MNGT 475 Exam Flashcards!

What is vertical integration?

a strategy where a company controls more than one stage of its supply chain.

What is backwards integration?

When a company acquires or develops its suppliers to gain control over inputs.

A car manufacturer acquiring a steel plant to ensure raw material availability is an example of what?

backwards integration

Forward Integration

When a company takes control of distribution or sales channels.

A bakery opening its own retail stores to sell directly to customers is an example of

forward integration

How do you decide to vertically integrate?

Transaction Cost Economics (TCE)

What is transaction cost economics (TCE)?

Evaluate costs of outsourcing versus in-house production.

True/False: According to TCE, High transaction costs favor vertical integration.

true

If negotiating contracts with suppliers is costly and inefficient, integrating backward may save money is an example of

Utilizing the TCE framework

What are the benefits of vertical integration?

• Better control over supply chain and quality.

• Potential cost savings from eliminating intermediaries.

• Improved coordination across stages.

What are the risks of vertical integration?

• Large capital investment.

• Reduced flexibility to adapt to market changes.

What are some alternatives to vertical integration?

• Franchises

• Long-term contracts

Franchises

Granting rights to operate under a brand (e.g., McDonald’s)

Long-term contracts

Ensuring steady supplies without ownership (e.g., Apple contracting Foxconn for production).

International Strategy

Expanding a company’s operations beyond its domestic market.

What are the benefits of International Expansion

• Access to new markets and customer bases.

• Economies of scale by spreading fixed costs over a larger volume.

• Leveraging international resources like cheap labor.

What are some risks of international expansion?

• Political instability, tariffs, and trade barriers.

• Cultural misalignment leading to customer rejection.

What are some ways to expand internationally?

1. exporting

2. licensing/franchising

3. joint ventures

4. subsidiaries

Exporting

Selling domestically produced goods abroad

A U.S. winery transporting wine to Europe is an example of?

Exporting

Licensing/Franchising

Allowing foreign partners to use your brand and process

Starbucks licensing its brand in some markets is an example of

Licensing/Franchising

Joint Ventures

Partnering with a local firm to share costs and risks

Sony and Ericsson’s partnership to produce phones is an example of

Joint Ventures

Subsidiaries

Establishing full control by owning operations abroad

Toyota setting up factories in the U.S is an example of

Subsidiaries

What are the frameworks connected to international expansion?

1. CAGE Framework

2. Diamond Framework

3. Integration Response Framework

CAGE framework

Measures Cultural, Administrative, Geographic, and Economic differences to assess market attractiveness.

→ Measures the “distance” between the current market and the proposed market

Diamond Framework

Explains a nation’s competitive advantage based on factors like demand conditions, firm strategy, and supporting industries.

• Other factors include: Governmental role, and chance events

Integration Response Framework

Balances global standardization (efficiency) with local customization (responsiveness).

What are the positions found in the IR framework?

1. Global Strategy (High Integration, Low Responsiveness)

2. Transnational Strategy (High Integration, High Responsiveness)

3. Multi-domestic Strategy (Low Integration, High Responsiveness

4. International Strategy (Low Integration, Low Responsiveness)

Global Strategy

Standardized products with centralized control.

• High Integration, Low Responsiveness

Boeing’s global operations produce aircraft to the same specifications worldwide is an example of which strategy?

Global Strategy

Transnational Strategy

Combines global efficiency with local adaptation

• High Integration, High Responsiveness

Unilever standardizes production but tailors marketing campaigns regionally is an example of which strategy?

Transnational Strategy

Multi-domestic Strategy

Localized strategies with decentralized decision-making

• Low Integration, High Responsiveness

Nestlé adapts food products to suit regional tastes is an example of which strategy?

Multi-domestic

International Strategy

Focuses on exporting with minimal local adaptation.

• Low Integration, Low Responsiveness

Luxury fashion brands like Chanel maintain consistency across markets is an example of which strategy?

International Strategy

Diversification

Expanding into new industries or markets.

What are the types of diversification?

• Related Diversification

• Unrelated Diversification

Related Diversification

Entering industries with synergies to the core business

Apple moving from computers to smartphones is an example of which type of diversification?

Related Diversification

Unrelated Diversification

Entering entirely different industries

GE operating in healthcare, aviation, and financial services is an example of what type of diversification?

unrelated diversification

What are the motives of diversification?

• Economies of Scope

• Internalizing Transactions

Economies of Scope

Sharing resources like R&D or marketing

Disney using its characters in films, theme parks, and merchandise is an example of what?

Economies of Scope

Internalizing transactions

Avoiding costs of external contracts

What are the 3 tests of diversification?

1. Attractiveness: Is the Industry appealing?

2. Cost of Entry: Can we afford entry without eroding profits?

3. Better off test: Does diversification improve competitive advantage?

What are some challenges of diversification?

Conglomerate Discounts

Conglomerate Discount

Investors may undervalue highly diversified firms

Strategic Leadership

The role of executives in guiding a company’s strategy and structure.

Upper Echelons Theory

Leaders’ experiences and values shape strategic choices

Roles of Executives:

• Corporate Portfolio Management

• Business Linkage Management

• Business-level Management

Corporate Portfolio Management

Allocating resources across businesses.

Business Linkage Management

Ensuring synergy between units.

Business-level Management

Guiding individual units to succeed.

What are the categories of the BCG Matrix?

• stars

• cash cows

• question marks

• cows

What are stars in the BCG Matrix?

High growth, high market share (e.g., Tesla EVs)

What are Cash Cows in BCG Matrix?

Low growth, high market share (e.g., Coca-Cola)

What are Question Marks in BCG Matrix?

High growth, low market share (e.g., startups)

What are Dogs in BCG Matrix?

Low growth, low market share (e.g., outdated tech)

Corporate Governance

Mechanisms to ensure accountability and control in organizations.

Principal-Agent Problem

Managers (agents) may prioritize personal goals over shareholder interests.

What are some governance mechanisms?

• Board of Directors

• Executive Compensation

• Market

What if the CEO is also on the board of directors?

there’s potential conflict when there is duality

Executive Compensation

Stock options to align manager incentives with performance.

Market for corporate control

Risk of takeover pressures management to perform.

Ethics

• Balance between what is legal and ethical.

• Code of conduct to guide decisions.

what is Google’s “Don’t be evil” principle an example of?

Ethics

Mergers & Acquisitions

Combining firms to create value.

Why do mergers and acquisitions occur?

• Gain market share

• access new capabilities

• achieve synergies.

What are the risks of mergers and acquisitions?

• Cultural integration issues.

• Overpayment for the acquired company.

What are performance implications of mergers and acquisitions?

Many fail to meet expected financial benefits.

What is the build-borrow-buy framework?

Decide whether to grow organically (build), partner (borrow), or acquire (buy).

What are the types of alliances?

Equity, non-equity, joint ventures.

What is the 4 C’s framework for?

Choosing partners in an alliance

4 C’s Framework

• Compatibility: Shared values

• Complementarily: Skill alignment

• Commitment: Dedication to the alliance

• Capacity: Ability to execute

When should companies utilize the Build component of the build-borrow-buy framework?

• The company has sufficient internal expertise and resources.

• The required capability aligns closely with the firm's existing strengths.

• There is sufficient time to develop the resource.

What component of the build-borrow-buy framework is this an example of: Tesla developed its battery technology and manufacturing capabilities to maintain control and innovate in-house

Build

When should companies utilize the borrow component of the build-borrow-buy framework?

• The firm lacks the time or resources to develop in-house.

• The capability needed is not critical for sustained competitive advantage.

• The firm seeks to share risks and costs.

What component of the build-borrow-buy framework is this an example of: Starbucks entered the Chinese market through a joint venture with local partners before fully owning its operations.

Borrow

When should Companies use the buy component of the build-borrow-buy framework?

• The resource is critical for the firm’s success and cannot be easily developed or borrowed.

• Speed is essential, such as in fast-moving industries.

• The firm seeks full control over the resource.

What component of the build-borrow-buy framework is this an example of: Facebook (now Meta) bought Instagram to gain expertise in photo-sharing social media and consolidate its market position.

Buy

What are the decision factors that should be considered when utilizing the build, borrow, buy framework

1. relevance

2. tradability

3. closeness

4. integration

What does the relevance decision factor consider in the build-borrow-buy framework?

How relevant is the resource to the firm's current strategy?

• If high relevance, consider building

What does the tradability decision factor consider in the build-borrow-buy framework?

Can the resource be easily accessed through a contract or partnership?

• if yes, borrowing is viable

What is the closeness decision factor considered in the build-borrow-buy framework?

Does the firm need to work closely with the partner to achieve goals?

• If yes, a joint venture may be better than simple licensing

What is the integration decision factor considered in the build-borrow-buy framework?

Is full control required for success?

• If yes, then buying is the best option