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72 Cards in this Set
- Front
- Back
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Vertical differentiation
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Refers to the location of decision-making responsibilities within a structure.
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Horizontal Differentiation
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Refers to the formal division of the organization into subunits.
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Worldwide Matrix Structure
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Using both vertical and horizontal structures in a company.
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Different Forms of Horizontal Differentiation
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1. Regional differentiation
2. Product differentiation 3. Culture differentiation 4. Service differentiation 5. Consumer differentiation 6. Quality differentiation |
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When is it better to use horizontal or vertical?
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Horizontal is usually used in the case of multinational firms, where the conflicting demands to organize the company around different products and different national markets must be reconciled. Whereas vertical is used best in multinational firms that provide a similar product/service worldwide with less emphasis on local needs.
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Entry strategies
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1. Greenfield
2. Acquisition 3. Export 4. Franchise 5. Joint venture 6. Subsidiary - insulates from liability, most expensive 7. License |
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Strategic Alliances Pros/Cons
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Cooperative agreements between potential or actual competitors.
Pros: - May facilitate entry into a foreign market - Allow firms to share the fixed costs of developing new products or processes - A way to bring together complementary skills and assets that neither company could easily develop on its own. - Help the firm establish technological standards for the industry that will benefit the firm. Cons: - They give competitors a low-cost route to new technology and markets - Unless a firm is careful, it can give away more than it receives. - Many risks! |
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Licensing Pros/Cons
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Allowing other companies to put Ralph Lauren logo, Get royalty.
Pros: Low development costs and risks Cons: - Lack of control over technology - Inability to realize location and experience curve economies - Inability to engage in global strategic coordination |
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Franchising Pros/Cons
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Licensing an entire way to do business, McDonalds
Pros: Low development costs and risks Cons: - Lack of control over quality - Inability to engage in global strategic coordination |
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Greenfield Pros/Cons
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Establishing a new operation in a foreign country
Pros: - Gives the firm greater ability to build the kind of subsidiary company that it wants. - Easier to establish a set of operating routines in a new subsidiary than it is to convert the operating routines of an acquired unit. - Less potential for unpleasant surprises Cons: - Slower to establish - Risky - Possibility of being preempted by more aggressive global competitors who enter via acquisitions and build a big market presence that limits the market potential for the greenfield venture |
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Acquisitions Pros/Cons
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Adv:
Time - quick execution Easier - due to deregulation within nations and liberalization of regulations governing cross-borders FDI Less Risky than greenfield - acquires tangible and intangible assets |
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Timing of entry
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Entry is early when an international business enters a foreign market before other foreign firms and late when it enters after other international businesses have already established themselves.
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First mover advantage
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Entering a market early advantages:
1. The ability to preempt rivals and capture demand by establishing a strong brand name. 2. The ability to build sales volume in that county and ride down the experience curve ahead of rivals, giving the early entrant a cost advantage over later entrants. |
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First mover disadvantage
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Pioneer costs - costs that an early entrant has to bear that a later entrant can avoid
Can cost a lot of money to introduce new product, or to modify product based on if you entered big or small |
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Exporting: Advantages/Disadvantages
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Advantages:
1. Avoids substantial costs of establishing manufacturing operations in the host country. 2. May help a firm achieve experience curve and location economies. Disadvantages 1. Home base may not be appropriate if lower-cost locations for manufacturing the product can be found abroad. 2. High transports costs can make it uneconomical. 3. Tariffs - Drives up cost and makes product not competitive |
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Turnkey Pros/Cons
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A way to set up a greenfield operation, another company sets up shop and all you have to do is turn the key to the building and it is ready for operations
Pros: - Ability to earn returns from process technology skills in countries where FDI is restricted Cons: - Creating efficient competitors (knowing information of one company and could sell information to a competitor) - Lack of long-term market presence |
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Cross licensing
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License a product to a company, they license a product to you in return
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Joint venture Pros/Cons
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Establishing a firm that is jointly owned by two or more otherwise independent firms.
Pros: - Access to local partner's knowledge - Sharing development costs and risks - Politically acceptable Cons: - Lack of control over technology - Inability to engage in global strategic coordination - Inability to realize location and experience economies |
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Letters of credit
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The bank will pay a specified sum of money to a beneficiary, normally the exporter, on presentation of particular, specified documents; Inserts bank into the transaction to protect from risk of trading with a new business
1. Importer applies for letter of credit from local bank 2. Local bank runs credit report, charges a fee, and approves/denies importer creditworthiness 3. Once approved, will issue letter of credit which states: - Will pay exporter upon the fulfillment of specified conditions - Letter of credit is financial contract between local bank and exporter 4. Local bank sends letter to exporter's bank 5. Exporter's bank informs exporter to ship merchandise 6. After shipment, exporter draws draft against local bank in accordance to stated terms and attaches specified documents of proof and presents to exporter's bank 7. Exporter's bank forwards documents to local bank 8. Local bank will honor draft and send funds to exporter's bank 9. Exporter's bank will pay exporter 10. Local bank will collect payment in such a time that was agreed upon with bank and importer (can be treated as a loan over an agreed upon time) Drawback for Importer: fee for letter of credit and is considered a financial liability |
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Bill of lading
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Issued to the exporter by the common carrier transporting the merchandise.
Four purposes, it is a: 1. receipt - indicates that the carrier has received the merchandise described on the face of the document 2. contract - specifies that the carrier is obligated to provide a transportation service in return for a certain charge 3. document of title - can be used to obtain payment or a written promise of payment before the merchandise is released to the importer 4. collateral - against which funds may be advanced to the exported by its local bank before or during shipment and before final payment by the importer |
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Drafts/Bill of Exchange
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Instrument normally used in international commerce to effect payment. It is an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specific time.
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Time drafts
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- Allows for a delay in payment without accruing interest. Once accepted becomes a promise to pay by the accepting party.
- When drawn on and accepted by a bank, it is a banker's acceptance. - When drawn on and accepted by a business firm, it is a trade acceptance |
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Site drafts
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Payable on presentation to the drawee (at that moment)
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Maker of draft
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party initiating draft (exporter)
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Drawee
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international bank that receives draft
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Countertrade Pros/Cons
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Alternative means of constructing an international sale when conventional means of payment are difficult, costly, or nonexistent. Denotes a whole range of barterlike agreements when they cannot be traded for money (a government may restrict the convertibility of its currency to preserve its foreign exchange reserves to be used for debt commitments and purchase crucial imports).
Pros: - Can give a firm a way to finance an export deal when other means are not available - May be only option for developing nations - May be required by the government of a country to which a firm is exporting - Can be a strategic marketing weapon Cons: - Prefer hard currency - May involve exchange of unusable or poor-quality goods that can't be disposed of profitably - Due to cons most attractive to large, diverse multinational enterprises that can use their worldwide network of contract to dispose of goods acquired. |
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Bartering
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direct exchange of goods and services for other goods and services without cash
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Buy back provisions/Counterpurchase
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Reciprocal buying agreement. Occurs when a firm agrees to purchase a certain amount of materials back from a country to which a sale is made. Restricted to purchasing agreed upon products.
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Convention for International Sale of Goods (CISG)
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- 62 countries signed
- Default on anything not determined in contracts when dealing with international business deals - Need to state that you are opting out of if you don’t want certain things to be determined without you knowing |
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Shipment Contracts
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Title passes when the seller hand the goods to a common carrier in the seller's city... Buyer responsible for shipment
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Destination contracts
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Seller bearing risk of buying and must coordinate shipment and pay for shipment
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C.I.F.
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(Cost Insurance Free)
Price quote given includes insuring the goods during transport and the freight cost |
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F.O.B.
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(Freight on Board)
Title of goods does not pass until the goods reach a specific destination |
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Title passage
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When ownership of goods sold changes
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Incoterm
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International rulebook defaulted to for international transactions for when foreign companies don’t understand Uniform Commercial Code, helps foreign countries define terms
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Uniform commercial code
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Rulebook for shipping (ga)
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Global production and outsourcing logistics
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Performed internationally with the intent to:
1. Lower the costs of value creation 2. Add value by better serving customer needs, by: - Lowering Costs - Increase quality - TQM - Six Sigma - ISO 9000 |
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Response to local demands
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- Arise from national differences in consumer preferences, infrastructure, distribution channels, and host government demands.
- Create pressures to decentralize production activities to regional markets or implement flexible manufacturing processes that enable to the firm to customize the product for the market in which it is sold. |
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Decentralization of Production
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Appropriate when:
- Differences between countries do not have a substantial impact on the costs of manufacturing in various countries. - Trade barriers are high. - Location externalities are not important - Volatility in important exchange rates is expected - Production technology has low fixed costs and low minimum efficient scale, and flexible manufacturing technology is not available - Products value-to-weight ratio is low - Product does not serve universal needs (there are significant differences in preferences between nations) |
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How to handle tqm when responding to different needs in other areas
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1. Must be able to accommodate demands for local responsiveness.
2. Must be able to respond quickly to shifts in customer demand. |
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Economies of scale
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As plant output expands, unit costs decrease due to the greater utilization of capital equipment and the productivity gains that come with specialization within the plant.
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Minimum efficient scale
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The level of output at which most plant-level scale economies are exhausted, shown when the unit cost curve declines with output until a certain level is reached, at which point further increases in output realize little reduction in unit costs.
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Top to bottom approach to running a business
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a) Produce every aspect of product
b) Control all of production c) Leads to acquisitions |
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Hubris hypothesis
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- People get so involved that they don’t think they can be wrong
- Implies that managers seek to acquire firms for their own personal motives and that the pure economic gains to the acquiring firm are not the sole motivation or even the primary motivation in the acquisition. |
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Major contributors to success
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a) Close relationship between marketing and research and development
b) Channel length c) Push pull strategies d) Retail concentration |
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Push Strategy
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a) Emphasizes on personal selling rather than mass media or advertising
b) Sales person c) Work best for industrial products d) Can be used when distribution channels are short |
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Channel length
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a) Number of intermediaries between producer and consumer
b) Internet has severely shortened channel length |
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Pull Strategy
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a) Depends more on mass media advertising to communicate a marketing message to unknown customers
b) Ad on superbowl c) Works well for consumer goods d) When distribution channels are long |
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Retail concentration
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a) Few retails supply most of market
- Lenox/Phipps b) Works in United States because of… - The car - Mass transit |
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Global Human Resource Management
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a) Ethnocentric approach
b) Polycentric approach c) Geocentric approach d) Expatriate |
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Ethnocentric
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All key management positions are filled by parent company nationals
- US company uses US workers |
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Geocentric approach
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Seek best people throughout world
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Expatriates
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- Someone from one country working in another country
- Taking care of different salary needs - Factors included with sending workers to foreign countries |
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Acquisition
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Time advantage
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Exporting
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Easiest and cheapest
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Subsidiary
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insulates from liability, most expensive
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Pioneering cost
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First mover disadvantage, Product does not fit in culture
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Cross licensing
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License between two companies; One company will license their product, the other company will license a product back
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Wholly owned subsidiary
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tight control over operations; 100% of profits; more competency; subsidiary can work on the domestic distribution while main company can make larger decisions
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Offset
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One party agrees to purchase goods and service with a specified percentage of the proceeds from the original sale. Different from a counterpurchase in that the party can fulfill the obligation with any firm in the country to which the sale is being made. More attractive because the exporter has greater flexibility to choose the goods it wishes to purchase.
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Switch Trading
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The use of a specialized third-party trading house in a countertrade arrangement. When a firm enters a counterpurchase or offset agreement with a country, it often ends up with counterpurchase credits, which can be used to purchase goods from that country. A third-party trading house buys the firm's counterpurchase credits and sells them to another firm that can better use them.
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Buyback
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A firm builds a plant or supplies a service to another country and agrees to take a certain percentage of their output as as partial payment for the contract.
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Total Quality Management
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- Management should embrace philosophy that mistakes, defects, and poor-quality materials are not accepted and should be eliminated
- Improve quality of supervision by allowing supervisors more time to spend with employees - Create an environment where employees are not afraid to report issues or make recommendations - Standards should be defined by quotas and some notion of quality - Train employees in skills to keep pace with changes in the workplace - Achieving better quality involves everyone |
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Six Sigma
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Modern successor to TQM
- Statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs. - Based on 6 sigmas percent of accuracy, striving to reach as perfect as possible (99.99966% accurate) |
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Lower Costs
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- Moving production activities to most efficient locations
- Managing the global supply chain efficiently to better match supply and demand by reducing inventory and increasing inventory turnover |
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Increase Quality
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- Eliminating defective products from the supply chain and manufacturing process
- Will lower costs by reducing production and after-sale services |
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ISO 9000
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Quality certification of the European Union, somewhat bureaucratic and costly, focuses management attention on the need to improve the quality of products and processes
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Centralization of Production
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Appropriate when:
- Differences between countries have a substantial impact on costs of manufacturing in various countries - Trade barriers are low - Externalities arising from the concentration of like enterprises favor certain locations - Important exchange rates are expected to remain relatively stable - Production technology has high fixed costs and minimum efficient scale, or flexible manufacturing technology exists - Product's value-to-weight ratio is high - Product serves universal needs |
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Channel Exclusivity
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How difficult it is for outsiders to access
- Hard for new firm to get access to shelf space in supermarkets |
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Channel Quality
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The skills and ability a retailer has to sell a product
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Close relationship between marketing and research and development
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Market segmentation
a) Identifying different groups of customers b) Build product around different types of customers, rather than region R&D a) Very attractive to do it around the world b) Help getting right product into market at the right time c) Have marketing talk to R&D - Apple: Selling products people didn’t even know they wanted d) R&D makes changes before product goes to assembly line - Saves money - Allows for cheap changes |
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Polycentric approach
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Hire local employees and use a national to manage
- American manages locals Locals have limited opportunity to move up - Glass ceiling |
