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MAN4602 IB Final
Chapters 11-17 "Global Business Today"
| IB Final | |
|---|---|
| Chapter 11: The International Monetary System | |
| Floating Exchange Rate | A system under which the exchange rate for converting one currency to another is continuously adjusted depending on the laws of supply and demand. |
| Pegged Exchange Rate | Currency value is fixed relative to a reference currency (usually pegged to a more valuable or stable currency). |
| Role of the IMF | Avoid economic collapse that occurred between the two world wars through (1) Discipline (2) Flexibility (Organized the Brentwood Agreement, which got rid of the gold standard.) |
| Arbitrage (from Chapter 10) | The purchase of securities in one market for immediate resale in another to profit from a price discrepancy. Ex: I buy an iphone here and sell in Brasil where its expensive. |
| Chapter 12: The Strategy of International Business | |
| Firm Value | Measured by the differene between its cost of production and the value the consumers perceive in its products. |
| The more value a consumer places on a firms product... | ...The higher the price the firm can charge for those products |
| What 3 things must all be consistent of a firm is to attain competitive advantage and garner superior profitability? | Strategy, Operations, and Organization of the Firm |
| 2 categories of activities that create value are... | (1) Primary Activities-R&D, Production, Marketing/Sales, Customer service. (2) Support Activities- Information Systems, Logistics, HR, IT, Back office (anything that provides inputs that allow primary activities to occur) |
| Organizational Culture, and why it's important to a company | The values and norms shared among an organization's employees. It is important to recruit and hire people that are in line with the org. culture, which is in line with the strategy, to be able to maximize profitability. |
| Core Competencies | Firm skills competitors cannot easily match or imitate. Ex: Dell can customize on a massive scale, while delivering faster than anyone else. |
| Location Economies | Cost advantage from performing a value creation activity at the optimal location for that activity. |
| Global Web | When different stages of the value chain are dispersed to the locations around the world where value added is maximized and cost of creating that value is minimized. |
| Economies of Scale | Cost advantages associated with large-scale production. The spreading of fixed cost over more units, reducing cost/unit produced. This also gives a firm more bargaining power with its suppliers |
| The two main pressures that companies face when competing globally: | (1) Pressure for Cost Reductions (2) Pressure to be Locally Responsive |
| Local Responsiveness tends to...? | Tends to raise costs, since they have to respond to many different local markets that have different tastes, preferences and cultures, infrastructure, distribution channels, gov't. This conflicts with cost reduction, because it tends to raise costs. |
| Cost reduction is best achieve when... | ...products are standardized (this conflicts with local responsiveness, which leads companies to adapt to each country in a different way, instead of standardizing all products.) |
| Chart on Pg 353, balancing cost reduction and local responsiveness: | |
| Low pressure for cost reduction Low pressure for local responsiveness (Ex: P&G, Microsoft) | International Strategy: Creating value by transferring core competencies to foreign markets where indigenous competitors lack those competencies. Can charge higher prices while perception of product is of value. Ex: Xerox has no competition bc of patents. |
| High pressure for cost reduction Low pressure for local responsiveness | Global Standardization Strategy: Firm focus on increasing profitability and growth my reaping cost reduction that comes with economies of scale, learning effects, and location economies. (Industrial goods markets, Intel, Texas Instrument, Motorola) |
| Low pressure for cost reduction High pressure for local responsiveness | Localization Strategy: Increasing profit by customizing goods and serv. so that they provide a good match to tastes and preferences in different markets. (Car that has to customize, increasing perceived value.) |
| High pressure for cost reduction High pressure for local responsiveness (EX: Caterpillar) | Transnational Strategy: Focus on leveraging subsidiary skills, flow if info goes in all directions, not just home office to subsidiary. Attempt to simultaneously achieve low costs while differentiating products, while fostering multidirectional info flow. |
| Which two strategies may not be viable in the long-term, and why? | International, because competitors will eventually come in, and co. is not prepared to focus on cost reduction. (Shift to GSS/TS) Localization, because they have competitive edge only until aggressive competitors come in. (Shift to TS) |
| Strategic Alliance | Massive boom in popularity (fedex/kinkos), agreements between actual or potential competitiors. |
| Advantages of Strategic Alliances | 1. Facilitates entry into foreign market, WB in China 2. Share fixed costs, Boeing with many Jap co.'s 3. Bring together complementary skills and assets neither can produce well. microsoft/toshiba 4. Set tech standards that will help industry and firms |
| Disadvantages of Strategic Alliances | Can create an environment where it gives competitors a low-cost route to new tech and markets, essentially stealing. One co. gains more than the other. |
| Chapter 13: Entering Foreign Markets | |
| Basic Entry Decisions (3) | 1. Which foreign market to enter 2. Timing of entry 3. Scale and Strategic Commitment of entry |
| Which market to enter depends on what factors? | Size of market Present wealth likely future wealth (economic growth rates) |
| High consumer growth rate leads to... | ...more attractive to invest in. |
| Costs and risks of doing business are typically lower in... | ...economically advanced countries, politically stable ones, and democratic ones. (as opposed to higher risk in less developed/pol unstable countries). |
| Determining the value that in int'l business creates in a foreign market: | If they can offer a product not readily available in local market, and is suitable to the consumer, that country will be attractive to move into. |
| Timing of Entry | First Mover- pro: preempt rivals/capture demand, build sales volume. Con: high cost (pioneer cost) of first entrant. |
| Scale of Entry and Strategic Commitments | Large scale= high cost and rapid entry, long-term impact that's hard to reverse, huge cost may lead to limitations in entering other markets. Leads to impression that they will be there for the long-term, which is good. |
| Entry Modes | Table 13.1 pg.381 Exporting, Turnkey Contracts, Licensing, Franchising, Joint Venture, Wholly-owned subsidiaries |
| Exporting Advantages | 1. Avoids substantial cost of establishing manufacturing ops in host country. 2. May help firm achieve experience curve and location economies. Also economies of scale if manufactured in centralized location |
| Exporting Disadvantages | 1. Manufacturing may be more ideal in a foreign country, not in US 2. High transportation costs 3. Tariff barriers and non-tariff barriers from both countries 4. Problems with local marketing agents |
| Turnkey Projects Defined | A project in which a firm agrees to set up an operating plant for a foreign client and hand over the key when it's fully operational. |
| Turnkey projects Advantages | 1. Ability to earn returns from process tech skills in countries where FDI is restricted. 2. Good for entering politically unstable countries, because it's a bit less risky than FDI. |
| Turnkey Projects Disadvantages | 1. No long-term interest in foreign country; bad if the country turns out to be good for business in the future. 2. May inadvertently create a competitors. 3. If firm technology is a competitive advantage, so it may be bad to sell that to someone else. |
| Licensing Advantages | 1. Low development cost and risk, you receive royalties from licensee's gain. |
| Licensing Disadvantages | 1. Firm doesn't have tight control over manufacturing/strategy/mktg needed to experience curve and location economies. 2. Inability to engage in global strategic coordination. 3. Lack of control over technology. |
| Franchising Advantages | Low Development cost and risk |
| Franchising Disadvantages | 1. Lack of control over quality 2. Inability to engage in global strategic coordination. |
| Joint Venture Advantages | 1. Access to local partner's knowledge 2. Sharing development costs and risk 3. Politically acceptable |
| Joint Venture Disadvantages | 1. Lack of control over technology 2. Inability to engage in global strategic coordination; companies may disagree on direction. 3.Inability to realize location and experience economies. |
| Wholly Owned Subsidiary Advantages | 1. Protection of technology (you own the co. 100%) 2. Sharing development costs and risks 3. Ability to realize location and experience economies. |
| Wholly Owned Subsidiary Disadvantages | Highest cost and risk of all options. |
| Tech companies would most likely enter a foreign market using this strategy. | Wholly owned subsidiary, to protect technology advantage. |
| To hedge corruption and loss of intellectual property, you should use the ___________ method to enter into a foreign market. | wholly owned subsidiary. |
| The risk of a local agent not doing a good job/not being reliable or trustworthy in what strategy? | Exporting. Solution?- wholly ownes subsidiary |
| Paperwork and protectionist barriers are common downfalls of ________. | Exporting |
| Exporting cars to Brazil is very hard because.... | ....of tariffs and bureaucracy. |
| Entry mode for companies whose core competency (competitive advantage) is Technological Know-How: | Avoid: licensing and joint ventures Go with: wholly owned susidiary |
| Entry mode for companies whose core competency (competitive advantage) is Management Know-How: | Go with: franchising and subsidiaries to control the franchises. These subsidiaries can be wholly owned or joint ventures. Joint ventures work better (politically more acceptable). |
| The greater the pressures for cost reduction are... | ...the more likely a firm will want to pursue some combo of exporting and wholly owned subsidiaries. Wholly owned preferred to joint venture because it gives company tight control. |
| Firms pursuing global standardization or transnational strategies tend to prefer.... | ....wholly owned subsidiaries. |
| Greenfield venture vs acquisition | pg 382 |
| Chapter 14: Importing, Exporting, and Countertrade | |
| Export Management Companies | Export specialists who act as an export marketing department for client firms. Clients use these companies when they are new to exporting and need to learn. |
| EMC's: two way of working with them: | 1. Agree to make them the export marketing department indefinitely for the firm. 2. Agree for the firm to take over that responsibility once it gains more know-how. |
| Letter of Credit | Issued by a bank, indicating that the bank will make payments under specific circumstances. This is an advantage because reputable banks assure honesty and sets conditions in a legally binding contract. (bank-to-bank). |
| Bill of Landing | A document issued to an exporter by a common carrier transporting merchandise; it serves as a receipt, a contract, and a document of file. It's a promise to deliver. |
| Chapter 15: Global Production, Outsourcing, and Logistics | |
| ISO 9000 | An international standard; certification process that requires certain quality standards must be met. Focus on quality improvement. Statistically-based philosophy. Process improvement. Efficiency. |
| Production and logistics functions, aside from lowering cost and improving quality, must also hit two other objectives. | 1. Production and logistics functions must be able to accommodate demands of local responsiveness (decentralize). 2. Production and logistics must respond quickly to shifts in consumer demand. |
| In terms of production costs, what's the best way to be locally responsive? | Decentralization, producing close to the market to be able to respond quickly. |
| Where to Produce/source from? (factors) | Country factors-political economy, culture, location, trade barriers, rules, transp. costs, movements in exchange rate. Tech factors- Product factors- does it travel well (light), is it universal |
| When should you centralize production? | When differences in political economy, culture, factor costs=substantial Trade barriers=few Location externalities=important Exchange rate=stable Fixed tech costs=high min efficiency scale=high flexible manuf. tech=available value-to-weight=high |
| When should you DEcentralize production? | Differences in political economy, culture, factor costs=few Trade barriers=substantial Location externalities= not important Exchange rate=volatile Fixed tech cost= low min efficiency scale=low flexible manuf. tech=not available Value-to-weight=low |
| When a product serves a universal need, you should _____. When it does not serve a universal need, _______. | universal need=centralize not universal= decentralize |
| Example of a low value-to-weight ratio product: | Concrete. Concrete is very heavy, and the value is not that great. Since this means that transportation would be more costly, you should use a decentralized approach and have many cement factories near the different consumers. |
| Example of high value-to-weight ratio product: | Prescription pills: pills are very light-weight, but are of great value (expensive). This means that its cheap to transport it, since it's light, and should use to centralized approach, using one factory to produce and ship to local markets. |
| Make vs Buy: Advantages of Make | 1. Lowering cost 2. Facilitating specialized investment 3. Protecting proprietary product technology 4. Accumulating dynamic capabilities 5. Improving scheduling. |
| Advantages of Buy | 1. Strategic flexibility 2. Lower costs 3. Offsets |
| Making a product in-house instead of outsourcing it is _______ _______. | Vertical integration |
| Mass customization | The production of a variety of end products at a unit cost that could once be achieved only through mass production of a standardized output. |
| Lean Production is also known as ___ _____ ______. | Flexible manufacturing technology |
| Lean Production is designed to: (3) | 1. Improve job scheduling to increase machine utilization 2. Improve quality control 3. Reduce setup times for complex equipment |
| Chapter 16: Global Marketing and R&D | |
| Market Segmentation | Identifying groups of consumers whose purchasing behavior differs from others in important ways. |
| Markets can be segmented by: | geography, demography, psychological, sociocultural factors, and many more factors. |
| When managers consider market segmentation in foreign countries, they need to be aware of two main issues: | 1. The difference between countries in the structure of market segments. (marketing mix has to appeal to specific segment. 2. The existence of segments that transcend national border (helping to do a more centralized, global strategy. |
| When deciding on product attributes, a firm should look at: | 1. Cultural differences of each segment (ex- tradition is huge) 2. Economic development (cant sell luxury pens in Africa) 3. Product and Tech Standards (110 volt vs 220) |
| 4 main differences between distribution systems are: | 1. Retail concentration 2. Channel length 3. Channel exclusivity 4. Channel quality |
| Retail concentration | Concentrated retail system: A few retailers supply most of the market Fragmented retail system: many different suppliers, none with major market share. |
| There is a tendency for greater retail concentration in ________ countries. | developed |
| Channel Length | The number of intermediaries that a product has to go through before the final consumer. |
| Channel is short when... | ...producer sells directly to consumer. |
| Channel is long when... | ...producers sell through an import agent, a wholesaler, and a retailer. |
| What is the most important determinant of channel length? | The degree to which the retail system is fragmented. Fragmented: tend to promote wholesalers to serve retailers, which lengthens channels. |
| The more fragmented the retail system, the more _______ it is for firms to make contact with individual retailers. | expensive |
| Countries with fragmented retail systems tend to have _______ distribution channels, sometimes with multiple layers. | long |
| Which types of countries tend to have more concentrated retail system channels? | Developed countries like USA, GB and Germany. They deal directly with retailers, cutting out money spent on middle man. |
| A big factor that shortens channel length is some countries is... | ...the entry of large discount superstores, like Carrefour, Walmart, and Tesco. |
| Channel Exclusivity | A channel that outsiders find difficult to access. (Ex: It's hard for new firms to get shelf space at a supermarket.) |
| Country that is known for long distribution channels and channel exclusivity. | Japan |
| Channel Quality | The expertise, competencies and skills of established retailers in a nation, and their ability to sell AND support the product of international business. |
| The 4 factors to take into consideration when choosing a distribution strategy: | 1. Retail Concentration 2. Channel Length 3. Channel Exclusivity 4. Channel Quality |
| Benefits of short channels: | Lower final cost to consumer, no markups my wholesalers. Use in concentrated retail areas. |
| Benefits for long channels: | Use in fragmented markets, it can allow more market access/share, that can lead to getting exclusive channels (long-term deals with import agents, for example). |
| Benchmarking: What is the best way for a company working in a foreign market to benchmark its progress? | They should benchmark against other companies who are also doing business in a foreign country. They should NOT benchmark against local companies. |
| The effectiveness of a firm's international communication can be jeopardized by three potential critical variables: | 1. Cultural barriers- need cross-cultural literacy 2. Source Effects- COO closely tied 3. Noise Level- The amount of other msgs competing for a potential consumer's attention. reduces prob of effective communication. |
| Noise is high in ____ countries, and _____ in developing countries. | high- developed (USA) low- developing |
| Push strategy | A marketing strategy emphasizing personal selling rather than mass media advertising. Extensive use of sales force, costly. |
| Pull Strategy | Emphasizing mass media advertising as opposed to personal selling. |
| Push is attractive when: | 1. Industrial products of complex new products 2. Distribution channels are SHORT 3. Few print or electronic media are available |
| Pull is attractive when: | 1. For consumer goods 2. Distribution channels are LONG 3. Sufficient print and electronic media are available to carry the marketing message. |
| 3 factors in determining whether to use push, pull, or some mix of both: | 1. Product type and consumer sophistication 2. Channel Length 3. Media sophistication |
| Government's role in Antidumping | Sets a floor under export prices and limit firms ability to pursue strategic pricing. |
| Competition Policy | Most developed countries have regulation to encourage competition and restrict monopolies. Limiting prices a firm can charge in certain countries |
| Vertical Integration | The process in which several steps in the production and/or distribution of a product or service are controlled by a single company or entity, in order to increase that company’s or entity’s power in the marketplace. (Corona buys their bottle supplier) |
| Horizontal Integration | a strategy to increase your market share by taking over a similar company. This take over/merger/buyout can be done in the same geography or in other countries to increase your reach. (google buys youtube) |
| Chapter 17: Global Human Resources Management | |
| Main reason for expat failure? | Inability for spouse to adjust (main reason for failure in Europe). |
| The Ethnocentric Approach | All key management positions are filled by parent-country nationals. Pro-unified culture, overcomes lack of qualified managers in host country. Con- resentment in host country, cultural myopia. |
| Polycentric Approach | Host-country nationals to be recruited to manage subsidiaries, while parent-country nationals occupy key positions at corporate headquarters. (localization) Pro- no cultural myopia, inexpensive. Con- limits career mobility, isolated HQ from subsidiary. |
| Geocentric Approach | Seeks the best people for key jobs throughout the organization, regardless of nationality. Most attractive and popular today. Pro-uses HR efficiently, builds strong culture and informal mgmt networks. Con- expensive, immigration policy may limit it. |
| List of why USA expatriates fail (rated by importance): | 1. Spouse can't adjust 2. person can't adjust 3. other family problems 4.personal or emotional maturity 5. inability to cope with larger overseas responsibility. |
| List of why EUROPEAN expats fail: | 1. Inability to cope with larger overseas responsibility. 2. Difficulties with new environment. 3. Personal or emotional problems 4. Lack of technical competence. 5. Inability of spouse to adjust. |
| Repatriation of Expats | The readjustment of coming back from overseas post. Very difficult to deal with, and vague unless the HRM defines it clearly. |
| Study by Menden Hall and Oddou | Just because your marketing guy in your home market is doing amazing doesn't mean he will do well abroad. |
| Most common approach to expatriate pay is: | the balance sheet approach. |
| Balance Sheet Approach | Equalizes purchasing power across nations so employees can enjoy the same living standard in their foreign post. Plus a premium incentive for accepting the overseas assignment. |
| Article: "How to be a Truly Global Company" What are the three most important strategies for success? | 1. Customization 2. Uniting around a platform of competencies 3. Arbitrage |
| Article: "How Coca-Cola Manager 90 Emerging Markets" To what do they attribute their success? | Locally relevant brand building for consumers. Thing global, act local. |
| Article: "The Truth About Exports" What is the main theme of this article? | Exports are happening mainly by giant companies, small and mid size lack knowledge and channels. 1. Info Flow is better: internet age 2. Foreign anticorruption measures-better 3. Export promotion-worse. 4. Export finance-worse 5. tech controls-worse |
| Article: "6 Truths about Emerging-Market Consumers" | |
| Myth #1: Low-income consumers spend little on material goods. | Truth: Although these consumers are poor, proportionately they spend more of their income on consumer goods than those in wealthier segments. |
| Myth #2: Low-income and subsistence-level consumers’ needs are simple. | Truth: These consumers buy premium-priced branded products and are sophisticated shoppers. |
| Myth #3: Emerging consumers are overwhelmingly attracted to the lowest shelf prices. | Truth: Emerging consumers are sensible shoppers who take into account many factors other than price in calculating their shopping costs. |
| Myth #4: If they did not face budgetary constraints, emerging consumers would prefer modern supermarkets. | Truth: Emerging consumers are satisfied with traditional retailers, and don’t necessarily aspire to shop in modern supermarkets. |
| Myth #5: Emerging consumers are highly dependent on credit. | Truth: Emerging consumers use credit to extend their purchasing power. (But they like to pay cash and don't want debt) |
| Myth #6: Emerging consumers all belong to one segment, “the popular class.” | Truth: There are many meaningful subsegments of emerging consumers. Their differences, based on lifestyle and attitudes, have a significant impact on shopping behavior. |
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