Business Management and External Analysis
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Questions and Answers

How does the economic functional area contribute to society?

It improves quality of life by enhancing standards of living and promoting sustainability.

What is the primary objective of external analysis?

To detect threats and opportunities from the environment.

Define the external environment in a business context.

It refers to all uncontrollable factors outside the company that affect its strategies and success.

What are the two methods of analysis focused on in the general environment?

<p>PESTEL analysis and industrial districts.</p> Signup and view all the answers

List the stages of the PESTEL analysis.

<p>Define geographical limits, identify key variables, and develop a strategic profile.</p> Signup and view all the answers

Why might similar environmental characteristics affect different industries in various ways?

<p>The impact of environmental factors can vary due to differing industry contexts.</p> Signup and view all the answers

What is the significance of studying industrial districts?

<p>They provide insights on how groups of similar firms benefit from geographic proximity.</p> Signup and view all the answers

How can education, sports, and art serve as forms of social action?

<p>They provide environmental benefits by improving community engagement and well-being.</p> Signup and view all the answers

What is a key advantage of centralized production in manufacturing?

<p>Centralized production ensures efficiency and consistency in product quality.</p> Signup and view all the answers

Name two disadvantages of centralized production.

<p>Trade barriers and cultural barriers.</p> Signup and view all the answers

What is a license in the context of contractual agreements?

<p>A license is an arrangement where the owner of intellectual property grants rights to another firm for a specified period in exchange for royalties.</p> Signup and view all the answers

Identify one advantage and one disadvantage of franchising.

<p>Advantage: Avoids trade barriers. Disadvantage: Loss of control over the firm's image.</p> Signup and view all the answers

What does foreign direct investment involve?

<p>Foreign direct investment involves investing directly in facilities to produce or market a product in a foreign country.</p> Signup and view all the answers

List two advantages of joint ventures.

<p>Shared risk and cost, and gaining local knowledge.</p> Signup and view all the answers

What is one disadvantage of wholly owned subsidiaries?

<p>High investment, which increases risk and costs.</p> Signup and view all the answers

Why might a company prefer to engage in licensing rather than direct investment?

<p>Licensing allows a company to enter new markets with lower risk and investment requirements.</p> Signup and view all the answers

What is the primary reason for studying organizational strategy?

<p>It is important to adapt to complex and changing environments for survival and prosperity.</p> Signup and view all the answers

Where can companies communicate their strategies?

<p>Strategies can be found in managers' speeches, written documents, and corporate communications like annual reports.</p> Signup and view all the answers

In the context of strategy, what does the term 'strategy' refer to?

<p>Strategy refers to the means by which organizations achieve long-term goals and allocate resources.</p> Signup and view all the answers

How does chess relate to strategic management in organizations?

<p>Chess reflects strategic concepts such as assessing current positions and anticipating rival movements.</p> Signup and view all the answers

What is a Strategic Business Unit (SBU)?

<p>An SBU is a self-contained set of activities that can formulate its own competitive strategy.</p> Signup and view all the answers

Name one function of the classical functional departments in an organization.

<p>One function is to ensure interaction and coherence among production, sales, marketing, and finance.</p> Signup and view all the answers

What are the phases involved in the strategic management process?

<p>The strategic management process typically involves developing and implementing strategies to achieve goals.</p> Signup and view all the answers

Why is it necessary to define Strategic Business Units (SBUs)?

<p>Defining SBUs is necessary due to the heterogeneity of different businesses and their competitive environments.</p> Signup and view all the answers

What is meant by imitation barriers in the context of competitive advantage?

<p>Imitation barriers are obstacles, such as patents, that prevent competitors from replicating a firm's competitive advantage.</p> Signup and view all the answers

List two sources of cost competitive advantage mentioned in the text.

<p>Economies of scale and input cost advantages are two sources of cost competitive advantage mentioned.</p> Signup and view all the answers

How does the learning effect contribute to cost competitive advantage?

<p>The learning effect leads to lower labor costs per unit as firms become more efficient with time and experience.</p> Signup and view all the answers

Define differentiation competitive advantage and provide an example.

<p>Differentiation competitive advantage occurs when a firm offers products perceived as unique, allowing it to charge higher prices. An example is an innovative smartphone with advanced features.</p> Signup and view all the answers

What role does firm location play in achieving cost competitive advantage?

<p>Firm location can lead to a cost competitive advantage if a company is close to its suppliers, reducing transportation and logistics costs.</p> Signup and view all the answers

Identify one potential source of differentiation related to product characteristics.

<p>Product performance is one potential source of differentiation related to product characteristics.</p> Signup and view all the answers

What are cooperation agreements and how do they help reduce costs?

<p>Cooperation agreements, such as just-in-time collaboration with suppliers, help reduce storage costs by optimizing inventory management.</p> Signup and view all the answers

Why is industry dynamism important in managing resources and capabilities?

<p>Industry dynamism influences how quickly firms must adapt their resources to stay competitive in rapidly changing markets.</p> Signup and view all the answers

What is a joint venture?

<p>A joint venture is a business arrangement where two firms invest together to create a new venture.</p> Signup and view all the answers

What are internal factors influencing a firm's decision to internationalize?

<p>Internal factors include cost reduction, the search for specialized resources, minimum efficient size, and risk reduction.</p> Signup and view all the answers

Describe the characteristics of a multidomestic industry.

<p>A multidomestic industry features independent competition in each country, with competitive advantages that are specific to each nation.</p> Signup and view all the answers

How do global industries differ from multidomestic industries significantly?

<p>Global industries view the world as a single market, relying on competitive positions interlinked across countries, unlike multidomestic industries, which operate independently in each country.</p> Signup and view all the answers

What role does external demand play in firm internationalization?

<p>External demand drives firms to internationalize by encouraging expansion to meet customer needs in foreign markets.</p> Signup and view all the answers

What is the significance of industry life cycles in the context of international competition?

<p>Industry life cycles influence internationalization strategies, as firms adapt to phases of growth and maturity in global markets.</p> Signup and view all the answers

What is the rationale behind the concept of a firm's minimum efficient size?

<p>The minimum efficient size refers to the scale at which a firm can produce at lower average costs, prompting sales in foreign locations to meet excess demand.</p> Signup and view all the answers

What is meant by potential global industries?

<p>Potentially global industries are those in which firms might compete across various countries but have not fully realized interconnected competitive positions.</p> Signup and view all the answers

What are some key macroeconomic factors to consider in foreign market selection?

<p>Key macroeconomic factors include the country's economic stability, inflation rates, and overall market demand.</p> Signup and view all the answers

How does political risk influence firms operating in foreign markets?

<p>Political risk can involve factors such as the stability of the government, risk of civil unrest, and levels of corruption.</p> Signup and view all the answers

Why might a firm choose exporting as an entry mode to enter a foreign market?

<p>A firm might choose exporting because it involves lower investment and risk while allowing access to international markets.</p> Signup and view all the answers

What is a major disadvantage of exporting compared to foreign direct investment?

<p>A major disadvantage of exporting is that it tends to be less profitable than foreign direct investment due to limited control over market operations.</p> Signup and view all the answers

What role does cultural distance play in the difficulty of operating in a foreign market?

<p>Cultural distance can create challenges in communication, management practices, and customer preferences, making operations more difficult.</p> Signup and view all the answers

Explain the significance of a PESTLE analysis in foreign market selection.

<p>A PESTLE analysis helps firms assess political, economic, social, technological, legal, and environmental factors that impact market viability.</p> Signup and view all the answers

Why would a company consider starting with contractual agreements before moving to foreign direct investment?

<p>Starting with contractual agreements allows a company to limit investment risk while gaining experience and market knowledge.</p> Signup and view all the answers

What advantages do small firms gain from exporting as their initial international market strategy?

<p>Small firms benefit from reduced capital investment and the ability to test international markets without significant overhead.</p> Signup and view all the answers

Flashcards

Organizational Strategy

The set of actions a company takes to achieve its long-term goals and objectives.

Strategic Management

The process of analyzing, planning, implementing, and evaluating strategies.

Situation Analysis

Analyzing a company's current position, understanding its strengths and weaknesses, and identifying potential opportunities and threats.

Strategic Plan

A long-term plan of action, outlining the company's direction, goals, and resource allocation.

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Strategic Business Unit (SBU) Strategy

A specific action plan for a particular business unit within a company.

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Strategic Business Unit (SBU)

A group of activities within a company that are sufficiently self-contained to have their own competitive strategy.

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Strategic Implementation

Actions taken to implement the strategic plan and adapt to changing circumstances.

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Strategic Evaluation

Regular evaluation of the effectiveness of strategies and making adjustments as needed.

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External Environment

The environment surrounding a company that affects its success but is beyond its control. Includes factors like government policies, economic conditions, and societal trends.

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External Analysis

Analyzing the external environment to identify potential threats and opportunities for a company's strategies.

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General Environment

The overall socio-economic system that affects a company's operations and performance. Examples include political stability, economic growth, and technological advancements.

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Competitive Environment

The specific environment in which a company competes. Includes rivals, customers, suppliers, and potential new entrants.

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PESTEL Analysis

A framework for analyzing the general environment by examining political, economic, social, technological, ecological, and legal factors.

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Industrial Districts

A group of similar firms and institutions located in a specific area, sharing common economic activities and resources. They interact and collaborate to drive growth and competitiveness.

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Strategic Profile of the Environment

The strategic profile of the environment helps companies understand the potential impact of each PESTEL factor on their business and identify threats and opportunities.

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Why Study Industrial Districts?

Understanding industrial districts is crucial because they create a supportive ecosystem for businesses, facilitating innovation, collaboration, and knowledge sharing.

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Cost Competitive Advantage

The ability of a company to produce goods or services at a lower cost than its competitors, allowing it to offer competitive prices.

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Economies of Scale

The reduction in per-unit cost as production volume increases due to factors like specialization and fixed cost allocation.

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Learning Effect

The improvement in efficiency and cost reduction that comes from repeated experience in a specific task.

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Differentiation Competitive Advantage

A unique feature or characteristic that makes a product or service stand out from competitors, allowing companies to charge a premium price.

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Experience Effect

The reduction in costs achieved through experience in production, design, and process improvement.

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Production Techniques and Product Redesign

The process of making improvements to a product's functionalities, design, or materials to optimize production and reduce cost.

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Cooperation Agreements

A strategic advantage achieved through partnerships, collaboration, and shared resources, often with suppliers.

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Value Chain

A valuable combination of activities that a firm performs to deliver goods or services, impacting its differentiation advantage.

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Joint Venture

A business strategy where two companies invest together in a new venture, sharing resources, risks, and profits.

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Interorganizational Network

An interorganizational network consists of multiple firms collaborating through various agreements, like joint ventures or share swaps, to achieve shared goals.

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Multinational Firm

A firm operating in two or more countries, aiming to optimize profits globally and leverage international opportunities.

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Internalization - Cost Reduction & Resource Access

Companies expand internationally to reduce costs, gain access to specialised resources, or sell excess production.

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Internalization - Risk Reduction

To reduce risks, companies diversify their operations by entering new markets, creating multiple income sources.

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Industry Life Cycle & Internationalization

The competitive landscape changes as industries mature, creating opportunities for international expansion.

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Global Industry

A global industry is where a company's competitiveness in one country directly impacts its position in other countries.

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Multidomestic Industry

A multidomestic industry is where competition in each country is independent, with strategies customized for each local market.

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Centralized Production

The situation when a company produces its goods in one central location, leading to efficiency and consistent quality.

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Trade Barriers

Challenges faced by companies when setting up operations in another country due to differences in laws, customs, and currency.

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Cultural Barriers

Obstacles to doing business in a foreign country because of cultural differences in communication, values, and practices.

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Franchising

A type of agreement where a company allows another company to use its brand, products, or processes in exchange for fees.

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Licensing

A type of agreement where a company grants another company the right to use its intellectual property, such as a patent or trademark.

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Wholly Owned Subsidiary

Where a company sets up a subsidiary in a foreign country, having full control and ownership of the operation.

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Acquisition

When a company buys an existing business in a foreign country, acquiring its assets and operations.

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Market Entry Difficulty

A company's assessment of the potential risks and difficulties operating in a specific foreign market. Factors like cultural differences, local conditions, and adaptability play a significant role.

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Exporting

A business strategy that involves selling goods or services produced in the home country to customers in other countries.

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Foreign Direct Investment (FDI)

A company's decision to establish a physical presence in a foreign market through direct investment like acquiring local companies or setting up new facilities.

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Contractual Agreements

A set of contractual agreements between companies like licensing, franchising, or management contracts to operate in a foreign market.

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Born Global Firms

Companies that start their operations with a global perspective, expanding internationally from the outset rather than gradually over time.

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Study Notes

Strategic Management - Organizational Strategy

  • Concept of Strategy:
    • Companies operate in complex, changing environments, requiring adaptation for survival.
    • Strategies are crucial for success in these environments.
    • Strategies are found in managerial speeches, written documents, company presentations, and annual reports.
    • A strategy is the means by which individuals or organizations achieve their objectives.
    • This involves the determination of long-term goals, the adoption of courses of action, and the allocation of necessary resources (Chandler, 1962).

Contents of Strategy

  • Firm-Environment Fit:

    • The strategy must align with the firm's environment and stakeholders' needs.
    • It must leverage the firm's strengths to address environmental opportunities and reduce threats.
    • Successful strategies identify and exploit opportunities while mitigating threats/weaknesses.
    • Strategies should be aligned with the company's mission and its goals, so that its resources and capabilities fit the needs of the stakeholders.

  • Firm Competitiveness:

    • Strategic decisions aim to improve the firm's position relative to its competitors.
    • These decisions must consider stakeholder needs.
    • Successful decisions are responsive to the environment, incorporating knowledge of competitors' actions and anticipating future trends (chess analogy).

  • Stakeholder Needs:

    • Strategies must take into account the interests of various stakeholders (shareholders, managers, stakeholders).
    • Effective strategies consider these often competing interests.
    • The overall strategy must aim at creating value for the stakeholders, not just achieving short-term profits.

Strategic Business Units (SBUs)

  • Definition: Self-contained aspects of an organization that may have distinct competitive strategies due to differing competitive environments.

Strategic Management Process

  • Strategic Analysis:

    • External: analysis of the general environment and the competitive landscape-- factors that the firm cannot control.
    • Internal: evaluation of the firm's resources, capabilities, and existing internal processes -- factors that the firm can control.
    • Aim: to identify strengths, weaknesses, opportunities, and threats (SWOT)

  • Strategic Formulation: Developing strategies to meet objectives.

    • Considerations: Strategic fit of the strategy with the firm and the environment; internal analysis, external analysis, and selection of strategies.

  • Strategic Implementation: Putting the formulated strategies into action. This process involves organizational changes, resource allocation, and effective strategy control

Rationality in Decision-Making

  • Rational Process: An idealized process that assumes clear objectives and comprehensive information to determine an ideal strategy.
  • Reality: Strategic decisions are complex and influenced by various factors, including uncertainty and competing interests, thus making perfect rationality unattainable.

Limitations of Decision-Making

  • Bounded Rationality: Decision-makers have limited cognitive ability and available information, potentially leading to suboptimal choices.
  • Learning and Experience: Past experiences shape decision-making processes by influencing how people make decisions and choices
  • Political Factors: Conflicts of interest among various stakeholder groups shape strategy decisions; some stakeholders' (e.g., managers) interests may be opposed to those of others (e.g., shareholders).
  • Chance: Factors beyond the decision-maker's control, like luck, intuition and risk behavior shape decisions.

Fit and Change in Strategic Management

  • Strategic Fit: The consistency between the context in which the strategy is developed/selected and the implementation of the strategy. It also involves leveraging opportunities and minimizing the firm's weaknesses in response to the threats of the environment.
  • Organizational Fit: The congruence between identified strategies and the organizational structure of the firm. This is related with resource and capabilities to ensure the successful implementation of the strategy
  • Change in Dynamic Context: Requires adaptation to changing trends, new technological developments, new customer tastes, etc. Organizational fit and strategic fit are always required.

Strategic Thinking Approaches

  • Rational Approach: Deliberate, intentional, top-down planning process.
  • Holistic Approach: Acknowledges both deliberate and emergent strategies, understanding the combination of rational and non-rational aspects.
  • Organizational Approach: Descriptive; emphasizing the role of individual and collective action in strategy.

Strategic Approaches in the firm

  • Cost leadership: Emphasizing low costs in production and distribution.
  • Differentiation: Creating unique products or services.
  • Focus (niche): Targeting a specific market segment.

Analysis of the Industry and Competitive Environment

  • Objective: Identifying factors affecting the firm's performance related to the industry/competitive landscape.
  • Methods: PESTEL analysis (Political, Economic, Social, Technological, Environmental, and Legal). Industrial analysis (competition analysis, substitutes, etc.).
  • Importance: Identifying external threats and opportunities.

Analysis of the General Environment

  • Objective: Identifying and analyzing factors in the overall environment that affect the firm's operations and performance.
  • Methods: PESTEL analysis, industry life cycles
  • Importance: Understanding the broader context for the industry.

Internal Firm Analysis

  • Objective: Identifying the firm's strengths, weaknesses, resources, and capabilities.
  • Methods: Value chain analysis, strategic profile (SWOT), VRIO analysis- helps to analyze firm resources, capabilities.
  • Importance: Understanding the firm's resources to support its strategy.

Resource-Based View (RBV)

  • Purpose: To identify and evaluate the firm's potential competitive advantages by understanding and developing its resources and capabilities

  • Key Ideas:

    • Firm heterogeneity: firms differ in their resource profiles
    • Imperfect resource mobility: firms cannot easily acquire resources from others, leading to unique competitive positions

Strategic Analysis & the evaluation of resources and capabilities

  • Suitability: Whether the strategic choice is suitable with the firm´s aims and objectives.
  • Feasibility: Whether the strategy can be carried out using available resources.
  • Acceptability: Whether the stakeholders approve of it from a ethical perspective (society).

Corporate-Level Strategies

  • Types of strategies at the corporate level:
    • Vertical integration
    • Diversification
    • Internationalization
    • Strategic alliances
    • Mergers

Development Strategies

  • Scope: Products and markets
  • Development: Strategies aimed at the evolution of the firm's scope over time. This aims at adding value to the firm.
  • Internal Strategies: focus on internal resources growth.
  • External Strategies: focus on the merging of firms/external growth.

Internationalization

  • Objective: To analyze how firms grow on a global scale.
  • Strategies: Identifying the methods for companies to develop and internationalise within the market (exporting, foreign licensing, and foreign investment).

Implementation Considerations

  • Strategic Control: Regularly assessing strategy execution and outcomes.
  • Measurement: Using performance metrics to evaluate success and identify areas that need improvement.
  • Strategic Management Process (SMP): Framework for formulating and implementing strategies.

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Description

This quiz explores the critical aspects of business management, focusing on external analysis and its contribution to society. It covers methods such as PESTEL analysis, production strategies, and the implications of contractual agreements in business contexts. Aimed at enhancing understanding of the dynamic business environment, this quiz is essential for students and professionals alike.

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