Capstone Final

diversification

adding new businesses to the firm that are distinct from its existing operations

internal development

starting a new business subsidiary

acquisition

makes sense when the entry barrier is high or speed is important, often a high cost

joint venture

may be less expensive than acquisition, but still involves significant time and costs

corporate venturing

directly investing corporate funds in external startups

related diversification

significant revenues from other businesses linked to the primary business activity

unrelated diversification

few linkages among the businesses

economies of scale

cost savings that come from running a larger scale operation, costs decrease as production increases

economies of scope

cost reductions that flow from sharing resources in multiple businesses

single business vs related diversification

single businesses do not last long term and are exposed to more risks, where as related diversification last long term with better synergy

measures of industry attractiveness

market size and growth, emerging opportunities/threats, industry profitability, competitive intensity, cross business fits

measures of competitive strength

firm's market share, profitability, cost efficiency, ability to match or beat rivals on key product attributes, brand image/reputation, valuable resources/capabilities

nine cell matrix

allocate the most resources to the highest performing business/most competitive (business in high/strong categories)

dogs

small market share, low growth market (divest)

cash cows

low growth market, decent market share (invest enough to hold)

stars

high market share, fast growing market (maintain/increase investment)

question marks

not clear (invest or divest)

merger

joining of two independent companies to form a combined entity

acquisition

purchase or takeover of one company by another

drivers of M&A

revenue synergies, reduced market rivalry, cost synergies, stronger competencies, convergence of industries whose boundaries are being blurred, principal-agent problem

why do M&A fail

too much premium, gains in competitive capabilities may take to long to realize, cost savings may prove smaller than expected, resistance from organizational members

strategic alliances

arrangements between firms that involve sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

advantages of strategic alliances

independent, more flexible, don't combine, shared resources

strategic alliances difference between M&A

flexibility, lower cost, less risky

joint venture

standalone organization created and jointly owned by two or more parent companies, shared revenues, expenses, control

why do firms enter into strategic alliances

to strengthen competitive position, enter new markets, hedge against uncertainty, to access critical complementary assets, to learn new capabilities from competitors, increase bargaining power

advantages of strategic alliances over M&A

lower investment cost and risks, faster to deploy

risks of strategic alliances

possibility of a poor fit between the partners, can lose proprietary rights knowledge base

international strategy

firms strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world

foreign regulations that could harm/benefit your company

local content requirements, trade restrictions, price regulations

foreign exchange risk (over)

domestic goods become more expensive to foreign, foreign goods become cheaper domestically

foreign exchange risk (under)

domestic goods become cheaper for foreign, foreign goods become more expense

foreign market entry modes

exporting, licensing, franchising, wholly-owned subsidiary, strategic alliance/joint venture

exporting

pros: limited involvement in foreign markets

cons: higher costs in the home country, shipping costs, trade barriers

licensing

pros: makes sense when a firm with a unique product lacks the resources to entry foreign markets, income from royalties, lower risk

cons: risk of losing control over tech know how

franchising

pros: franchisee bears most of costs/risk, similar to licensing

cons: maintaining quality control in foreign countries is challenging

licensing and franchising

quickest mode of foreign market entry, lowest risk

advantages of strategic alliance and joint venture

access to the partners local knowledge, shared costs and resources, allows to preserve independence, often used to pave the way for acquisition

disadvantages of strategic alliances and joint ventures

language and cultural barriers, different operating practices, coordination costs, conflicts

home replication strategy

leverages home based core competencies by selling the same products/services both domestic and foreign markets

use when both local responsiveness and cost reductions are low

cons: limited local responsiveness

multidomestic strategy

attempts to maximize local responsiveness

use when the pressure for local responsiveness is high and the pressure for cost reductions is low

common in the consumer products and food industries

cons of multidomestic strategy

higher costs, duplication of functions, too much local autonomy

global strategy

attempts to reap significant economies of scale through standardization

use when the pressure for local responsiveness is low and pressure for cost reductions is high

sells the same products globally

cons of global strategy

does not enable firms to address local needs

transnational strategy

strategy that attempts to combine the benefits of a multidomestic strategy with those of a global strategy

use when both local responsibleness and cost reductions are high

cons of transnational strategy

added complexity

corporate governance

system of rules, practices, and processes by which a company is directed and controlled, ensuring its operations are ethical, transparent, and in the best interests of its stakeholders

board of directors

is composed of inside and outside directors, who are elected by shareholders to represent their interests

functions of the board of directors

control function (selecting, evaluating, compensating top execs, compliance), service function (general strategic oversight and guidance), resource acquisition

interlocking directorate

the same person serves on the board of two or more companies, less likely to effectively monitor management

CEO duality

CEO doubles as the chairperson

common in the US

outgoing CEO on the board

pros: can lend stability to the transition process

cons: can undermine the credibility and leadership of the incoming CEO

ethical universalism

conceptions of right and wrong are universals

ethical relativism

ethical correctness depends on the prevailing local ethical standards

multiple sets of ethical standards pose dilemmas

integrative approach

middle position between the universalism and relativism

integrative approach guiding principles

universal ethical norms take precedence over local ethical norms

2. respect for basic human rights should determine the ethical standards

3. cultural sensitvity

business case for ethical strategy

an unethical behavior can do damage to the firm and its stakeholders

short term business ethics?

business ethics don't always help short term as companies will pay more short term for ethics vs long term