Global Strategy and Profit Growth

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Questions and Answers

What is primarily transferred through international expansion to earn greater returns?

Raw materials

Market share

Distinctive competencies (correct)

Local consumer preferences

Which trend does not characterize the shift towards globalization?

Decrease in industry boundaries

Growth of national market monopolies (correct)

Decline in barriers to trade and investment

Increased competition across industries

What does cost economies from global volume primarily help to achieve?

Lower unit costs (correct)

Increased employee wages

Higher product quality

Higher transportation costs

What is a key advantage of location economies for global companies?

Optimal value creation activities Signup and view all the answers

What might compel a firm to prioritize local responsiveness over cost reductions?

Highly differentiated local markets Signup and view all the answers

Which factor is considered when leveraging global subsidiaries for location economies?

Political and economic risks Signup and view all the answers

What is a consequence of industries becoming global in scope?

Intensified competition among firms Signup and view all the answers

What type of products experience the greatest pressures for cost reductions?

Commodity-type products Signup and view all the answers

What is the main advantage of transferring products internationally?

Leveraging existing skills and products Signup and view all the answers

In which scenario is a localization strategy most appropriate?

When consumer tastes differ substantially across nations Signup and view all the answers

What challenge arises from the need for local responsiveness?

It generally increases costs. Signup and view all the answers

Which factor can lead to pressures for cost reductions?

Competitors located in low-cost regions Signup and view all the answers

What best describes a standard globalization strategy?

Pursuing a low-cost strategy on a global scale Signup and view all the answers

What influences local responsiveness pressures?

Differences in infrastructure and traditional practices Signup and view all the answers

What is a consequence of excess capacity in an industry?

Pressures for cost reductions intensify Signup and view all the answers

Which of the following is NOT a factor leading to local responsiveness pressures?

Rapid global market changes Signup and view all the answers

What is a characteristic of a transnational strategy?

It simultaneously achieves low costs and differentiates across markets. Signup and view all the answers

What is a key factor in determining the long-run profit potential of overseas markets?

The size of the market and purchasing power of consumers. Signup and view all the answers

Which of the following best describes first-mover advantages?

They allow a company to preempt competitors. Signup and view all the answers

What is the preferred entry mode when a company wants to minimize the risk of losing control over technological know-how?

Wholly-Owned Subsidiaries Signup and view all the answers

What is a disadvantage of entering a market on a large scale?

It can have long-term impacts that are difficult to reverse. Signup and view all the answers

Which entry mode usually involves a foreign licensee covering most overseas capital costs?

Licensing Signup and view all the answers

Which entry mode is typically characterized as a 50/50 venture?

Joint Ventures Signup and view all the answers

What advantage do global strategic alliances provide to companies?

Facilitation of entry into a foreign market Signup and view all the answers

What describes franchising as an entry mode?

It mandates strict adherence to business rules by the franchisee. Signup and view all the answers

What is an example of a disadvantage of first-mover disadvantages?

Facing high pioneering costs. Signup and view all the answers

In which situation would a company likely pursue exporting along with a wholly-owned subsidiary?

When there are significant cost pressures Signup and view all the answers

What is a notable disadvantage of entering into global strategic alliances?

Loss of proprietary knowledge Signup and view all the answers

Which factor should be balanced when considering market entry?

Benefits, costs, and risks of doing business. Signup and view all the answers

Which method of entry is preferred for companies with strong management know-how?

Franchising and Joint Ventures Signup and view all the answers

What is a common risk associated with global strategic alliances?

Loss of competitive advantage through shared technology Signup and view all the answers

What is one of the key reasons for selecting a wholly-owned subsidiary as an entry mode?

Total control over operations and risks Signup and view all the answers

What is the primary factor for the success of international strategic alliances?

Partner selection Signup and view all the answers

Which aspect is NOT a component of effective alliance management?

Sharing proprietary technology Signup and view all the answers

What factor helps to guard against opportunism in an alliance agreement?

Alliance structure Signup and view all the answers

Which of the following describes a successful partnership perspective on alliances?

An opportunity to learn and grow Signup and view all the answers

What is a significant reason for the high failure rate of international strategic alliances?

Ineffective partner selection Signup and view all the answers

Study Notes

Global Strategy

International expansion is a way of maximizing returns by leveraging skills and product offerings in markets where local competitors lack these advantages.
Globalization impacts industries, shifting boundaries beyond national borders and intensifying competition across industries.
Cross-border trade and investment barriers are declining, opening up previously protected markets to international companies.

Profit Growth Through Global Expansion

Expanding markets leverages home-developed products and services through international sales.
Utilizing distinctive competencies in production and marketing is crucial.
Globally scaled operations provide economies of scale, leading to reduced unit costs
Location economies are achieved by performing value-creation activities in the optimal locations (e.g., leveraging skills of global subsidiaries).
Transportation costs, trade barriers, political and economic risks need thoughtful consideration.

Pressures for Cost Reduction and Local Responsiveness

Cost Reductions: Intense in commodity-type product industries where pricing is the primary competitive factor and non-price factors are less important.
Cost reductions are driven by low-cost locations, powerful consumers, and low switching costs. Excess industry capacity also fuels cost pressures.
Local Responsiveness: Greatest pressures arise from variations in consumer tastes and preferences, diverse infrastructure and traditional practices, differing distribution channels, and host government demands.

Choosing a Global Strategy

Standard Globalization Strategy: A low-cost strategy that leverages economies of scale and location economies, where local responsiveness isn't crucial .
Localization Strategy: A strategy to customize goods/services to match country-specific tastes and preferences, appropriate when significant differences exist across markets and cost pressure is manageable.
Transnational Strategy: A complex strategy that seeks to achieve low costs and differentiation, simultaneously. This strategy mandates the flow of skills between subsidiaries.
International Strategy: A strategy to sell products tailored to universal needs where there is minimal need to differentiate and limited competition.
Tight control over marketing and product strategy by the head office is common.

Basic Entry Decisions

Market Entry: Assessing long-term profit potential (market size, consumer purchasing power) while weighing costs and risks associated with market entry.
Timing: Considering first-mover advantages (preempting competition, building market share), versus first-mover disadvantages (pioneering costs).
Scale of Entry: The benefits and drawbacks of large-scale (major strategic commitment) versus small-scale market entry need to be carefully evaluated.

Choice of Entry Mode

Exporting: Beginning global expansion as an exporter, with potential later shifts to other modes, such as licensing, franchising, joint ventures, or wholly-owned subsidiaries.
Licensing: A foreign licensee purchases rights to produce a company's product, providing a lower capital investment to start in a new market.
Franchising: A more specific form of licensing where the franchiser demands strict adherence to business practices.
Joint Ventures: A 50/50 joint venture is one favored mode for entering new markets.
Wholly Owned Subsidiaries: The parent company owns 100% of the subsidiary's stock.

Advantages and Disadvantages of Entry Modes

Exporting: Advantages include economies of scale, disadvantages include high transport costs, trade barriers, and potential issues with local marketing agents.
Licensing: Advantages include low development costs and risks, but with disadvantages of restricted control over technology, quality, and strategic coordination.
Franchising: Similar advantages to licensing (low costs and risk) with disadvantages of lack of control over technology, quality, and strategic coordination.
Joint Ventures : Advantages are shared development, risk, and knowledge, but disadvantages include reduced control over technology, quality, and coordination.
Wholly Owned Subsidiaries: High costs and risks, are disadvantages, but this structure provides complete control over technology and coordination.

Choosing Among Entry Modes

Distinctive Competencies: Technological know-how benefits from wholly-owned subsidiary, while management know-how may favor franchising, joint ventures, or subsidiaries.
Cost Reduction: Exporting and wholly-owned subsidiaries are often best solutions when dealing with high cost pressures.

Global Strategic Alliances

Cooperative Agreements: Collaborative agreements among companies from different countries, potentially ranging from contractual arrangements to joint ventures.
Advantages: Ease of entry, sharing costs, access to skills and assets, and establishing industry standards.
Disadvantages: Possibility of technology or market access leakage, while opportunism by alliance partners needs to be monitored, and managed accordingly.

Making Strategic Alliances Work

Partner Selection: Selecting partners who align with strategic goals and avoid exploitation in alliances. Thorough partner screening is crucial.
Alliance Structure: Adequate risk control, guarding against opportunism by alliance partners is needed.
Alliance Management: Effective alliance management requires sensitivity to cultural differences and interpersonal relationship skill building to achieve mutually beneficial goals.

Structuring Alliances

Opportunism Prevention: Reducing the potential harm from opportunistic behavior (expropriation of technology or market access) through well-defined contractual safeguards, skillful technology protection, and alliance partner selection for credibility.

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Description

This quiz explores the concepts of international expansion and globalization impacting industries. It highlights the strategies for profit growth through leveraging distinctive competencies and economies of scale. Additionally, it examines the factors such as location economies and risks associated with global operations.