REVIEW FOR MIDTERM EXAM 3

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REVIEW FOR MIDTERM EXAM 3
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Hill Chapter 12 Strategy of International
Business
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Strategy and the Firm

• Strategy Actions taken to achieve the goals of
  the firm to maximize value for the firms
  shareholders
• To maximize the value of the firm, business seek
  to increase profitability (return on investment)
  and rate of profit growth (percentage increase in
  net profits)
• Profitability is increased by reducing production
  costs (low-cost strategy) or increasing the
  perceived value of a product (differentiation
  strategy)
• Profit growth rates are increased when firms sell
  more in existing markets or enter new markets for
  their products

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Strategy and the Firm

• Strategy Actions taken to achieve the goals of
  the firm for increased profitability (return on
  investment) and profit growth (percentage
  increase in net profits)

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Value Creation

• Two basic value creation strategies (Porter)
• Low cost strategy create more value at lower
  cost
• Differentiation strategy add value with unique
  features

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Strategic Positioning

• To ensure firms are positioned to effectively
  implement their strategy, they must
• Pick a viable position on the efficiency frontier
• Configure internal operations (company
  infrastructure and logistics) to support that
  position
• Put in place the right organizational structure
  to execute the strategy

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The Efficiency Frontier

• Strategic positioning
• Pick viable position along the efficiency
  frontier
• Configure firm structure/operations to implement
  strategy

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Competitive Pressure

• International firms face two types of competitive
  pressure
• Pressures for cost reductions are most intense
  when
• products are commoditized or address universal
  needs
• there is persistent excess capacity
• consumer demand is elastic or consumers face low
  switching costs
• Pressures for local responsiveness result from
  differences in
• consumer tastes and preferences
• infrastructure, local practices, and government
  regulations
• distribution channels

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Basic Strategies and Evolution
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Hill Chapter 13 The Organization of
International Business
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Organizational Architecture
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Organizational Structure

• The three dimensions of organizational structure
• Vertical differentiation location of decision
  making
• Horizontal differentiation formal division into
  sub-units
• Integrating mechanisms coordination and control
• Vertical differentiation
• Centralized decision making facilitates
  coordination and control
• Decentralized decision making increases
  flexibility and motivation

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Organizational Structure

• Horizontal differentiation
• International divisions concentrate activities in
  one division
• Worldwide area division structures facilitate
  local responsiveness while decentralizing
  operational authority
• Worldwide product division structures facilitates
  global standardization (realizing location,
  scale, and experience curve economies) but limits
  local responsiveness
• Global matrix structures allow for
  standardization and responsiveness but low
  decision making, reduce accountability, and
  increase conflict

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International Structural Stages Model
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Integrating Systems

• Formal mechanisms
• Informal mechanisms - knowledge networks

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Other Aspects of Organizational Architecture

• Control systems and incentives
• Personal, bureaucratic, output, and cultural
  controls
• Incentives reward behavior
• Cost of control rises with performance ambiguity,
  which increases with the globalization of the firm

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Other Aspects of Organizational Architecture

• Organizational culture
• Sources of organizational culture include
  founders and leaders, national cultures (of home
  and host countries), and the firms history
• Cultures are maintained through hiring and
  promotion practices, reward and communication
  strategies, and socialization processes
• Strong cultures can be both a positive and a
  negative the highest performance is associated
  with firms with adaptive cultures

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Hill Chapter 14 Entry Strategy and Strategic
Alliances
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Entry Strategy

• Firms expanding internationally must decide
• which markets to enter
• when to enter them and on what scale
• which entry mode to use
• Entry modes include
• exporting
• licensing/franchising to a company in the host
  nation
• establishing a joint venture with a local company
• establishing a new wholly owned subsidiary
• acquiring an established enterprise

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Strategic Alliances

• Cooperative agreements between potential or
  actual competitors
• Advantages
• Facilitate entry into market
• Share fixed costs
• Bring together skills and assets that neither
  company has or can develop
• Establish industry technology standards
• Disadvantages
• Competitors get low cost route to technology and
  markets

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Darwins Nightmare

• Context
• In the 1960s the Nile Perch was introduced to
  Lake Victoria, displacing the native Cichlid
  species while creating an international
  commercial fishing industry along the shores of
  the lake
• Damage to the ecology of the lake raises concerns
  about whether the fishing industry is
  sustainable, and about what will happen to the
  local population when the fish is gone

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Darwins Nightmare

• The Nile Perch and international trade
• According to theory, international trade should
  benefit all parties, but here only some parties
  benefit
• The fishing industry benefits factory owners,
  those directly employed, transporters, and
  European customers, not local communities who
  lose access to a valuable resource, fresh fish

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Darwins Nightmare

• Ethics and corporate social responsibility
• Firms and other external stakeholders (i.e. EU)
  are concerned about exports rather than the
  social and environmental impact
• Potential for local conditions to contribute to
  regional conflict in Africa

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Good Luck!