RSM490 Final Notes.docx

21 Pages
Unlock Document

University of Toronto St. George
Rotman Commerce
Prof.Jan Klakurka

9. Growing and Internationalizing the Entrepreneurial Firm 10/30/2012 3:55:00 PM  Small and Medium Sized Enterprises (SME): firms with fewer than 500 employees in the US and with fewer than 250 employees in the EU  Entrepreneurship: the identification and exploitation of previously unexplored opportunities  Entrepreneurs: founders and owners of new businesses or managers of existing firms  International Entrepreneurship: a combination of innovative, proactive and risk-seeking behaviour that crosses national borders and is intended to create wealth in organizations  An entrepreneurial firm must take the VRIO framework (value, rarity, imitability and organizational)  Growing the entrepreneurial firm  Growth  Innovation  Financing o Microfinancing: a practice to provide micro loans ($50-300) used to start small businesses with the intention of ultimately lifting the entrepreneurs out of poverty  Internationalization  Internationalization  Born global: start-up companies that attempt to do business abroad from inception  Compared to domestic, transaction costs are higher for internationalization  International Strategies for entering foreign markets o Direct exports  The sale of products made by firms in their home country to customers in other countries  Letter of credit (L/C): a financial contract that states that the importer’s bank will pay a specific sum of money to the exporter upon delivery of the merchandise  Transactions are facilitated by banks on both sides and reduce transaction costs o Franchising/licensing  Licensing: Firm A’s agreement to give Firm B the rights to use A’s proprietary technology or trademark for a royalty fee paid to A by B. This is typically done in manufacturing industries  Franchising: firm A’s firm A’s agreement to give firm B the rights to use A’s proprietary assets for a royalty fee paid to A by B. This is typically done in service industries o Foreign direct investment (FDI)  Stage model: model of internationalization that portrays the slow step by step process an SME must go through to internationalize its business  International strategies for staying in domestic markets o Export indirectly: a way to reach overseas customers by exporting through domestic-based export intermediaries  Export intermediaries: a firm that performs an important middleman function by linking domestic sellers and foreign buyers that otherwise would not have been connected o Become suppliers for foreign firms o Become licensees or franchisees of foreign brands o Become alliance partners of foreign direct investors o Harvest and exit through sell offs 10. Entering Foreign Markets 10/30/2012 3:55:00 PM  Liability of foreignness  Numerous differences in formal and informal institutions govern the rules of the game in different countries  Discrimination against foreign firms  Where to Enter?  Two set of considerations drive the location of foreign entries o Strategic goals o Cultural and institutional distances  Location-Specific Advantages and Strategic Goals o Location specific advantages: benefits a firm reaps from the features specific to a place o Natural resources seeking: possession of natural resources and related transport and communication infrastructure o Market seeking: abundance of strong market demand and customers willing to pay o Efficiency seeking: economies of scale and abundance of low cost factors o Innovation seeking: abundance of innovative individuals, firms and universities  Cultural/Institutional Distances and Foreign Entry Locations o Cultural distance: the difference between two cultures along identifiable dimensions such as individualism o Institutional distance: the extent of similarity or dissimilarity between the regulatory, normative and cognitive institutions of two countries  When to Enter?  First mover advantages: benefits that accrue to firms that enter the market first and that late entrants do not enjoy o Proprietary technology o Preemptive investments o Erect significant entry barriers for late entrants o Avoidance of clash with dominant firms at home o Relationships with key stakeholders such as customers and governments  Late mover advantages: benefits that accrue to firms that enter the market later and that early entrants do not enjoy o Opportunity to free ride on first mover investments o Resolution of technological and market uncertainty o First mover’s difficulty to adapt to market changes  How to Enter?  Scale of Entry: the amount of resources committed to entering a foreign market  Drawbacks of huge commitment? o Limited strategic flexibility elsewhere o Huge losses if these large scale bets turn out to be wrong  Small commitment – difficulties in building market share and capturing first mover advantages  Modes of Entry: The First Step on Equity VS Nonequity Modes o Mode of entry: method used to enter a foreign market o Nonequity modes: a mode of entry (exports and contractual agreements) that tends to reflect relatively smaller commitments to overseas markets o Equity mode: a mode of entry (JV and WOS) that indicates a relatively larger, harder to reverse commitment  Modes of Entry: the second step on making actual selections o Non Equity Modes  Exports  Direct exports  Indirect exports  Exporting through domestically based export intermediaries  Others  Contractual agreements  Licensing/franchising  Turnkey projects: a project in which clients pay contractors to design and construct new facilities and train personnel  Drawbacks o If foreign clients are competitors, selling them state of the art technology through turnkey projects may boost their competitiveness  Build-operate transfer (BOT) agreement: a nonequity mode of entry used to build a longer term presence by building and then operating a facility for a period of time before transferring operations to a domestic agency or firm  R&D contracts: outsourcing agreement in R&D between firms  Co-marketing: efforts among a number of firms to jointly market their products and services o Equity Modes (FDI)  JV: a new corporate entity created and jointly owned by two or more parent companies  Minority JV  50/50 JV  Majority JV  Strategic Alliance  Wholly owned subsidiaries (WOS): a subsidiary located in a foreign country that is entirely owned by the parent multinational  Green fields: building factories and offices from scratch  Acquisitions  others 11. Managing Global Competitive Dynamics 10/30/2012 3:55:00 PM  competitive dynamics: actions and responses undertaken by competing firms  competitor analysis: the process of anticipating rivals’ actions in order to both revise a firm’s plan and prepare to deal with rivals’ response  Competition, Cooperation and Collusion  Collusion: collective attempts between competing firms to reduce competition  Tacit collusion: firms indirectly coordinate actions by signaling their intention to reduce output and maintain pricing above competitive levels  Explicit collusion: firms directly negotiate output and pricing and divide markets  Cartel (trust): an output and price fixing entity involving multiple competitors  Antitrust laws: laws in various countries that outlaw cartels  Prisoners’ dilemma: in game theory, a type of game in which the outcome depends on two parties deciding whether to cooperate or to defect  Game theory: a theory that studies the interactions between two parties that compete and/or cooperate with each other  Concentration ratio: the percentage of total industry sales accounted for by the top four, eight, or twenty firms  Price leader: a firm that has a dominant market share and sets acceptable prices and margins in the industry  Capacity to punish: sufficient resources possessed by a price leader to deter and combat defection  Market commonality: the overlap between two rivals’ markets  Multimarket competition: firms engage the same rivals in multiple markets  Mutual forbearance: multimarket firms respect their rivals’ spheres of influence in certain markets and their rivals reciprocate, leading to tacit collusion  Cross market retaliation: retaliatory attacks on a competitors’ other markets if this competitor attacks a firm’s original market  Institutions Governing Domestic and International Competition  Formal Institutions Governing Domestic Competition: a Focus on Antitrust o Competition policy: government policy governing the rules of the game in competition o Antitrust policy: government policy designed to combat monopolies and cartels o Collusive pricing setting: price setting by monopolists or collusion parties at a level higher than the competitive level o Predatory pricing: an attempt to monopolize a market by setting prices below cost and intending to raise prices to cover losses in the long run after eliminating rivals  Formal Institutions Governing International Competition: Focus on Antidumping o Dumping: an exporter selling goods below cost o Antidumping: laws that make it illegal for an exporter to sell goods below cost abroad with the intent to raise prices after eliminating local rivals  Resources and Capabilities Influencing Competitive Dynamics  Value  Rarity  Imitability  Organization  Resource Similarity: the extent to which a given competitor possesses strategic endowment comparable, in terms of both type and amount, to those of the focal firm  Attack, Counterattack and Signaling  Attack and Counterattack o Attack: an initial set of actions to gain competitive advantage o Counterattack: a set of actions in response to attack  Three drivers of counter attack: awareness, motivation and capabilities o Blue Ocean strategy: strategy that focuses on developing new markets and avoids attacking core markets defended by rivals which is likely to result in a bloody price war or a red ocean  Local Firms VS Multinational Enterprises  Defender: strategy that centers on local assets in areas in which MNEs are weak  Extender: strategy that centers on leveraging homegrown competencies abroad  Dodger: strategy that centers on cooperating through JV with MNEs and sell offs to MNEs  Contender: strategy that centers on a firm engaging in rapid learning and then expand overseas 12. Making Alliances and Acquisition Work 10/30/2012 3:55:00 PM  Strategic Alliance: a voluntary agreement between firms involving exchange, sharing or co-developing of products, technologies or services  Contractual (non-equity based) alliances: alliances between firms that are based on contracts and do not involve the sharing of ownership  Equity based alliances: alliances based on ownership of financial interest between firms  Strategic investment: one firm invests in another as a strategic investor  Cross-shareholding: both firms invest in each other to become cross- shareholders  Acquisition: transfer of the control of operations and management from one firm to another, the former becoming a unit of the latter  Merger: the combination of operations and management of two firms to establish a new legal entity  Institutions, Resources, Alliances and Acquisitions  Institutions, Alliances and Acquisitions o Formal institutions  Antitrust and entry mode concerns o Informal Institutions  Normative and cognitive pillars  Resources and Alliances o Value  Real option: an investment in real operations as opposed to financial capital o Rarity  Relational (collaborative) capabilities: capability to successfully manage interfirm relationships o Imitability  Firm and alliance level  Learning race: a situation in which alliance partners aim to outrun each other by learning the tricks from the other side as fast as possible o Organization  Resources and Acquisitions o Value  Acquisition premium: the difference between the acquisition price and the market value of target firms o Rarity o Imitability o Organization  Strategic fit: the effective matching of complementary strategic capabilities between firms  Organizational fit: the similarity in cultures, systems and structures between firms  Formation of Alliances  Stage 1: decide if growth can be achieved strictly through market transactions, through acquisitions or through cooperative alliances  Stage 2: whether to contract or equity approach  Stage 3: specify the relationship  Evolution and Dissolution of Alliances  Combating opportunism o Walking off critical capabilities o Swapping critical capabilities through credible commitments  Evolving from corporate marriage to divorce o Initiator: the party who begins the process of ending the alliance o Initiation -> going public -> uncoupling -> aftermath  Performance of Alliances  Factors that measure alliance performance o Equity o Learning and experience o Nationality o Relational capabilities  Motives for Acquisitions  Synergistic  Hubristic o Hubris: over-confidence in one’s capabilities  Managerial motives o Managers’ desire for power, prestige and money which may lead to decision that do not benefit the firm overall in the long run 13. Strategizing, Structuring and Learning around the World 10/30/2012 3:55:00 PM  Pressures for Cost Reductions and Local Responsiveness  Integration-responsiveness framework: a framework of MNE management on how to simultaneously deal with two sets of pressures for global integration and local responsiveness  Local responsiveness: the necessity to be responsive to different customer preferences around the world  Four Strategic Choices that lead to cost reduction and local responsiveness  Home replication strategy: a strategy that emphasizes the replication of home country-based competencies in foreign countries  Localization (multidomestic) strategy: a strategy that focuses on a number of foreign countries/regions, each of which is regarded as a stand-alone local(domestic) market worthy of significant attention and adaptation o High costs due to duplication of efforts
More Less

Related notes for RSM490H1

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.