strat 390 midterm

What is competitive strategy?

How a business wins within one market through activity choices that create competitive advantage.

What is corporate strategy?

Which markets/businesses to own, why ownership creates value, and how to organize them.

What is corporate advantage?

Business units create and capture more value inside the corporation than they would independently.

What are the three dimensions of corporate scope?

Horizontal scope, vertical scope, and global scope.

What is horizontal scope?

How wide a range of products or businesses the firm operates in.

What is vertical scope?

How many stages of the value chain the firm owns.

What is global scope?

How geographically spread the firm's activities are.

How does a firm create more total value?

Increase willingness to pay or reduce cost.

What is cross-selling?

A demand-side benefit where combining offerings raises customer willingness to pay.

What are economies of scope?

Lower total cost from sharing resources across DIFFERENT products or businesses.

What are economies of scale?

Lower unit cost from producing MORE of the SAME product.

Scale vs. scope?

Scale = more of one product; scope = shared resources across multiple products.

What are the four tests for corporate scope?

Attractiveness, Cost of Entry, Better-Off, and Ownership.

What is the Attractiveness Test?

Is the industry potentially attractive?

What is the Cost-of-Entry Test?

Do expected future profits justify the cost of entering?

What is the Better-Off Test?

Are the businesses more valuable/competitive together than separately?

What is the Ownership Test?

Must the firm own the business to capture the benefit, or could a contract/alliance work?

Can Better-Off pass while Ownership fails?

Yes. A real linkage may exist, but ownership may be more expensive than contracting.

What are the major costs of ownership?

Headquarters, coordination, distraction, and social comparison.

What are the three ways diversification can create value?

Portfolio management, restructuring, and synergies.

What is portfolio management?

HQ allocates resources better because it has an informational advantage over outside investors.

What is restructuring?

Improve a standalone business without relying on linkages to other portfolio businesses.

What is synergy?

Extra value created because two businesses interact; 1 + 1 > 2.

What distinguishes restructuring from synergy?

Restructuring improves one business alone; synergy requires linkage between businesses.

What are the three RBV resource types?

Tangible resources, intangible resources, and organizational capabilities.

What is a tangible resource?

A physical or financial asset such as equipment, property, cash, or infrastructure.

What is an intangible resource?

A nonphysical asset such as brand, patent, data, relationships, or culture.

What is an organizational capability?

Embedded routines, processes, and know-how used to deploy resources.

What does VRIO stand for?

Valuable, Rare, Inimitable, and Organizationally relevant.

What are the 7 Powers?

Scale economies, network economies, counter-positioning, switching costs, branding, cornered resource, process power.

What two things must every Power have?

A benefit and a barrier that prevents competitors from copying it.

What is Scale Economies Power?

Unit costs fall as volume rises.

What is Network Economies Power?

The product becomes more valuable as the user base grows.

What is Counter-Positioning?

A new business model incumbents cannot or will not copy without hurting themselves.

What are Switching Costs?

Costs or losses customers face when leaving a product or platform.

What is Branding Power?

Durable customer belief that raises willingness to pay.

What is a Cornered Resource?

Exclusive access to a valuable input or asset competitors cannot obtain.

What is Process Power?

Embedded routines/culture that consistently produce superior outcomes.

When is diversification truly related?

A shared resource transfers and creates a protected cost or WTP advantage in the new business.

Why isn't sharing a resource alone enough?

The shared resource must actually recreate competitive advantage in the new market.

How should you analyze a resource on the exam?

Resource type → Power → cost/WTP benefit → barrier to imitation.

Why is risk reduction a weak diversification rationale?

Shareholders can diversify cheaply themselves through portfolios/index funds.

Why is entering an attractive industry not enough?

The firm still needs its own competitive advantage there.

What is empire building?

Managers diversify to increase their own size, status, power, or compensation instead of shareholder value.

What is vertical integration?

Owning multiple stages of the value chain.

What is backward integration?

Moving upstream toward inputs or suppliers.

What is forward integration?

Moving downstream toward the end customer.

What is the make-or-buy decision?

Whether to perform an activity inside the firm or buy it from the market.

What are transaction costs?

Costs of using the market: search, bargaining, contracting, monitoring, and enforcement.

What are hierarchy/administrative costs?

Costs of coordinating and managing activities inside the firm.

What is Coase's rule?

If transaction costs < hierarchy costs, buy; if transaction costs > hierarchy costs, integrate.

What are the three sources of transaction-cost problems?

Opportunism, bounded rationality, and uncertainty.

What is opportunism?

One party exploits asymmetric information or bargaining power.

What is bounded rationality?

People cannot foresee or write down every possible contingency.

What does uncertainty cause in contracting?

Incomplete contracts.

What is asset specificity?

An asset loses much of its value outside one particular relationship.

What is the hold-up problem?

After one party makes a specific investment, the other side can exploit its reduced bargaining power.

When does asset specificity favor integration?

When specific investments make hold-up risk high.

When does close coordination favor integration?

When activities must fit together precisely and contracts cannot coordinate them well.

What are the four major costs of hierarchy?

Low-powered incentives, coordination costs, loss of flexibility, and compounding risk.

What are high-powered incentives?

Market competition strongly rewards efficiency, quality, and performance.

What are low-powered incentives?

Internal units may become protected and lose pressure to compete or improve.

Why can specialist suppliers beat in-house units?

They often serve many customers and achieve greater economies of scale.

What is loss of flexibility from integration?

Owned assets make it harder to switch suppliers, technologies, or locations.

What is compounding risk?

Owning multiple stages causes risks from those stages to stack inside one firm.

Transaction cost vs. production cost?

Transaction cost manages the exchange; production cost performs the actual work.

Why is refrigerated transportation not necessarily a transaction cost?

The product still needs transportation even if the firm owns the supplier.

Why is price volatility not automatically a transaction-cost problem?

A changing market price can be a financial risk even when the market itself works efficiently.

What is the key lesson from Delta?

Jet-fuel price risk does not automatically justify ownership; commodity markets may have low transaction costs.

Why is Delta a weak classic hold-up case?

Jet fuel has many buyers/sellers and little relationship-specific investment.

What is the key lesson from Nvidia?

Do not own every important activity; compare supplier dependence with massive hierarchy/capability costs.

Why should Nvidia hesitate to make its own chips?

Fabs require huge capital, specialist capabilities, and reduce flexibility.

What is Nvidia's forward-integration risk?

It may compete with customers such as cloud providers and hardware partners.

What is liability of foreignness?

Extra cost of operating in an unfamiliar foreign environment.

What is the key global-strategy question?

Can the firm's home-country competitive advantage be replicated abroad?

What is PESTEL used for?

Analyzing one country's political, economic, social, technological, environmental, and legal environment.

What is CAGE used for?

Measuring distance between the home and foreign country.

What does CAGE stand for?

Cultural, Administrative, Geographic, Economic distance.

What is Cultural distance?

Differences in language, norms, religion, preferences, and social behavior.

What is Administrative distance?

Differences in laws, institutions, politics, regulation, and government relationships.

What is Geographic distance?

Physical distance plus transport, border, communication, and time-zone barriers.

What is Economic distance?

Differences in income, wages, resources, skills, and development.

How can CAGE reduce more than just entry attractiveness?

It can prevent the firm from using the source of its competitive advantage abroad.

What does AAA stand for?

Adaptation, Aggregation, and Arbitrage.

What is Adaptation?

Change the product, marketing, or business model to fit local markets.

What is Aggregation?

Standardize/combine activities across countries to gain economies of scale.

What is Arbitrage?

Exploit differences between countries such as wages, taxes, skills, or resources.

Adaptation vs. Aggregation?

Adaptation = tailor locally; Aggregation = combine globally for scale.

Aggregation vs. Arbitrage?

Aggregation exploits similarities; Arbitrage exploits differences.

What is an International strategy?

Low cost pressure + low local responsiveness; transfer the home-country formula abroad.

What is a Multidomestic strategy?

Low cost pressure + high local responsiveness; autonomous country units adapt locally.

What is Global Standardization?

High cost pressure + low local responsiveness; centralize and standardize for scale.

What is a Transnational strategy?

High cost pressure + high local responsiveness; combine global efficiency with local adaptation.

International vs. Global Standardization?

International exports the home formula; global standardization actively integrates globally for cost efficiency.

Multidomestic vs. Transnational?

Both adapt locally, but transnational also requires strong global integration.

What is the main weakness of multidomestic strategy?

Duplication, weak scale economies, and limited global learning.

What is the main weakness of transnational strategy?

Very high coordination complexity and costly matrix management.

What is the main Nestlé lesson?

Food needs local adaptation, but data, technology, and procurement may benefit from greater centralization.

What is the main KitKat Japan lesson?

Adaptation can change cultural meaning and positioning, not just product features.

What is the main NFL lesson?

International growth requires building local participation and ecosystems, not just exporting games.