CBA 300 Test 3 (Final) CSULB Dr. Craig Macaulay Ch. 11 (1-35), 12 (36-73), 13 (74-95), 15 (96-111)

Strategic alliances

Voluntary agreements of cooperation between firms

Contractual (nonequity-based) alliances are

Associations between firms that are based on contracts and do not involve the sharing of ownership. I

Contractual (nonequity-based) alliances include

co-marketing, research and development (R&D) contracts, turnkey projects, strategic suppliers, strategic distributors, and licensing/franchising.

Equity-based alliances are

based on ownership or financial interest between the firms.

Equity-based alliances include

strategic investment (one partner invests in another), cross-shareholding (each partner invests in the other), and JVs (joint ventures) (the establishment of a new legally independent entity whose equity is provided by two or more partners)

Strategic investment

one partner invests in another

cross-shareholding

each partner invests in the other

acquisition

transfer of the control of operations and management from one firm (target) to another (acquirer), the former becoming a unit of the latter.

merger

combination of operations and management of two firms to establish a new legal entity

Impact of these formal institutions on alliances and acquisitions can be found in

antitrust concerns and entry mode requirements.

RESOURCES AND ALLIANCES VALUE Alliances must create value by

reducing costs, risks, and uncertainties

real option

investment in real operations as opposed to financial capital

RESOURCES AND ALLIANCES RARITY relational (or collaborative) capabilities have the

ability to successfully manage interfirm relationships

RESOURCES AND ALLIANCES Imitability occurs at

firm level (resources and capabilities may be imitated by partners) and alliance level (trust and understanding among partners)

RESOURCES AND ALLIANCES ORGANIZATION

alliance relationships are organized in a way that is difficult to replicate

RESOURCES AND ACQUISITIONS VALUE

70% of acquisitions fail.

acquisition premium

the difference between the acquisition price and the market value of target firms

RESOURCES AND ACQUISITIONS RARITY must have

rare and unique skills that enhance the overall strategy

RESOURCES AND ACQUISITIONS IMITABILITY

small number of firms have mastered the art of post-acquisition integration

RESOURCES AND ACQUISITIONS ORGANIZATION

to take advantage of the benefits while minimizing the costs

Strategic Fit

the effective matching of complementary strategic capabilities

organizational fit

the similarity in cultures, systems, and structures

Influences alliance performance (4)

equity, learning and experience, nationality, and relational capabilities

How equity influences alliance performance

greater equity stake means that a firm is more committed

How learning and experience influences alliance performance

learning is abstract, so experience is often used as a proxy because it is easy to measure, but may not enhance performance

How nationality influences alliance performance

dissimilarities in national culture may create strains in alliances

How relational capabilities influences alliance performance

firm specific and difficult to codify and transfer, may make or break alliances

motives for acquisition (3)

Synergistic, Hubristic, Managerial

synergistic motives

leverage superior resources, access complementary resources, add value

hubristic motives

reduce value, may unknowingly or knowingly overpay for targets

Managerial motives

managers' desire for power, prestige, and money reduce value

Hubris

overconfidence in one's capabilities

acquisitions fail because of

pre-acquisition and post-acquisition phases

pre-acquisition phase problems

hubris and/or managerial motives, firms overpay targets, acquiring international assets

post-acquisition phase problems

do not analyze organizational fit with targets, fail to address the concerns of multiple stakeholders, pay inadequate attention to people issues

MNEs confront two sets of pressures

cost reduction and local responsiveness dealt with in the integration-responsiveness frame work

integration-responsiveness frame work

allows managers to deal with the pressures for both global integration and local responsiveness

Cost pressures

call for global integration

local responsiveness

The need to be responsive to different customer preferences around the world

Theodore Levitt

started the movement to globalize offerings

Four Strategic Choices

1. Home Replication

2. Localization

3. Global Standardization

4. Transnational

Home replication strategy (international or export strategy)

duplicates home-country based competencies in foreign countries including production scales, distribution efficiencies, and brand power.

Home replication strategy in manufacturing

shown in an export strategy

Home replication strategy in services

done through licensing and franchising.

Home replication strategy advantages

easy to implement

Home replication strategy disadvantages

lacks local responsiveness because it focuses on the home country

Localization (multidomestic) strategy

focuses on a number of foreign countries/regions, each of which is regarded as a stand-alone local (domestic) market worthy of significant attention and adaptation.

Localization (multidomestic) strategy advantages

Maximizes local responsiveness

Localization (multidomestic) strategy disadvantages

high costs due to duplication of efforts in multiple countries, too much local autonomy

global standardization strategy

the development and distribution of standardized products worldwide in order to reap the maximum benefits from low cost advantages

global standardization strategy advantages

MNE pursuing a global standardization strategy is not limited to its major operations at home

Centers of Excellence

subsidiaries explicitly recognized as a source of important capabilities, with the intention that these capabilities be leveraged by and/or disseminated to other subsidiaries

Worldwide (or global) mandate

a charter to be responsible for one MNE function throughout the world

global standardization strategy disadvantages

sacrifices local responsiveness

Transnational Strategy

endeavors to be simultaneously cost efficient, locally responsive, and learning driven around the world.

Transnational Strategy advantages

Innovations not flow from the home country to host countries and visa versa

Transnational Strategy disadvantages

organizationally complex and difficult to implement

Four Organizational Structures

1. International Division (Home Replication)

2. Geographic Area (Localization)

3. Global Product Division (Global Standardization)

4. Global Matrix (Transnational)

International Division (Home Replication)

used when firms initially expand abroad, then phased out

International Division (Home Replication) disadvantages

1. foreign subsidiary managers are not given sufficient voice relative to the heads of domestic divisions

2. he international division serves as a silo whose activities are not coordinated with the rest of the firm

Geographic area structure (localization strategy)

organizes the MNE according to different geographic areas

Geographic area structure (localization strategy) disadvantages

beinglocally responsive can encourage the fragmentation of the MNE into fiefdoms.

Global product division structure (global standardization strategy)

assigns global responsibilities to each product division. highly responsive to pressures for cost efficiencies, because it allows for consolidation on a worldwide basis and reduces inefficient duplication in multiple countries. difficult to deliver.

Global product division structure (global standardization strategy) disadvantage

local responsiveness suffers, can be alleviated by a global matrix structure

relationship between strategy and structure

1. Strategy usually drives structure.

2. structure also drives strategy

3. Neither strategy nor structure is static.

external relationships

MNEs are subject to the formal insti- tutional frameworks erected by various home-country and host-country governments

internal relationships

How MNEs are governed is determined by various formal and informal rules of the game. Formally, organizational charts specify the scope of responsibilities for various parties. Informally, organizational norms, values, and networks

Subsidiary initiative

the proactive and deliberate pursuit of new opportunities by a subsidiary to expand its scope of responsibility

organizational culture

The collective programming of the mind that distinguishes members of one organization from another.

knowledge management

the structures, processes, and systems that actively de- velop, leverage, and transfer knowledge. depends on IT and informal social relationships within the MNE

Two categories of knowledge

explicit knowledge and tacit knowledge

explicit knowledge

codifiable— it can be written down and transferred with little loss of richness and all of the knowledge captured, stored, and transmitted by IT is explicit.

tacit knowledge

noncodifiable, and its acquisition and transfer require hands-on practice

Human Resource Management (HRM)

Activities that attract, select, and manage employees.

four main areas of HRM

1. staffing

2. training and development,

3. compensation and performance appraisal

4. labor relations

Staffing

HRM activities associated with hir ing employees and filling positions

host-country nationals (HCN)

individual from the host country who works for an MNE, majority

Parent-country nationals (PCNs)

come from the parent country of the MNE and work at its local subsidiary.

Third-country nationals (TCNs)

come from neither the parent country nor the host country

three primary approaches for making staffing decisions

Ethnocentric, Polycentric,and Geocentric Approaches

ethnocentric approach

the norms and practices of the parent company by relying on PCNs

polycentric approach

he norms and practices of the host country

geocentric approach

finding the most suitable managers, who can be PCNs, HCNs, or TCNs

Expatriation

leaving one's home country to work in an other country

Expatriate failure can be measured in three ways

premature re-turn, unmet business objectives, and unfulfilled career development objectives

Training and development programs focus on two groups

expatriates and HCNs

repatriation

the process of returning to the expatriate's home country after an extended period overseas

psychological contract

informal understanding of expected delivery of benefits in the future for current ser vices

Performance appraisal

evaluation of employee performance for the purpose of promotion, retention, or ending employment

Three related issues are

1. compensation for expatriates

2. compensation for HCNs

3. performance appraisal

going rate approach

pays expatriates the prevailing (going) rate for comparable positions in a host country

balance sheet approach

balances the cost of living differences relative to parentcountry levels and adds a financial inducement to make the package attractive

two advantages of the balance sheet approach

1. there is equity between assignments for the same employee

2. facilitates repatriation

three disadvantages of the balance sheet approach

1. cost

2. great disparities between expatriates (especially PCNs) and HCNs

3. organization ally complex to administer

labor relations

a firm's relations with organized labor (unions) in both home and host countries

Corporate social responsibility (CSR)

Consideration of, and response to, issues beyond the narrow economic, technical, and legal requirements of the firm to accomplish social benefits along with the traditional economic gains that the firm seeks.

stakeholder

any group or individual who can affect or is affected by a firm's actions

global sustainability

the ability to meet the needs of the present without compromising the ability of future generations to meet their needs

Primary stakeholder groups

Constituent on which a firm relies for its continuous survival and prosperity.

Secondary stake holder groups

groups or individuals who can indirectly affect or are indirectly affected by a firm's actions