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78 Cards in this Set
- Front
- Back
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Define International Business |
Business activities that involve the transfer of goods, services, skills or information across national boundaries |
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What does International Business include? |
Finance, Marketing, HR and Accounting |
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What effect does International Business have on economics? |
Since markets are competitive, no participants are likely to have market power to earn unusual profits in the long-run |
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Define Strategy |
The formulation, implementation, and evaluation of managerial actions that enhance the value of a business enterprise. Seeking a competitive advantage A set of decisions focused on managing organizational trade-offs in order to achieve a long-term competitive advantage |
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How does a firm create a sustainable competitive advantage? |
A firm possesses a sustainable competitive advantage when it consistently earns higher profits than other firms in its industry |
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What are the four levels of nested analysis |
Firm, Industry, Country and Global Level |
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What is the key to analyzing strategy and competitive advantage? |
Figure out how the competitive advantage of a firm will be influenced by different strategic choices |
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What are the two types of competitors global companies face? |
Global and local competitors |
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Explain the difference between Operational Effectiveness and Strategy |
- Operational Effectiveness: performing similar activities better than competitors perform them, necessary but not sufficient - Strategy: Choosing what to do, and more importantly, what not to do |
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Describe the shareholder approach to business |
The firm exists to maximize the wealth of its owners |
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Why is profit maximization a reasonable goal? |
B.O.D. are legally obliged to pursue shareholder interests - To replace assets a firm must earn a return on capital. Search for above-normal profits - To survive acquisition, a firm must stock market value>break up value |
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Explain the resource-based view of competitive advantage |
- To earn above normal profits a firm must possess key resources that are: 1) Valuable: transaction costs associated with investment in resource cannot be higher than future-rents which flow from value creating strategy 2) Rare: otherwise perfect competition 3) In-imitable: controlled by only one firm 4) Non-Substitutable: otherwise competing firms could counter focal firm's value creating strategy with another resource |
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How can a firm build barriers to imitation? |
- Need to develop unique sources of competitive advantage which are difficult to imitate - Construct ways of lowering cost that can withstand imitation - Developing unique sources of differentiation - Value chain is a good way to examine sources of competitive advantage |
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Explain the chain of competitive advantage |
- Fit locks out competitors by creating a chain which is as strong as its strongest link - Probability that competitors can match any activity is less than one. Probabilities of matching entire system becomes more difficult |
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Discuss the complemantarities arguement to the configurations strategy (supply chain) |
- Only produces competitive advantage if: - Each activity is consistent with overall positioning - Activities and groups of activities reinforce one another - Reduce redundancies |
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What is Apple's primary competitive advantage? |
- Ease of use - Traditional strength in desktop publishing and education - Buyer loyalty - Proprietary System - Brand Name - Plug & Play - Industrial Design - Steve Jobs |
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Define a business model and the elements it consists of |
- Template for how an organization creates, delivers and captures value - Method to create sustainable profits - Higher level than firm (usually industry) |
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Explain the differences between a product, strategy and business model |
Product - Item offered for sale (goods/services) Strategy - pattern of managerial actions which explains how a firm achieves and maintains competitive advantage through positioning in product markets Business Model - Structural template for how firms transact with partners, customers and vendors - Defines how a firm creates value for each stakeholder and appropriates a portion of that value to earn profits |
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Describe the difference between a business model and product |
- A new business model will often sell the same product - but in a new way - Thus designed to bring a new participants into market transactions (ex. snuggie) |
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Explain the pie example for describing the differences between strategy and business models |
- Strategy: Makes slice bigger - Business Model: Makes whole pie bigger |
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Decribe the difference between value creation and value appropriation |
- Viable, commercial business model both creates and appropriates value for all parties of a transaction - Creates value proposition - Must be able to appropriate a portion of that value for the company - Innovations can create value, but fail to appropriate it - Can appropriate value without creating it |
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What are the results of different level of value creation and value appropriation? |
High Creation, High Appropriation: Commercial Business Model - High Creation, Low App: Non-Profit Business Model - Low Creation, High App: Mafias - Low Creation, Low App: Not Viable |
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How do firms create superior performance? |
- Strategy - Business Model - Country Specific Advantages - Global Advantages |
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What are the hazards of deploying these advantages abroad? |
- Global Competitors - Local competitors/ CAGE distances - Uneven playing fields - Liability of foreignness |
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Explain the dilemma of a multinational enterprise |
if there are so many hazards to doing business abroad, then why to multinationals exist? |
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Name the theories of why multinationals go abroad |
1) MNCs are agents of capital transfer: moving capital in response to changes in exchange rates. Problem: little correlation between exchange rates and FDI. Multinationals typically engage in the transfer of knowledge and technology, not capital |
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Explain the Market Power Hypothesis |
- MNCs enagage in FDI to reduce competition - Problems: Assumes firms achieve success through size not strategic advantages. Ignores previous theory about transaction costs |
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Explain the Transaction Cost Economics |
- Addressed by transaction costs economics - TCE asks: why a givern transaction might occur within a firm when individuals could handle it themselves in the market through contracts - Imperfections for some transactions create incentives for individuals to act opportunistically - Cannot write contracts for all contingencies (rationally bound) - High opportunity = more effective to hire partner into structure |
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Which assets are most prone to opportunism? |
- Knowledge: important for valuation - Reputation: often sold through franchising agreements. Risk of free-riding - Small numbers of buyers/sellers: may hold partner hostage - Others |
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What are the costs to hierarchy? |
- Employees have incentive to shirk - Cost of monitoring employees - cost of monitoring > cost of assessing, transaction will occur through the market - Cost of assessing > cost of monitoring, transaction will occuring through hierarchy |
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What does the TCE predict? |
- Hierarchy tends to occur in transactions of assets that bear especially high transaction costs |
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Define Internalization Theory |
- Extension of TCE - Intermediate assets are especially prone to high transaction costs in international markets: firms will internalize assets, different regulations, communications etc. - if transaction costs>cost of doing business abroad, multinational will result - |
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Name some transaction costs which could lead to the implementation of an MNC |
- Search and negotiating costs - Moral Hazard - Contract Enforcement - Diseconomies of small-scale - Government Intervention - Pricing tacit assets |
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Explain Eclectic Theory |
- Dunning extended internalization theory to argue that 3 conditions must occur for an MNC to exist: 1) Ownership Advantages: firms must possess assets that lead to sustainable competitive advantage 2) Location Advantage: to take advantage to a new country, must be more profitable to produce in host country rather than produce at home and export 3) Internalization: Must be more profitable to keep asset within firm, rather than license it |
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Explain Evolutionary Theory (Extension of Internalization Theory) |
- Firms are social communities that specialize in creation and internal transfer of knowledge - Knowledge develops in evolutionary fashion - Knowledge is easy to transfer but not the supporting capabilities to use knowledge - MNCs have advantage in knowledge transfer |
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What are the three strategies firms can use to facilitate the internalization process? |
- AAA Strategy - Stages Model - International Organization |
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Describe the stages model |
- Managers should internalize in an incremental process: No exports, exports with help from indep reps, building one's own sales office, on-site production - Progress into market with successfully higher CAGE distances - Build on experiences to enter other markets |
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What are the critisisms of the Stages Model? |
- Too passive - Only applies to industrial manufacturing - Changes in global marketplace |
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Explain the International Organization Theory |
- Look in slides |
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Explain the AAA Strategy |
- Tension: advantages of scale vs need for adaptation to local conditions - Two strategies to reduce this tension: 1) Aggregation: overcoming some difference of countries by grouping them based on similarities 2) Adaptation: Adjusting to difference across countries 3rd strategy companies often miss 3) Arbitrage: Exploited selective differences across countries instead of treating them all as constraints |
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Discuss Adapatation Strategies |
- Most obvious response (when in rome) |
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How do firms determine which strategy to prioritize? |
- Often depends on what your firm does - High R&D = Aggregation - End product firms = Adaptation - Labour intensive firms = Arbitrage |
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Can you pursue all 3 simultaneously? |
- Not that simple - Complexity collides with managerial bandwidth - Most firms have a single culture, which makes it hard to hit multiple targets - capable competitors can force a firm to choose which dimension it will beat them on - External relationships may have a focusing effect - May only be possible which AAA tensions are weak or can be overridden with scale economies |
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How do firms usually strengthen their competitive advantage with the AAA strategies? |
- Usually choose two to implement - May allows firms to beat competitors at both strategies at once - Better manage tensions between two A's at once |
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Explain why there is growing corporate interest in developing countries |
- Developed Countries = stagnant growth, saturated markets - Developing Countries = 4 billion people, $13 trillion in stored wealth, Untapped, only place to find returns which investors demand - Private sector can increase opportunities for billions of people - May help alleviate poverty |
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Discuss the difference between emerging markets and frontier markets |
- Separate and distinct asset class from emerging markets and less-developed countries - Frontier economies have limitations compared to emerging markets: lower liquidity, smaller capitalization, greater risk - Seen as a good way to diversify - Hybrid models and patience may be needed to reach scale |
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More on Frontier Makets |
- Cusp of becoming emerging markets - Formal stock markets and regulatory authorities - Basic levels of: political stability, liquidity, regulation, financial reporting |
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What are the four categorizations of countries |
1) Advanced-Developed (U.S., Canada) 2) Emerging (China, Brazil, Mexico) 3) Frontier (Vietnam, Tunisia) 4) Failed-States (Chad, Pakistan) |
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Describe the difference between traditional and new banking models for countries |
Traditional: 1) Formal Banks: Enforcement = Government, I-rates = 5-29% 2) Money Lenders: Enforcement = Intimidation and coercion, I-rates = 300%+ New: 3) Microfinance: Enforcement = Groups, I-rates: 20-120% |
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To what degree should firms measure their impact on society? |
- Temporal Issue: greater awareness about social issues - Spatial Issues: Firm's cannot rely on governments to set the rules in all contexts equally |
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What is business's role in society? |
- Bystander: job of the government to provide public goods. Business is concerned if it affects private value - Diplomat: Supporting role to government. Mutually beneficial results - Citizen: act above the law to enforce socially beneficial practices( Social Responsibility w/ NGOs) - Innovator: Market-based solutions to long standing public issues. (shared value strategy - sustainability) |
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What is social entreprenuership? |
- Conversation has shifted from preventing business from being the problem to business trying to solve problems - Recognition, formation, evaluation and exploitation of opportunities to create new businesses, models and solutions with a focus on achieving blended value |
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How is social entreprenuership different from non-profits |
- All commercial firms must strike a balance between value creation and value capture - The difference in this mix defines a social entrepreneur |
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Define value creation and value capture |
- Value Creation: total surplus that accrues to all parties in a transaction - Value Capture: Appropriation of some of that value by a focal firm - Value creation is a prerequisite for value capture - Social firms emphasize value creation and suffice on value capture - Traditional ventures emphasize value capture and suffice on value creation |
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When is value creation an advantage? |
- In most markets social entrepreneurs will never be competitive: resources accrue to firms that can show profit by solving social problems
- Value capture can be difficult: some goods have positive externalities, but firms that engage in these markets bear the full cost and gets no benefit over competitors |
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What are the challenges to Positive Theory? |
- Issue of Scale (difficult) - Scaling often requires commercial investment - Commercial investment requires value capture |
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Why does some research argue that Social ventures do not pay off? |
- Customers tend to buy on price - Customers see a trade off between quality and ethics - Investors are OK with social benefit, as long as returns are not impacted -Doing bad is often more profitable than doing good |
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What are the foundations of Global Strategy? |
- Sources of superior performance - Threats to transferring these abilities abroad - Strategies to reduce these risks (AAA) |
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What are the new horizions for Global Strategy? |
- CSR - Emerging/Frontier Markets - Social entrepreneurship - International social entreprenuership |
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Define "born global" firms |
- Firms that go global from inception - Buck the trend of internalization theory,evolutionary theory and uncertainty (CAGE) - Typically small and medium size firms - Usually goes abroad only 2 years after founding - Earn 76% of revenue in foreign markets |
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What is causing the rise of Born Global firms? |
- Rise in tastes for specialized and customized products - Electronic process technology allows small firms to compete on cost and quality with more flexibility - Advancements in communication allows firms of any size to manage business systems beyond own boundaries - Product Life cycles are shrinking - Smaller global firms are more adaptable |
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Describe some of the challenges Born Globals face |
- Faces both liability of newness and foriegnness - Newness: Employee skill, trust, and understanding of customer needs - Foreignness: Understanding of new market, regulations and coordination |
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What are some recent findings on born globals? |
- more likely to export to countries within their home region of the triad than to countries outside their home region - The greater the Born Global's home orientation, the better the performance |
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What are the key components in Social Entreprenuership? |
- Innovation and replication |
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What are the three barriers to scaling microfinance? |
- Cost, Capital and Capacity - using a profit oriented model for SKS, drawing on best practices from the business world for scaling and using technology helped the business |
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How do you get around these barriers |
- Building Capacity by Imitating Corporte Giants - Standardizing key activities and lowering costs - Raising capital (driven by achieving scale) |
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What is a global best practice for these firms |
- Beware mixing and matching national models |
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Describe the State and Markets lessons from SKS microfinance |
- depicting business solely as a replacement for the state risks overlooks the complementary nature of the government in economic development - the market does not operate independently from the state - The capacities of the state to provide market-supporting institutions influences the types of risks and opportunities that private actors face across national settings |
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What is Wal-mart's business model? |
- distribution, bargaining power, reputation, info tech, knowledge, skill, leadership, |
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What is the key to stategic analysis? |
- To figure out how the competitive adavantage of a firm will be influenced by different strategic choices |
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What elements does the Transnational Mindset theory focus on? |
- High globalization and high localization |
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Discuss the theory of Transnational Mindset |
- International managers need to analyze the world as a global market and to understand national differences - Tensions between global and local forces - All of multinational business requires a degree of transnational mindset |
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Discuss the Paradoc Principles in developing a transnational mindset |
- Those achieving the highest levels of performance do so through deftly balancing the conflicting demands or tensions created by the paradoxes in developing, operating, or continuously transforming and large enterprise |
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Identify and define the two elements needed for creative thinking |
- Divergent Thinking: generating many unique solutions to a problem - Convergent Thinking: Combining those ideas into a best result - Creativity requires constant shifting between two types |
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What are the two types of learning |
Content learning and process learning |
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Explain the cons of Content learning and its implications for business |
- Content changes across context - Content changes rapidly - Managers that only possess content knowledge must constantly relearn for every situation |
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Explain the benefits of Process Learning |
- Managers that understand process that generated information possess prespective that is less context specific and that endures for decades |
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What is the best style of learning |
- People with both content and process learning abilities are better equipped for international business careers than content learners only - Learning how to learn and interpret |
