business 2701 exam review
TRANSCRIPT
Business 2701 Exam Review:
Lecture 1:
Potential MCQ questions: What is a business? -‐ The exchange of goods and services for money in an attempt to make profit What is the basic underlying premise of business? -‐ Supply and demand
What Makes Up a Company -‐ People and Organizational structure -‐ Policies and Processes -‐ Technology -‐ Infrastructure -‐ Capital (i.e. money)
What expenses does the company have? -‐ Payroll -‐ Facilities -‐ Operating expenses -‐ Equipment -‐ Production inputs Capital – the lifeblood of business
o Company expenses -‐ Payroll -‐ Facilities -‐ Operating expense -‐ Equipment -‐ Production inputs o Source of initial capital can be: -‐ Own money -‐ Angel / venture capitalists -‐ Banks -‐ Governments
Source of capital once a company is established and successful? -‐ profilts -‐ stocks (IPO/ going public), equity -‐ bond issue (debt) -‐ Banks (debt)
Typical Business Firm structure:
o Executive Leadership -‐ CEO o Operations and logistics – money making, production and manuacturing o Engineering/ design – designing products
o Marketing – what to sell, how much return on sales, how to sell, who is the customer, knowing about the customer. The 5 P’s: product, price, promotion, and place.
o Accounting and finance – internal and external financial info recording, management of financial assets of firm
o Human Resource – recruiting, training, compensation and benefits, labor. o Support/IT – health and safety, quality, infrastructure management
LECTURE 2: Globalization Globalization: the shift toward a more integrated and interdependent world economy. Increased mobility of goods, services, labor, technology and capital throughout the world. The enablers of globalization are:
-‐ Politics, economics and technology -‐ Its primary mechanisms are international trade, FDI, communications and
travel, which have fostered more widespread global awareness. Globalization’s 6 Waves, as shown by Therbron:
1. Spread of the world religions 2. European conquest 3. European imperialism 4. The two world wars 5. The present wave which is focused on financial and cultural aspects
• Three modern waves
o Start of first world war o From after 2nd world war to 1980s – integration of economies in the
developed world. o From the 1980s to present, liberalization of politics, trade, ie. EU
• Factors central to the cause of the waves: o Trade barrier reduction o Increasing FDI o Increase in global production capacity o Increase in role of commerce o Significant innovation in transport and communications
• Globalization has also stemmed an increase in Regionalism o Various countries have formed alliances and organizations for trade,
political and economic reasons. • Regional groups
o NATO o NAFTA o EU
Regional Trade Agreements (RTA): • As of 2005 300 regional trade agreements were signed and governed 40% of
world trade
• Rise in RTAs based on new protectionism: Fear of exclusion from the globalization process
• Canada’s stance is two sided – supports trade but was criticised due to its willingness to enter into bilateral trade agreements
o Heavy into NAFTA o Canada’s exports are 80% to the US trade went up over the years
because US exports increased o Focused on regional
• Problems facing globalization and regionalism o Global warming o Environmental o Terrorism o Drug trafficking
Case Study: globalization of healthcare Emergence of a “global market” results in:
o Falling trade barriers o Consumers tastes = global norm o Firms promote the trend by offering same basic products worldwide
• Firms source factors of production like land labor and capital from around the world
• Companies lower cost structure and improve quality or functionality of their product offering Global institutions
-‐ Help manage, regulate, and police the global market place -‐ Promote the establishment of multinational treaties to govern the global
business system Some important global institutions:
o The United Nations Maintains international peace and security
o General agreement of tariffs and trade GATT o WTO
Polices the world trade system o IMF
Maintains order in the monetary system o World Bank
Promotes economic development
Drivers of globalization: -‐ Decline in barriers to the free flow of goods, services, and capital -‐ Falling tariffs -‐ Opening of FDI by countries
• Technological change -‐ Microprocessors and telecom -‐ Internet -‐ Transport tech
• Globalization means for firms: -‐ Lower barriers for trade and investment -‐ Lower transport costs -‐ Lower info processing costs -‐ Low cost global communications networks -‐ Low cost transport
• Drastic change in the demographics of the world economy in the last 30
years o Changing world output and world trade picture o Changing foreign direct investment picture o Changing nature of the multinational enterprise o Changing world order
• The share of the world’s output shifting more from developed to developing
nations. • Similar patterns seen for foreign direct investment – shifts • Destinations for FDI change • Multinational Enterprise: any business that has productive activities in two or
more countries • Changing world order:
o Former communist nations becoming free market economies o New opportunities for international business o Signs of growing unrest and totalitarian tendencies still in Russia
• Global economy of the 21st C – world is moving toward a more global economic system
• Globalization however is not inevitable o Signs of retreat from some nations – Russia
• Globalization brings risks o Financial crisis
Is an interdependent global economy a good thing? • Some say increased trade and cross border investment and fdi mean -‐ Lower prices for good and services -‐ Greater economic growth -‐ Higher consumer income
• Critics worry -‐ Job losses -‐ Environmental degradation -‐ Cultural imperialism
• How globalization affects jobs and income:
o Falling barriers to trade destroy manufacturing jobs o Supporters say benefits outweigh costs
Countries specialize in what they produce more efficiently • How globalization affects labor policies and the environment?
o Critics argue that firms move production to countries where labor and environmental laws do not exist
o Supporters claim that tougher environmental and labor standards are associated with economic progress
As countries get richer from free trade they implement tougher environmental and labour regulations.
• How does globalization affect national sovereignty? o Is power shifting from governments to supernational organizations – UN,
EU, WTO o Critics argue: unelected bureaucrats have power to impose policies o Supporters claim: that the power of these organizations is limited to
what nation states agree o Power of the organizations lies in their ability to get countries to agree
• How globalization is affecting the world’s poor? o Critics claim there wouldn’t be a gap if it was beneficial o Supporters claim the best way for the poor nations to improve situation
is: Reduce barriers to trade and investment Implement economic policies based on free market economies Receive debt forgiveness for debts incurred under totalitarian
regimes • How does the global marketplace affect Managers:
o Countries are different from one another o Range of problems are wider internationally than domestic businesses o Government intervention – international trade and investment system o Money conversions
Case study of General electrics (GE): VIP for exam!!! 1. Why do you think GE has invested so aggressively in foreign expansion? What are the opportunities that it is trying to exploit? 2: What is GE trying to achieve by moving some of the headquarters of its global businesses to foreign locations? How might such moves benefit the company? Do these moves benefit the United States? 3: What is the goal behind trying to “internationalize” the senior management ranks at GE? What do you think it means to “internationalize” these ranks? 4: What does the GE example tell you about the nature of true global businesses? Lecture 3: Country Differences in Political Economy and Culture
Political Economy: refers to how the political, economic and legal systems of a country are interdependent. Interact and influence each other and affect the level of economic well being in the nation.
Contextual Environment of a Firm: Macro -‐> industry -‐ > firm
1. Macro Environment: • Global/national issues that matter to a firms strategy
PEST Framework:
-‐ Political – legal -‐ Economic -‐ Socio cultural -‐ Technological
Business implications of these issues:
1. Political System:
• Political: National govt, WTO, IMF, UN, Trading blocks and associations, types of political systems (democratic vs totalitarian), protectionism, Laws (trade/tax/anti-‐trust/labour), deregulation, education, health and safety, environmental, ease of capital movement out of a country, government fundng programs, tensions btw countries (mild/extreme)
• What is a political system? Refers to the system of government in a nation • What is collectivism? Stresses the primacy of collective goals over individual
goals -‐ Equated with socialists of today – state ownership, entire society instead of
individual benefits • Communism – socialism through totalitarian dictatorship • Social democrats – socialism is achieved through democratic means -‐ Retreating as many countries move to free market – state owned enterprises
have been privatized in many nations • Individualism – philosophy that individual should have freedom in his own
economic and political pursuits– free market – entrepreneurship • Democracy – refers to a political system in which government is by the people,
exercised either directly or thru elected representative. -‐ Most states practice representative democracy • Totalitarianism – one person or political party exercises absolute control over
all spheres -‐ Communist totaliarnism: communist party monopolizes -‐ Theocratic totaliarnism: monopolized by party or individual that governs
according to religious principles -‐ Tribal totalitarianism: found in states where tribe monopolizes power -‐ Right wing totalitarianism: permits individual economic freedom but not
political
2. Legal System:
• What is a legal system? The rules and regulations and laws enforced by Gov. -‐ 3 Types of Legal systems:
1. Common law – based on tradition and custom 2. Civil law – based on detailed set of laws organized into codes 3. Theocratic laws – religious teachings
• Contract: document that specifies the conditions under which an exchange can occur, details the rights and obligations of parties involved
-‐ How are contacts enforced in different legal systems?
o Common law: detailed o Civil law: shorter o United Nations Convention on Contracts for the International sale of
Goods CIGS – they establish a uniform set of rules governing certain aspects of everyday commercial contracts
• Contract law: body of law that governs contract enforcement
How are property rights and corruption related?
• Property rights: legal rights over the use to which a resource is put and over the muse made of any income that may be derived from that resource
• Can be violated through -‐ Private action – theft, piracy, blackmail -‐ Public – legal, excessive tax – illegal – bribes, blackmail • High levels of corruption reduce FDI: -‐ Foreigh Corrupt Practices act – illegal for companies to bribe -‐ Intellectual property – property that is the product of intellectual activity • Patents, Copyrights, Trademarks
What is product safety and liability?
-‐ Product safety laws: set certain standards to which a product must adhere -‐ Product liability: holding a firm and its officers responsible when a product
causes injury, death, or damage
What determines a countries level of Economic Development?
• Two ways of measuring the levels of economic development: 1. Gross national income (GDP) – per person 2. Purchasing power parity (PPP) – involves adjusting GNI by purchasing power
relative to the US • Amarta Sen – Nobel Prize winner – economic development should be seen as a
process of expanding real freedoms thus… o HDI (Human development Index) was created -‐ Life expectancy at birth -‐ Educational attainment -‐ Whether avg. income are sufficient to meet basic needs of life in a country
How does political economy influence economic progress?
-‐ Innovation and entrepreneurship are engines of long run economic growth – require market economy and strong property rights
-‐ Democratic regimes are probably more conductive to long term economic growth that dictatorships
How do geography and education influence economic development?
-‐ Countries with favorable geography are more likely to engage in trade, and so, open to more market based systems
-‐ Countries that invest in education have higher growth rates because the workforce is more productive
How is the political economy changing?
• Democratic revolution • More countries shifting towards the market-‐based model
-‐ Deregulation-‐ removing legal restrictions to free play of market -‐ Privatization – transfers the ownership of state owned to private -‐ Legal system safeguarding property rights
• What the changing economy means for managers? o New markets open o Identifying investment opportunity o Risk: political, economic and legal risks.
• How managers can determine the attractiveness of a market? o Balancing between benefits, costs and risks o Political stability, market system, inflation rates and private sector debt
are key factors
3. Economic issues and Trends (PEST)
• Inflation – interest rates • Trade deficits or surpluses • Budget deficits or surpluses • Personal savings rates • Business profitability rates • GDI per capita • What is an Economic System? • Market economies: all productive activities are privately owned and production
is determined by the interaction of supply and demand. Governments encourage free competition between private entities
• Command economies: Govts plan the goods and services produced, All businesses are state owned.
• Mixed economies: Some private some government involvement. Gov. tend to own firms that are considered imp. for national security.
4. Socio-‐cultural issues and trends:
Examples: Education levels, population growth, age distribution, geographic distribution, ethic distribution, income, spoken and unspoken communication, religious or ideological issues, workforce diversity, attitudes about quality of work-‐life, concerns about the environment, shifts in work and career preference, shift in product and services preference.
• Cross cultural literacy: understanding of how cultural differences across and within nations affect the business environment
• Culture: shared values and norms o Values: abstract ideas, provide the context within which a societies
norms are established, include attitudes towards concepts such as freedom, truth etc.
o Norms: social rules/guidelines, include -‐ Folkways: (routine conventions of everyday life) eg. Manners behavior… -‐ Mores: norms seen as more serious rules
• Culture vs nation state o Nation states are political creations o Culture embraces several nations o Cultures values and norms evolve over time and are determined by: -‐ Religion, Political economic philosophies, Education, Language, Social structure • Social structure: refers to a societies basic social organization • Confucianism: idology practices mainly in China and other parts of Asia -‐ Teaches 3 things: Loyalty, Reciprocal obligations and Honesty • Language is a defining aspect of culture • Education important in determining a nations competitive advantage
Lecture 4: International Trade Theory
• Free trade – a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell
o Governments take hands off attitude to trade • Trade theory: shows the benefits of a country engaging in international trade
even for products it is able to produce for itself • International trade allows a country:
o To specialize in products it can produce more efficiently o Import products other countries produce more efficiently
• Mercantilism: government philosophy that suggests that it is in a countries best interest to maintain a trade surplus – export more than it imports.
o Advocates government intervention to achieve balance of trade o Trade as a zero sum game – loss of one-‐ gain by another o Recent US stimulus package
• Adam smiths theory of absolute advantage: a country has an absolute advantage when it is more efficient than any other country in producing a product
o Countries should specialize in the production of goods for which they have absolute advantage
o Both countries gain from absolute advantage trade • David Ricardos theory of comparative advantage:
o Countries should specialize in the production of goods they produce efficiently and buy goods they produce less efficiently from other
countries, even if this means buying goods from others that could be produced efficiently at home.
• Unrestricted free trade is beneficial but the gains aren’t as great due to too many assumptions. In reality could have:
o Immobile resources o Diminishing returns o Dynamic effects and economic growth o But
Could increase a country’s stock of resources as increased supplies become available from abroad
The efficiency of resource utilization Economic growth
• Paul samuelson: free trade may result in lower wages in rich countries o Offshoring jobs o Wages fall
• Hecksher-‐Ohlin Theory: Comparative advantage arises from differences in national factor endowments – extent to which a country is endowed by FOPs
o Export goods that make use of those factors and import good which locally those factors are scarce
• Case: Ecuadoran Roses • Leontief Paradox • Product Life Cycle Thory: As products mature, both the location of sales and
the optimal production location will change o Growth of products cause them to expand, expansion into other
countries – local production o Product becomes more standardized and price is the main competitive
weapon o Export to the US developing countries gain the production advantage
• New trade theory: ability to gain economies of scale have important implications towards international trade
o Trade increases variety of goods available and decreases average costs o With trade markets are large enough to support the production
necessary to achieve economies of scale o Trade is thus mutually beneficial
Specialization Economies of scale Greater variety of produced products at lower prices
o In industries when output is required to attain economies of scale represents a significant proportion of the total world demand, the global market may only be able to support a small number of enterprises
First mover advantages – strategic advantages accrued by early entrants. Gain Economies of scale
• Gain a scale based cost advantage that later entrants find difficult to match
o Implications of new trade theory Nations benefit from trade even when they do not differ in
resource endowments or technology
Governments may consider strategic trade policies that nurture and protect firms and industries where first mover and economies of scale are advantages
o Porters Diamond of competitive advantage: 4 attributes that promote or impede the creation of competitive advantage:
1. Factor endowments – nations position in factors of production
2. Demand conditions-‐ the nature of home demand for the product
3. Relating and supporting industries-‐ Supplier industries and related industries that are internationally competitive
4. Firm strategy, structure and rivalry-‐ conditions governing how companies are created, organized and managed.
Does the Porter Diamond theory hold? • Government policy can
o Affect demand through product standards o Influence rivalry through regulation and antitrust
laws o Impact the availability of highly educated
workers and advanced transportation systems • The four attributes, government policy and chance work
as a reinforcing system creating appropriate conditions of competitive advantage
• Case: Bangladesh • Trade theory for managers
o Location implications-‐ Locations where production is more efficient o First mover implications – can help a firm dominate global trade o Policy implications-‐ Firms should lobby the govt encouraging policy
that support free trade • Balance of payments
o Keep track of payments to and receipts from other countries o Double entry book keeping o Current account – records transactions that pertain to goods, services,
and income, receipts and payments Current account deficit: country imports more than export Current account surplus: exports more than imports
o Capital account: one time changes in the stock of assets
o Financial accounts: Transactions that involve purchase of sale or assets. Change in assets abroad and foreign owned local assets
o A current account deficit implies a net debtor
Lecture 5: The international Trading System
• Political reality of International Trade
o Free trade occurs when governments do not restrict buying and selling to other countries
o Nations intervene to Protect interests of politically important groups Boost wealth and prosperity of the nation
• Government intervention 1. Tariffs-‐ Taxes levied on imports that raise the cost of imports
• Specific tariffs – fixed charges • Ad valorem tarrifs – percentage of value of import
Increases govt revenue, Pay more for imports Pro producer anti consumer
2. Subsidies: Govt payments to local producers, Compete foreign imports, Gain export market
3. Import quotas: Restrict quantity of goods imported i. Tariff rate quotas: a hybrid of a quota and a tariff where a lower
tariff is applied to imports within the quota ii. Quota rent: Extra profit that producers make when supply is
limited by import quotas 4. Voluntary export restraints: Quotas of trade imposed by the exporting country
at the request of the importing country i. Benefit domestic producers ii. Raise the prices of imported goods
5. Local content requirements: Demand that some specific fraction of a good be produced domestically
Benefit domestic producers, Consumers face higher prices 6. Administrative policies: Difficult for imports to enter a country 7. Anti dumping policies: Dumping: selling goods in foreign markets below their
costs of production or selling goods in a foreign market below market price, drives competition out.
Arguments for government intervention
a. Political arguments: Protection of groups within a nation, Protection of jobs, protecting industries deemed important for national security, retaliating unfair foreign competition, protecting consumer from dangerous products.
b. Economic arguments: Boosting overall wealth of a nation, strategic trade policy.
o Trade barriers for managers
c. Raise cost of exports
d. Voluntary export restrains limit ability to serve e. Conform to local requirements f. Incentive to lobby for free trade
Lecture 7: Regional Economic Integration
• Regional Economic Integration: Agreements between countries in a geographic region to reduce tariff and non tariff barriers to the free flow of goods, services and fops
o Levels of economic integration Political: Central political apparatus that coordinates economic,
social and foreign policy of member states Economic: Eliminates trade barriers + adopts a common
external trade policy + free movement of fops + adopts a common currency, a harmonized tax rate and a common monetary and fiscal policy
Common market: Eliminates trade barriers + adopts a common external trade policy + free movement of fops. eg. MERCOSUR
Customs union: Eliminates all barriers to the trade of goods and services among member countries and adopts a common external trade policy. eg.Andean pact (Bolivia, Columbia, Ecuador, peru)
Free trade area: Eliminated all barriers to the trade of goods among member countries. eg. NAFTA
o Why should countries integrate their economies: essentially an
attempt to exploit the gains from free trade and investment Linking and making them more dependent on each other
• Creates incentives for political cooperation + reduces likelihood of violent conflict
• Gives greater political clout o Can be difficult
Certain groups may lose while nation gains Loss of national sovereignty
o Only beneficial if the amount of trade it creates exceeds the amount it diverst
Trade creation occurs when low cost producers within free trade area replace high cost domestic producers
Trade diversion occurs when higher cost suppliers within the free trade area replace low cost external suppliers
Benefits of Euro: -‐ Savings from having to handle one currency rather than many -‐ Compare prices across Europe -‐ Highly liquid pan-‐European capital market -‐ Increases the range of investment options
• Regional economic integration for managers o Opens new markets o Centralizing production – firms realize cost economies o But environment becomes competitive o Risk of being shut out – “trade fortress”
Lecture 8: Strategy of International Business
• IBM Case study • Strategy: actions managers take to achieve goals of the firm • Firms need to pursue strategy that increase profitability and profit growth.
Vision, approach, plan, science and art are a few synonyms. • Firms environment: 1. Macro environment 2. Industry environment 3. The Firm and its internal environment • To increase profitability and profit growth, firms can -‐ Add value -‐ Lower costs -‐ Sell more in existing markets -‐ Expand internationally • How is value created? -‐ V – value of a product to the average consumer (minus) -‐ C – Costs of producing that product • Profits increased by:
a. Differentiation strategy – adding value to a product so that costumers are willing to pay more for it
i. The higher the value the higher the price can be charged b. Low cost strategy – lowering costs
Value Creation activities can be categorized as:
-‐ Primary activities: R&D, marketing and sales etc -‐ Support activities: info systems, logisitics, HR
How can Firms increase Profits thru international expansion?
1. Expand their market 2. Realize location economies 3. Realize greater cost economies from experience effects 4. Earn a greater return
Economies of scale: refer to the reduction in unit cost achieved by producing a large volume of a product.
-‐ Sources of economies of scale include: -‐ Spreading fixed costs -‐ Utilizing production facilitates more intensively
-‐ Increasing bargaining power with suppliers • What types of competitive pressures exist in the global marketplace?
1. Pressure for cost reduction 2. Pressure to be locally responsive
• When is the pressure for local responsiveness greatest? 1. Difference in consumer tastes 2. Differences in traditional practices 3. Differences in distribution channels 4. Host government demands
• 4 Basic strategies to compete in international markets: 1. Global standardization 2. Localization 3. Transitional – tries to achieve low costs thru location economies 4. International
Lecture 9: Modes of Entry
• What are 3 basic decisions firms make when expanding globally o Which markets to enter o When to enter and on what scale o What entry mode to use
• Basic entry modes: o Exporting o Licensing or franchising to a local company o Establishing joint venture with local company o Establishing new wholly owned subsidiary o Acquiring an established enterprise
• Choice of entry mode-‐ factors that affect this are: o Transportation costs o Trade barriers o Political risk o Economic risk o Costs o Firm strategy
• Optimal mode varies by situation, what makes sense for one company may not for another
• Choice of foreign markets o Favorable markets -‐ Politically stable, Free market system, Low
inflation, Low private sector debt o Less desirable market-‐ Politically unstable, Mixed or command
economies, Excessive levels of borrowing o Depends on long run profit potential o Markets are more attractive when the product is not widely available
and when it satisfies unmet needs • When should a firm enter foreign market
o Once identified, consider timing o Entry is early when firm enters before others o Entry is late when firms are already established
• Why enter a market early: o First mover advantages
Pre-‐empt rivals Build sales volume and ride down the experience curve ahead of
rivals and gain cost advantage Create switching costs that tie customers to products make it
difficult for new entries. • Why enter a foreign market late?
o First mover disadvantages Pioneering costs: Costs of business failure in foreign
environment. Promoting and establishing product offering – cost of educating local consumers
• On what scale should firms enter markets o Significant scale: Major strategic commitment that changes the
competitive field. Strategic commitment that has long term impact and is difficult to reverse
o Small scale: Allowing the firm to learn about the market while limiting its exposure
• How can firm enter foreign markets? o Exporting o Turnkey projects – handled by contractor o Licensing: licensor grants rights and receives royalty
Patents, inventions, formulas, processes, desgins, copyrights o Franchising – spealized form of licensing o Joint ventures with host o Wholly owned subsidiary – 100% of stock owned
• GE CASEEEEE FUUUUUUUUUUUCKKKKKKK o Joint venture approach
• Exporting o Advantages:
Avoids costs of establishing Achieve experience curve and location economies
o Disadvantages Lower cost manufacturing locations Hight transport costs and tariffs Agents in local country may not act in exporters best interest
• Turnkey: the contractor handles every detail of the project o advantages
Less risky Know how is set up
o Disadvantages No long term interest in local nation May create a competitor Sells competitive advantage to potential or actual competitors
• Licensing o Advantages
Avoids development costs and risks Avoids barriers to investment Capitalize on market opps
o Disadvantages Firm has no real control to realize experience curve or location
economies Limited control over strategy Assets could be lost
• Cross licensing – risk reduction o Franchising
Advantages • Avoids costs of establishment • Global presence can be sought quickly
Disadvatages • Firms cant use its profits • Difficult to control quality
o Joint ventures Adva
• Local partner knowledge • Shared costs and risks • Satisfy political considerations
Disa • Risks giving control of technology to partner • May not have tight control to realize experience curve or
location economies • Conflicts through shared owenership
o Wholly owned subsidy ad
• Reduce risk of losing control • Give a firm tight control • Realization of expeiriece curve or economies of location
possibke Disad
• Firm bears full cost and risk • New markets new government new consumers
• How do core competencies influence entry mode o Entry mode depends on nature of firms core competency o When competitive advantage is based on tech know how, avoid joint vs
or licensing o When competitive advantage is based on management know how,
• Pressures for cost reduction influence entry mode o High pressures for cost reductions = combination of exporting and
wholly owned • Greenfield vs Acquisition
o Choice depends on situation confronting firm Greenfield: build a subsidiary from the ground Acquisition strategy: acquire an existing company
o Acquisitions are Quick to execute Enable firms to pre-‐empt competitors May be less risky than greenfield Can fail
• Overpays • Cultures clash • Synergies run into roadblocks and take long • Inadequate screening
o To avoid these problems, firms should carefully screen and move to implement integration plan
• Greenfield o Greater ability for firm to build a subsidiary it wants o Slow to establish o Risky
• Strategic alliances o Cooperative agreements
Formal joint ventures to short agreements Exploded in recent decades
o Adv Facilitate entry into foreign market Allow firms to share fixed costs and risks Bring together skills and assets
o Partner selection Helps achieves goals shares the vision Not exploit the alliance
• CASE JCB
Lecture 10: Global Marketing
• Marketing mix: o Product o Place o Promotion o Price
• Levitt – products are becoming similar and no need for local differentiation • Global consensus
o World moving towards global markets, global standardization is not possible cuz of
Cultural and economic differences among nations Trade barriers and differences in product and technical
standards
• Market segmentation o Identifying groups of consumers and their purchasing behaviour o Segmented by
Geography Demography Socio cultural Psychological
o 2 Key segmentation issues Difference between countries Transcending national borders
• Products sell well when their attributes match customer needs • Consumer needs depend on:
o Culture: tradition, social structure, language, religion, education o Level of economic development
More developed demand extra attributes Less developed prefer basic
o Product and technical standards National differences force firms to customize mix
o Distribution strategy: means the firm chososes for delivering the product to the consumer
o How a product is delivered depends on firms entry local sell directly outside need import agent
• 4 main distribution systems: o Retail concentration – concentrated (few supply most) or fragmented
(many retailers, no one has major share) o Channel length – number of intermediaries btw producer and consumer
Short channel – direct to customer – concentrated systems Long -‐ agents involved, plus wholesaler and retailer –
fragmented o Channel exclusivity-‐ how difficulty it is for outsiders to access – japan o Channel quality – expertise, competencies, skills, ability to sell and
support products quality of retailers varies amongst developing + developed
countries firms may have to devote considerable resources to upgrading
channel quality o optimal strategy depends on relative costs and benefits of alternatives o when price is important short channel is better o when retail sector is fragmented long is beneficial
Economizes on selling costs can offer access to exclusive channels
• Promotion/ Communication
o Communicating product attributes to prospective customers is a critical element
o Depends on choice of channel
o Communication channels Direct Sales promotion Direct marketing Advertising
• What are the Barriers to international communication? o Cultural – cross cultural literacy o Source and country of origin o Noise levels – competition
• Communication strategies o Push – personal selling o Pull – mass media advertising
• Product type and sophistication o Pull works in large markets o Push – industrial products
• Channel length o Pull with long channels
• Media availability o Pull when it is easiliy available o Push when it is not
• Optimal mix o Generally push is better
For industrial and complex products When channels are short When few print or electronic are available
o Pull is better Consumer goods Long channels Sufficient print and media
o UNILEVER CASE • Standardized advertising should be used when
o Firm has significant economic advantages o Creative talent scarce o Brand names global
• Standardized advertising shud not be used when o Cultural differences are significant o Advertising regulations limit standardized advertising
• Pricing strategy o Consider
Price discrimination: Firms charge different to different countries in Separate markets
Price elasticities of demand – responsiveness of demand to change in price
Strategic pricing Predatory pricing – profit in one market helping aggressive
prices in other Multi point pricing
• Pricing strategy in one market have an impact on rivals pricing in another market
Experience curve pricing • Price low worldwide in an attempt to build global sales
volume rapidly o How regulation influences prices
Anti dumping regulations – dumping occers when a firm sells a product for a price that is less than cost of production.
Competition policy – limits prices that a firm can charge cause of competition.
• How should firms configure the marketing mix o Most firms standardize somethings and customize others o Firms should consider costs and benefits of standardizing and
customizing • CASE BUICK CHINA • Why is product development important
o Firms need to make product innovation a priority o Pace of tech change is fast o New innovatins make existing products obsolete – but also open doors o Firms need links between R&D, marketing and manufacturing
• Where should R&D be located o Interactions of scientific research, demand conditions, and competitive
condiions o Rate of new product development is greater where countries
More money is spent on basical and applied research Demand is strong Consumers are wealthu Competition is intenseeeeeeee
o Should be intergrated through coordination of rnd markting and production
Insures • Customer needs drive product development • New products are designed for ease of manufacture • Controls development costs • Time to market is minimized
Cross functional teams are important
Chapter 11: Global Production and Logistics
o Production issues for international firms
o Where should production activities be located o What should long term strategic roles of foreign production sites be o Should the firm own foreign production or outsource o How should a globally dispersed supply chain be managed, what is the
role of IT in the management of logistics. o Should the firm manage global logistics itself?
o Strategy: vision, over arching approach, high level plan o Production: activities involved in creating product o Logistics: procurement and physical transmission of material through the
supply chain, from suppliers to customers. o How can production and logistics: Lower costs of value creation?
Disperse production to the most efficient locations Manage the global supply chain efficiently to better match supply
and demand o Add value by better serving customer needs?
Eliminate defective products o How can quality be improved?
o Many firms used the six sigma program – total quality management Reduces defects, boosts productivity, eliminates waste, cut costs
o EU firms need to meet ISO9000 o Quality control and cost reduction
o Where should production be located? o Firms should locate production so that its:
o Cost effected o Locally responsive o Responsive to shifts in customer demands
o Firms should consider o Country factors o Technology factors o Product factors
o Country factors o Manufacturing should be located where economic, legal, and cultural
conditions are most conducive o Firms should consider
Availability of labor Trade barriers Exchange rate changes Transportation costs Regulations affecting FDI
o Technological factors o Level of fixed costs
High costs – single location production Low costs – multiple plants possible responding to local demands
o Minimum efficient scale – level of output where plants start High – centrazilzed production Low – multiple locations
o Flexibility of technology Flexible
• Reduce times for equipments • Increase utilization • Improves quality control
Flexible manufacturing allows to produce wide variety of products at a relatively low unit cost
• Mass customization o Production should be concentrated in one or few locations when
o Fixed costs are substantial o Minimum efficient scale of production is high o Flexible manufacturing technologies
o Production in multiple locations make sense o Fixed costs and minimum efficient scale of production low o Flexible manufacturing technologies are not available
o 2 Product factors important to location decisions: o Value to weight ratio
High – single location, and export Low – multiple locations
o Whether the product serves universal needs Yes – local responsiveness – central location
o Strategic role of foreign factories and strategic advantage of a particular location can change over time.
o Low cost labor – advanced design o Improvement in facility comes from
o Pressure to lower costs and respond to local markets o Increase availability of advanced factors of production
Should firms outsource production?
o Make or buy decisions for components o Make
Vertical integration-‐ make parts in house Lowers costs Facilitates investments in highly specialized assets Protects technology Planning and scheduling of adjacent processes can be easier Within a firms core competencies
o Buy Helps drive down cost structure Gives greater flexibility – exchange rates Helps firm capture orders from international customers
• Helps gain orders from suppliers o Strategic alliances with suppliers
Make sense when firm captures benefits of vertical integration – forming long term alliances
However can also limit flexibility o Global supply chain
o Logistics – materials, manufacturing, process, supply o Goal is to
Manage global supply chain at lowest costs meeting customer needs
Establish competitive advantage through superior customer service
o JUST IN TIME
Materials arrive just in time to enter production process Generate costs savings reducing warehouse inventory Helps spot defects controlling quality But leaves firm with no buffer stock inventory to meet
unexpected supply changes o Role of IT and WWW
o Web based info systems plays crucial role in materials management Allows firms to optimize production scheduling
o Electronic data exchange Tracking of inputs Optimize production sched Lets the firm and its suppliers communicate in real time Eliminates the flow of paperwork
Supply Chain Strategies: o Supply chain: all parties involved directly or indirectly upstream or
down o Flows of products, services, finances, and or info o Includes all even stakeholders o Network, web or system that provides value from top to customer o Supply chain strategy
o Conceptual framework of the supply chain o Geographic
Upstream Downstream
o Philosophies Product focus Demand Lean Intregrative
o Intregrative Access to markets, tech, resources and expertise Visibility of problems Greates impact when integration covers upstream and
downstream Very complex and difficult Massive quantities of data coming from numerous
sources Vulnerable to disruptions
o Esupply Instantaneous Global search for products, suppliers, distributors Mistaken as a strategy Not possible to predict Porter: lowered profit levels due to buyer access to info
and lowering costs o Selection drivers:
Customer perceived value
Dependent upon whether products are functional or innovative
Product lifecycle position Macroeconmic factors – exchange rates, tariffs, tech
availability Political and cultural factors Stable versus volatile demand Waste reduction and environmental protection Config and coordination Align supply chain with corporate business strategy –
many benefits o Supply chain = all the actors in the value chain
o Many faces – geographic, philosohies, facilitation o Link between Corporate business strategy and SC strategy is
FUCKING KEY
Lecture 12: Global Human Resource Management
o HRM: activities an organization carries out to utilize its HR effevtively
o Firms ensure there is a link between strategy and HR o HR activities
o HR strategy o Staffing o Performance evaluation o Management development o Compensation policy o Labor relations
o HRM can help the firm reduce costs of value creation and add value by better serving customer needs
o More complex in an international business Differences between countries in culture, labor markets, legal
systems, economic systems Management of expat managers
• Foreign assignments • Compensation • Training • Debriefing
o HR responsible People Incentives and contols Culture
o Staffing policy o Requirement of skills o Corporate culture o Three main approaches
The Ethnocentric approach: Parents country nationals • Lack of qualified individuals in host
• Unified culture • Transferring competencies from parent to nationals • Limits opportunities + cultural barrier
Polycentric • Nationals in host • Parents at headquarters • Localization • Culture • Cost effective • But gap between managers
Geocentric • Seeks best people irregardless of nationalisty • Consistent building • Global standardiziation • Best use of HR • But costly and limited
o Expat failure o Ethnocentric or geocentric o Premature return of managers to home country
Very costly Quite common
o Why do they fail Family related Inability to adjust Personal imatursity Inability to cope with responsibilities
o Predicting managers success Self orientation Others orientation Perceptual ability Cultural toughness
o Importance of global mindset o Cognitive complexity o Cosmopolitan outlook
o Acquired early o Can be enhanced through experience or training o After selecting a manager, training programs should be implemeneted
o Cultural training o Language o Practical training
o Importance of Management development to firm strategy o Strategic tool to building unified culture and global standardization
o Expatriates o Evaluation can be complex o Bias between expats and local – frames of reference
o Performance appraisal bias o More weight to host nations than home
o Fomer expat should be involved o Home office managers should be consulted before host
o Key isues on compensation o Adjusting according to economic circumstances and compensation
practices o How to pay expat managers
o Many firms have moved towards compensation structure that is based on global standards
o Especially with geocentric staffing o Most hoewever pay according to standards in each country o Expats
o Balance sheet approach used by most firms Equalizes purchasing power so that employees have same
standards as they did at home o Compensation package components
Base Salary – earns same as position in home country – home or local currency
Foreign service premium – extra pay for expats working outside home country
• Generally offered as incentive Various allowances – housing, hardship, cost of living, education Tax differentials – income tax to both home and host
governments – company covers extra taxes Benefits – medical, or other benefits received at home
o Importance of international labour relations o Labour unions can limit firms global standardization strategies o HRM should foster harmony and minimize conflict between management
and organized labor o Concerns of organized labor
Multinationals can counter union bargaining by threatening to relocate to another country
Multinationals can switch production locations Multinationals can import employment praticices and
contractual agreements from home countries reducing influence of unions
o How organized labor responds to MNC Trying to set up international organizations Lobbying for national legislation to restrict multinationals Trying to achieve regulation of multinationals through
international organizations such as UN So far limited success
o Important for management to have good relations with labor