Business & Corporate Strategy Study Guide

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Questions and Answers

What questions should one address when crafting a business strategy?

Answers will vary depending on the specific context and goals of the business. Key considerations include market analysis, competitive positioning, resource allocation, and long-term sustainability.

What is the difference between firm and industry effects on competitive advantage?

Firm effects refer to the internal capabilities, resources, and strategies of a company that contribute to its competitive advantage. Industry effects, on the other hand, pertain to the external factors, such as industry structure, competition, and market dynamics, that impact a firm's performance.

How do generic business strategies differ?

Generic business strategies, such as cost leadership, differentiation, and focus, differ in their approach to achieving competitive advantage. Cost leadership aims to offer products or services at the lowest cost, differentiation seeks to create unique value for customers, and focus targets a specific market segment.

How can each generic business strategy contribute to competitive advantage?

<p>Cost leadership can lead to competitive advantage through lower prices and higher profit margins, differentiation can create customer loyalty and premium pricing, and focus can cater to specific customer needs and preferences.</p> Signup and view all the answers

How can each generic business strategy create value or increase the value gap? (what are their value drivers)

<p>Value drivers vary depending on the chosen strategy. Cost leadership focuses on efficiency and cost reduction, differentiation emphasizes innovation and quality, and focus concentrates on customization and niche markets.</p> Signup and view all the answers

When are economies of scale realized?

<p>Economies of scale are realized when increased production leads to lower average costs.</p> Signup and view all the answers

When do economies of scale diminish?

<p>Economies of scale diminish when further increases in production lead to higher average costs due to factors like complexity, coordination challenges, and diseconomies of scale.</p> Signup and view all the answers

What is the difference between economies of scale, learning effects, and the experience curve?

<p>Economies of scale are cost advantages due to increased production volume. Learning effects refer to improvements in efficiency and productivity as employees gain experience. The experience curve encompasses both economies of scale and learning effects, illustrating the relationship between cumulative production and cost reduction.</p> Signup and view all the answers

How does the Five Forces Model help with business strategy?

<p>The Five Forces Model helps businesses analyze the competitive forces within their industry, including the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and intensity of competitive rivalry. This analysis informs strategic decisions regarding market entry, competitive positioning, and value chain optimization.</p> Signup and view all the answers

How would a firm find itself 'stuck in the middle'?

<p>A firm can find itself 'stuck in the middle' by failing to effectively pursue a clear generic strategy, such as cost leadership or differentiation. This results in a lack of competitive advantage and difficulty competing with firms that have a more focused strategy.</p> Signup and view all the answers

What is the difference between business and corporate strategy?

<p>Business strategy focuses on how to compete within a specific industry or market segment, while corporate strategy addresses decisions about which industries to compete in and how to manage a portfolio of businesses.</p> Signup and view all the answers

What are the reasons for firms to diversify vertically?

<p>Firms diversify vertically to gain control over their supply chain, reduce costs, improve coordination, and capture more value.</p> Signup and view all the answers

What are the reasons for firms to diversify horizontally?

<p>Firms diversify horizontally to expand into related markets, leverage existing capabilities, and achieve economies of scope.</p> Signup and view all the answers

What are the levels of diversification?

<p>The levels of diversification include single business, dominant business, related linked, related constrained, and unrelated diversification.</p> Signup and view all the answers

How is the Core-Competence Matrix useful?

<p>The Core-Competence Matrix is useful for identifying and evaluating a company's core competencies and determining how they can be leveraged to create new products, services, or business opportunities.</p> Signup and view all the answers

What do the quadrants of the Core-Competence Matrix indicate?

<p>The quadrants typically represent different strategic options based on the alignment of core competencies with market opportunities. They indicate areas for investment, expansion, or potential divestiture.</p> Signup and view all the answers

What are the fundamental arguments in favor of 'Make or Buy' Vertical Integration Decisions?

<p>Arguments in favor of 'make' include greater control, protection of proprietary knowledge, and potential cost savings. Arguments in favor of 'buy' include lower investment, greater flexibility, and access to specialized expertise.</p> Signup and view all the answers

What are the advantages and disadvantages of internal/external transaction costs related to vertical integration?

<p>Internal transaction costs can include bureaucracy, coordination challenges, and reduced flexibility. External transaction costs can include opportunistic behavior by suppliers, information asymmetry, and dependence on external partners.</p> Signup and view all the answers

What does the learning curve refer to in the context of vertical integration?

<p>The learning curve refers to the improvement in efficiency and productivity as companies gain experience and knowledge through vertical integration. This can lead to lower costs and higher quality.</p> Signup and view all the answers

What is meant by Backward/Forward Integration?

<p>Backward integration involves acquiring or controlling suppliers, while forward integration involves acquiring or controlling distribution channels or customers.</p> Signup and view all the answers

What are the fundamental arguments for each of Build, Borrow, or Buy Framework?

<p>Arguments for 'build' include creating unique capabilities and retaining control, for 'borrow' include gaining access to resources without significant investment, and for 'buy' include acquiring established capabilities quickly.</p> Signup and view all the answers

How is the BCQ Matrix useful?

<p>The BCQ (Build, Cooperate, or Quit) Matrix is useful for evaluating strategic options based on market attractiveness and competitive position. It helps companies decide whether to invest, collaborate, or exit a particular market.</p> Signup and view all the answers

What do the quadrants in the BCQ Matrix indicate?

<p>The quadrants typically represent different strategic recommendations based on market attractiveness and competitive strength. These may include building market share, cooperating with other firms, or divesting underperforming businesses.</p> Signup and view all the answers

What is meant by restructuring?

<p>Restructuring refers to reorganizing a company's operations, assets, or capital structure to improve efficiency, profitability, or strategic focus.</p> Signup and view all the answers

What are the different types of restructuring activities?

<p>Types of restructuring activities include downsizing, asset sales, spin-offs, leveraged buyouts, and recapitalizations.</p> Signup and view all the answers

What are the reasons to expand abroad, such as...

<p>Reasons to expand abroad include accessing new markets, resources, lower costs, and diversifying risk.</p> Signup and view all the answers

How is the CAGE framework useful?

<p>The CAGE framework is useful for assessing the cultural, administrative, geographic, and economic differences between countries. This helps companies make informed decisions about international expansion and adaptation strategies.</p> Signup and view all the answers

What are each of the components of the CAGE framework?

<p>The components are Cultural, Administrative, Geographic, and Economic differences between countries.</p> Signup and view all the answers

What are the competitive strategy choices for overseas markets?

<p>Competitive strategy choices for overseas markets include global standardization, local responsiveness (multidomestic), international, and transnational strategies.</p> Signup and view all the answers

What was Walmart's experience in Germany?

<p>Walmart's experience in Germany was largely unsuccessful due to cultural differences, regulatory challenges, and difficulty adapting to local market conditions.</p> Signup and view all the answers

Understand the economic effects of China's one-child policy.

<p>China's one-child policy had significant economic effects, including a shrinking workforce, an aging population, and gender imbalances.</p> Signup and view all the answers

What is the Porter's Diamond Framework, and how is it useful?

<p>Porter's Diamond Framework analyzes the factors that contribute to a nation's competitive advantage in a particular industry. It helps companies understand the competitive landscape and identify opportunities for international expansion.</p> Signup and view all the answers

Flashcards

Business Strategy

A plan to achieve a competitive advantage.

Firm vs. Industry Effects

The unique resources and capabilities a firm possesses, compared to industry-wide influences.

Generic Business Strategies

Cost leadership, differentiation, and focus strategies.

Economies of Scale

Cost advantages due to increased production scale.

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"Stuck in the Middle"

A firm's inability to establish a clear competitive advantage by simultaneously pursuing both a cost leadership and a differentiation strategy.

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Business vs. Corporate Strategy

Business strategy focuses on how to compete within a specific market, while corporate strategy addresses in which markets to compete.

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Vertical Integration

Expanding into different stages of the value chain.

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Strategic Outsourcing

Using external resources for activities traditionally handled internally.

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CAGE framework

CAGE framework helps firms understand cultural, administrative, geographic and economic differences between countries or regions.

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Liability of foreignness

Disadvantages foreign firms face when competing with local firms due to unfamiliarity with the host country's environment

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Study Notes

  • This study guide reflects topics on the exam, focusing on understanding concepts rather than rote definitions.

Business Strategy

  • Questions to consider when developing a business strategy.
  • The difference between firm and industry effects on competitive advantage.
  • Generic Business Strategies:
    • Understanding how they differ.
    • How each strategy contributes to competitive advantage.
    • How each creates value or increases the value gap, understanding their value drivers.
  • Economies of Scale:
    • When economies of scale are realized.
    • When economies of scale are maximized.
    • When economies of scale diminish.
  • Distinguish between economies of scale, learning effects, and the experience curve.
  • How the Five Forces Model aids in business strategy.
  • Factors leading to a firm being "stuck in the middle".

Corporate Strategy: Diversifying in General

  • The distinction between business and corporate strategy.
  • Reasons for Diversification:
    • Vertical diversification.
    • Horizontal diversification.
  • Levels of Diversification:
    • Single.
    • Dominant.
    • Related Linked.
    • Related Constrained.
    • Unrelated.
  • Core-Competence Matrix:
    • How the Core-Competence Matrix is useful.
    • What the quadrants of the Core-Competence Matrix indicate.

Corporate Strategy: Vertical Integration

  • Make or Buy Vertical Integration Decisions:
    • Fundamental arguments favoring each choice.
    • Internal versus external transaction costs.
    • Advantages and disadvantages of each, including the learning curve, information asymmetry, and principal-agent situations.
  • Taper versus Full Integration.
  • Backward versus Forward Integration.
  • Strategic Outsourcing.

Corporate Strategy: How to Diversify

  • Build, Borrow, or Buy Framework:
    • Fundamental arguments supporting each option.
  • BCG Matrix:
    • How the BCG Matrix is used.
    • What the quadrants of the BCG Matrix indicate.
  • Restructuring:
    • Definition of restructuring.
    • Different types of restructuring activities.
  • Real-Options Perspective.

Modes of Diversification

  • Acquisitions, mergers, and alliances (non-equity, equity, joint ventures).
  • Hostile versus friendly acquisitions.
  • Factors determining which type to pursue as a diversification strategy.
  • Advantages and disadvantages of each mode of diversification.
  • Specialized Assets: Understanding the different types of specialized assets.
  • Strategic Alliances:
    • Determining which knowledge is shared in strategic alliances.

Overseas Strategy

  • Reasons to expand abroad, focusing on location economies.
  • CAGE Framework:
    • How the CAGE Framework is useful.
    • The components of the CAGE Framework.
  • Competitive strategy choices for overseas markets:
    • Global standardization.
    • Local responsiveness (multidomestic).
    • International.
    • Transnational.
  • Liability of foreignness.
  • Stages of Globalization.
  • Walmart's experience in Germany.
  • Economic effects of China's one-child policy and government support of Chinese enterprises.
  • Porter's Diamond Framework:
    • How Porter's Diamond Framework is useful.
    • Understanding the elements of the framework: factors of endowment and demand conditions.

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