BA 361 Exam 3 Study Guide

BA 361 Exam 3 Study Guide

Chapter 11: International Strategic Management International Strategic Management: Planning process that aims at formulating and developing various international strategies which are comprehensive frameworks for achieving a firms goals effectively internationally. Fundamental Questions: What products and or services does the firm intend to sell? Where and how will it make those product/services? Where and how will it sell them? Where and how will it acquire the necessary resources? How does it expect to outperform its competitors? Factors Affecting International Strategic Management Language/Culture Political and Legal Systems Economy Currencies Accounting Systems3 Goals and Sources of Competitive Advantage 1. Global Efficiencies: Location Efficiencies= utilizing location that provides lowest production or distribution costs Economies of Scale= high volume low cost Economies of Scope= lowering production/marketing costs and enhancing bottom lines 2. Multination Flexibility: flexibility in the rapidly changing socio-political, economic, cultural environments 3. Worldwide Learning

Strategic Alternatives Home Replication Strategy: uses same core competencies and advantages in foreign markets as it did in home market Multi-domestic Strategy : Firm views itself as collection of independently operating market subsidiaries Each market can customize products, marketing strategies, and operation Effective when there are distinct differences among markets and coordination cost is high, production cost is low Global Strategy: firm views world as single marketplace Standardized goods/services Transnational Strategy: combines benefits of global scale efficiencies and responsiveness of multi-domestic strategies

4 Components of International Strategy 1. Distinctive Competence: answers the question What do we exceptionally well compared to our competitors? 2. Scope of Operations: answers the question Where are we going to conduct business? Geographical region Market or product niches within regions Specialized Market Niches Tied to distinctive competence scope will focus on regions or product lines it enjoys a distinctive competence in3. Resource Deployment: Answers question How will we allocate our resources to them? Which product lines? Which geographical line? Determines relative priorities for firms limited resources4. Synergy: Answers question How can different elements of our business benefit each other? Whole is greater than the sum of the parts

Strategy Formulation: establishes goals and strategic plan to reach those goals International: which markets to enter/how best to compete in each. Steps:Develop Mission Statement Perform SWOT analysis Set Strategic Goals Develop Tactical Goals and Plans Develop a Control Framework Mission Statement Clarifies purpose, values and strategic direction Specifies: target customers and markets, principal products, geographical domain, core technologies, concerns for survival, plans for growth and profitability, basic philosophy and desired public image SWOT Analysis: internal and External environmental scan Strengths, Weaknesses, Opportunities, Threats Strategic Goals : major objectives firm wants accomplish through particular course of action Must be: achievable, challenging, measurable, time-limited Tactical Goals/Plans : Focus on details of implementation Middle mgmt issues Examples: Hiring, compensation, distribution/ logistics Control Framework: set of managerial/organizational processes that keep firm moving toward its strategic goals

Levels of International Strategy

Corporate Level Strategy Single- Business Strategy: focus on a sole business, product/service Related Diversification: operates in several different but related businesses, industries, markets (most common) Unrelated Diversification: operates several unrelated industries and markets *Advantages Related/Unrelated Diversification Less dependence on single market less vulnerable to competitive or economic threats Greater economies of scale More efficient entry into additional markets Business Level Strategy Differentiation Strategy Overall Cost Leadership Strategy: efficient operations lower costs than competitorsFocus Strategy: target specific typed of products for certain customer groups/regions Functional Level Strategy HR R&D Financial Marketing Operations

Chapter 13: Strategic Alliances

Strategic Alliance: business arrangement wherby two or more firms choose to cooperate for their mutual benefit Alliances help share costs Provide lacking skills or advantages Benefits of Strategic Alliances Ease of Market Entry Shared Risk Shared Knowledge and Expertise Synergy and Competitive advantage

Joint Venture: two or more firms join together to create a new business entity that legally separate and distinct from its parents

Scope of Strategic Alliances Comprehensive Alliances: partners participate in all facets of conducting business ( product designmanufacturing and marketing) B/c of complexity most organized as Joint Ventures Narrowly Defined Alliances: Functional Based Alliances only involve one functional area of business

Types of Functional Based Alliances Production Alliances: two or more firms each manufacture products/provide services in a shared facility. May utilize facility partner already owns

Marketing Alliance: two or more firms share marketing services/expertise. Usually when one partner is entering a new market the other one offers its assistance to introduce and market product.

Financial Alliance: alliance of firms who want to reduce financial risk of a project. Equally shared or otherwise mutual contribution

R&D Alliance: joint research to develop new product/ R&D Consortium: multiple organizations that band together to research and develop new products

Implementation Issues of Strategic Alliances Partner Selection: 4 factors to consider 1. Compatibility 2. Nature of partners products or services 3. Risk of partnership 4. Learning Potential Form of Ownership: Usually takes form of corporation Beneficial tax structure Better Ownership arrangements and protection of assests

Approaches to Joint Management Shared Management Agreements: each partner actively participates in management most difficult to maintain High level of coordination Near perfect alliance agreements Assigned Arrangement: one partner assumes primary responsibility for operations of alliance Delegated Arrangement: (joint ventures) specific management delegated for control of the alliance so partners are not directly involved

Pitfalls of Strategic Alliance

Chapter 12: Strategies for Analyzing and Entering Foreign Markets

Factors in Assesing New Market Opportunities Product-market dimensions/ Major differences Current/potential market sizes Competition Legal and political environment Structural characteristics of market Modes of Entry

Exporting Advantages and Disadvantages Advantages Low Financial Exposure Gradual Market Entry Acquire knowledge about local market Avoid restriction on foreign investment Disadvantages Vulnerability to tariffs and NTBs Logistics complexities Potential conflicts with distributors Motivations for Exporting Proactive: pull a firm into foreign markets as result of opportunities there Reactive: push firm into foreign markets

Forms of Exporting Indirect Exporting: firm sells product to domestic custom that exports the product (original or modified form Also can sell to foreign firms local subsidiary who then exports product

Direct Exporting: sales to customers (distributers or end-users) located outside home country Gains expertise about operating internationally and about the individual countries Intra-corporate Transfers : sale of goods by a firm in one country to an affiliated firm in another (40% of all US merchandise exports)

Additional Considerations for Exporting Governmental Policies Tariffs or other NTBsMarketing Concerns Differing image, distribution, and responsiveness Logistical Considerations Physical distribution costs of warehousing, packaging, transporting, and distributing goods Distribution Issues

Exporting Intermediaries: 3rd party organizations that specialize in facilitating I/X Handle transportation/documentation Take ownership/responsibility for marketing and financing exports *Japans Soga Soshas*: Japans leading trading companies Far-flung operations Easily accessed financing Built in customer base from keiretsu customers least cost soliciting clients focus on volume= Economies of scale Other Intermediaries Manufacturers Agents: solicit domestic orders for foreign manufacturers Manufacturers Export Agents: foreign sales dept. for domestic manufacturersExport/Import Brokers: bring together international buyers and sellers of std. commodities Freight Forwarders: specialize in physical transportation of goods Arrange customs documentation Obtain transportation services

International Licensing Licensing: firm (licensor) leases the right to use intellectual property technology, work methods, patents and copyrights, brand names or trademarks to another firm (licensee) for a fee Little out-of pocket cost Not advised for countries w/ weak IPR protection Basic Issues in Intl Licensing Setting the boundaries of the agreement Establishing compensation rates Agreeing on rights, privileges, and constraints in agreement Specifying duration of the agreement

Intl Licensing Advantages/Disadvantages Advantages Low financial risks Low-cost way to assess market potential Avoid tariffs, NTBs, restriction on foreign investement Licensee provides knowledge on local markets Disadvantages Limited market opportunities/profit Dependence on license Potential conflicts with licensee Possibility of creating future competitor

Franchising: allows independent organization/entrepreneur(franchisee) to operate a business under the name of another (franchisor) for a fee of course.Franchisor provides franchisee with Trademarks, operating systems, product reputations Support services for advertising, training, quality assurance Basic Issues in Intl Franchising Does advantage exist in domestic market Are success factors transferable to foreign locations Has franchising been successful strategy in domestic markets Intl Franchising Advantages and DisadvantagesAdvantages Low financial risks Low cost way to asses market potential Avoids tariffs, NTBs restrictions on foreign investment More control than licensing Franchise provides knowledge of local markets Disadvantages Limited market opportunities/profits Dependence on franchisee Potential conflicts w/ franchisee Possibility of creating future competitor

Specialized Entry Modes Contract Manufacturing: outsourcing of most or all manufacturing needs. Strategy reduces the financial and HR firms need to devote to physical production Advantages Low financial risk Minimize resources to manufacturing Focus resources on other elements of value chain Disadvantages Reduced control (may affect quality, delivery) Reduced learning potential Potential public relations problems

Management Contracts: one firm provides managerial assistance, technical expertise, or specialized services to another firm. Allow firms to earn additional revenue w/ out any investment risk or obligationAdvantages Focus on firms resources in are of expertise Minimal financial exposure Disadvantages Potential returns limited by contract expertise May transfer knowledge/techniques to contractee

Turnkey Projects: firm hires another to fully design, construct, and equip facility and purchaser takes over when ready for operation Advantages Focus firms resources on its area of expertise Avoid long term operational risks Disadvantages Financial risks cost overruns Construction risks delays, problems with suppliers

Foreign Direct Investment: full ownership and control of assets in host countries, allows firm increased control and increased profit potential. Greenfield Strategy : building totally new facilities ground up Acquisition Strategy: buying existing assets Joint Ventures Advantages High profit potential Maintain control over operations Acquire knowledge of local market Avoid tariffs NTBsDisadvantages High financial/managerial investment High exposure to political risk Vulnerability to restrictions on FDI Greater managerial complexity

Chapter 16: International Marketing

Marketing: planning and executing conception, pricing, promotion, and distribution of ideas, goods/services to create exchanges that satisfy individual and organizational objectives. Marketing is its own integrated functional area affected by every other organizational activity Must support business strategy (Differentiation, Cost leadership, Focus) Intl marketers confront two tasks 1. Capture Synergies among various markets 2. Coordinate marketing activities among those markets The Marketing Mix

Issues How to develop products How to price products How to distribute products

Key Decision Making Factors Standardization Vs. Customization Ethnocentric Approach: markets goods in international markets using same mix it uses domesticallyPolycentric Approach: customize mix in each market to meet individual needs of customers Multi-domestic approach higher cost Customer must be willing to pay higher price Geocentric Approach: standardization of the market mix uses standard marketing approach for every product in different markets

Standardized Intl MarketingAdvantages Reduced costs Centralized control Efficiency in R&D Economies of scale in production Disadvantages Ignores differentiating conditions Product use, buyer behavior, legal-politcal Inhibits local marketing initiatives Customized Intl Marketing Advantages Reflects different conditions Disadvantages Increased costs/inefficiencies Inhibits central control Reduced economies of scale

Marketing Mix: Product Product: set of tangible factors (physical product/packaging) and intangible factors (installation warranties etc.) Factors Affecting Standardization of Product Legal Forces Labeling requirements, health standards Target Customers Industrial or Individual consumersEconomic Factors Brand Names

Marketing Mix: Price Pricing Policies Standard Price Policy: charges same price for all products/service regardless of market Usually used for goods easily tradable or transportable Two-Tiered Pricing Policy: sets one price for domestic products and one price for all international products Market Pricing: customizes prices on a market-by-market basis Most common and complex Conditions Firm must: face different demand/conditions in markets and be able to prevent arbitrage Risks Damage to brand name Development of Gray market Consumer resentment against discriminatory prices

Factors Affecting Pricing Policy Business Strategy Competative Environment Costs of Doing Business Exchange Rate Fluctuations

Marketing Mix: Promotion Promotion: all effort to enhance desirability of products (most culture bound of 4ps) 1. Advertising 2. Personal Selling 3. Sales Promotion4. PR Advertising Strategy Message: Facts or impressions wanted to convey to customers Medium: communication channel used to convey message Extent of Globalization of Advertising Personal Selling: making sales on the basis of person contacts Advantages Local sales reps understand local environment Promotes close, personal contact w/ customers Easier for firm to adopt valuable market information Sales Promotion: specialized marketing efforts that offer incentive for behavior (store promotions, sampling, direct mail campaigns etc.) Flexibility makes it ideal to fit market Public Relations: efforts aimed at enhancing reputation and image of firm with the general public

Marketing Mix: Place Distribution: process of getting products/services from firm customer Issues 1. Physical transportation mode 2. Merchandising modeThe Distribution Channel Options

Chapter 17: International Operations Management

Intl Operations Management: set of activities an organization uses to transform different kinds of inputs (materials, labor etc.) into final goods/services

Complexities of Intl Operations Management Resources: where and how to obtain resources for production Supply Chain Mgmt and Vertical Integration Location: where to build admin facilities, sales offices, plants and how to design them Logistics: modes of transportation and methods of inventory control Forms of Operations Management Production Management: tangible goods Service Operations Management: intangible services

Acquisition of Resources Supply Chain Management : processes and steps used to acquire various resources for production (sourcing and procurement) Affects : product cost, quality and internal demands for capital Vertical Integration: extent to which firm either provides its own resources or obtains them from other sources Degree of integration determines whether firms make or buy resources for production

Make or Buy Options

Influence Factors for Make or Buy Decision SizeTechnological Expertise Scope of Operations Nature of Product * All else equal decision based on whether resource can be obtained more cheaply than producing it internally Trade-offs in Make or Buy Decision Flexibility Investment Risk Control Cost Buy: Reduced Financial and operating risk Lower level of investment Less cost free up capital for other investment Flexibility to change suppliers Make: Increased control over quality, deliver, design changes, and costs

Location Decisions Influencing Factors of Location Decisions Country related issues Resource availability Cost (factors of production)Infrastructure Construction Necessities and services for employees Country of origin effects Product-Related Issues Value-to-weight Ratio: affects importance of transportation costs Low VTW ratio= multiple locations to minimize transportation costs High VTW ratio= single or few locations Required Production Technology Government Policies Stability of political processes National Trade Policies Economic development incentives Existence of foreign trade zones (FTZ): designated and controlled area where I/X receive preferential tariff treatment Organizational Issues Business Strategy Cost leadership low-cost locations Product quality focused areas with skilled labor and managerial talent Organizational Structure Inventory Management Policies Distance and location impacts inventory levels especially when JIT mgmt is adopted

International Logistics Logistics: management of the flow of materials, parts, supplies and other resources from suppliers to the firm, within the firm and the flow of finished products and services from firm to the customer Factors Distinguishing International/Domestic LogisticsTransport Distance Number of Transport Modes Complexity of regulatory environment

Service Operations Managing Service Operations Capacity Planning : deciding how many customers the firm will be able to serve at one time Affects the quality of service able to be given Location Planning Most must be close to the customers they serveFacilities design and layout Proper look and layout Intl may cater to foreign identity and culture

Chapter 19: Human Resource Management

Human Resource Management : activities directed at attracting, developing and maintaining the workforce necessary to achieve a firms objectives Recruiting and selecting Providing training and development Appraising Performance Providing Compensation and benefeits Intl HR Differences Differences in culture Economic development Legal Systems

International Staffing Needs Managerial/ Executive Employees Strategic and developmental issues Non-Managerial Cultural/political conditions Legal conditions

Expertise Needs in Global Organizations Product Line Latest manufacturing techniques R&D opportuinites Competitors strategies Functional Skills: accounting, logistics, marketing, manufacturing management Strive to capture global economies of scale in manufacturing Strive to capture synergies in marketing and production and financial Individual Country Markets: Country Managers must understand factors like: Local laws Culture Competitors Distribution systems Advertising Global Strategy : High level executives need to formulate global strategy and control/coordinate activities of product, functional, and country managers

Staffing Philosophy Parent Country Nationals Host Country Third Country Nationals Strategies for Staffing Ethnocentric staffing model Polycentric staffing model Geocentric model Phases in Acculturation HoneymoonDisillusionmentAdaptationBiculturalism

Chapter 18: International Financial Management

Financial Issues in Intl Trade Which currency to use for the transaction When and how to check credit Which form of payment to use How to arrange financing

Methods of Payment Payment in Advance : exporter receives the importers money prior to shipping the goods Safest method from exporters perspective Unfavorable for importer Open Account: goods are shipped to importer prior to payment Documentary Collection: commercial banks serve as agents to facilitate payment processLetter of Credit: document issued by a bank contains its promise to pay the exporter on receiving proof that the exporter has fulfilled all requirements specified in document Credit CardsCountertrade: firm accepts something other than money as payment for goods/services Barter Counter purchase Buy-back Offset purchase

Sight Drafts 1. Requires payment upon transfer of title to the goods from exporter to importer 2. When the bank in the importers country receives the bill of lading and the sight draft from the exporters bank, it notifies the importer, which then pays the draft3. On payment, the bank gives the bill of lading to the importer, which then can take title to the goods

Bankers Acceptance: bank gets to hold the draft for short term loans and is able to utilize for other financing operations Trade Acceptance: exporter keeps A/R and can sell it or use other financing Advantages and Disadvantages of Documentary Collection Advantages Reasonable fees Enforcable debt instrument Simple collections process Prompt payment Disadvantages Refusal of shipments Decline draft acceptance Potential for default

Letter of Credit Most reliable for payment

*Letters of Credit must be confirmed(guarantee by exporters bank as well) must be irrevocable

Forms of Countertrade: payment in anything besides cash Payment technique and sales strategy Barter: trade one product for another Counterpurchase: firm sells its products to another at one point in time and is compensated with another product at some future point in time. Buy-Back: one firm sells capital goods to a second and is compensated in the form of output generates as a result of their use. Offset purchase: part of an exported good is produced in the importing country

Foreign Exchange Exposure Transaction Exposure: when financial benefits and costs of transaction can be affected by exchange rate movements that occur after the firm is legally obligated to complete the transaction IIf you sell something and you are going to be paid in another currency if that currency devaluates by the time you get paid = transaction risk exposure

Options To Responding to Transaction Exposure Go naked Buy a forward currency contract of currency future contract Currency options Acquire offsetting asset

Translation Exposure : impact on firms financial or accounting statements of fluctuations in exchange rates that change the value of foreign currency Economic Exposure: impact on the value of a firms operations due to unanticipated exchange rate fluctuations

Working Capital WC= Current Assets- Current Liabilities, the liquid assets (cash, inventory, receivables) that a firm runs the business with Managing Working Capital Minimize working capital balances Centralized cash management Minimize Currency Conversion Costs Netting and Pooling Minimize ForEX risk