MANA 4321 PART 2
MANA 4321 PART 2 MANA 4321
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This 15 page Bundle was uploaded by Antonio Castillo on Sunday January 31, 2016. The Bundle belongs to MANA 4321 at University of Texas at Arlington taught by Dr. Deepak in Fall 2015. Since its upload, it has received 34 views.
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Date Created: 01/31/16
(10/15/15) Industries affected by distance (strategy different for different kinds of products) o Cultural- products that have high linguistic content, food (need adjustments) o Administrative- utilities are impacted by government rule. Farming, telecommunications, oil and mining, infrastructure o Geographic- products like cement with low value and high weight ratio makes it difficult to export, perishable or delicate items (glass). Connectivity with customers o Economic- demand varies in income level. Some products may seem more high end in some countries. International Strategy Evolution o International Export Strategy, domestic market getting saturated so diversify into a foreign market. Need to do business somewhat differently. Develop a portfolio of markets to compare markets. Must tailor to market. o Multinational/Localization, Tariffs became a challenge o Global Standardization, chose only industries where products were homogenous and didn’t have to be tailored (cars, motorcycles etc.) o Transnational, balances both international export and global standardization Multinational Strategy-What Characterizes it? o Country by country strategy o Exploit differences (such as the distance measures) In order to create a customized product (i.e food industry) Creating a market portfolio to determine potential (must be balanced)—high growth means more potential Localization Strategy- home is USA and want to expand to Germany. USA designated a German manager in Germany to gather local knowledge. Japan also another possibility. Japanese country manager sets up value chain and creates market opportunity. Could divest a poor performing sector of portfolio in order to generate more revenue Tariffs complicate the process o Units are independent o Low coordination; high dispersion High dispersion of value chain activities Low coordination of value chain activities Transferring products from one country to another makes no sense if markets are different Localization—What creates competitive advantage? o Local responsiveness o Differentiation strategy because perceived benefits are being driven up Tailored to her needs so should charge premium o Goodwill when benefits stay at home—local government and customers o Strategy makes sense if there are lower costs—avoiding shipping costs and tariffs. o Lower coordination costs mean that everything in the country stays in the country o Quick response to changing local market situations People become familiar, needs become more homogenous (change) lend themselves to more standardization Costs started to come down o Such as coordination costs Reduces the value of a pure multinational strategy International Business Global standardization strategy vs international export o international export talks about the problem of what markets can their product work in? but international sales are not important or critical. o Global standardization are different in that they are products that SHOULD be able to be sold in international markets. Focus on products that can be standardized. Cost, market, competitive and government factors play into global standardization o increased economies of scale, industries with high scales results in a downward sloping cost curve. **it is a cost driver** o another cost driver is a reduced transportation cost. can produce things centrally, lead to huge economies of scale and multinational strategy does not need a lot of communication. value chain dispersed but not coordinated Global standardization is highly coordinated, need a lot of order/communication. o Info technology has reached a new level of communication and has become marginal **cost driver** o Easier to access other markets due to reduced non tariff**gov driver** o Trading blocks / regional integration **gov driver** o Reduced adaptation cost **gov driver** o Markets have become more homogenous **Market driver** o Adoption of global strategy by competitors **Competitive driver** o trying to drive up benefit in a global standardization strategy In multinational strategy you are trying to exploit differences but in in a global standardization you have to exploit cost advantage such as the Japanese (Sony and Panasonic) in a pure global standardization strategy (two extremes: multinational and global standard. never at either extreme) o central control…country managers have less of a role. decided by HQ ( it is good for japan that is a high power distance culture) o central surveillance of resource allocation (all resources resourced by HQ o Products are standardized, not customized o Products produced at home and sold abroad o Crosssubsidization, Profits generated in japan but money used to take back market share in Germany. increased in market share leads to decrease in cost structure. Competitive advantage comes from the potential of lowering cost structure o no duplication of activities since it is centralized o lower inventories because there are few products that are centralized o Improved Quality o Enhanced customer preference because global products start getting recognized which increase customer preference which then increase willingness to buy, leads to perceived benefit. o A lot of competitive leverage over competitors o Greater bargaining power, suppliers keep more of the profits o Because things were centralized so was R&D Forces against global strategy o consumers demanding something different o Government demands o Voluntary export restraint (builds protectionist barriers) i.e when the Japanese companies expanded globally they were thought not to play fair. Everything benefiting japan and not the host country. Risks (economic, political, resource) o products will be costing a lot so they lose some competitive advantage (economic) o political risks in countries with high political risks o risk in the resource side lead to a huge demand in Japanese labor went up and so did the cost. took away some of the benefits. (10/27/15) Percy Barnevik, you want to be able to specialize to drive economies of scale o Must globally optimize the business o Must have deep local roots everywhere o Helps create competitive advantage Transnational Strategy o Global efficiency o Multinational flexibility- product customization o Worldwide learning- take knowledge from one part of the organizations to another for improvement Transnational Strategy knowledge is localized to each specific area. It is like a network. o Worldwide learning is leveraged o Balance between global and local Transnational Strategy, trying to exploit differences. But also trying to exploit cost benefits of economies of scale. Greater demand for global efficiency and lower costs Flexible to government demands Units coordinate activities with HQ and with one another Degrees of freedom are much higher (10/29/15) Issues to consider in Transnational Strategy o Adapting to local differences o Lower the cost structure as much as possible by centralizing everything but not in transnational strategy issues but there is some level of adaption o Locational strategy, multinational is each and every country you are doing business in. Standardization is centralized in one location. In transnational, you take value chain and take activities and put them where they best work. (what kind of skills/resources needed?) Optimizing value chain (let irish produce it because they are the best) How are you going to do it? Make, buy or ally? o Maximizing knowledge transfers—most differential quality in transnational. Can tap into knowledge of country and apply it else where efficiently Adapting to local market differences—to what extent to we customize our products? o Where do customers truly value adaptations? o How much is a customer willing to pay for customization? Exploiting economies of global scale o Focus on activities that are scale sensitive drive it up and lower cost structure (must be in line) if you produce them in large enough quantities, costs go down significantly economies of scale vs increase in costs— Transportation of assembled cars is more expensive that transportation of components Effective and efficient coordination mechanisms Tapping optimal locations o Can it be neutralized by competitors? o Organizations flexibility to shift locations if costs increase o How easy or difficult is it to coordinate in various locations Maximizing Knowledge Transfers o Enthusiasm of subsidiaries about knowledge sharing with peer o Effective mechanisms for knowledge Basic summary of strategies: Multinational- primary focus is domestic market. Catered to the differences in the country. Too expensive strategy. Global Standardization- building cost advantage through centralized. But can bring up costs too if everything is produced in one area that has changed. Transnational- optimizes between first two options. What’s optimal today might not be optimal tomorrow. Continuous re-evaluation. (11/10/15) Entry Strategy- Licensing (quick way to make revenues) o Advantages Extends product life cycle Requirements for resources are limited (not building factory or anything) Allows penetration of small markets with high trade barriers Helps build goodwill for MNCs products Limited exposure to political risks Reduces loss due to “piracy” Quick Entry o Disadvantages Lost control over technology (can create a competitor because tech can get stolen) Hard to maintain quality standards (reputation can get damaged) Opportunity cost (have to do with the use of money, instead of entering into a licensing arrangement company could have entered market in another way) Post-agreement costs Protecting intellectual property Backup services Choice of reliable and competent partner leads to success in licensing Goals have to be the same Close personal contact with licensee Appropriate level of control by licensor (so that you don’t lose control of tech but too much can be bad because the licensee relationship can be strained) Detailed spelling out of contract obligations (who has what kind of obligations and responsibilities) Thorough understanding of the market for licensor Flexibility with both partners with effective coordination ****Beamish (1994)**** Franchising takes place in the service sector o Franchising gives more control o Requires on going assistance and involvement is much higher o Offer startup capital and management training (11/ 12/15) Licensing process (****) Contract manufacturing/ outsourcing advantages/ disadvantages We see a lot of insourcing, general electric bring back the jobs to the US o Because cost of jobs abroad have gone up With outsourcing you bring a lot of issues with control and enforcement Might create new competition Hidden costs of outsourcing o Decide what you want to outsource o Where they should be carried out o Transfer of knowledge costs o Costs of management of the outsourced product o Costs of “cultural distance” means issues of communication due to language barriers o Costs related to opportunism from conflict of interests (interests between managements are un- aligned) Turnkey projects- are process industries (i.e steel making companies) o Self-engineered Exporter specifies requirements for equipment and plant designs o Construction to specifications More constraint—clearly specifies exactly what is to be done. Advantage of turnkey projects o if you gathered sufficient knowledge then you can do it over and over again o Use reputation and knowledge which leads to higher returns o Is also less risky sometimes because you get some money going along the process. Less risky Disadvantages is because it is a one shot deal. you are not in the country for an extended period of time. o Should have goodwill for ways to get people to produce your product Another disadvantage is that you can create a competitor since you have to ship technology o Processed technology should not be dissipated to los control of tech Fully-owned subsidiaries, Greenfield Investments—you have equity in the venture o To get 100% ownership of a venture in Poland you should Start a venture or buy a polish company o In a greenfield investment you can gain total control (advantage) o Lack of partner commitment not really a concern because you decide what’s best o Greater learning about foreign markets because you are more familiar with the products etc. (makes sense with countries that have greater market potential—where you plan on being in the long run) o No loss of technology o Better local image of the product o DOWNSIDES include host gov. objections—why manufacture in another country and not at home o Large investments are required o Labor union objections o Vulnerability to political risk o BIGGEST DOWNSIDE is the amount of time it takes to break positive returns (avg. 7 years) Fully-owned subsidiaries, Acquisitions o Advantages…total equity and total operational control (similar to greenfield but different in time frame, acquisition means quick entry) o Does not add further capacity in the market o PROBLEMS—most acquisitions do not create value (true for cross border acquisitions) o Post- acquisition problems because of problems getting along due to different cultures o Vulnerability to political risks o Used to be considered anti-social—meaning that some countries don’t like taking in foreign firms (11/17/15) Inversions when country buys firms from another country and Mergers and Acquisition goals is to create value for shareholders. Maximize shareholder value o There are two ways to do that Value Capture- shifting value from previous shareholders and other stakeholders to the acquiring firm shareholders… Value Creation- Long term phenomenon that results from managerial actions and interaction between firms. There must be chemistry between the firms Need to understand what to buy. Acquisition process o Be able to identify why you are buying a company o Define the criteria—what is the company supposed to accomplish o Identifying companies that fit in to your criteria (defining candidates)—select the potential targets o Strategic evaluation—see the synergy and organizational fit o Due Diligence and valuation—financial, cultural and legal aspects. Want to set a walk away price. Very difficult to evaluate companies o Negotiation and Finalization—set deal terms, Financing Alternatives, Secure key talents (workers) o Integration—think about it early on. Determine level of autonomy because it might jeopardize efficiency. Process is complex because of the huge amounts of money involved. Related-ness and strategic fit allows to achieve synergy between firms Organizational fit is the issues related to chemistry and culture. How well do the two organizations fit together (11/19/15) Creation of synergy can be taken by creating value for shareholders. But why should we? o By take our capabilities to benefit acquired firm and vice versa (i.e leveraging capabilities) o Improving bargaining power o By integrating activities—sharing value adding activities Strategic alliance (joint venture)—a collaborative agreement between one or two firms but it can include more. Allocate resources towards a common endeavor What kind of arrangements are appropriate?—has to be beneficial What can we learn from the experience of ourselves and others? —learn more about the market How to successfully manage alliances?—cultural differences is what causes the “divorces” Level of collaboration increases going from top to bottom (range of strategic alliances) Informal alliances are when two companies feel that they gain from each other but hold no contractual agreements and maybe down the road there’s an opportunity for an official alliance Types of strategic alliances- Joint ventures—new entity jointly owned by two or more firms Traditional joint venture starts off by accessing the business system ad figure out how to work with suppliers, distribution etc. o Doesn’t have to be that way. Can be be through joint development. Exchange of access Minority Investments o Firms buy stock in another o Often access to resources for capital (informal alliance) o Stronger mutual commitment Two Way investment o Reciprocal equity Strategic alliances happen if you are not ready to take the risk by going into a market but with a partner you can split the risk (11/24/15) Why Strategic alliances? For traditional reasons o Sharing resources o Host government requirements o Overcoming strong nationalistic sentiments o Quicker entry (but in green fill investments, it takes a longer time) o Benefit from partners local knowledge (in the international context it is important) Emerging reasons o Knowledge transfer (having two firms of some aspect of knowledge that the other needs) o Attain global scale economies Raw material/ component supply (lowers cost structure) Marketing and distribution o Rising R&D costs and technological interdependence (forces firms to collaborate) Short product life cycle o Industry convergence (common in airline industry) Strategic Alliances are Potential Risks o One of the biggest risks is Partner Opportunism Prevent by, wall off critical tech Contractual safeguard Swapping skills and tech Seek credible commitment o Strategic and organizational complexity o Conflict of interest problems o Decreasing partner commitment (one partner doesn’t contribute that much) ***BEAMISH*** Test the Strategic Logic (12/1/15) Choosing a partner—Criteria o 4C’s Is the partner capable of carrying out his role in alliance?—Capable Is the partner compatible operationally?—Compatible Is the partner committed to the alliance?— Commitment Are the control arrangements for the coordination of the alliance appropriate?—Control arrangement Defining goals and objectives o Clarify and resolve separate interests o Develop mutual trust and understanding Shape and Design o Define role of each partner—don’t want conflicts down the role o Define venture boundaries—address the needs of a particular market o Identifying champions—primary responsibility that two companies work together to succeed (i.e CFM) o Trust vs legal considerations—balance both don’t over emphasize legal o Allow for termination—divorce rate over failed joint ventures very high Managing the Alliance o Achieving operating momentum—lose momentum early on there will be problems later o Choosing the right management structure Shared management—best option Independent Rotation—has a lot of problems (first 3 years your then next 3 years mine) o Overcoming reluctance to give up autonomy—want some control but without being overbearing towards the join venture o Recognize needs—governance structure/policies, resources o Managing cultural differences o Flexibility—better off to make sure joint venture works o Assuming continued commitments o Increasing willingness to learn o Avoiding bottleneck dependence
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