A transnational product is the same regardless of the country in which it is sold. It doesn't change to suit a new market - the product is the same everywhere and isn't modified to appeal to local customs or preferences. (EX: Coca-Cola)

Challenges of Transnational Strategy:

- Identifying effective management tactics and large investment costs

Offensive Strategies Suitable for Foreign Markets:

- Attack Profit Sanctuaries
- Employ Cross-Market Subsidization
- Dumping

Attacking Profit Sanctuaries:

- Make them have to defend it - increase costs/spend money to defend it (drives profits down)

Employing Cross-Market Subsidization:

- Employ cross-market subsidization to win customers and sales away from select rivals in select country markets
- Tremendous growth potential in other markets

Dumping:

- Dump goods at cut-rate prices in the markets of foreign rivals
- Dumping is illegal - World Trade Organization polices this

2 Types of Dumping:

- Sell products at below costs
- Sell products significantly below the price in your home market

What makes the dumping strategy attractive?

- The company you're looking at is financially distressed/weak - kill them off by taking their market share (Your company has deep pockets - it's very expensive to do this)
- You're sitting on a tremendous amount of unused/excess capacity (Great way to enter a market - not always intended to kill a company)

Risks of Dumping:

- WTO finds out
- Tariffs and taxes can be place on all of the country's goods if one company dumps its goods in a foreign country

Geert Hofstede:

- Researcher of organizational studies, organizational culture, cultural economics, and management
- Coined the term that culture is the "software of the mind"

Culture is the "Software of the Mind":

- Culture is the "personality" of a country
- Basically, we are shaped by the country in which we are born (EX: we aren't born American just because we're born there; we are taught how to be American)

4 Popular Dimensions of Culture:

- Language
- Time Orientation
- Use of Space
- Religion

Language/Vocabulary is a Result of:

- History
- Expression - how we relate to our environment

Whorfian Hypothesis:

- States that language influences our thoughts, not the other way around
- We think differently around the globe because we speak different languages

Context:

- Context is the situation surrounding something
- Context can influence meaning

Low Context Culture:

- Very explicit in use of language; very literal; words matter more than context
- EX: United States

High Context Culture:

- The situation has more meaning than the actual words
- Body language, setting, past relationships

Monochronic Time Culture:

- Linear view
- "One chance at time"; time is money
- Long range goals/future is important
- Save time, not wasting time
- People appreciate schedules and appointments

Polychronic Time Culture:

- Things can happen again; not worried about time
- Things happen whenever they happen

Use of Space:

- Proxemics
- Interpersonal Space - how close/far people are apart

Hofstede's Cultural Dimensions:

- Power Distance
- Individualism vs. Collectivism
- Masculinity-Femininity
- Uncertainty Avoidance
- Confucian Dynamism

Power Distance:

- The extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally
- How much do you respect authority/levels of authority?

Low power distance means ________, and high power distance means ________.

- No respect for authority
- Respect for authority