Celestines Flashcards

Theory of Competitive Advantage by...

David Ricardo

theory of competitive advantage by David Ricardo

every country can benefit from international trade

Comparitive advantage example Bob and Anna. Bananas and Fish. Bob can either gather 10 bananas or 10 fish. Anna can either gather 10 banana or 30 fish. how would trading benefit the total?

If bob produces just bananas

Limitations of comparative advantage

ignores immobility between countries
assumes the existence of perfect information on market opportunities
assumes conditions of perfect competition
fails to explicitly consider technology

Product Life Cycle

the process of diffusion/adoption of a product within a market (Levitt 1965)

the phases of the product life cycle in one market

Introduction
- Innovative new product
- Informative advertising
- Discounts to get people to start buying the product
- High price (unique product)
Growth
- Persuasive advertising
Maturity
- Highest sales
- Decrease in price (competition)
Decline
- Strategy to leave market or new innovation

International Product Life Cycle (Vernon 1966

1971)

the international product life cycle considers....

product standardization
production relocation
change in export/import patterns

international product life cycle includes lines for...

1. country where new product is launched

pattern of inventors country in the international product life cycle

export in intro and growth stage increasing

developed country pattern in international product life cycle

between introduction and growth mainly imports than rises to exports in the maturity phase and decline phase

developing country pattern in international product life cycle

introduces importing in the maturity phase and keeps improving until it starts exporting later in the decline phase

Introduction phase in IPLC

1. product development and launch
2. high investment in R&D
3. low competition
4. high prices and high margins
5. focus on differentiation and innovation
6. initial stages of internationalization

growth phase in IPLC

1. accelerated sales growth
2. entry of competitors
3. gradual reduction of prices
4. geographic expansion
5. intensified marketing efforts
6. investment in expansion of production capacity

Maturity phase in IPLC

1. Sales growth stabilizes
2. Intensified competition
3. Maturity of technology and production
4. Price reduction
5. Focus on differentiation and quality
6. Development of new markets and segments
7. Marketing strategies oriented to customer loyalty

Decline phase in the IPLC

1. Decrease in sales
2. Pressure on prices and profit margins
3. Withdrawal from the market
4. Imports from developed countries
5. Production in less developed countries (sometimes through direct investment from developed countries)
6. Increased standardization of products
7. Reduction of labor costs (because the production is now made in underdeveloped countries)

does the IPLC end?

no

Limitation of the International Product Life Cycle

1. this theory does not take into account the direct internatioanlization of a growing number of companies (they are even born as global companies)
2. this theory considers that production can take place in less developed countries through direct investment from developed countries (ignoring the relevance of emerging economies)

the internationalization of business occurs on the basis of two incremental decisions in two dimensions

which are...

what model represents the behavioral perspective of market selection?

the Uppsala Model

Uppsala model

gradually intensify through first experiences in domestic market then expansion into cultural and or geographically common markets through first exports then sales subsidiaries.

Stages of Uppsala Model

0. pre-international stage
1. start of international operations
2. development of local markets
3. global rationalization

pre-international stage

operations focused on the domestic market

start of international operations

lack of international experience

effort focused on identifying the markets that best suited to the current offer

minimal product adaptation and international strategies

development of local markets

interest in identifying new opportunities for expansion within local markets

interest in identifying new opportunities for expansion within local markets includes

growth based on acquired experience

lines of growth in local markets based off of

new product development

global rationalization

interest focused on eliminating inefficiencies by having many local business

how do companies improve integration and coordination of international strategies

- global strategy development: resource allocation on a global basis
- leveraging economies of scope
- realization of economies of scale

economies of scope

the ability to use one resource to provide many different products and services

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

limitations and criticisms to the Uppsala Model

- excessively deterministic nature
- it does not take into account the existing interdependencies between markets
- poor explanation of the internationalization of service sector companies
- decreasing importance of psychological distance

Excessively deterministic nature

It is not an automatic process

It does not take into accountthe existing interdependencies between markets

It is not possible (nor convenient) to commercially and strategically isolate the different international markets.

Poor explanation of the internationalization of service sector companies

The concept of international engagement is not directly applicable in the service sector (investments abroad are not always required).

Decreasing importance of psychological distance

Homogenization of international markets
More efficient means of transportation and communication

what are the barriers to internationalization?

a. psychological barriers
b. operational barriers
c. organizational barriers
d. product/market barriers

psychological barriers

ethnocentric trends

operational barriers

complex documentation management

organizational barriers

limited resources

product/market barriers

lack of adequacy/adaptation

success factors for internationalization (8)

1. identification of international agents and distributors
2. effective management of relationships with intermediaries
3. high commitment to international activities
4. international knowledge

adopting an entry strategy involves...

determining the set of operations

criteria for classifying entry strategies

1. commitment of resources
2. degree of control
3. level of risk
4. level of flexibility

commitment of resources that the...

that the company must expose to the target market as a consequence of adopting a certain entry strategy

degree of control provided to...

the company in relation to the marketing activities carried out in the target market

level of risk assumed by

the company as a result of the adoption of the selected strategy

level of flexibility that the

company can count on once it implements the selected strategy

alternative entry strategies

companies generally start with a modest export share. as sales revenue grown

entry strategies

1. export
2. commercial agreements
3. international strategic alliances
4. foreign direct investment

two types of export

indirect and direct

indirect exports adv

dis

direct exports (vs indirect exports)

1. more control and knowledge of international markets
2. improved ability to react to changes in the international environment
3. greater control and opportunity to take advantage of intangible assets (brand

commercial agreements are and generally include

they are long term

two types of commercial agreements

licenses and franchises

licenses

Rights to use patents

duration of licenses depends on

technology and market uncertainity

licenses are generally seen as a

supplement to exporting or manufacturing

licenses are suitable for

markets with high risk or high trade barriers (import restrictions)

risks of licenses

choice of the wrong partner

license are or are not profitable and the risks are or are not very high

It is one of the least profitable ways to enter a market

franchisor

provides a standard package of products

franchisee

provides market knowledge

the combination of skills allows for ________ to deal with local market conditions and yet provides the _________ reasonable degree of control

- The combination of skills allows flexibility to deal with local market conditions and yet provides the parent company with a reasonable degree of control.

are franchises fast growing?

they are usually the fastest growing market entry strategy

the key factors involved in franchisee success are

- Controlling costs (based on physical and cultural
distances)
- The Director's international experience
- The value of the brand in the new market

which is the dominant market or US franchises? followed by?

Canada followed by Japan and UK

international strategic alliances

A business relationship established by two or more
companies to cooperate out of mutual need and to share
risk to achieve a common goal

international strategic alliances eg

(e.g. Star Alliance in the global airline industry: Lufthansa and Thai Airlines share various aspects of their operations

problems of international strategic alliences

coordination disputes

two types of international strategic alliances

International joint ventures and consortiums

international join ventures

an association of two or more participating companies that have joined forces to create a separate legal entity

international joint ventures serve as a means to

reduce the political and economic risks due to the cost of the partners' contribution to the company

international joint ventures provide a ________ way to enter markets that present legal and cultural barriers than _______ an existing company

They provide a less risky way to enter markets that present legal and cultural barriers than acquiring an existing company.

consortiums

Similar to international Joint Ventures except for:
(1) They usually include a large number of participants.
(2) They often operate in a country or market in which none of the
participants is currently active.

consortia are developed to pool...

financial and administrative resources and to reduce risks (e.g. construction projects)

what leads consortiums?

One firm generally acts as the lead firm and the newly formed corporation can exist independently of its creators.

foreign direct investment

an investment within a foreign country by investing capital

why do companies carry out foreign direct investment (4)

1. to take advantage of cheaper labor
2. to avoid high import taxes
3. to reduce high transportation costs
4. to access raw materials and technology

factors influencing the structure and performance of direct investments (6)

1. first movers have more advantages

advantages of foreign direct investment

add's foreign savings = promotes income

disadvantages of foreign direct investment

- may cause capital outflows through repatriation of profits
- foreign control of an important part of the economy

Spain is the top _____ recipient of foreign invesmtns in the world

10

top 3 recipients of FDI

US

what does spain do to attract FDI

Spain's central government and other public authorities develop and implement instruments to attract foreign direct investment.

aid instruments for FDI

• Regional and state incentives for training and employment.
• State incentives for specific industries.
• Incentives to invest in specific regions.
• Aid from the European Union.

Foreign direct investment spain automotive industry

Spain is the second country with the most foreign direct investment from Germany

which sector employs the most workers in spain?

The automotive sector is one of the sectors that employs the most workers in Spain (9%).

the automotive sector represents ___% of GDP and ____% of total exports

It represents 10% of GDP and 18% of total exports.

spain is the ______ largest car producer in the world and the _____ largest in Europe after germany

Spain is the nineth largest car producer in the world and the second
largest in Europe after Germany (2021).

what is the first step in the international marketing strategy?

macrosegmentation

macro segmentation

identifying the potential market in which the company should be

why is macro segmentation crucial for success in foreign markets

because markets are not homogeneous

what is the first step to international macro segmentation

whether a company is new or heavily involved in international marketing

what does one analyze when assessing the potential markets

analyze the coincidence between the needs of the company and those of the different countries

a company's strengths and weaknesses

products

aspects to take into account before carrying out international macro segmentation

1. analyze the different countries
2. determine the selection criteria against which potential countries can be evaluated
3. complete an analysis of the environment in which a company plans to operate

selection criteria

analysis of the company's objectives

What six questions id Rugman and Hodgetts suggest in the market selection process?

1. who will be interested in buying the company's product?
2. is the market financially viable?
3. is it a risky market?
4. is the product socially and culturally acceptable and can operations be located there?
5. who will I compete against?
6. which market segments will I target?