Chapter 5 strat
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Questions and Answers

Which method of development involves the company cooperating with other firms?

  • Market penetration
  • Product development
  • Expansion
  • Cooperation (correct)

In which type of industry does competition in each country operate independently of competition in other countries?

  • Global industry
  • Worldwide industry
  • Multidomestic industry (correct)
  • Linked industry

Which international strategy emphasizes cost reduction and economies of scale, with limited ability to adapt to local markets?

  • Local adaptation strategy
  • Transnational strategy
  • Global strategy (correct)
  • Multidomestic strategy

What type of international entry mode involves sourcing products from the home country and selling them in foreign countries?

<p>Exporting (A)</p> Signup and view all the answers

In which entry mode does the owner of intellectual property grant another firm the right to use that property for a specified period of time in exchange for royalties or other compensation?

<p>Licensing (C)</p> Signup and view all the answers

What type of contract allows a firm to use an entire business system in exchange for fees, royalties, or other forms of compensation?

<p>Franchising (D)</p> Signup and view all the answers

Which entry mode involves shared investment between firms?

<p>Joint ventures (C)</p> Signup and view all the answers

Which type of industry has the firm's competitive position closely related across different countries?

<p>Global industry (D)</p> Signup and view all the answers

Which type of diversification involves entering new product and market activities with no direct link to current ones?

<p>Unrelated diversification (A)</p> Signup and view all the answers

Vertical integration is a strategy where a firm owns vertically related activities, extending ownership over ________.

<p>Successive stages of the value chain (B)</p> Signup and view all the answers

Cooperation is a method of development through agreements between firms to share resources and capabilities, without a subordinate relationship. What are the advantages of cooperation?

<p>Obtaining required resources, limit some risks, learning from partners (D)</p> Signup and view all the answers

What are the reasons for vertical integration based on competitive position?

<p>Access to inputs, affect prices, market power, barrier to entry (A)</p> Signup and view all the answers

What are the risks of unrelated diversification?

<p>Absence of synergies, difficulty obtaining specific skills, managerial problems (D)</p> Signup and view all the answers

What is the main internal reasons for a firm to engage in internationalization?

<p>Cost reduction, search for resources, reduce risk, exploit R&amp;C's (A)</p> Signup and view all the answers

Cooperation is a method of development through agreements between 2+ firms to share resources and capabilities. What are the basic characteristics of this?

<p>No subordinate, coordination, certain loss of organisational autonomy, common goal (D)</p> Signup and view all the answers

Which of the following risks is associated with related diversification?

<p>Coordination costs, absence of synergies, and inflexibility (B)</p> Signup and view all the answers

Which of the following best describes vertical integration?

<p>A strategy where a firm owns vertically related activities, extending ownership over successive stages of the value chain (A)</p> Signup and view all the answers

What is the primary reasons for unrelated diversification?

<p>To reduce risk, achieve greater earnings, and better allocate financial resources, managers objectives (B)</p> Signup and view all the answers

What are the primary advantages of cooperation?

<p>obtain resources, greater balance between efficiency and flexibility, limits on risks, and learning from partners (D)</p> Signup and view all the answers

What are the risks associated with vertical integration?

<p>Increased firm risk, higher exit barriers, and less flexibility and less ability to develop autonomous integrations (C)</p> Signup and view all the answers

What is the primary reasons for diversification?

<p>Risk reduction, saturation of traditional markets, excess resources, investment opportunities, and synergies (B)</p> Signup and view all the answers

What does a global strategy emphasize in terms of competitive strategy and products?

<p>Cost reduction and standardized products (C)</p> Signup and view all the answers

What is the main characteristic of wholly-owned subsidiaries as an international entry mode?

<p>Total control by the firm (B)</p> Signup and view all the answers

What are the characteristics of a transnational strategy in terms of authority, emphasis, and product adaptation?

<p>balance between efficiency and local adaptation, dispersed assets, greater knowledge and learning (A)</p> Signup and view all the answers

What are the pressures associated with high transnational strategy?

<p>High cost reduction emphasis and high local adaptation ability (B)</p> Signup and view all the answers

What are the two sub-branches of corporate strategies

<p>defining the scope of the firm and development strategies (A)</p> Signup and view all the answers

What do development strategies refer to?

<p>changing the scope of the firm (C)</p> Signup and view all the answers

name the directions of development

<p>consolidation, expansion, diversification, vertical integration and restructuring (B)</p> Signup and view all the answers

Name the methods of development

<ol> <li>Internal</li> <li>External - mergers, acquisitions, coorporation/alliances (A)</li> </ol> Signup and view all the answers

What direction of development does market penetration, product development and market development fall under?

<p>expansion (A)</p> Signup and view all the answers

Match the directions of development with their characteristics

<p>Consolidation = current markets, current products, no growth market penetration = current markets, current products, growth product development = new products, exisiting markets market development = existing products, new markets</p> Signup and view all the answers

Match the directions of development with their characteristics

<p>diversification = new products, new markets vertical integration = activities related to the whole production cycle restructuring = withdrawal (divestment) from present activties NA = NA</p> Signup and view all the answers

Diversification is a strategy that takes an organisation away from both its existing markets and existing products

<p>True (A)</p> Signup and view all the answers

What can hold regarding diversification?

<p>new products + new markets = change in scope (C)</p> Signup and view all the answers

What factors determine diversification?

<p>General environment, specific environment and firm characteristics (A)</p> Signup and view all the answers

What does related diversification refer to?

<p>Potentially sharing/transferring R&amp;C's and has some degree of relationship with current activities (D)</p> Signup and view all the answers

What are some main reasons why firms vertically integrate? In terms of cost advantage.

<p>EOS, simplification of processes, cost reduction (B)</p> Signup and view all the answers

What are some disadvantages of methods of development: cooperation/alliances

<p>Loss of autonomy, costs, divergent interests, lack of trust (A)</p> Signup and view all the answers

Match the correct pairs

<p>contractual agreement = long-term contract contractual agreement = consortia shareholer agreement = joint venture shareholder agreement = share swap</p> Signup and view all the answers

Match the correct pairs

<p>contractual agreement = franchise contractual agreement = license contractual agreement = subcontracting shareholder agreement = minority stakeholder</p> Signup and view all the answers

Contractual agreements involve ownership, exchange of shares, or capital investment in a new business

<p>False (B)</p> Signup and view all the answers

shareholder agreements involve the acquisition of shares

<p>True (A)</p> Signup and view all the answers

Interorganisational agreements are a plurality of cooperation agreements between firms, multiple partners, complex relationships

<p>True (A)</p> Signup and view all the answers

Reasons for firm internationalisation (expanding its business operations/activities beyond its domestic borders to engage in activities across multiple countries or markets)

<p>External = Industry life cycle External = external demand Internal = search for rescources Internal = reduce risk</p> Signup and view all the answers

Reasons for firm internationalisation (expanding its business operations/activities beyond its domestic borders to engage in activities across multiple countries or markets)

<p>Internal = exploit r&amp;c in different countries Internal = cost reduction External = follow the customer External = industry globalisation</p> Signup and view all the answers

Match the following characteristics to the different patterns of international competition: multi-domestic and global

<p>multi-domestic = competition is independent multi-domestic = compete autonomously - CA's are country specific global = competition is closely related global = linked industries - worldwide basis</p> Signup and view all the answers

Match the following characteristics to the different patterns of international competition: multi-domestic and global

<p>multi-domestic = portfolios of domestic startegies multi-domestic = wine industry global = global CA global = commerical aircraft</p> Signup and view all the answers

Name the three international strategies:

<p>global, multi-domestic and transnational</p> Signup and view all the answers

Match the following with the international strategies:

<p>multi-domestic = cost reduction and EOS multi-domestic = centralised, limited abiltiy to adapt global = limited ability to reduce costs, customised producrs transnational = balances efficiency (cost reduction) and local adoption, dispersed assets, greater knowledge, &quot;think global act global&quot;</p> Signup and view all the answers

International entry modes

<p>exporting = products are sourced from the home country and sold in foreign contractual agreements = licensing: IP grants for compensation, franchise: rights to business for compensation foreign direct investment = A firm invests directly in facilties to produce and/or market a product in a foreign country. Joint ventures (shared), wholly-owned subsidiaries (total control) NA = NA</p> Signup and view all the answers

An acquisition is foreign direct investment into a firm that already exits

<p>True (A)</p> Signup and view all the answers

A new subsidiary is a foreign direct investment into a new firm

<p>True (A)</p> Signup and view all the answers

Advantages of the international entry modes

<p>exporting = ability to realise location and scale based economies contractual agreements = low development costs and risks FDI (joint venture) = access to partner knowledge, shared costs and risks, political dependency FDI (wholly owned subsidaries) = protection of tech,ability to realise location and scale based economies, global strategy coordination</p> Signup and view all the answers

Match the disadvantages to the international entry modes

<p>exporting = high transport costs and trade barriers contractual agreements = inability to realise location and scale based economies, lack of control of tech/quality, inability to engage in global strategy coordination FDI (joint venture) = inability to engage in global strategy coordination, inability to realise location and scale based economies, lack of control over tech FDI (wholly owned subsidiaries) = high costs and risk</p> Signup and view all the answers

Flashcards

Diversification

A strategy where a company expands into new markets and products, moving away from existing ones.

Why Diversify? (Risk Reduction)

Reducing risk by spreading investments across different industries, products, and markets.

Why Diversify? (Market Saturation)

When a company's current market becomes too saturated or competitive.

Why Diversify? (Excess Resources)

Using excess capabilities, resources, or expertise in new ventures.

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Why Diversify? (Investment Opportunities)

Seeking new investment opportunities and expanding into profitable areas.

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Why Diversify? (Synergies)

Combining strengths and resources from different areas to create a competitive advantage.

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Related Diversification

Expanding into businesses that are related to the company's existing activities, offering potential for sharing resources and capabilities.

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Synergies in Related Diversification

The potential for sharing resources like expertise, technology, or distribution channels to gain a competitive advantage.

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Risks of Related Diversification

Potential downsides of related diversification, including coordinating between different parts of the business, lack of true synergy, and limited ability to adapt to changing market conditions.

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Example of Related Diversification: "Paradores"

A hospitality company expanding into related areas like catering, local stores, and spa services to enhance the core hospitality experience.

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Unrelated Diversification

Expanding into entirely new product and market areas with no direct connection to the company's existing ones.

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Why Unrelated Diversify? (Risk Reduction)

Reducing risk by spreading investments across different industries to protect against fluctuations in one sector.

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Why Unrelated Diversify? (Greater Earnings)

Maximizing earnings by allocating financial resources to different, potentially more profitable, areas.

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Why Unrelated Diversify? (Resource Allocation )

Utilizing financial resources efficiently by investing in projects with the highest potential across different sectors.

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Risks of Unrelated Diversification

Potential downsides of unrelated diversification, including lack of synergy between businesses, difficulty acquiring specific skills, management challenges, and overcoming entry barriers in new industries.

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Example of Unrelated Diversification: "El Pozo"

A company expanding into construction, hotels, medical oils, natural parks, telecommunications, and construction again, representing unrelated diversification.

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Vertical Integration

A strategy where a company owns and controls various stages of the value chain, from securing raw materials to final distribution.

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Why Vertical Integrate? (Cost Advantages)

Achieving cost advantages by controlling the entire production and distribution process.

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Why Vertical Integrate? (Access to Inputs)

Gaining more direct control over the quality and availability of essential materials.

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Why Vertical Integrate? (Simplification)

Simplifying production and distribution operations by controlling the entire process.

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Why Vertical Integrate? (Cost Reduction)

Reducing costs by eliminating intermediaries and controlling all aspects of production and distribution.

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Why Vertical Integrate? (Transaction Costs)

Avoiding transaction costs by managing the entire workflow internally, leading to potential cost savings.

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Why Vertical Integrate? (Barriers to Entry)

Creating barriers to entry for competitors by controlling essential resources and stages of production.

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Risks of Vertical Integration

Potential downsides of vertical integration, including higher vulnerability to market fluctuations, increased difficulties in exiting certain parts of the business, limitations in innovation, and added organizational complexity.

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Development Strategies

Methods of company growth, including expanding into new markets, diversifying product offerings, and controlling more stages of the value chain.

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Cooperation

A strategy for developing business through collaboration, involving sharing resources and capabilities without creating a subsidiary relationship.

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Benefits of Cooperation

Advantages of cooperation, including access to needed resources, balancing efficiency and flexibility, mitigating risks, and learning from partners.

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Disadvantages of Cooperation

Potential downsides of cooperation, including compromising competitive position, losing autonomy, and incurring additional costs.

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Study Notes

  • Diversification is a strategy for expanding a business into new markets and products, moving away from current ones (Johnson, 2008)

  • Reasons for diversification include risk reduction, saturation of traditional markets, excess resources, investment opportunities, and synergies (Johnson, 2008)

  • Related diversification involves related activities with potential for sharing resources and capabilities, resulting in competitive advantage (Johnson, 2008)

  • Risks of related diversification include coordination costs, lack of synergies, and inflexibility (Johnson, 2008)

  • An example of related diversification is "Paradores," which expanded into catering, local stores, and spa services, related to their hospitality business (text)

  • Unrelated diversification involves entering new product and market activities with no direct link to current ones, to reduce risk, achieve greater earnings, and better allocate financial resources (Johnson, 2008)

  • Risks of unrelated diversification include absence of synergies, difficulty obtaining specific skills, managerial problems, and overcoming barriers to entry in new industries (Johnson, 2008)

  • An example of unrelated diversification is "El Pozo," which expanded into construction, hotels, medical oils, natural parks, telecommunications, and construction again (text)

  • Vertical integration is a strategy where a firm owns vertically related activities, extending ownership over successive stages of the value chain (Grant, 2010)

  • Reasons for vertical integration include cost advantages, access to inputs, simplification of production/distribution, cost reduction, elimination of transaction costs, and creation of barriers to entry (Grant, 2010)

  • Risks of vertical integration include increased firm risk, higher exit barriers, less ability to develop autonomous innovations, and organizational complexity (Grant, 2010)

  • Development strategies include consolidation, expansion, diversification, and vertical integration (text)

  • Cooperation is a method of development through agreements between firms to share resources and capabilities, without a subordinate relationship (text)

  • Advantages of cooperation include obtaining required resources, greater balance between efficiency and flexibility, limits on risks, and learning from partners (text)

  • Disadvantages of cooperation include undercutting a firm's competitive position, loss of autonomy, and costs (time, organizational complexity) (text)

  • Diversification is a strategy for expanding a business into new markets and products, moving away from current ones (Johnson, 2008)

  • Reasons for diversification include risk reduction, saturation of traditional markets, excess resources, investment opportunities, and synergies (Johnson, 2008)

  • Related diversification involves related activities with potential for sharing resources and capabilities, resulting in competitive advantage (Johnson, 2008)

  • Risks of related diversification include coordination costs, lack of synergies, and inflexibility (Johnson, 2008)

  • An example of related diversification is "Paradores," which expanded into catering, local stores, and spa services, related to their hospitality business (text)

  • Unrelated diversification involves entering new product and market activities with no direct link to current ones, to reduce risk, achieve greater earnings, and better allocate financial resources (Johnson, 2008)

  • Risks of unrelated diversification include absence of synergies, difficulty obtaining specific skills, managerial problems, and overcoming barriers to entry in new industries (Johnson, 2008)

  • An example of unrelated diversification is "El Pozo," which expanded into construction, hotels, medical oils, natural parks, telecommunications, and construction again (text)

  • Vertical integration is a strategy where a firm owns vertically related activities, extending ownership over successive stages of the value chain (Grant, 2010)

  • Reasons for vertical integration include cost advantages, access to inputs, simplification of production/distribution, cost reduction, elimination of transaction costs, and creation of barriers to entry (Grant, 2010)

  • Risks of vertical integration include increased firm risk, higher exit barriers, less ability to develop autonomous innovations, and organizational complexity (Grant, 2010)

  • Development strategies include consolidation, expansion, diversification, and vertical integration (text)

  • Cooperation is a method of development through agreements between firms to share resources and capabilities, without a subordinate relationship (text)

  • Advantages of cooperation include obtaining required resources, greater balance between efficiency and flexibility, limits on risks, and learning from partners (text)

  • Disadvantages of cooperation include undercutting a firm's competitive position, loss of autonomy, and costs (time, organizational complexity) (text)

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