Chapter 8

Question 1

What is the global market

Answer 1

Companies of different nations trading goods and services, increasing intensity of competition

Question 2

What is the globalization of production

Answer 2

Lowers barriers to international trade and investment to disperse important important function of their production process around the world

Question 3

How are companies taking advantage of the lower barriers

Answer 3

Exploit national differences in cost and quality of factors of production to lower cost structure

Question 4

What do companies have been able to exploit

Answer 4

Land, capital, labour

Question 5

What is the globalization of markets

Answer 5

World economy

Question 6

What are important implications for competitions

Answer 6

1. Boundaries don’t stop at national borders
2. Intensified competitive rivalry in many industry, resulting to global industries battling each other
3. Increased threat of entry and intensity of rivalry

Question 7

What is a national competitive advantage

Answer 7

Nations possess based on factors available to them

Question 8

What are the global competitiveness of companies located within a nation based off of Michael Porter

Answer 8

1. Factor Endowments
2. Local Demand Conditions
3. Related and Supporting Industries
4. Firm Strategy, structure and rivalry

Question 9

What is a factor endowment

Answer 9

Labour, capital, raw materials, technological know how, management experience and entrepreneurship

Question 10

What are local demand conditions

Answer 10

Nations gain competitive advantage if their customers are demanding to meet high standards of product quality and produce innovative products

Question 11

What are the characteristics of home demand

Answer 11

Important in shaping attributes to create pressures for innovation and quality

Question 12

What are the competitiveness of related and supporting industries

Answer 12

Local companies are in the presence of internationally competitive suppliers or related industry

Question 13

What are the benefits of spill over

Answer 13

Businesses can spill over into a given industry and help achieve a strong competitive position internationally n

Question 14

What is intensity of rivalry

Answer 14

Different nations have different management ideologies which can help or not help them to build national competitive advantage

Question 15

What does Michael Porter say about the Intensity of Rivalry

Answer 15

1. Different nations have different management ideologies which can help or not help them to build national competitive advantage
2. Strong association between domestic rivalry and the creation and persistence of competitive advantage of an industry

Question 16

What is the domestic rivalry

Answer 16

Creates the pressure to innovate, improve quality, reduce costs and invest in upgrading factors

Question 17

What is a world class competitor

Answer 17

When rivalry compels companies to look for ways to improve efficiency, innovate, improve quality and reduce costs

Question 18

How do companies expand globally

Answer 18

1. Market their domestic goods in the international market
2. Realize location economies by spreading activities to locations they can be efficient
3. Realize greater cost economies from experience effects by serving from a central location
4. Earn a greater return to leverage valuable skills developed in foreign operations and transfer them to other operations

Question 19

What are the two competitive pressures

Answer 19

1. Cost reductions
2. Locally responsive

Question 20

How do companies minimize unit of costs

Answer 20

1. Have a favorable low cost location
2. Offer standardized product in the global marketplace
3. Outsource certain function to low cost foreign suppliers

Question 21

What are the pressures for local responsiveness

Answer 21

Companies have to differentiate its product offering and marketing strategy to accommodate the diverse demands from national differences

Question 22

What are the diverse demands that businesses have to keep in mind

Answer 22

1. Consumer tastes and preferences
2. Business practices
3. Distribution channels
4. Competitive conditions

Question 23

What is the European Union

Answer 23

Eurozone countries that have trade block

Question 24

What is USMCA

Answer 24

NAFTA

Question 25

How do companies choose their global strategy

Answer 25

1. Global standardization strategy 2. Location strategy 3. Transnational strategy 4. International strategy

Question 26

What is the globalization standardization strategy

Answer 26

1. Focus on increasing profitability by pursuing a low cost strategy on a global level 2. Companies don't try to customize products and marketing because this can raise costs

Question 27

What is a localization strategy

Answer 27

1. Focus on increasing profits by customizing products or services that provide a favorable match to taste preferences in different national or regional markets to increase value of the product in the local market 2. Higher pricing to recoup higher costs

Question 28

What is a transnational strategy

Answer 28

Achieves low costs, differentiates products across geographic markets, foster a flow of resources

Question 29

What is international strategy

Answer 29

1. Low cost pressure and low pressures for local responsiveness 2. Usually sells a product that serves universal needs, no significant competition

Question 30

What the 5 primary choices of entry mode

Answer 30

1. Exporting 2. Licensing 3. Franchising 4. Join ventures 5. Wholly owned subsidiaries

Question 31

What are the advantages of exporting

Answer 31

1. Avoids costs of establishing manufacturing operations in the host country 2. Company can increase scale economies from its global sales volume

Question 32

What are the disadvantages of exporting

Answer 32

1. Not appropriate there are lower cost manufacturing locations abroad 2. High transportation costs 3. Tariff

Question 33

What is licensing

Answer 33

1. An agreement arranged where a foreign licensee purchases the rights to produce a company's product in the licensees country for a negotiated fee 2. Licensee provides capital necessary to open operations

Question 34

What are the advantages of licensing

Answer 34

Company does not bear the development costs and risks associated with opening a foreign market

Question 35

What are the drawbacks of licensing

Answer 35

1. No tight control over manufacturing, marketing, strategic functions to realize both scale and location economies 2. Limits a company's ability to coordinate strategic moves across countries 3. Risks on technological knowhow to foreign companies 4. Licensee can degrade or damage the brand if it pursues strategies that are not in the best interests of the company

Question 36

What is franchising

Answer 36

Specialized form of licensing where the franchisor sells intangible property to the franchisee and they have to follow strict rules

Question 37

What is the franchisor and franchisee relationship

Answer 37

Franchisee assists the franchisee to run the business on an ongoing basis and receive loyalty payments based on percentage of franchisees revenues

Question 38

What are joint ventures

Answer 38

50/50 joint venture where each party takes 50% of the ownership stake and team of managers from both companies

Question 39

What are the benefits of joint ventures

Answer 39

1. Local partners knowledge of competitive conditions, culture, language, political and business systems 2. Development costs are shared 3. Political considerations

Question 40

What are the major disadvantages of joint ventures

Answer 40

1. Company yields the control of technology to its partner 2. Doesn't give the company the tight control over subsidies that it might need to realize experience curve

Question 41

What are wholly owned subsidaries

Answer 41

1. Parent company owns 100% of the sub 2. Company can set up a completely new operations in a country and acquire an established company to promote products

Question 42

What are the advantages of wholly owned subsidaries

Answer 42

1. Complete control of technological competency 2. Complete control of operations allowing it to take profits from one country to support competitive attacks 3. Best choice to realize location economies

Question 43

What are global strategic alliances

Answer 43

1. Cooperative agreements between companies from different countries that are actual or potential competitors 2. Contractual agreement on work on a strategic objective

Question 44

What are the benefits of global strategic alliances

Answer 44

1. Shared fixed costs of developing new products or processes 2. Bring together complementary skills and assets 3. Help establish technological standards for the industry

Question 45

What are location economies

Answer 45

Economic benefits arising from performing a value creation activity in an optimal location

Question 46

How to realize cost economies from global volume

Answer 46

1. Spread fixed costs with developing products over its global sales volume 2. Utilize its production facilities more intensively leading to higher productivity, lower costs and greater profitability 3. Increase the size of the enterprises, its bargaining power with supplier increases leading to bargain down the cost of key inputs and boost profitability

Question 47

What are the two effects of value creation activity

Answer 47

1. Lower costs of the value creation to help achieve a low cost position 2. Enable a company to differentiate its product offer which gives the option of charging premium

Question 48

How do you make strategic alliances work

Answer 48

1. Partner selection that helps company accomplish strategic goals, share the same vision and likely try to exploit 2. Alliance structure so that companies risk is not giving too much to the partner 3. Managing alliance from building interpersonal relationships between firms managers (relational capital)

Question 49

What is opportunism

Answer 49

Seeking ones own self interest

Question 50

What is a multinational company

Answer 50

Company that does business in two or more national markets