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115 Cards in this Set
- Front
- Back
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What are international strategies?
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Strategies that concern where (location selection), when (timing of entry), and how (entry-mode selection) international companies should enter and invest in a foreign territory during international expansion.
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What is international location selection?
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Involves country selection and regional selection (state, province, or city) within the chosen country for an MNE's foreign direct investment projects.
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What are the firm factors of international expansion decisions?
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Firm factors:
- Available resources and capabilities - Human motivation and goals - Specific project, product or service to be involved - Networks, relationships, various other issues |
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What are the industry factors of affecting international expansion decisions?
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- The nature of the business
- Technology, innovations, entrepreneurial ideas |
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What is CAGE?
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- Cultural Arbitrage
- Administrative Arbitrage, ex: companies take advantage of tax differences - Geographic Arbitrage, taking advantage of time zone differences, etc. - Economic Arbitrage (Labor, Land, Capital) |
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What are the five locational determinants of countries?
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- 1)Cost/tax factors
- 2)Demand factors - 3)Strategic factors - 4)Regulatory/economic factors - 5)Sociopolitical factors Importance of each factor depends on firm's objectives and business nature of the FDI project. |
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What are the Cost/tax factors of locational determinants?
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Cost/tax factors:
1. Transportation costs - cost incurred in transporting materials from home country to host country. 2. Wage rate - labor costs, foreign production is more likely when production costs are lower abroad than at home. 3. Availability and costs of land - availability of suitable plant sites 4. Construction costs - substantial part of capital investment 5. Costs of raw materials and resources - 6. Financing costs - cost and availability of local capital, local financing is less riskier and less uncertain for fluctuations in foreign exchange rates 7. Tax rates - Statutory tax rate - determines general level of tax burden shouldered by firms - Effective tax rate - corporate income, which is the statutory corporate rate adjusted for all other taxes and subsidies affecting an MNE's taxable income. 8. Investment incentives - Developing ones are competing to attract FDI to support domestic economies 9. Profit repatriation - Repatriation restrictions have a negative impact on net income or dividends remitted to foreign headquarters. |
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What are the demand factors of locational determinants?
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Demand factors:
1) Market size & growth - signals market opportunities at national level 2) Presence of customers - - Closer operations are to major buyers, the better the cost efficiency and marketing effectiveness. 3) Local competition - Intensity of competition in specific region directly impacts a firm's market position and gross profit margin from local sales - MNEs locate sites where competition is relatively low unless they have sufficient advantages |
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What are the strategic factors of locational determinants?
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1. Investment infrastructure
2. Manufacturing concentration 3. Industrial linkages - affects firm's ability to pursue value creation and addition 4. Workforce productivity 5. Inbound and outbound logistics - Inbound logistics, proximity to suppliers and sources of raw material and inputs - Outbound logistics, proximity to major buyers and end consumers. |
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What are the regulatory/economic factors of locational determinants?
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1. Industrial policies
2. FDI policies 3. Availability of special economic zones |
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What are the sociopolitical factors of locational determinants?
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1. Political instability
2. Cultural barriers 3. Local business practices 4. Gov't efficiency and corruption 5. Attitudes towards foreign business 6. Community characteristics 7. Pollution control |
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Along with knowing where and what location to enter, MNEs also need to look at what other 3 factors?
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1) Strategic objectives
2) Global integration 3) Market orientation |
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What is timing of entry?
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- When a firm enters a foreign market compared with other firms (early entry is when firm enters a foreign market before the foreign MNEs, late entry is when firm enters after other international businesses have established themselves.)
- Sequence of MNE's entry into a foreign market vs. other MNEs Important since it determines the risks, environments, and opportunities the MNE may confront |
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What are the advantages of being an early mover in the timing of entry?
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Highest Possible Returns (Advantages):
1. Greater market power - Barriers to followers - Technical leadership - Customer loyalty - Product positioning 2. Preemptive opportunities - Preempt marketing - Preempt promotion and distribution channels - Brand recognition - Product image and organizational reputation 3. Strategic options - Industry/location selection and market orientation - Access to infrastructure, natural resources, distribution channels, promotional arrangements, etc. - Low competition |
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What are the disadvantages of being an early mover?
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Higher Uncertainty/Costs (Disadvantages):
1. Environmental Uncertainty - Underdeveloped regulations - Lack of gov't experience - Infant/Embryonic industry 2. Operational risks - Lack of supply and inputs - Lack of supporting services - Poor infrastructure - Unstable market structure 3. Extra Operational Costs - Learning/adaptation costs - Local training costs - Anti-imitation costs |
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The timing decision that shows whether to be an early mover or not depends on what three things?
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1) Firm's capabilities
2) Local environment 3) New competition |
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What are entry modes?
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Specific forms or ways of entering a target country to achieve strategic goals underlying international presence in that country.
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Entry modes fall into which three categories?
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1) Trade related
2) Transfer related 3) FDI related - Along this sequence, the levels of resource commitment, organizational control, involved risks, and expected returns all increase. |
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What is the trade-related entry mode of exporting?
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- Firm maintains its production facilities at home and sell its products abroad.
Through exporting, the firm gains valuable expertise about operating internationally and knowledge concerning the individual countries in which it operates. |
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What are export intermediaries?
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Third parties that specialize in facilitating imports and exports.
- May offer limited services such as handling only transportation, documentation, and customs claims, or perform more extensive services, etc. |
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What is an export management company?
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An intermediary that acts as its client's export department.
- They handle foreign shipments, prepare export documents, deal with custom offices, etc. - This is an example of a typical export intermediary. |
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What is a Countertrade?
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- Form of trade in which a seller and a buyer from different countries exchange merchandise with little or no cash or cash equivalents changing hands.
- Viewed as a form of flexible financing or payment in international trade - Accounts for 20% of world trade - Evolved into: 1) Barter 2) Counterpurchase 3) Offset 4) Buyback |
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What is subcontracting?
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The process in which a foreign company provides a local manufacturer with raw materials, semi-finished products, sophisticated components, or technology for producing final goods that will be bought back by the foreign company.
- Usually used by MNEs seeking low labor costs in host country. Ex: Nike uses subcontracting in China, Vietnam, etc. to get raw materials and technology to local manufacturers. |
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What are the takeaways of international entry strategies?
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- Global entry first depend on firm strategy and then must take into account external environment and market factors
- Global entry takes on many forms - Good companies not only shape their business, but their industry - At war they kill the bystanders- not themselves |
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What is terms of sale in trade-related entry modes?
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Conditions stipulating rights and responsibilities and costs and risks borne by exporter and importer.
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What is a letter of credit?
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Contract between importer and a bank that transfers liability for paying the exporter from the importer to the importer's bank.
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What are the advantages of exporting as a trade-related entry mode?
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Exporting:
- Low risk, but limited control - Easy way to test foreign markets - Little investment, easy withdrawal - Prime for small to medium-sized firms - Sometimes used as a first step for more involved international operations |
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What is a barter?
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Direct and simultaneous exchange of goods between two parties without a a cash transaction.
- Occurs between individuals, governments, firms, between gov't and a firm, etc. - Oldest for of trade - Important for party to ensure trading-in products are heavily demanded in its own market |
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What is an offset?
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An agreement whereby one party agrees to purchase goods and services with a specified percentage of its proceeds from an original sale.
Ex: Shanghai Aircraft manufacturers may buy jets from Boeing using its proceeds from manufacturing the tail section of the jets. |
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What is a buyback?
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Occurs when a firm provides a local company with inputs for manufacturing products to be sold in international markets and agrees to take a certain percentage of the output produced by the local firm as partial payment.
Ex: Steel producers may send goods to a foreign company for manufacturing shelves and later the steel producer would buy back the shelves at a reduced price in effect partially paying for the manufacturer with raw steel. |
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What is international leasing as part of transfer-related entry modes?
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Where the foreign firm leases out its new or used machines or equipment to the local company. (usually a developing country)
- Occurs because developing country manufacturers do not have the financial capability or lack foreign currency to pay for the equipment. Advantages for MNEs include: - Quick access to the target market - Efficient use of superfluous - Accumulating experience in a foreign country |
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What is international licensing as part of transfer-related entry modes?
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Entry mode in which a foreign licensor grants specified intangible property rights to the local licensee for a specified period of time in exchange for a royalty fee.
Ex: patents, trademarks, technology, and managerial skills - Allow the licensee to produce and market a product similar to the one the licensor has already been producing in its home country without requiring to actually create a new operation abroad. |
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Generally, an MNE may use international licensing to do what?
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A) Obtain extra income from technical expertise and services
B) Retain established markets that have been closed or threatened by trade restrictions C) Augment limited domestic capacity and management resources for serving foreign markets D) Build goodwill and acceptance for the company's other products and services E) Discourage possible infringement of company patents |
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What is international franchising?
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Entry mode in which the foreign franchisor grants specified intangible property rights to the local franchisee, which must abide by strict and detailed rules as to how it does business.
- Longer commitments, greater control over overseas operations - Quick global expansion but difficulties are related to standardization - Ideal for small businesses - Initial fee and ongoing royalty payments |
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What is build-operate-transfer (BOT) in terms of a transfer-related entry mode?
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Turnkey investment in which a foreign investor assumes responsibility for the design and construction of an entire operation and upon completion of the project, turns the project over to the purchaser and hands over the management to local personnel whom it has trained.
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What do FDI-related entry modes involve?
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- Ownership of property, assets, projects, and business invested in a host country.
FDI-related entry modes inculde: - Branch office - Cooperative joint venture - Equity joint venture - Wholly-owned subsidiary - Umbrella holding company |
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What is a branch office?
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A foreign entity in a host country in which it is not incorporated that exists as an extension of the parent and is legally constituted as a branch.
- Mostly utilized by transnational banks, law firms, and accounting or consulting companies. - Branch offices engage in production and operating activities, and run businesses without a specified scope or location |
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What is a cooperative or contractual joint venture?
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- Collaborative agreement between two or more firms whereby profits and other responsibilities are assigned to each party according to a contract.
- Most cooperative joint ventures don't involve constructing a new entity. |
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What is a equity joint venture?
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New entity that is jointly owned and managed by two or more parent firms in different countries.
- Most common foreign entry for MNEs -Each partner contributes cash, facilities, equipment, materials, intellectual property rights, labor, or land-use rights - In most countries, a foreign investor's share must exceed a certain threshold of the total equity (25% in many nations) |
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What is a wholly owned subsidiary?
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Entry mode in which the investing firm owns 100% of the new entity in a host country.
- Offers more increased flexibility and control - Allows international managers to make their own decisions without the burden of an uncooperative partner. Ex: U.S. owns Japan factories completely in Japan. |
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What is an umbrella holding company?
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An investment company that unites the firm's existing investments such as branch offices, joint ventures, and wholly owned subsidiaries under one umbrella to combine sales, procurement, manufacturing, etc. within the host country.
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What are the pros and cons of international joint ventures?
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Advantages:
- Reduce capital and other resources required - Spreads risk - Access to expertise and contacts in local markets Cons: - Potential problems and conflicts between partners - Communication and management problems - Partial control |
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What are the two main types of Wholly-owned subsidiaries?
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Acquisition:
- Buy an already-existing firm, acquire the local business. Greenfield: - Create new entity from scratch |
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What are the pros and cons of Acquisition investment of a wholly owned subsidiary?
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Advantages:
- Rapid entry - Access to distribution channels - Existing management experience - Established brand names, reputation - Reduces competition Cons: - Integration with existing operation often difficult - Communication and coordination problems - May have less fit with existing business |
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What are the pros and cons of Greenfield type of wholly-owned subsidiary?
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Pros:
- Directly introduce your own technology - Integrated production - Operational efficiency Cons; - Investment cost - Need to build business - Time delays |
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What is a greenfield investment?
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Initial establishment of fully owned new facilities and operations undertaken by the company alone.
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What is an international acquisition?
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Cross-border transaction in which a foreign investor acquires an established local firm and makes the acquired local firm a subsidiary business within its global portfolio.
- This is the quickest way to expand one's investment in the target country. |
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What is an international merger?
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Cross-border transaction in which two firms from different countries agree to integrate their operations on a relatively equal basis because they have resources and capabilities that together may create a stronger competitive advantage in the global marketplace.
- Mergers combine all of partners' assets whereas joint ventures involves only some assets |
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What is global integration?
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Coordination of activities across countries in an attempt to build efficient operational networks and take maximum advantage of internationalized synergies and similarities across locations.
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What is local responsiveness?
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Attempt to respond to specific needs within each host country.
- Stems from diversity of market conditions and social and political environments in various countries |
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What are the benefits of global integration?
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- Lower costs, Economies of Scale
- Integration of resources and competencies - Standardization as control mechanism - Global leader |
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What are the benefit of local reponsiveness?
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- Boost local sales
- Access to local resources - Innovation, new ideas to the firm and capitalization on local talent - Local citizen - Responsiveness |
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What are features that trigger global integration?
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a) Customer needs tend to be the same or similar across borders
b) Major competitors are few but global c) Economy of scale is essential to global success |
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What is a multi-domestic strategy?
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Which strategic and operational decisions are delegated to strategic business units in each country.
- Local responsiveness strategy - This permits customization but interferes with economies of scale and intraorganizational learning and sharing. |
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What is a global strategy?
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Relative standardization across national markets, allowing strategic and operational control.
- Leverages economies of scale, but lacks responsiveness to local markets |
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What is a transnational (hybrid) strategy?
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Seeks to achieve both global efficiency and local responsiveness.
- Requires shared vision and commitment through an integrated network. |
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What is an autonomous role of a subsidiary?
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Subsidiary performs most activities of the value chain independently of headquarters, selling most of its output in the local market.
- Autonomous role is typically a multi-domestic strategy |
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What is a receptive role?
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Subsidiary functions are highly integrated with headquarters or with other business units.
- Global strategy |
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What is an active role of a subsidiary?
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Many activities are located locally but carried out in close coordination with other subsidiaries.
- Transnational strategy |
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What are contributor subsidiaries?
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Operate in small or strategically less important markets that have distinctive capabilities.
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What are implementer subsidiaries?
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Operate in less strategically important markets but are competent to maintain local operations.
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What is a black hole subsidiaries?
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Operate in important markets where they barely make a dent, but their strong local presence is essential for maintaining global position.
More responsive to the local environment. |
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What is the related divisional format of global product structure?
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Format where product divisions report directly to headquarters.
Ex: Interpublic (U.S.) and Sandvik (Sweden) |
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What is the cluster format of global product structure?
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Format where a business reports to a cluster headquarters that is accountable to corporate headquarters for business results.
E: AlliedSignal (U.S.), Rhone-Pulenc (France) |
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What is the unrelated holding company format of global product structure?
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Format where businesses are managed as investment rather than profit centers with wide reporting variations.
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What is control in terms of integrating global operations?
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Direct intervention in the operations of subsidiaries to ensure conformity with organizational goals.
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What is coordination in terms of integrating global operations?
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Provides the appropriate linkage between different task units within the organization.
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What is corporate socialization?
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Processes through which subsidiary managers' values and norms are aligned with those of the parent corporation.
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What were the problems of the company ECCO?
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1) In-house operations increases costs
2) Little noticeable difference in product 3) Brand recognition |
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What was the objectives for ECCO?
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1) Build five closely connected factories over the next 4 years with a total capacity of 5 million pairs/yr
- Serves the needs and the Chinese market 2) Integrating the global value chain 3) Most Innovative tech. in comfort footwear 4) Environmentally friendly 5) Internal development |
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Where were the five closely connected factories for ECCO's global value chain?
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Portugal, Slovakia, Indonesia, Thailand, and shortly in China.
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Where did ECCO's tannery operations take place? Full-scale processing of leather?
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Netherlands
Full-scale processing: - Took place in Indonesia and Thailand. |
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Which countries for ECCO does not have a tannery factory?
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Denmark, Portugal, and Slovakia.
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What different about Coke vs. Pepsi?
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Coke:
- Entered global market when it wasn't popular, "Coke was global when global wasn't cool". - Early-mover Pepsi: - Focused on niche positions internationally |
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How was the market in Mexico for Pepsi and Coke?
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- World's 2nd second highest per capita consumption of CDSs, biggest soft drink market outside U.S.
- Coke acquired Jugos del Valle - Pepsi merged into Gemex an anchor bottler -PepsiCo's Sabritas subsidiary was largest savory snack maker in Mexico |
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What are the problems with introducing CSDs in India's market?
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- Inputs for soft-drink bottles cost more from excise taxes
- High tariffs and high distribution costs - Limited channels (Vending machines were scarce, take-home channels were limited) - Poor infrastructure |
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What are the barriers to entry to keep potential competitors out?
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- Scale economies: mass production to increase profits.
- Scope economies: high technology for product customization and short lead-times. - Capital requirements - Switching costs - Access to distribution - Entry deterring regulations |
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What are the factors of competitive rivalry for industries?
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- Industry growth rates
- Exit barriers - Fixed costs - Lack of product differentiation - Switching costs |
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What is a successful strategy for a global structure firm?
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- Avoid excessive rivalry
- Raise barriers to entry (make preemptive investments) - Offset supplier power (obtain alternative source) - Minimize buyer power (build customer loyalty) - Reduce the threat of substitution (incorporate their benefits) |
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For the IBM case in Korea what are some of the obstacles faced?
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- Organize globally dispersed workforces into efficient organizations
- Time differences - Teamwork/relationships w/strangers - Cross-culture - People value things differently |
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What is the objective of IBM in the case?
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- To win a bid to develop a new IT system for a Korean bank, worth up to $100 million.
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What is a counterpurchase is terms of a trade-related entry mode?
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Reciprocal buying agreement whereby one firm sells its products to another at one point and is compensated in the form of the other's product at some future time.
- More flexible than a barter, since volume doesn't have to be equal |
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What type of strategy/motive did Pepsi use to go global and why?
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Pepsi used a defensive market motive because coke was abroad and their market share was concerning for them.
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What was the motive for Coke going global?
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A strategic motive, nothing was pushing them there except to take advantage of the markets, it became an early-mover.
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What are the three types of trade-related entry modes?
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- Exporting
- Subcontracting - Countertrade |
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What are the advantages of international leasing?
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- Quick access to the market
- Efficient use of superfluous or outmoded machinery and equipment - Accumulating experience in a foreign country |
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What are the four factors to determine an appropriate entry mode?
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- Country
- Industry - Firm - Project |
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What is the global innovator role?
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Subsidiary is the fountainhead of knowledge for other units.
(High outflow and low inflow) |
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What is the integrated player role?
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Responsibility for creating knowledge that can be utilized by other subsidiaries on an ongoing basis.
(High outflow and high inflow) |
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What is the implementer role?
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The subsidiary engages in very little knowledge creation and relies heavily on knowledge inflows from either the parent or peer subsidiaries.
(Low outflow and high inflow) |
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What is the local innovator role?
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Subsidiary has almost complete local responsibility for the creation of relevant expertise.
(Low outflow and low inflow) |
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What are the tools for global integration?
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A) Data management and information systems
B) Managerial mechanisms and human resource administration C) Communication intensity D) Socialization E) Entry mode selection F) Shared arrangements |
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What are the components of a value chain?
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1)Procurement & Inbound Logistics
2) Operations 3) Outbound Logistics 4) Sales and Marketing 5) Service |
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What is a value chain?
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Chain of activities for a firm operating in a specific industry.
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What are the four characteristics of successful strategies for Porter's Five Forces Model?
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- Avoid excessive rivalry
- Raise barriers to entry - Offset supplier power - Minimize buyer power (customer loyalty) |
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What are the three levels that global integration and local responsiveness can be analyzed?
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1) Industry
2) Division 3) Subsidiary |
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Global integration is high if firm does what?
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1. Transfer pricing
2. Focuses on risk reduction 3. Global vertical integration 4. Control key functions like global branding 5. Sharing between corporate members in information, resources, and knowledge |
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Local responsiveness is likely to be high in a firm if what?
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1) Targets local market expansion/ building presence in highly uncertain markets
2) Aims to seize market opportunities overseas 3) Seeks acquisition of local firms' knowledge and experience 4) Improve organization through localization or adaptation |
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What was many U.S. MNEs organizational structure until the 1970s?
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National subsidiary structure.
- Local responsiveness or Multi-Domestic Also called a mother-daughter design. - National subsidiaries reported directly to HQ and were in a position to attract the firm's attention without having information filtered through an intermediary unit. |
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What is the global functional structure?
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Functions like R&D, marketing, production human resources, etc.
- These are found in all organizations - Centralized control, and usually adopted by MNEs with narrow, integrated product lines. Ex: Used in the automobile industry |
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What is global geographic structure?
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Regional divisions or headquarters are responsible for all products/services rendered within an area.
- Geographic divisions are based on cultural similarities, regional integration, business prospects, economic realities |
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What is the global product structure?
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Where global product divisions are responsible for developing, producing, or marketing a product (group of products) worldwide.
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What are the three types of global product structure?
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1) Related divisional format - report directly to headquarters.
2) Cluster format - report to cluster headquarters that is accountable to corporate headquarters. 3) Unrelated holding company - business managed as investment rather than profit centers |
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What are the advantages of a global product structure?
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- Global vision, ability to leverage resources across regions
- Simplicity, clear accountability - Standardized product introduction - Enhanced speed and quality of decisions |
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What are the downsides of a global product structure?
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- Difficult to trade information and knowledge
- Duplication - Fragments organizational resources - Erodes functional specialization |
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For the global structure map of managers, R&D to Sales is which type of strategy?
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Integration strategy
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Advertising to Sales to what strategy?
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Local responsiveness
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Labor to sales is what strategy?
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Arbitrage strategy or transnational strategy.
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What is SWOT?
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SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture.
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For the industry analysis, what are the internal factors of SWOT?
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Strengths and Weaknesses
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What are the external factors of SWOT?
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Opportunities and Threats
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What are the five factors for rivalry among existing competitors?
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1. Industry growth rates
2. Exit barriers 3. Fixed costs 4. Lack of product differentiation 5. Switching costs |
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What are the factors of threats of substitutes for Porter's Five forces model?
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- Direct substitution with same functionally
- Eliminating need for product |
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What are the solutions for IBM?
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1) Data. mgt IT systems
2) HR Practices 3) Expats - "if you can't change, change the people 4) Entry mode selection |
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What strategy is IBM mostly pursuing?
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Locally responsiveness strategy
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