BUSMHR 2000 exam 2

strategy

strategy

a planned set of actions that managers employ to make best use of the firm’s resources and core competencies to gain competitive advantage

Stages of developing strategies

1 examine firm’s specific strengths and weaknesses

2 analyze particular opportunities and threats that confront the firm

3 managers decide

What do managers decide in last step of strategy developing?

• Which customers to target

• What product lines to offer

• How best to deal with competitors

• How generally to configure and coordinate the firm’s activities around the world

international strategy

strategy carried out in 2 or more countries

What should firms strive for with Bartlett and Ghoshal approach?

• global-scale efficiency in its value-chain activities

• multinational flexibility to manage diverse country-level risks and opportunities

• learn from operating internationally and exploit that learning on a worldwide basis

3 strategic objectives to become globally competitive

1 efficiency

2 flexibility

3 learning

Efficiency

lowering the cost of the firm’s operations and activities on a global scale

flexibility

firm organizes and adjusts operations to ensure that it can respond to specific customer needs in individual marketslea

learning

firm must create the ability to learn from operating in international environments and exploit this learning through knowledge transfer, on a worldwide basis

What new capabilities can firms gain from learning from various countries?

• new technical and managerial know-how

• new product ideas

• improved R&D

• partnering skills

• the ability to survive in unfamiliar environments

What are the 5 key dimensions of successful international firms?

1. Strategy

2. Visionary Leadership

3. Organizational culture

4. Organizational processes

   1. Organizational structure

Visionary leadership

quality of senior management that provides inspirational guidance and motivation to personnel, leading the firm to a better futuremiss

mission statement

expresses firms purpose for existence, guide for employees to set priorities and perform in ways that advance the goals of the firm

vision statement

states what the company wants to be at a specific point in time in the future

leaders vs managers

managers

• direct the firm’s day to day operations

• administer and control specific activities in the firm

leaders

• visionary and hold long-term perspective on the challenges and opportunities of firm

What are the 4 traits that characterize a visionary leader?

1. international mind set and cosmopolitan values

   1. an openness to and diversity across cultures

2. Willingness to commit to develop resources firm needs to achieve their international goals

3. have strategic vision of what the firm wants to be in the future and how it will get there

4. willingness to invest in human assets

Organizational culture

pattern of shared values, behavior norms, systems, policies, and procedures that employees learn and adopt

global organizational culture

an organizational environment that plays a key role in the development and execution of corporate global strategyOr

Organizational processes

managerial routines, behaviors, and mechanisms that allow the firm to function as intended

Examples of organizational processes

• mechanisms for collecting strategic information

• ensuring quality control in manufacturing

  • maintaining efficient payment systems for international sales

Globalizing mechanisms

common processes that provide substantial interconnectedness within the MNE network

global teams

an internationally distributed group of employees charged with a specific problem-solving or best-practice mandate that affects company operations worldwide

What do strategy global teams do?

identify or implement initiatives that enhance the long-term direction of the firm in its global industry

What do operational global teams do?

focus on the efficient and effective operation of the business across the whole network

What are the 5 Essential competencies needed for project success?

1. project planning

2. technical project management

3. team effectiveness

4. cross-cultural proficiency

5. stakeholder communication

What does project planning help?

helps clarify the nature and duration of the project and what risks or other challenges must be managed

Technical project management

practical and tactical dimensions of the team project

• client requirements, budgets, timelines, and team member responsibilities

cross-culture proficiency

minimize misunderstandings within the multicultural team environment

stakeholder communication

stakeholder - all individuals who affect pr are affected by the outcomes of the project

multidomestic industry

an industry in which competition takes place on a country-by-country basis and adapts its offerings to suit the culture, laws, income level, and other specific characteristics of each country

global industries

industries where competition takes place on a regional or worldwide basis and cater to more centralized, common needs and tastes of customers

global integration

coordination of the firm’s value-chain activities across multiple countries to achieve worldwide efficiency, synergy, and cross-fertilization to take advantage of similarities between countries

local responsiveness

managing the firm’s value-chain activities and addressing diverse opportunities and risks on a country-by-country basis

What are the pressures of local responsiveness?

• leverage national endowments such as local talent

• cater to local customer needs

• accommodate differences in distribution channels

• respond to local competition

• adjust to cultural differences

  • meet host government requirements and regulations

What are the pressures for global integration?

• seek cost reduction through scale economies

• capitalize on converging consumer trends and universal needs

• provide uniform service to global consumers

• conduct global sourcing

• monitor and respond to global competitors

• take advantage of media

Home replication strategy

firms views international business as separate from and secondary to its domestic business

multidomestic strategy

the internationalizing firm develops subsidiaries or affiliates in each of the numerous foreign markets

Advantages of multidomestic approach

• locally produced products can be better adapted to the local market

• minimal pressure on headquarters by dispersing management to each country

Disadvantages of multidomestic approach

• each subsidiary manager develops a local plan that may differ from headquarters

  • subsidiaries have little incentive to share knowledge with other manager’s

transnational strategy

a coordinated approach to internationalization in which firm strives to be relatively responsive to local needs while retaining sufficient central control of operations to ensure efficiency and learning

What should the firm do to implement transnational strategy?

• exploit scale economies

• organize production, marketing, and other value-chain activities

• optimize local responsiveness

• facilitate global learning and knowledge transfer

  • coordinate global competitive moves

Organizational structure

reporting relationships inside the firm or the “boxes and lines” that specify links between people, functions, and processes that allow the firm to carry out its operations

centralized approach vs decentralized approach

centralized - gives headquarters considerable authority over the firm’s activities worldwide

decentralized - substantial autonomy and decision-making authority are delegated to the firm’s subsidiaries around the world

What are the 5 types of organizational structures?

1. export department

2. international division

3. geographic area structure

4. product structure

5. functional structure

6. global matrix structure

export department

a unit within the firm charged with managing the firm’s export operations

international division

all international activities are centralized within one division in the firm, separate from domestic units \n

geographic area structure

Management and control are decentralized to individual geographic regions, whose managers are responsible for operations within their region

product structure

Management of international operations is organized by major product line

functional structure

Management of international operations is organized by functional activity

Global Matrix Structure

Blends product, geographic area, and functional structures to leverage the benefits of global strategy and local responsiveness

What should managers consider when deciding entry strategy?

• Goals and objectives of the firm, such as desired profitability, market share, or competitive positioning.

• The degree of control the firm desires over the decisions, operations, and strategic assets involved in the venture.

• The specific financial, organizational, and technological resources and capabilities available to the firm (for example, capital, managers, technology).

• The degree of risk that management can tolerate in each proposed foreign venture relative to the firm’s goals.

• The characteristics of the product or service to be offered.

• Conditions in the target country, such as legal, cultural, and economic circumstances, and the nature of business infrastructure, such as distribution and transportation systems.

• The nature and extent of competition from existing rivals and from firms that may enter the market later.

• The availability and capabilities of partners in the market.

• The value-adding activities the firm is willing to perform itself in the market and what activities it will leave to partners.

• The long-term strategic importance of the market.

control

ability to influence the decisions, operations, and strategic resources involved in the foreign venture

low, moderate and high control

low - exporting, countertrade, and global sourcing

moderate - contractual relationships (licensing and franchising)

high - equity joint ventures and FDI

currency

form of money and unit of exchange

exchange rate

price of one currency expressed in terms of another

currency risk

the potential harm from changes in the price of one currency relative to another

What 3 facts do international managers keep in mind?

1. the prices the firm charges can be quoted in firm’s currency or currency of each foreign customer

2. because several months can pass between placement and order delivery fluctuations can cost or earn the firm money

   1. firm and customers can use exchange rate at date of transaction or use specific one

convertible currency

easily exchanged for other currencies

nonconvertible currency

currency not acceptable for international transactions

• preserve supply of hard currencies

capital flight

rapid sell-off by residents or foreigners of their holdings in a nation’s currency or other assets in response to confidence loss in country’s economy

foreign exchange

all forms of money traded internationally including foreign currencies, bank deposits, check, and electronic transfers

Currency rate example

If 1 euro = $1 today and next year 1.50 euro = $1, what happens?

• Europeans pay more for inputs from US and have increased exports to US because euro less expensive

  • In US, fewer buyers from Europe because US products now cost more, fewer European tourists

What are 4 main factors that influence supply and demand?

1. economic growth

2. inflation and interest rates

3. market psychology

4. government action

economic growth

increase in value of goods and services an economy produces

central bank

the monetary authority in each country that regulates money supply, issues currency, manages exchange rate

inflation

increase in the price of goods and services and money buys less

hyperinflation

persistent annual double digit and triple digit rates of price increases

market psychology

unpredictable behavior of investors

herding

tendency of investors to mimic others actions

momentum trading

investors buy stocks whose prices have been rising and sell stock whose prices have been falling

trade surplus

nations exports exceed its imports for a period of time, causing a net inflow of foreign exchange

trade deficit

nation’s imports exceeds its exports for a period of time, causing a net outflow of foreign exchange

balance of trade

difference between monetary value of a nations exports and its imports over a year

devaluation

a government action to reduce the official value of its currency

Bretton woods agreement

in 1944, it pegged the US dollar to an established value of gold at a rate of $35 per ounce

International Monetary Fund ( IMF)

international agency that attempts to stabilize currencies by monitoring the foreign exchange systems of member countries and giving money to developing economies

world bank

international agency that provides loans and technical assistance to low and middle-income countries to reduce poverty

floating exchange rate system

currency values and exchange rates determined by supply and demand

fixed exchange rate system

the value of a currency is set relative to the value of another (or to a basket of currencies) at a specific rate

dirty float

currency determined by market forces,but central bank intervenes occasionally to maintain value within acceptable limits to a major reference currency

International Monetary System

consists of the institutional frameworks, rules, and procedures that govern how nat'l currencies are exchanged w/ one another

global financial system

consists of the collective financial institutions that facilitate and regulate flows of investment and capital funds worldwide

stock exchange

facility for trading securities and other financial instruments

commercial banks

lend money to finance business activity, exchange foreign currencies, and facilitate adjustments to national money supply

types of banks

• investment banks underwrite stock and bond issues and advise on mergers

• merchant banks provide capital to firms in the form of shares instead of loans

• private banks manage assets of rich

• offshore banks located un jurisdictions with low taxation and regulation

• correspondent banks gets into contact with other banks

monetary intervention

buying and selling of currencies to maintain exchange rate of country’s currency at acceptable level

special drawing right

unit of account of reserve asset, a type of currency central banks use to supplement their existing reserves in transactions w/ the IMF

currency crisis

results when value of currency depreciates sharply or when its central bank must expend subtantial reserves to defend value of currency

banking crisis

when domestic and foreign investors lose confidence in a nation’s banking system that leads to widespread withdrawals of funds from banks

• Great depression 1930s

foreign debt crisis

when a national government borrows an excessive amount of money from banks or from sale of government bonds

The global debt crisis

Debt as percentage of GDP

• Most ~ Japan - Greece - Italy - U.S.

  • Least ~ Russia - New Zealand

Countries political risk

• High - Venezuela, Libya, Zimbabwe

• Low - Canada, Japan, Singapore

political system

a set of formal institutions that constitute a government

constituents

people and organizations that support political system and receive government resources

legal system

a system for interpreting and enforcing laws; institutions and procedures that ensure order, resolve disputes, tax economic output, and provide protections for property

Authoritarianism

• state regulates most public and private behavior

• control all economic and political matters and attitudes, values, and beliefs of citizenry

• china and soviet union (before 80s)

• Afghanistan, iran, North korea

Socialism

capital and wealth should be vested in the state and used primarily as a means of production rather than for profit

Democracy

1. private property rights

2. limited government

• Australia, Canada, US, Japan

national governance

system of policies and processes by which nations are governed

• increase in quality of national governance, increase in economic prosperity, high living standards

• high - Canada, Ireland, Singapore

• low - North Korea, Pakistan, Venezuela

command economies

• centrally planned economy

• state is dominant force in production and distribution of goods and services

• make resource alloations and owns major sectors of economy