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45 Cards in this Set
- Front
- Back
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International Strategy and the Strategy Diamond: Arenas
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Which geographic areas will we enter?
Which segments make sense? Which channels will we use in those areas? |
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International Strategy and the Strategy Diamond: Differentiators
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How does being international make our products more attractive to our customers
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International Strategy and the Strategy Diamond: Staging
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When will we go international?
How quickly will we expand into international markets? In what sequence will we implement our entry tactics? |
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International Strategy and the Strategy Diamond: Vehicles
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Which international market-entry strategies will we use?
Alliances? Acquisitions? Greenfield investments? |
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International Strategy and the Strategy Diamond: Economic Logic
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How does our international strategy lower our costs, raise the prices we can charge, or create synergies between our business?
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Cons of International Expansion
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Newness, Foreigness, Governance
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The Key Factors in Global Expansion are:..............?
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Global Economies of Scale, Location, Multipoint Competition, Learning & Knowledge Sharing
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The Key Factors in Global Expansion are: Global Economies of Scale
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Allows you to leverage fixed assets over new markets:
ex.) Pharmaceutical firms such as Pfizer, can leverage large R&D budgets CitiGroup, McDonald’s, and Coca-Cola can leverage brands MITY can leverage its excess capacity to produce chairs and thereby reduce average costs |
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The Key Factors in Global Expansion are: Location
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Choosing the right location can provide advantages in terms of
Input costs Competitors Demand conditions Regulatory environment Presence of complements A five-forces analysis can help reveal the attractiveness of a location |
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The Key Factors in Global Expansion are: Multipoint Competition
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Expanding into a new market may provide an opportunity for a “stronghold assault”
For example, French tire maker Michelin had negligible presence in the U.S. in the 1970s. It learned of Goodyear’s plans to expand into Europe, so it launched a counter attack. It started selling tires in the U.S. at or below cost, and thereby forced Goodyear to drop prices and cut profits in its core market |
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The Key Factors in Global Expansion are: Learning & Knowledge Sharing
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Expanding into a new market can create opportunities to innovate, improve existing products in existing markets, or develop ideas for new markets
SC Johnson, for example, used technology developed in its European operation (a product for repelling mosquitoes in homes) to create the “ Glade Plug-ins” air freshener in the U.S. |
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CAGE Distance Framework
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Cultural, Administrative, Geographic and Economic Distance
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Exporting Options
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Shipping, Licensing & Franchising, Special Agreements
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Shipping
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Most common option in relatively close markets and for products with lower shipping costs
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Licensing & Franchising
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A firm may form an alliance or franchise giving a local partner the right and responsibility to operate the firm’s business in their home market (e.g., Burger King’s expansion in Europe)
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Special Agreements
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A firm may enter Turnkey project agreements, R&D contracts, or joint-marketing initiatives (e.g., a German firm Bayer AG contracts large R&D projects to a U.S. firm)
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Importing
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Importing is often a “stealth” form of internationalization because a firm will claim to have no international operations and yet directly or indirectly base production or service delivery abroad
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Benefits of Strategic Alliances
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Companies which participate most actively in alliances outperform the least active firms by 5 to 7 percent
Share investments and rewards Reduce risk Reduce uncertainty Focus resources on what each partner does best Foster economics of scale and scope |
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Alliance are NOT...
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Strategies in Themselves, but...
is one vehicle for realizing a strategy |
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Alliances offer benefits that contracts can not: Joint Investment
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Increase returns by encouraging firms to make investments that they’d be otherwise unwilling to make (e.g., Wal-Mart supplier becomes willing to invest in new equipment)
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Alliances offer benefits that contracts can not: Complementary Resources
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Opportunity to create a stock of resources that is unavailable to competitors. This may create a shared advantage (e.g., Nestlé and Coke combined resources to offer canned tea and coffee products)
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Alliances offer benefits that contracts can not: Effective management
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Alliances may make it more cost effective to manage an activity than arm’s-length transactions or acquisitions
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Alliances offer benefits that contracts can not: Knowledge sharing
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Consistent information-sharing routines enhances learning (e.g., John Deere exchanges key employees with alliance partner Hitachi)
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ALLIANCES MAY BUILD COMPETITIVE ADVANTAGE if...
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Rivals cannot ascertain what generates the returns because of causal ambiguity surrounding the alliance
Rivals can figure out what generates the returns but cannot quickly replicate the resources owing to time decompression diseconomies Rivals cannot imitate practices or investments because they are missing complementary resources (they have not made the previous investments that make subsequent investments economically viable) and because the current costs associated with prior investments are now prohibitive Rivals cannot find a partner with the necessary complementary strategic resources Rivals cannot access potential partners’ resources because they are indivisible Rivals cannot replicate a distinctive and socially complex institutional environment that has the necessary formal and informal controls that make managing alliances possible |
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Vertical Business Strategy Alliance
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Partner with one or more suppliers or customers. Typically done to create more value for the end customer and to lower total production costs along the value chain
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Horizontal Business Strategy Alliance
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Partner with a rival or potential competitor to gain access to multiple segments of the industry and reduce risk, improve efficiency, or foster learning
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Risks Arising from Alliances
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Poor contract management
Failure to make complementary resources available Misrepresentation of resources and capabilities Being held hostage through specific investments Misappropriation of resources and capabilities Misunderstanding a partner’s strategic intent |
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FIVE LEVERS FOR INCREASING THE PROBABILITY OF ALLIANCE SUCCESS
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Understand the determinants of trust
Be able to manage knowledge and learning Understand alliance evolution Know how to measure alliance performance Create a dedicated alliance function |
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Benefits of Trust
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TRUST is one party’s confidence that the other party in the exchange relationship will fulfill its promises and commitments and will not exploit its vulnerabilities
Trust and alliances are a conundrum from a classical economics perspective – assumption of opportunism means firms must choose market or hierarchy, make or buy, not an alliance Trust lowers transaction costs Search costs Contracting costs Monitoring costs Enforcement costs Which.... Increases knowledge sharing Increases investments in dedicated assets |
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FOUR KEY FACTORS AFFECT TRUST
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Initial conditions
Negotiation process Reciprocal experiences Outside behavior |
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Merger
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The consolidation or combination of one firm with another
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Acquisition
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The purchase of one firm by another so that ownership transfers
The “merger” of Daimler with Chrysler in 1997 is considered by many to have been an acquisition in disguise |
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MOTIVES FOR MERGERS AND ACQUISITIONS
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Managerial self-interest
Sometimes termed “Managerialism”, manager can conceivably make acquisitions-and even willingly overpay for them-to maximize their own interests at the expense of shareholder wealth Hubris Managers may make mis-taken valuation and have unwarranted confidence in their valuation and in their ability to create value because of pride, over-confidence, or arrogance. Synergy Managers may believe that the value of the firms combined can be greater than the sum of the two independently Reduced threats Increased market power and access Realized cost savings Increased financial strength Sharing and leveraging capabilities |
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BENEFITS AND DRAWBACK OF ACQUISITIONS OVER INTERNAL DEVELOPMENT
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Pros:
Speed Critical Mass Access to complementary assets Reduced competition Cons: Move is expensive Inherit adjunct businesses Cannot spread commitment over several years (one-time, all-or-nothing decision) Potential for organizational conflict |
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The Winner's Curse
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When bidders lack perfect information regarding the true value of an item, they must act on whatever "noisy signal" they have regarding the true value. The highest bidder wins, but because the average bid is probably the best estimate of actual value, the winner will likely have overpaid.
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Escalation of commitment
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Even if bidders have perfect information regarding the value of an item to them, if they have invested a lot of time, effort, or money in trying to acquire the item, they may continue to bid past their initially set limit. To quit before "winning" makes it difficult to self-justify initial investments in pursuit of the item.
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Key Lessons for Implementing Mergers & Acquisitions
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It’s a continual process, not an event
Start the integration process long before the deal is closed Integration management is a full-time job Many successful acquirers appoint an “integration manager” because integration is too much work for acting managers to add to their workloads Key decisions should be made swiftly Speed is of the essence because of the cost and time value of money Integration should address technical and cultural issues Most managers focus on technical issues only. This is a mistake |
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Mergers & Acquisitions- Industry Life Cycle
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Introduction: M&As tend to be R&D and product-related
Growth:M&As tend to be for acquiring products that are proven and gaining acceptance Maturity: M&As primarily for dealing with over capacity in the industry |
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Corporate governance
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The system by which organizations, particularly business corporations, are directed and controlled by their owners
In a broader perspective, governance determines how all stakeholders influence the corporation |
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Principals & Agents
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Shareholders of a firm & Act on behalf of principals in managing the firm.
When interests are virtually identical, the agency problem is small: executives do what is in principals’ best interests However interests often do not overlap. Then agents may act to detriment of principals and visa-versa (e.g., executives raise salaries and reduce returns) |
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Phantom & Active Board
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Phantom boards have no involvement in the strategic management process of the firm.
The public (and major stakeholders) have higher expectations for board involvement today. |
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Annual bonus plans
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Oldest form of incentive pay. Board can evaluate executives’ performance along multiple dimensions and allocate a year-end cash award
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Stock options
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An employee receives the right to buy a set number of shares of company stock at a later date for a predetermined price
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Other long-term incentives
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More recent forms of incentive compensation. Long-term bonuses linked to performance over several years. May help executives avoid short-term myopia and focus on long-term
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Strategic Alliance
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Relationship in which two or more firms combine resources and capabilities in order to enhance the competitive advantage of all parties.
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