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151 Cards in this Set
- Front
- Back
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Topic 1 The Role of the firm and the entrepenour |
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Neoclassical theory focuses on: |
- The equilibration of markets rather than the operation of firms. Equilibration is costless, timelss and riskless process to apply known techniques to achieve certain outcomes.
- Profit maximization |
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Dissatisfaction with the neoclassical theory: |
- No evidence of profit maximization
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What are the new bodies of analysis that have emerged that are more useful to understand the firm? |
- Contractual Theory/Agency theory
- Economics of transaction costs by Oliver Williamson
- Firm-specific advantages and capabilities |
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4 economic natues of the firm |
1. Neoclassic economics
2. Contractual theory/ agency theory
3. New institutional economics - Transaction costs
4. Firm-specific advatages and capabilities |
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1. Neoclassical Theory |
Rational beings making optimizing decisions on the basis of perfect information.
*Not so well suited to understand the behaviour of individual enterprisees |
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Limitations of the neoclassical Theory |
Not helpful to analyze how firms would respons strategically on ther product markets
Incapable of dealing with firms as complex organizations.
Unable to explain the organization structures and boundaries of a firm.
It does not explain technologial change.
Assumes perfect rationality and maximization.
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2.1 Contractual Theory |
Problem of imperfect and asymmetric information.
Problem of the principal - agent
Firms exists so they don't have to enforce contracts with workers, owners ect each step of a process. |
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What is Asymmetric information? |
- A situation in which one part in a transaction has more or superior information than the other.
- In the case of transactions |
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What can Asymmetric information lead to? |
-Adverse selection (Information prior to the transaction)
- Moral Hazard (Taking advantage of Asymmetric information) |
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2.2 Agency Theory |
The Agent (Manager) takes more interests in mazimizing his benefits than mazimizing the principal's (the owners)
Example: Maximizing his own perks and job security |
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Problems of the Agency Thoery: |
- Owners (Stockholders) know less about what managers are doing
- Managers can benefit from success but sometimes not damaged by the costs |
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3. New institutional theory of the firm- transaction costs |
Firms were designed to overcome market failures; especially the costs and difficulties of transaction |
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What are Transaction costs? 3 categories |
- Search Costs (Finding a trading partner)
- Bargaining costs - (Reaching an agreement)
- Enforcement costs (Monitoring the agreement afterwards) |
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What did williamson say about transaction costs/contracting? |
When transaction-costs were high firms where looking into the firm instead of the market-place. |
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What were Williamsons 2 behavioral charactiristics? |
Bounded Rationality - Problems were to complex to be solved
Opportunism- Lack of honesty in transactions |
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4. Firm-specific advantages and capabilities |
Successful firms must develop new strategies and generate new capabilities.
Successful firms are learning firms and have a good path already. |
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What were Cantillon and Say theory about entrepreneurs? |
Entrepreneurs gain arises from the difference between what one expect and what really happened.
A reward for the risk |
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Topic 2 - Preindustrial Firms |
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What are the pre-industrial firms? |
Guilds, Merchants and Bankers |
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What was the thing with Preindustrial Businesses? |
Business activity was slow
No National market of goods and factors
Unreliable information
Businesses based mostly on friendship and families
Merchants were the business leaders in the preindustrial period |
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Merchants: Trade in the middle and modern Ages.
What was the problems? |
Markets were small.
High uncertainty (conditions of goods, prices of goods)
High transaction costs (high costs of transportation) |
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What does independent trader in Merchants mean? |
- They travelled around with productes under the protection of feudal lords. (Local Organizations)
- Highly diversified in products but not geographically.
Acted on its own or as "agents". |
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What was the problem with independent agents? |
The agency problem. Independent agents could disappear with the capital or could maximize profits by cheating the merchant. |
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How did they solve the Agency problem with Independent agents in Merchant markets? |
- Trust relations (Trade diasporas and coalitions)
- Joint-stock chartered companies
- A repeated game with trade diasporas to prevent prisoner's dilemma) |
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Family firms in Merchant Markets |
Family systems: Family members (sons) established at stages of the trade and married women at the local companies. |
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What were the Joint-Stock chartered companies in the Merchant market? |
- Overseas trading companies
- Governments were actively involved in the trade and developed legislative measures. |
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Mecrchants as Bankers: Why did they innovate? |
As commerce expanded the need for means of payment increased and was the emergence of the deposit bank and the bill of exchange. |
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What did the Deposit Bank provide? |
It provided a means of payment - the transfer of deposit - to minimize the need to use actual cash. |
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What did the Bill of exchange provide? |
Provided means to transfer funds from one place to another without having to ship cash. |
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What was Merchant Banks? |
Principal source of funds for lending in the 13th Century.
Initially, they only lend their own capital but in th 14th century the began to lend others money. |
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What was the interpretations on Guilds? 4 |
1. Monitor product quality
2. Ensuring quality products and eliminating asymmetries of information between producers, merchants and consumers.
3. Training institution - Trained labor and apprenticeship
4. Contributing to technological innovation by providing inventors with temporary monopoly rents. |
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Topic 3 - The beginnings of the factory system:
The new organization of work and business |
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First Part: The reasons for development of the factory system |
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What was before the Factory? |
Artisans- guilds
Domestic industry |
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What was and Artisan guild? |
Craftmen who were producing stuff with the some1 elses products. |
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What was Domestic Industry (Putting outsystem)? |
- All familymembers participated in the production
- Same as Artisan guilds. Merchant provided materials. |
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When did the factories rise? |
In the industrial revolution of 1760-1830. |
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Some aspects on the Factories (Ideas) |
- Large factories more cost effective
- Reduced transportation costs
- Strict control and strict discipline.
- Division of labour. |
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4 Reasons why the Factory arouse when it did. |
- Fixed costs and scale economies: Firms became larger than households.
- Information costs and Incentives: Easier to monitor costs
- Labor effort: All workers under the same roof and supervision.
- Transmission of knowledge: Division of knowledge (Industrial Revolution (from the late 18th century)- processes became increasingly sophisticated, and knowledge transmission became critically important to maintain or establish competitive advantage.
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Part 2. Behind the Labour Market: Efficiency wages and human capital |
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What were the failures of the Labor market due to factories? |
- Sophistication of the labor market due to growth of firms.
- Problem of repayment of capital
- It is no longer a prefectly competative market
- Development of institutions to adress the failures of the labor market. |
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The Principal - Agent problem in the labour market |
Business objectives did not correspond with the workers objectives (peronal gain) |
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What did the factories do to deal with the Agency - Principal problem? |
Incentive-based compensation:
1. Piecework (piece rate) = A fee proportional to the number of units produced personally.
2. Committees = rewards to the amount of sales.
3. Fixed salaries per hour worked = Raises, promotions and performance bonuses |
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What was the theories of efficiency wages? |
1. Efficiency wages reduce monitoring costs
2. Model of nutrition = Efficiency wages raises productivity in countrieswhere nutrition levels are very low.
3. Employee turnover = Employers pay efficiency wages to prevent workers rotations that are costly. |
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Part 3 of Factories = Financing the industrial revolution |
The mayority of the industry was self-financing or through informal banking (Neighbors, relatives, partners)
Early industrialization not capital intensive |
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What was more alternative financing ways? |
Small lenders and intermediaries.
Such as merchant-bankers |
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PART 4 - The Rise of Big Business |
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When did Big Business develope and what were the two biggest industries? |
Middle of 18th century. Railroads and telegraphs |
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What did the complexity of operations and the scale of finance lead to? |
A division of labor between these functions (Operational managers to handle complexity) and seperation of Owers to finance.
The development of capital markets to sell bonds and equities to raise large sums. |
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What 2 central innovations did the Railroads and telegraphs give birth to? |
1. The development of complex enterprise organizations.
2. More accoutning |
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What Managementproblems were dealt with? |
1. Security = To know where are the convoys
2. Utilization of installed capacity
3. Opportunity cost of having busy (or unemployed capacity) |
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What did the managementproblems lead to? |
- Managerial Hierarchy
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What did they mean by innovations in accounting? |
- A constant flow of information was essential to the efficient operation of these new large business.
- Bookkeeping was started
- Railroads probably hired more accountants and auditors than the government. |
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c) The new firms in trade in big business. Why? |
Modern mass retailer was born. 1870s markets started to be dominated by department stores, mail-order houses and chain stores = mass marketing enterprises.
- Improvements in marketing enterprises thanks to the railroad, the telegrapth or the steamship.
- Seperation of retail and wholesale trade and diversification.
- Development of vertical integration. |
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When did the Mass Retailer start to peak and why were it more effective than wholesalers? |
Started to peak in 1880s.
- They were in direct contact with the customers.
- They reduced market transactions by eliminating a set of middlemen |
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What was the 3 types of Mass retailers? |
- Department Stores
- Mail-order Houses
- Chains (that moved in to smaller cities and tows) started to expand after the 1900 |
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Why were Mass retailers successful? |
- High turn-over rate and low margins. Profits on volume. |
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The Growth Strategies of Big Firms( in the U.S.) |
- The completion of railway and telegraphic networks built a national market. * Lowered cost
- Created an opportunity for firms to exploit economies of scale. |
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What were the consequences of MAss Production? |
- High barriers to entry with monopoly or oligopoly structures.
- Increased demand for administrative staff
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When was the Great Merger Wave in the U.S and why was there alot of mergers? |
- The Great Merger wave was 1895-1905.
- The implementation of mass production required a higher minimum efficient scale in order to spread out investments.
- Horizontal Mergers in steel, telephone, oil, mining and railroad.
- !910 Big Business was firmly established
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What were the Firms growth strategies? |
-Horizontal Comination (Alliances)
- Horizontal Integration (mergers and acquisitions)
- Vertical Intergration (Backwards and forward)
- Multidivisional (Business Units under central Control)
- Conglomeration (Unrelated business activities)
- Foreign Direct Investment
- Diversification |
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What is Horizontal Combinations/Alliances? |
- Creating alliances with competitors to avoid price competition.
- Cartels; Price agreements |
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What is Horizontal Integration? |
- Acquisiion of additional business activities at the same level of the value chain.
- Internal expansion
- External expansions through mergers.
- Reduce threats by acquiring them |
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What is Vertical integration? And 2 types |
Vertical integration represents an expansion or extension of the firm by integrating preceding or sccessive productive processess.
- Forward integration: The firm incorporates more processes towards the consumer
- Backward integration: The firm incorporates more processes towards the source of material. Car companies building their own engines. |
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Why Vertical Integration? |
– to reduce transaction costs
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TOPIC 5 - The emerge of managerial capitalism in the US model |
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Background Taylorism |
- Late 19th - Early 20th century US
- Rise of hierarchical business and management level.
- Replacement of craft trade to machinist productions.
- Problems to manage large enterprises due to shortage of skilled workers.
- Taylorism basically wanted to suck and drain all the work from every single employee to profit to a maximum :D |
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What is Scientific Management? |
- Taylorism
- "One best way" to perform each task and used scientific methods to study how workers performed their jobs.
- Perspective on management that focuses on the productivity of the individual worker. |
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Taylor's ideas on management control: |
The control over work through the control over the decisions that are made in the course of work. |
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Scientific Management: |
1. Control and divide tasks
2. Cheapest worker to perform tasks.
3. Surveillance and individual incentives for tasks.
4. Seperate task execution with conception and planning. |
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Some Consequences of Taylorism: |
- Hierarchy amongs workers (foremen)
- Increased intensity and effort at work
- Increased real wages of partly-skilled workers
- Incresed union problems
- Development of consultancy firms. |
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The Line production System (Fordism) |
Ford had produced too expensive cars -> nobody could buy them.
Ford inplimented the line production system and manufactured cars in a line assembley of 29 stations -> got prices and production time down -> people could buy their cars.
Component production (Vertical integration) |
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The multidivisional Corporation (U-form) |
A consequense of the rise in big, diversified business where managers and hierarchy was needed. Funcional structure.
Were being adapted for 30 years to come. 1920-1950 in US and Europe |
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Multidivisonal Corporation (M-form) |
- Composed of operating divisions where each division represents a separate business or profit center.
- Each division independtly responsible for operations and sales. |
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Strengths of the M-form: |
- Allows organizations to expand their operations
- Units can work togheter thus benefiting from synergies
- Pursure additional market-place opportunities |
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Weaknesses of the M-form: |
- Units may have to compete for scarceresources, e.g. financing
- Seperate units may not coordinate, dublicating wasting rescources |
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The Human Relations Revolution |
- As a consequense to Industrial conflicts an improvement in Human Relations would reduce conflicts and raise productivity
- Alot of workdays were lost because of strikes. |
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Human Relations techniques: |
- Publishing company magazines and newspapers to improve communication
- Group dynamic techniques
- Morale Surveys |
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Structural Analysis |
- For decades American managers focused mostly on organization of tasks, workers and work groups.
- In the late 1950s managers started to discuss whether their organization as a whole and its structural design was adequate or not. |
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Structural analysis and multidivisional form of organization |
- Growing importance of structural analysis in the industry
- Increase in diversification and multinationalization produced a wave of structural re-organizations.
- At the end of 1960s 3/4 of the largest firms were diversified had adopted the multidivisonal form. |
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TOPIC 6 - Large and Dominant? |
.- Persistance of the small firms.
- 1970s, 70% of all production in metalworking sector in USA were small batches |
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Alternatives to mass production and large corporations? |
- Flexible specialization
- Industrial districts
Engineers and managers started to realise the importance of flexible use of machines and skilled labors: a system that reverses the principles of mass production. |
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What was Mass production? |
Combination of single-purpose machines and unskilled labor to produce standard goods |
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What was "Flexible Specialization? |
A system of industrial production organized around the interaction of small firms.
- Scale of scope (Production of differentiated goods)
- Skilled Workers (Artisans craft persons)
- Subcontractors
- The ability to quickly shift outputs
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Large Factories - Flexible production |
Toyora's car production system: Need to make many types of automobiles, in small quantities with the same manufacturing process |
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Industrial Districts |
- Mass production by large, certically integrated corporations
- Producers of similar goods were concentrated near each other.
- Avaliability for low-cost raw materials and clusters that persisted over time. |
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Industrial Districts: Concept |
- Originated from the end of the 19th century by British Alfred Marshall. (Lanchester Cottons, Sheffield Cutlery and South Wales tinplate) |
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Benefits of Industrial Districts |
- Information spillovers
- Specialization and division of labor among enterprises
- Development of skilled labor market
- Agglomeration economies: The benefit of clusterin firms and lowering costs
- Trust and cooperation |
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Industrial Districts defined by 3 characteristics: |
1. The relation to the market: Wide range of products and constantly altered the assortment of goods to changing needs
2. Flexible use of increasingly more productive and widely applicable technology: quick switch from one product to the next
3. Regional institutions to balance competition amongs firms to encourae innovation. |
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Dell in the Industrial District |
Could take orders by phone, fax, mail or internet and immediately request components from suppliers.
Dell couldset demands on it's suppliers because they were such a lucrative customer. |
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Sillicon Valley |
- Computer industry became so concentrated that they took all the characteristics of a industrial district.
- Altouh they compete with each other they shared technological information in joint ventures to meed specialized consumer needs (Just as firms in the textile industry in Philly)
- Contained alot of small firms but also large firms such as Intel and HP |
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TOPIC 7 - The alternative types of firm: Europe |
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The European Model |
- Family Firms
- Universal Banks
- Federations, Cartels, Pyramids
- State-owned enterprises |
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Main Characteristics of European model (from the late 19th century) |
- Large role played by family firms
- Smaller number of large firms
- Close relationships between banking and industrial sector.
- The state as a major player in the economy (state-owned enterprises)
- Agreements with competitors = Cartels |
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Difference between Banks in America and Europe. |
- European businesses tended to rely on financing from banks.
- In the US, businesses turned to the debt or equity market.
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The role of the State in Europe |
- A high level of ecnomic role.
- The state stepped in to help firms in steel and heavy machinery to develope rapidly. |
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The role of State in Italy |
The state in Italy were seen as corporate rescuers in sectors considered important for the nation.
A result of this, by 1930s, Italy had become the largest industrial proprietor in the world after Soviet.
The state controlled 40% of the entire Italian shareholding capital. |
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Cartels in Germany |
-Cartels where very exercised during the period before WWI
- No trade (cartel) relgations, such as in USA, before 1945.
- Cartels where mostly successful in homogeneous markets (Steel, coal) |
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Pyramids: |
Successful entrepenours or wealthy families created corporate pyramids to diversify risk and move into promising new economic sectors with a limited capital investment. |
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Why did Companies in Europe switch to the American Management model? |
- Family firms where decreasing
- Personal capitalism gradually gave way to managerial capitalism (UK, France)
- The shift to a multidivisional ogranizational form.
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Summary European Model: |
Until the 1960s European companies tended to be smaller than the american ones and more likely to remain in family hands with close relations.
Movement towards "Americanization" after WWII, but family, smaller firms prevailed and collusion and state intervention persisted. |
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Topic 8 - Alternative types of firms: Japan |
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Modernization of Japan |
Meji Revolution in the 1868: A group of oligarchs, aristocrats and samurai took control of the country.
- Political and military leader = Shogun
- This revolution was the birth of modern japan. |
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The Sogo Shosha |
Ebtween 1868 - 1914 Sogo Shosha (Trading company)
-Formed to compete with the west.
- Special importance for the growth of Zaibutsu |
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Zaibutsu: |
- Financial Group: Financial Groups
- During the interwar period, Zaibatsu expanded to labor industries, financial servies, banking and insurance.
- Mitsui, Mitsubishi, Nissan
- Zaibatsu where conglomerates: Product diversification, Family Ownerships and close contact with the government. |
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Significance of Zaibatsu: |
Decentralized production structure to manage hundres of companies and thousands of employees.
Creating new subsidaries to expand in new fields through diversification.
The Shosha was very important to provide trading sevices ect.
Economies of scale. |
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Smaller Business (Non-Zaibutsus) importance |
- Large independent firms existed outside the Zaibutsu. MMostly in textiles.
- Small enterprises often specialized in craft-oriented industries.
- Small enterprises often linked to Zaibatzu through sub-contracting. |
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Zaibutsu and Managerial Hierarchies |
- A Suitable organization structure were important for the complex and decentralized business activities.
- The important of hierarchies was important during the interwar years for Zaibutsu. |
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The Bantô and seperation of ownership and management in Zaibutsu |
- The Banto was a kind of general manager, a person not employed but through many years of employement was bound by close ties of loyalty.
- Owner slowly became detached from the operational functions.
- Professional managers made it possible to move into high tech, capital-intensive industries. Young managers with backgrounds in technicians and engineers. |
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From Zaibatsu to Keiretsu |
Zaibatsu were dissolved in 1945 by General MacArthur to create a more "economic democratization".
- However, groups firms with informal ties continued to operate in the same way.
- Two forms of Keiretsu were formed: Vertical and Horizontal |
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Horizontal Keiretsu: |
- Formed as a diversified group of competetive firms that operated in different sectors of industry, trade and finance.
- The biggest horizontal Keiretsu were the re-creatin of the main zaibutsu. (But differently organized)
- Mitsubishi, Mitsui, Sumitomo |
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What was negative in the Horizontal Keiretsu? |
- The ownership structure where highly fractured and no permanent form of centralized control, each investor could have an incentive to break away from the arrangements |
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Vertical Keiretsu |
- A vertical business formed by a head group (usually a large manufacturing company)
- Related companies in the structure that operated as suppliers of most of the components and semi-finished goods purchased by the group leader.
- The best example is the automobile industry and it's active ties between suppliers and the manufacturer.
- The Manufacturer benefited from the intense competition between suppliers.
- Very different from the US automobile manufacturers.
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Vertical Keiretsu: Toyota Motors |
- Toyota had the tendency to "buy" rather than to make.
- Toyotabought from other firms up til 80% of the final value of the car.
- Toyota did not want any long term contracts because the competition madequality and prices low.
- High quality because the suppliers couldn't risk losing toyota as a client. |
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Positive effects on companies in Vertical Keiretsu: |
- Smaller and spezialiced firms could easier adapt to unexpected market changes than firms in Europe and US.
- Competative advantage in the long run.
- Adapt to market changes as well as technology changes. |
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Topic 9 - The alternative firm: China |
- Firstly Business was conducted by merchants
- Late 19th century, private firms ran as family business.
- Family business were successful and in big scales.
- (Except for some state controlled monopolies like salt production, silk, e.c.t.)
- Rituals had a strong place in business institutions
- Chinesebusiness enviroment influenced by kinship and families. |
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Why were China unable to develope economically in the 19th century? |
- Chinese officials were corrupt.
- Business structures too family oriented
- Conservative thinking opposing western thinking and modernazation.
- Relationships more by rituals and heritage than by law |
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The company Law of 1904 |
- To define terms of a better legal environment to encourage private investment to greater national prosperity.
- Adoption of a Western-style corporate code of governance
- But the number of companies established according to the law was limited. |
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What did the People's Republic of China do? 1949-1978 |
- The economy was closed to the outside world, no private enterprises.
- State strategy: Military industries and its own defense system.
- The government took controll of most of large economic enterprises and industries, aswell as the financial sector.
- The government also took control of Chinas ferign trade.
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What was the outcome after the PRC? |
- When Mao died, China achieved 8-10% of economic growth anually.
- Became a market economy and privatization initiatives.
- Permitting private and foreign investment in "Special economic zones".
- But control over the largest economic sectors, such as communication and energy, financial services e.c.t. is still in the hands of the Chinese Government.
- More recently, to regulate to protect shareholders rights and insure managerial responsibility.
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Network and Kinship, "Guanxi" |
- Chinese businesses matched Western business in efficiency by depending on social networks rather than corporate hierarchies.
- Regional networks rather than impersonal corporations.
- Chinese business networks "Guanxi"
-Guanxi was the networking through kinship, dialect ties and construct inner circles that served as a prime criteria to recruit and perserve internal harmony and business relations. |
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Guanxi: |
- Translated = "Personal Ties"
- A personal bond in business relationships and carefully care for the relationships. |
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Topic 10 - Banks, Financing and Corporate governance |
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What is Corporate Governance? Definition |
Corporate Governance is the relationship between ownership and management - the balance and power between shareholders, managers and other stakeholders. |
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What is the Dispersed (outside) ownership system? First emerged in USA |
- strong security markets,
- High market transparency |
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What is the Concentrated (insider) ownership system? Emerged in Europe and Japan |
- Controlling blockholders
- Weak securities markets
- Low discolsure and market transparancy |
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What are stakeholders? |
- Not only shareholders, but also employees, bondholders, customers, suppliers |
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Banks in the United states |
The financing is based on well developed and highly liquid securities markets
Banks played a very small and only short term role in industrial finance in the 19th century. |
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Banks in Britain. |
Corporate Governance is similair to US
Britain were skeptical about limited liability.
Close family firms dominated the joint-stock company form for a much longer time than US.
Ownership and management stayed clustered for a longer time |
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Corporate Governance in France: |
- Wealthy families controlled corporate sector under the guidelines of the state.
- The Paris stock exchange werent as important.
- Owners stayed in control far longer. Generation after generation.
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Corporate Governance in Germany: |
German finance was bank-driven and universal banking was the norm.
Strong bank participation in C G began to weaken in the 1990s. |
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What was the factors of Variation in Corporate governance practices? |
- Political differences among countries
- Legal differences among couries
- Financial market develoment determined the openness to trade and cross-border. |
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LBOs |
Leverage BuyOut:
- Hostile takeover. Acquisite a company with borrow funds. Often results in a bankcrupt becuase of high interest rates.
- The federal security laws strenghtened the position of shareholders by imposing penalties on fales or misleading information. |
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Topic 11- Source of competitive advantage: technological innovation, trademarks, marketing |
1. Technological innovation and patents
2. Mordern Marketing and brands
Sources of competative advantage and barriers to entry |
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What is innovative activity of the firm? |
Innovations:
- allow firms to capture higher returns and rents and increase their competitive advantage.
- Firms secure long-term stability
- firm entry and productivity growth
- Innovations creates barriers to entry with patents (concentration) |
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Innovation and the firm: Does large or small firms innovate more? |
- Empirical studies have found that bigger firms tend to have bigger R&D budgets and more R&D results (such as patterns)
- At the same time does studies show that Big Firms innovate less when you coun't per dollar or per employee. |
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Why might it be that small firms innovate more? |
- Large firms have benefits of improving products and reducing manufacturing costs (Bureacratsy)
- Small firms are more free of bureacratic problems that might get in the way of inventions.
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3 factors that affect how much R&D a firm does |
1 . Technological opportunity: More opportunity in medicine than in clothing industry. "Push" factors
2. Demand for Technology: Incentives to produce a new technology. Researchings VHS players is not very likely. "Demand pull"
3. Appropriability: If a firm can get a good return on a development. Depending if the patent is strong or weak. |
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Marketing: The modern Marketing |
- Were adopted by businesses from the 19th century onwards.
- Selling, advertising, branding ect.
- Marketing expenditures as seen as barriers to entry
- Multinationalitity has been led by marketing rather than technology
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3 factors in the beginning of modern marketing |
1. Product planning, development and management (Branding, packaging, segmentations, Market analys)
2. Distribution (Producer-owned retail stores)
3. Price and promotion (Consumer credit, advertisements, company salesforce) |
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Explain Brands |
Distingusing name and/or symbol to differntate from competitors.
Brands make it easier to find and recognize products
Could be seen as a kind of monopoly. Source of competative advantage. |
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Topic 12 - Family Firms |
- The importance of family firms
- Advantages and disadvantages of family firms |
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Definition of a family firm |
A family firm is one where
- A family owns enough equity to control strategy
- A family is involved in top management positions
- A family recruit managers but continue to influence shareholders. |
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Importance of family businesses: |
- Important in many sectors, but most in retailing and international finance
- In sextors where quality of information is important.
- In networks of interrelated family business where flexibility has been the competative advantage. |
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Advantages of the family firms: |
- Cultivation of trust
- Provide protection against uncertain adverse events.
- Long term commitment |
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Disadvantages of the family firm |
- Lacking in Resources (keep ownership)
- Conservative
- Slow Growing
- Short lived
- Problems of leadership succession
- Short-term income preffered to the long-run frowth in assets. |
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Insider succession in family firms |
- Reduce uncertainty by maintaingning control in the family.
- Critized for lacking managers with experience and sons who lack interest.
- Generation-transitions usually makes family-firms short lived. (3 generations and then public is the best) |
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What does "Chandler" say about the difference of Managerial firms and family firms? |
"That the goal for family firms appears to have been to provide a steady flow of cash to owners who were also managers"
They preffered short-term income to the long run growth, why didivends were high and earnings low. |
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Topic 13 - Multinationals |
-Definition and concepts
- History
- Multinationals in theory |
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The multinational Enterprise - Definition |
- Multinationals: Firms that contols operations or invome-generating assets in more than one country
- Multinationals are owned in their home economy and invest in host economies.
- Heart of the globalization process.
A firm who only export goods or services from home country is not a multinational
* Portfolio investments abroad
* or foreign direct investment (FDI) |
