MGMT 110 Ch 9-10

What are the five main reasons firms expand into international markets?

Growth, efficiency, managing risk, knowledge, and responding to customers or competitors

Describe the four types of distance that firms should consider when choosing which foreign markets to enter. What factors help managers determine which type of distance is most likely to affect the success of an international expansion?

1. Cultural - differences in language and culture, the way people live and think about the world

2. Administrative - differences in legal, political, and regulatory institutions

3. Geographic - how many miles separate two countries

4. Economic - differences in the average income of customers, usually measured as per capita GDP

Describe the three primary international strategies.

1. Multi-domestic strategy - local responsiveness over standardization

2. Global strategy - standardization and economies of scale over local responsiveness

3. Arbitrage strategy - country-comparative advantages such as sources of low cost or unique resources

Describe the concepts of local responsiveness and standardization. Determine which international strategy is best suited to each pressure and explain why.

Local responsiveness is the need to tailor products, marketing, and distribution strategies to local customers in a foreign country. Standardization is not adjusting to local customers, which results in achieving economies of scale (cost reduction). Multi-domestic strategy is suited for local responsiveness because companies are trying to adapt to customer preferences in different regions, whereas a global strategy is suited for standardization because products will be standardized globally for cost reduction.

Describe the ways that managers can help keep multi-domestic strategies from becoming too costly and global strategies from failing to meet local needs.

Multi-domestic strategies: To prevent from becoming too costly, manage variation in the following ways:

1. Focus adaptations - focus on a particular product, customer segment, or geographic area.

2. Externalize adaptations - arrange for local customers to adapt to local needs, such as using franchises or alliances.

3. Design adaptability - cheap adaptation through flexible manufacturing or creating a set of standard interfaces that allow many different types of alternatives to plug into one another.

Global strategies: To prevent from failing to meet local needs, companies may not centralize all parts of the value chain. Some functions can be localized, while others are centralized.

Explain the International Strategy Triangle and list the steps to construct one.

The International Strategy Triangle is a tool for determining which international strategy a company should pursue. It consists of three axes labeled multi-domestic, global, and arbitrage. To construct where companies fall on the triangle, follow these steps:

Determine the appropriate measures to use for the three axes. For many

1. manufacturing industries, these measures will be:

• Multi-domestic axis –Advertising to sales

• Global axis – R&D to sales

• Arbitrage axis – Labor to sales

2. Plot the median and 90th percentiles for the industry as a whole on each axis. You will do this by gathering data on the measure for each axis from the most important firms in the industry you are examining. When you have the data, calculate the median and the 90th percentile point, where 90 percent of the firms are below that point. This is likely to be close to the firm who is farthest along the axis.

3. Plot the appropriate point on each axis for the firm you are analyzing. Draw a triangle connecting these three dots. You may also want to carry out this process for two or more of the firm’s major competitors.

• Use the shape of the triangle to help determine the appropriate international strategy for the firm being analyzed and to understand competitive dynamics in the firm’s industry.

Explain how you would use the International Strategy Triangle to identify which international strategy a firm should use. Explain how you would use it to evaluate the strategies of a firm that has already gone international.

If a company ranks at any point beyond the median along any axis, managers should consider pursuing that strategy. If a firm ranks beyond the 90th percentile, it is critical that a firm consider that strategy. This can be used to look at the dynamics of competition in the industry, including who is likely to win and who is likely to lose.

What is a mode of entry? Describe the four main types of entry a firm can choose.

A mode of entry is the way or strategy a firm uses to enter foreign markets. There are 4 main types:

1. Exporting - producing goods in a single location and selling them in foreign markets.

2. Licensing and franchising - selling the rights to produce a firm’s products or services.

3. Joint venture and alliances - alliances involve sharing resources, risks, and rewards.

4. Wholly-owned subsidiaries - local units owned outright by the entering firm.

Which type of entry mode is most appropriate for each of the primary international strategies? List the factors that firms using each primary strategy should consider when choosing an entry mode.

Factors to consider include amount of control a firm wants to keep and risk is willing to take. Global strategies require more control, moving firms toward exporting and wholly owned subsidiaries. Multi-domestic strategies need local innovation, so franchising, joint ventures, or autonomous wholly-owned subsidiaries would be more appropriate choices. Arbitrage requires ownership, so exporting and licensing/franchising will not be good choices.

What is the difference between an invention and innovation? What are the differences between incremental versus radical innovations?

Invention is the creation of a unique or novel concept, method or process, whereas innovation is the conversion of a novel concept into a product, process, or business model that generates revenues and profits. Incremental innovation builds on a firm’s established knowledge base and steadily improves the product or service it offers, whereas radical innovation draws on a different knowledge base, technologies, or methods to deliver value in a truly unique way.

How do companies create an innovative strategy by eliminating steps in the value chain?

Companies who eliminate steps in the value chain are able to offer lower prices for similar products and services. One example is that of Amazon offering books online.

What is the difference between “low-end” and “high-end” disruptive innovations?

“Low-end” disruptive innovations offer a low cost product or service with less technology or ability, whereas “high-end” disruptive innovations offer products that outperform existing products and are sold for a premium price rather than a discount.

What does “mass customization” mean? How do companies use mass customization to succeed in the market?

Mass customization means providing products or services that are customized for individual customers but on a large scale, such as Build-A-Bear Workshop. This works in markets that have customers with a variety of different needs where many want a product that is personalized to those needs.

What does it mean to target “non-consumption?” How does a company create new markets with a Blue Ocean Strategy?

Targeting “non-consumption” means looking for individuals who do not currently purchase a product or service and offering a product or service that might induce consumption. A company creates new markets by creating new demand in an uncontested market space.

What are four behaviors of business innovators that help them generate ideas for innovative strategies?

Observing, questioning, experimenting, and associating.