Global Insights Quiz #2 Duquesne University

3 Factors to deciding how to compete abroad

1. Strategy

2. Value creation

3. Value Chain

Value Creation

the process of offering products or services that customers want and are willing to pay for

Value Chain

the linked set of activities used to produce products or services

8.3 8.9

9.2, 9.12, 9;13

4 Problems caused by failure to plan

1. Inability to accurately predict developments in foreign markets

2. poor use of resources invested abroad resulting from bad market entry decisions

3. underestimating the resources needed to compete effectively in foreign markets

4. Failing to anticipate operational challenges in foreign environments

4 Basic Questions that an International strategy must answer

1. What products or services will be sold abroad?

2. Where and how will services be delivered or products made?

3. What resources are necessary for international competition and how will they be acquired?

4.How will competitors be outperformed?

3 Basic Strategic concepts for international competition

1. Differentiating

2. Cost leadership

3. Niche strategy

Differentiating

Providing unique or superior products to customers

Cost leadership

Providing cheaper products or more efficient services than competitors

niche strategy

focusing on a more specific line of products or services relative to competitors

Core Competencies

skills or abilities that are difficult for competing firms to imitate

Distinctive competencies

skills or abilities that help firms to outperform competitors

Location Economies

Places where value chain activities can be performed most cheaply and efficiently

Theory of National competitive advantage

the theory that a nations competitive advantage is based off of four factors

1. The context for firm strategy and rivalry

2. Factor Conditions

3. Demand Conditions

4. Related an Supporting Industries

pressure for localization

The degree to which firms in specific industries have to tailor their products or services to satisfy local market demands.

Pressure for global integration

The degree to which firms in specific industries need to integrate and coordinate all of their value chain activities on a worldwide basis to achieve global efficiencies and better respond to competitive threats.

International strategy

primarily operates from home country and exports its products or services to international markets

Multidomestic strategy

customized products and services to meet unique needs and preferences of each local market

Global strategy

Standardized products and services, minimal adaptation.

Transnational strategy

A firm moves key activities to wherever they can be carried out best while still adapting to local product or service preferences.

Regional Strategy

giving managers in a particular geographic area the freedom to make decisions, set goals, and respond to customer needs

Born Global Firms

Entrepreneurial start-up companies that try to immediately participate in international business.

Transnational Entrepreneurs

People who have migrated from their home countries to other places and launched new businesses that use the knowledge they have gained and the connections they have between both countries.

The Process of developing international strategy

1. Create corporate Mission Statement

2. Conduct a SWOT Analysis

3. Evaluate alternatives, set strategic options.

4. develop. implementation tactics and plans

5. Create control and evaluation framework

6 Factors in the selection of an entry method into a foreign market

1.The firm's objectives for foreign markets.

2. The business environment in specific foreign countries targeted for entry.

3. The firm's technical, managerial, financial capabilities and resources.

4.The competitive context in targeted foreign markets.

5.Attributes of products or services for targeted markets.

6. The risk-reward equation associated with entering a particular foreign market against the potential rewards.

Stages in the process of corporate internationalization

1. exporting

2. sales subsidiaries

3. international division

4. Multinational

5. global or transnational

6. Alliances, partners, and consortia

Exporting management companies

specialized firms hired to handle some, most, or all of other firms export related tasks and activities

3 types of exporting

1. Direct Exporting

2. Indirect Exporting

3. Intra Corporate Transfer

direct transfering

when sales of a firms products or services directly involve foreign customers

indirect exporting

when a domestic firm sells its products to another domestic firm, which alters the product then exports it

Intracorporate Transfer

when a firm located in one country sells a product to an affiliated firm (the the firm's subsidiary in another country

Challenges of exporting

ØSelecting products

ØUnderstanding import/export rules

Øadapting marketing to fit overseas customers

ØDealing with currency fluctuations

ØObtaining letters of credit or financing

Hiring freight forwarders to ship products and set up distribution systems overseas

Licensing

selling the rights to a firm's asset

Benefits:

Provides a quick access to market testing (immediate payoff)

Overcomes the lack of resources needed for ownership entry options.

Can block rivals in foreign markets.

Risks:

May "educate" a potential competitor.

Is risky when the legal protection of intellectual property rights is weak.

Franchising

the contractual right to operate a business using the assets and market strategies created by another firm.

Master Franchisee

Firm or group of investors willing to coordinate all franchising operations in a specific foreign market for a franchisor.

Other foreign market entry options not involving ownership

Management contract, Turnkey Contract, Contract Manufacturing

Management contract

involves the management and operation of an existing business or asset for money (flat rate or commision)

Turnkey Contract

involves the design and construction of a project, which is handed over to the client upon completion.

Contract Manufacturing

involves the production of goods or components for a client, typically in a specialized manufacturing facility.

Entry Options Involving Ownership

Greenfield Approach, Acquisition approach, Joint Ventures

Greenfield Approach

Is entry into a foreign market by Wholly Owned Foreign Subsidiary (establishing ownership of an overseas facility by another firm)

Provides for maximum control and protection of intellectual property.

Can maximize location economies in site selection

like building a house

Acquisition approach

Is the establishment of a wholly owned subsidiary through complicated negotiations about existing plants or facilities.

quicker than using the greenfield approach.

Has the risk of overpayment

Privatization

Is the government selling of state-owned enterprises or assets to private parties.

Joint Ventures

Represents shared ownership of foreign facilities by two or more separate firms.

Require trust between the parties, a clear set of shared objectives, and a visionary management style to be successful.

Delegated arrangement

Allows joint-venture partners to reduce conflicts by agreeing to step back from active management of operations by hiring new executives/managers

Types of international strategic alliances

Production Alliance, Research & Development alliance, finance alliance, marketing alliance

production Alliance

Partners' motivation may include the desire to acquire complex manufacturing expertise and know-how from each other as well as reducing the costs of production.

research and development alliance

The partners conduct joint research to develop new products, services, or technologies (i.e., pooled resources are more likely to lead to breakthroughs).

Finance alliance

The partners reduce their financial exposure with particularly expensive and risky projects by sharing the costs involved (e.g., jointly building a $1 billion chip manufacturing facility).

Marketing Alliance

Partners share services or expertise in marketing-related areas in ways that generate additional profits for both.