BA 361 Exam 3 Study Guide

Chapter 11: International Strategic Management

International Strategic Management: Planning process that aims at formulating and developing various
international strategies which are comprehensive frameworks for achieving a firms goals effectively
internationally.
Fundamental Questions:
What products and or services does the firm intend to sell?
Where and how will it make those product/services?
Where and how will it sell them?
Where and how will it acquire the necessary resources?
How does it expect to outperform its competitors?
Factors Affecting International Strategic Management
Language/Culture
Political and Legal Systems
Economy
Currencies
Accounting Systems
3 Goals and Sources of Competitive Advantage
1. Global Efficiencies:
Location Efficiencies= utilizing location that provides lowest production or distribution costs
Economies of Scale= high volume low cost
Economies of Scope= lowering production/marketing costs and enhancing bottom lines
2. Multination Flexibility: flexibility in the rapidly changing socio-political, economic, cultural
environments
3. Worldwide Learning

Strategic Alternatives
Home Replication Strategy: uses same core competencies and advantages in foreign markets as it did in home
market
Multi-domestic Strategy : Firm views itself as collection of independently operating market subsidiaries
Each market can customize products, marketing strategies, and operation
Effective when there are distinct differences among markets and coordination cost is high,
production cost is low
Global Strategy: firm views world as single marketplace
Standardized goods/services
Transnational Strategy: combines benefits of global scale efficiencies and responsiveness of multi-domestic
strategies

4 Components of International Strategy
1. Distinctive Competence: answers the question What do we exceptionally well compared to our
competitors?
2. Scope of Operations: answers the question Where are we going to conduct business?
Geographical region
Market or product niches within regions
Specialized Market Niches
Tied to distinctive competence scope will focus on regions or product lines it enjoys a
distinctive competence in
3. Resource Deployment: Answers question How will we allocate our resources to them?
Which product lines?
Which geographical line?
Determines relative priorities for firms limited resources
4. Synergy: Answers question How can different elements of our business benefit each other?
Whole is greater than the sum of the parts

Strategy Formulation: establishes goals and strategic plan to reach those goals International: which markets
to enter/how best to compete in each. Steps:

Develop Mission Statement Perform SWOT analysis Set Strategic Goals Develop Tactical Goals and
Plans Develop a Control Framework
Mission Statement
Clarifies purpose, values and strategic direction
Specifies: target customers and markets, principal products, geographical domain, core
technologies, concerns for survival, plans for growth and profitability, basic philosophy and
desired public image
SWOT Analysis: internal and External environmental scan
Strengths, Weaknesses, Opportunities, Threats
Strategic Goals : major objectives firm wants accomplish through particular course of action
Must be: achievable, challenging, measurable, time-limited
Tactical Goals/Plans : Focus on details of implementation
Middle mgmt issues
Examples: Hiring, compensation, distribution/ logistics
Control Framework: set of managerial/organizational processes that keep firm moving toward its strategic
goals


Levels of International Strategy








Corporate Level Strategy
Single- Business Strategy: focus on a sole business, product/service
Related Diversification: operates in several different but related businesses, industries, markets (most
common)
Unrelated Diversification: operates several unrelated industries and markets
*Advantages Related/Unrelated Diversification
Less dependence on single market less vulnerable to competitive or economic threats
Greater economies of scale
More efficient entry into additional markets
Business Level Strategy
Differentiation Strategy
Overall Cost Leadership Strategy: efficient operations lower costs than competitors
Focus Strategy: target specific typed of products for certain customer groups/regions
Functional Level Strategy
HR
R&D
Financial
Marketing
Operations


Chapter 13: Strategic Alliances

Strategic Alliance: business arrangement wherby two or more firms choose to cooperate for their
mutual benefit
Alliances help share costs
Provide lacking skills or advantages
Benefits of Strategic Alliances
Ease of Market Entry
Shared Risk
Shared Knowledge and Expertise
Synergy and Competitive advantage

Joint Venture: two or more firms join together to create a new business entity that legally separate and
distinct from its parents

Scope of Strategic Alliances
Comprehensive Alliances: partners participate in all facets of conducting business ( product
designmanufacturing and marketing)
B/c of complexity most organized as Joint Ventures
Narrowly Defined Alliances: Functional Based Alliances only involve one functional area of business



Types of Functional Based Alliances
Production Alliances: two or more firms each manufacture products/provide services in a
shared facility. May utilize facility partner already owns

Marketing Alliance: two or more firms share marketing services/expertise. Usually when one
partner is entering a new market the other one offers its assistance to introduce
and market product.

Financial Alliance: alliance of firms who want to reduce financial risk of a project. Equally shared
or otherwise mutual contribution

R&D Alliance: joint research to develop new product/ R&D Consortium: multiple organizations
that band together to research and develop new products

Implementation Issues of Strategic Alliances
Partner Selection: 4 factors to consider
1. Compatibility
2. Nature of partners products or services
3. Risk of partnership
4. Learning Potential
Form of Ownership: Usually takes form of corporation
Beneficial tax structure
Better Ownership arrangements and protection of assests

Approaches to Joint Management
Shared Management Agreements: each partner actively participates in management most difficult to
maintain
High level of coordination
Near perfect alliance agreements
Assigned Arrangement: one partner assumes primary responsibility for operations of alliance
Delegated Arrangement: (joint ventures) specific management delegated for control of the alliance so
partners are not directly involved

Pitfalls of Strategic Alliance





Chapter 12: Strategies for Analyzing and Entering Foreign Markets

Factors in Assesing New Market Opportunities
Product-market dimensions/ Major differences
Current/potential market sizes
Competition
Legal and political environment
Structural characteristics of market
Modes of Entry


Exporting Advantages and Disadvantages
Advantages
Low Financial Exposure
Gradual Market Entry
Acquire knowledge about local market
Avoid restriction on foreign investment
Disadvantages
Vulnerability to tariffs and NTBs
Logistics complexities
Potential conflicts with distributors
Motivations for Exporting
Proactive: pull a firm into foreign markets as result of opportunities there
Reactive: push firm into foreign markets






Forms of Exporting
Indirect Exporting: firm sells product to domestic custom that exports the product (original or
modified form
Also can sell to foreign firms local subsidiary who then exports product

Direct Exporting: sales to customers (distributers or end-users) located outside home country
Gains expertise about operating internationally and about the individual countries
Intra-corporate Transfers : sale of goods by a firm in one country to an affiliated firm in another
(40% of all US merchandise exports)

Additional Considerations for Exporting
Governmental Policies
Tariffs or other NTBs
Marketing Concerns
Differing image, distribution, and responsiveness
Logistical Considerations
Physical distribution costs of warehousing, packaging, transporting, and distributing goods
Distribution Issues

Exporting Intermediaries: 3rd party organizations that specialize in facilitating I/X
Handle transportation/documentation
Take ownership/responsibility for marketing and financing exports
*Japans Soga Soshas*: Japans leading trading companies
Far-flung operations
Easily accessed financing
Built in customer base from keiretsu customers least cost soliciting clients focus on
volume= Economies of scale
Other Intermediaries
Manufacturers Agents: solicit domestic orders for foreign manufacturers
Manufacturers Export Agents: foreign sales dept. for domestic manufacturers
Export/Import Brokers: bring together international buyers and sellers of std. commodities
Freight Forwarders: specialize in physical transportation of goods
Arrange customs documentation
Obtain transportation services

International Licensing
Licensing: firm (licensor) leases the right to use intellectual property technology, work
methods, patents and copyrights, brand names or trademarks to another firm (licensee) for a
fee
Little out-of pocket cost
Not advised for countries w/ weak IPR protection
Basic Issues in Intl Licensing
Setting the boundaries of the agreement
Establishing compensation rates
Agreeing on rights, privileges, and constraints in agreement
Specifying duration of the agreement


Intl Licensing Advantages/Disadvantages
Advantages
Low financial risks
Low-cost way to assess market potential
Avoid tariffs, NTBs, restriction on foreign investement
Licensee provides knowledge on local markets
Disadvantages
Limited market opportunities/profit
Dependence on license
Potential conflicts with licensee
Possibility of creating future competitor

Franchising: allows independent organization/entrepreneur(franchisee) to operate a business
under the name of another (franchisor) for a fee of course.
Franchisor provides franchisee with
Trademarks, operating systems, product reputations
Support services for advertising, training, quality assurance
Basic Issues in Intl Franchising
Does advantage exist in domestic market
Are success factors transferable to foreign locations
Has franchising been successful strategy in domestic markets
Intl Franchising Advantages and Disadvantages
Advantages
Low financial risks
Low cost way to asses market potential
Avoids tariffs, NTBs restrictions on foreign investment
More control than licensing
Franchise provides knowledge of local markets
Disadvantages
Limited market opportunities/profits
Dependence on franchisee
Potential conflicts w/ franchisee
Possibility of creating future competitor

Specialized Entry Modes
Contract Manufacturing: outsourcing of most or all manufacturing needs. Strategy reduces the
financial and HR firms need to devote to physical production
Advantages
Low financial risk
Minimize resources to manufacturing
Focus resources on other elements of value chain
Disadvantages
Reduced control (may affect quality, delivery)
Reduced learning potential
Potential public relations problems



Management Contracts: one firm provides managerial assistance, technical expertise, or
specialized services to another firm. Allow firms to earn additional revenue w/ out any
investment risk or obligation
Advantages
Focus on firms resources in are of expertise
Minimal financial exposure
Disadvantages
Potential returns limited by contract expertise
May transfer knowledge/techniques to contractee

Turnkey Projects: firm hires another to fully design, construct, and equip facility and purchaser
takes over when ready for operation
Advantages
Focus firms resources on its area of expertise
Avoid long term operational risks
Disadvantages
Financial risks cost overruns
Construction risks delays, problems with suppliers

Foreign Direct Investment: full ownership and control of assets in host countries, allows firm
increased control and increased profit potential.
Greenfield Strategy : building totally new facilities ground up
Acquisition Strategy: buying existing assets
Joint Ventures
Advantages
High profit potential
Maintain control over operations
Acquire knowledge of local market
Avoid tariffs NTBs
Disadvantages
High financial/managerial investment
High exposure to political risk
Vulnerability to restrictions on FDI
Greater managerial complexity














Chapter 16: International Marketing

Marketing: planning and executing conception, pricing, promotion, and distribution of ideas,
goods/services to create exchanges that satisfy individual and organizational objectives.
Marketing is its own integrated functional area affected by every other
organizational activity
Must support business strategy (Differentiation, Cost leadership, Focus)
Intl marketers confront two tasks
1. Capture Synergies among various markets
2. Coordinate marketing activities among those markets
The Marketing Mix


Issues
How to develop products
How to price products
How to distribute products

Key Decision Making Factors
Standardization Vs. Customization
Ethnocentric Approach: markets goods in international markets using same mix it uses
domestically
Polycentric Approach: customize mix in each market to meet individual needs of customers
Multi-domestic approach higher cost
Customer must be willing to pay higher price
Geocentric Approach: standardization of the market mix uses standard marketing approach for
every product in different markets



Standardized Intl Marketing
Advantages
Reduced costs
Centralized control
Efficiency in R&D
Economies of scale in production
Disadvantages
Ignores differentiating conditions
o Product use, buyer behavior, legal-politcal
Inhibits local marketing initiatives
Customized Intl Marketing
Advantages
Reflects different conditions
Disadvantages
Increased costs/inefficiencies
Inhibits central control
Reduced economies of scale


Marketing Mix: Product
Product: set of tangible factors (physical product/packaging) and intangible factors (installation
warranties etc.)
Factors Affecting Standardization of Product
Legal Forces
Labeling requirements, health standards
Target Customers
Industrial or Individual consumers
Economic Factors
Brand Names

Marketing Mix: Price
Pricing Policies
Standard Price Policy: charges same price for all products/service regardless of market
Usually used for goods easily tradable or transportable
Two-Tiered Pricing Policy: sets one price for domestic products and one price for all
international products
Market Pricing: customizes prices on a market-by-market basis
Most common and complex
Conditions
o Firm must: face different demand/conditions in markets and be able to prevent
arbitrage
Risks
o Damage to brand name
o Development of Gray market
o Consumer resentment against discriminatory prices


Factors Affecting Pricing Policy
Business Strategy
Competative Environment
Costs of Doing Business
Exchange Rate Fluctuations

Marketing Mix: Promotion
Promotion: all effort to enhance desirability of products (most culture bound of 4ps)
1. Advertising
2. Personal Selling
3. Sales Promotion
4. PR
Advertising Strategy
Message: Facts or impressions wanted to convey to customers
Medium: communication channel used to convey message
Extent of Globalization of Advertising
Personal Selling: making sales on the basis of person contacts
Advantages
Local sales reps understand local environment
Promotes close, personal contact w/ customers
Easier for firm to adopt valuable market information
Sales Promotion: specialized marketing efforts that offer incentive for behavior (store
promotions, sampling, direct mail campaigns etc.) Flexibility makes it ideal to fit market
Public Relations: efforts aimed at enhancing reputation and image of firm with the general public

Marketing Mix: Place
Distribution: process of getting products/services from firm customer
Issues
1. Physical transportation mode
2. Merchandising mode
The Distribution Channel Options



Chapter 17: International Operations Management

Intl Operations Management: set of activities an organization uses to transform different
kinds of inputs (materials, labor etc.) into final goods/services


Complexities of Intl Operations Management
Resources: where and how to obtain resources for production
Supply Chain Mgmt and Vertical Integration
Location: where to build admin facilities, sales offices, plants and how to design them
Logistics: modes of transportation and methods of inventory control
Forms of Operations Management
Production Management: tangible goods
Service Operations Management: intangible services

Acquisition of Resources
Supply Chain Management : processes and steps used to acquire various resources for
production (sourcing and procurement)
Affects : product cost, quality and internal demands for capital
Vertical Integration: extent to which firm either provides its own resources or obtains them from
other sources
Degree of integration determines whether firms make or buy resources for production







Make or Buy Options

Influence Factors for Make or Buy Decision
Size
Technological Expertise
Scope of Operations
Nature of Product
* All else equal decision based on whether resource can be obtained more cheaply than
producing it internally
Trade-offs in Make or Buy Decision
Flexibility
Investment
Risk
Control
Cost
Buy:
Reduced Financial and operating risk
Lower level of investment
Less cost free up capital for other investment
Flexibility to change suppliers
Make:
Increased control over quality, deliver, design changes, and costs

Location Decisions
Influencing Factors of Location Decisions
Country related issues
Resource availability
Cost (factors of production)
Infrastructure
o Construction
o Necessities and services for employees
Country of origin effects
Product-Related Issues
Value-to-weight Ratio: affects importance of transportation costs
o Low VTW ratio= multiple locations to minimize transportation costs
o High VTW ratio= single or few locations
Required Production Technology
Government Policies
Stability of political processes
National Trade Policies
Economic development incentives
Existence of foreign trade zones (FTZ): designated and controlled area where I/X receive
preferential tariff treatment
Organizational Issues
Business Strategy
o Cost leadership low-cost locations
o Product quality focused areas with skilled labor and managerial talent
Organizational Structure
Inventory Management Policies
o Distance and location impacts inventory levels especially when JIT mgmt is
adopted

International Logistics
Logistics: management of the flow of materials, parts, supplies and other resources from
suppliers to the firm, within the firm and the flow of finished products and services from firm to
the customer
Factors Distinguishing International/Domestic Logistics
Transport Distance
Number of Transport Modes
Complexity of regulatory environment

Service Operations
Managing Service Operations
Capacity Planning : deciding how many customers the firm will be able to serve at one time
Affects the quality of service able to be given
Location Planning
Most must be close to the customers they serve
Facilities design and layout
Proper look and layout Intl may cater to foreign identity and culture


Chapter 19: Human Resource Management

Human Resource Management : activities directed at attracting, developing and maintaining
the workforce necessary to achieve a firms objectives
Recruiting and selecting
Providing training and development
Appraising Performance
Providing Compensation and benefeits
Intl HR Differences
Differences in culture
Economic development
Legal Systems

International Staffing Needs
Managerial/ Executive Employees
Strategic and developmental issues
Non-Managerial
Cultural/political conditions
Legal conditions

Expertise Needs in Global Organizations
Product Line
Latest manufacturing techniques
R&D opportuinites
Competitors strategies
Functional Skills: accounting, logistics, marketing, manufacturing management
Strive to capture global economies of scale in manufacturing
Strive to capture synergies in marketing and production and financial
Individual Country Markets: Country Managers must understand factors like:
Local laws
Culture
Competitors
Distribution systems
Advertising
Global Strategy : High level executives need to formulate global strategy and control/coordinate
activities of product, functional, and country managers







Staffing Philosophy
Parent Country Nationals
Host Country
Third Country Nationals
Strategies for Staffing
Ethnocentric staffing model
Polycentric staffing model
Geocentric model
Phases in Acculturation
HoneymoonDisillusionmentAdaptationBiculturalism


Chapter 18: International Financial Management

Financial Issues in Intl Trade
Which currency to use for the transaction
When and how to check credit
Which form of payment to use
How to arrange financing

Methods of Payment
Payment in Advance : exporter receives the importers money prior to shipping the goods
Safest method from exporters perspective
Unfavorable for importer
Open Account: goods are shipped to importer prior to payment
Documentary Collection: commercial banks serve as agents to facilitate payment process
Letter of Credit: document issued by a bank contains its promise to pay the exporter on receiving
proof that the exporter has fulfilled all requirements specified in document
Credit Cards
Countertrade: firm accepts something other than money as payment for goods/services
Barter
Counter purchase
Buy-back
Offset purchase














Sight Drafts
1. Requires payment upon transfer of title to the goods from exporter to importer
2. When the bank in the importers country receives the bill of lading and the sight
draft from the exporters bank, it notifies the importer, which then pays the draft
3. On payment, the bank gives the bill of lading to the importer, which then can take
title to the goods

Bankers Acceptance: bank gets to hold the draft for short term loans and is able to utilize for
other financing operations
Trade Acceptance: exporter keeps A/R and can sell it or use other financing
Advantages and Disadvantages of Documentary Collection
Advantages
Reasonable fees
Enforcable debt instrument
Simple collections process
Prompt payment
Disadvantages
Refusal of shipments
Decline draft acceptance
Potential for default











Letter of Credit
Most reliable for payment


*Letters of Credit must be confirmed(guarantee by exporters bank as well) must be
irrevocable

Forms of Countertrade: payment in anything besides cash
Payment technique and sales strategy
Barter: trade one product for another
Counterpurchase: firm sells its products to another at one point in time and is compensated
with another product at some future point in time.
Buy-Back: one firm sells capital goods to a second and is compensated in the form of output
generates as a result of their use.
Offset purchase: part of an exported good is produced in the importing country

Foreign Exchange Exposure
Transaction Exposure: when financial benefits and costs of transaction can be affected by
exchange rate movements that occur after the firm is legally obligated to complete the
transaction
IIf you sell something and you are going to be paid in another currency if that currency
devaluates by the time you get paid = transaction risk exposure


Options To Responding to Transaction Exposure
Go naked
Buy a forward currency contract of currency future contract
Currency options
Acquire offsetting asset

Translation Exposure : impact on firms financial or accounting statements of fluctuations
in exchange rates that change the value of foreign currency
Economic Exposure: impact on the value of a firms operations due to unanticipated
exchange rate fluctuations

Working Capital
WC= Current Assets- Current Liabilities, the liquid assets (cash, inventory, receivables) that a
firm runs the business with
Managing Working Capital
Minimize working capital balances
o Centralized cash management
Minimize Currency Conversion Costs
o Netting and Pooling
Minimize ForEX risk