International Business

Context & Strategies

Final Exam Review

Forms of FDI Greenfield operations:

– Usually only when an appropriate target is unavailable.

Mergers and acquisitions:– Quicker to execute– Acquire valuable strategic assets– Believe in the ability to increase the efficiency of the

acquired firm.

Session 4: Ch. 7 Slide 23

A Key Point Mergers are marriages between firms.

– They can be dysfunctional, unequal, unfair, and can result in expensive break-ups.

– To have a successful merger 1) chose your partner wisely 2) communicate goals 3) have a good lawyer.

Photo source: “For Bank of America and Merrill, Love Was Blind” [1] http://www.bizjournals.com/baltimore/stories/2007/11/05/daily15.html[2] http://www.nytimes.com/2009/02/08/business/08split.html

Session 4: Ch. 7 Slide 24

Michael Porter states that there are two basic strategies for creating value and attaining a competitive advantage in an industry:– Low-Cost Strategy vs. Differentiation– Low Cost - value is created for the customer by

offering low priced products.– Differentiation – unique attributes that are valued by

customers and that customers perceive to be better than or different from the products of the competition

Strategic Positioning & Value Creation

Session 8: Ch. 12 and 13 – Slide 14

Experience Effects The experience curve refers to systematic reductions in

production costs that have been observed to occur over the life of a product

There are two explanations for the experience effect– Learning effects refer to cost savings that come from learning

by doing– Economies of scale refer to the reductions in unit cost achieved

by producing a large volume of a product The strategic significance of the experience curve is

clear; moving down the experience curve allows a firm to reduce its cost of creating value and increase its profitability

Making the first spacebox, is much more expensive than making the 1000th

Charge(U.S.)Spacebox

(China)

Session 8 – Chapter 12 -Slide 22

Session 8: Ch 12 and 13 – Slide 46

Vertical Differentiation Centralization:

– Facilitates coordination– Ensure decisions

consistent with organization’s objectives

– Top-level managers have means to bring about organizational change

– Avoids duplication of activities

Decentralization:– Reduces the burden on top

management– Motivational research

favors decentralization– Permits greater flexibility– Can result in better

decisions– Can increase control

Consult(Japan)

Shoes(Ethiopia)

Worldwide Product Divisional Structure Adopted by firms that are reasonably diversified Original domestic firm structure based on product division Value creation activities of each product division coordinated by

that division worldwide– Help realize location and experience curve economies– Facilitate transfer of core competencies

Problem: area managers have limited control, subservient to product division managers, leading to lack of local responsiveness

http://www.motorola.com/usSession 8 – Ch. 12 and 13 – Slide 52

Need for coordination follows the following order:

Impediments to Coordination– Differing goals and lack of respect– Different orientations due to different tasks– Differences in nationality, time zone, and distance– Particularly problematic in multinational enterprises with their

many sub-units both home and abroad

Integrating Mechanisms

Highest

Lowest

Transnational Strategy

Global Strategy

Localization Strategy

International Strategy

Session 8: Ch. 12 and 13 – Slide 56

Wholly Owned SubsidiaryThe parent firm owns 100% of the stock.Subsidiaries could be Greenfield

investments or acquisitionsAdvantages:

– No risk of losing technical competence to a competitor– Tight control of operations– Realize learning curve and location economies

Disadvantage:– Bear full cost and risk

Session 10: Chapter 14 - Slide 29

Partner SelectionGet as much information as possible on

the potential partnerCollect data from informed third parties

– Former partners– Investment bankers– Former employees

Get to know the potential partner before committing

Session 10: Chapter 14 - Slide 39

1. Ethnocentric Policy Key management positions filled by parent-

country nationals (belief: Home country skills are superior)

Advantages:– Overcomes lack of qualified managers in host nation– Unified culture– Helps transfer core competencies

Disadvantages:– Produces resentment in host country– Can lead to cultural shortsightedness

Session 10: Chapter 18 - Slide 69

2. Polycentric Policy Host-country nationals manage subsidiaries Parent company nationals hold key headquarter

positions (belief: each host country is unique) Advantages:

– Alleviates cultural shortsightedness– Inexpensive to implement– Helps transfer core competencies

Disadvantages:– Limits opportunity to gain experience of host country nationals

outside their own country– Can create gap between home and host country operations

Session 10: Chapter 18 - Slide 70

3. Geocentric Policy Seek best people, regardless of nationality (belief: there

are both similarities and differences) Advantages:

– Enables the firm to make best use of its human resources– Equips executives to work in a number of cultures– Helps build strong unifying culture and informal management

network Disadvantages:

– National immigration policies may limit implementation– Expensive to implement due to training and relocation– Compensation structure can be a problem

Session 10: Chapter 18 - Slide 71

The Expatriate Problem Expatriate: citizens of one country working in

another– Expatriate failure: premature return of the expatriate

manager to his/her home country Cost of failure is high: estimate = 3X the expatriate’s annual

salary plus the cost of relocation.

Session 10: Chapter 18 - Slide 73

Should a firm make or buy the component parts that go into their final product?

Issues to consider:– Costs

Does a more efficient producer exist?– Trust

Is there a producer you trust? How high is the need for trust?– Improved scheduling

Does the control make scheduling easier or does it make things more cumbersome to manage?

– Offsets Example: Before Air India places a large order with Boeing, the

Indian government might ask Boeing to push some of the subcontracting work to Indian manufacturers.

Make or Buy Decisions

Session 11: Chapter 16 -Slide 32

Distribution Strategy Optimal channel for delivering a product to the consumer Retail concentration (Concentrated vs. Fragmented)

– Concentrated system (a few retailers supply most of the market) Common in developed countries Contributing factors: increase in car ownership, number of households with

refrigerators and freezers, and two-income households– Fragmented system (small retailers without much market share supply

the market) Common in developing countries Contributing factors: great population density with large number of urban

centers, e.g. Japan Uneven or mountainous terrain, e.g. Nepal

Channel length (Long vs. Short)– Example a short distribution channel is where the producer sells directly

to the consumer. (Channel length is longer in Fragmented Markets) Channel exclusivity

– Japan - exclusive systems because personal relations, often decades old, play an important role in stocking products

Session 11: Ch. 17 - Slide 59

Integrating R&D, Marketing and Production Integrating R&D, production and marketing

ensures– Project development driven by customer needs– New products are designed for ease of manufacture– Development costs are kept in check– Time to market is minimized

Session 11: Chapter 17 - Slide 73

Last Optional Friday Review Session Harvard Hall 202 1:00 – 3:30pm

All review notes are posted on the course website:

– http://my.summer.harvard.edu/icb/icb.do?keyword=k62285

Final Exam A “Study sheet” of 1 page (front and back is allowed) 75% 50 multiple choice questions (all chapters covered post-

midterm)– Primary sources for final exam questions: 1) Online Quiz, Friday Review

notes, Final Exam Review 25% Essay Questions

– Grad students - Answer 5 essay questions– Undergrad students - Answer 3 essay questions

Location & Time Final Exam Harvard Hall 202 Both Sessions 1 & 2: 6:30pm – 9:30pm

If you have a conflict please let us know and contact Academic Services

– 617-495-7928 or jennifer_crowley@harvard.edu.