Profitability (rate of return girm makes on investded capital) 

Profit growth (percentage increase in net profits over time) 

add value

lower costs

sell more in existing markets

expand internationally 

Quality

customer orientation

creativity

price

breadth of line 

pick viable position on efficiency frontier

configure internal operations 

have right organization structure 

primary

support 

production creation

r&d, production, marketing and sales, customer service

allows creation to occur

information systems, logistics, human resources 

expand their markets

realize location economies 

realize greater cost economies from experience effect

earn a greater return 

lower costs of value creation

differentiate product 

systematic reductions in production costs that occur over the life of a product 

-move down (lower cost)

spreading fixed costs 

utilizing production facilities 

increasing bargaining power with suppliers 

recognize that valuable skills can be applied

establish incentive system 

process of identifying new skills

act as facilitators 

Cost reductions-force firm to lower unit costs

locally responsive- firm to adapt its product meet local demand 

Producing universal needs

major competitors are based in low cost loc.

persistent excess capacity

consumers are powerful and low switching cost 

Difference in consumer tastes

difference in traditional practices

differences in distribution channels

host government demands 

global standardization

localization

transnationl

international 

achieve low costs through location economies, economies of scale, and learning effects 

differentiate the product offering 

the right resources

for the right markets

at the right time 

Zara global company

what are the three A's?

aggregation

adaptation

aribitrage 

Which markets to enter

when and what scale

which entry mode

Which forgein markets should enter?

politcally stable

free market system

low inflation rates

low private sector debt

poltically unstable

mixed or command economies

excessive levels of borrowing 

First mover advantage

pre-empt rivals

build up sales volume and ride down experience curve

create switching cost 

pioneering cost

cost of business failure

costs of promoting and establisihing 

strategic commitments

rivals to rethink market entry

lead to indigenous competitive response 

time to learn about market

reduce exposure risk 

transporation cost 

trade barriers

politcal risk

economic risk 

firm strategy

Exporting

turnkey projects

licensing 

franchising 

joint venture 

wholly owned subsidiaries 

avoids cost of establishing manufacturing opertions

may help achieve experience curve and location economies 

disadvantages of exporting

may compete with low cost location manufacturers 

possible high transporation cost

tariff barrier

lack of control 

can earn return on knowledge asset

less risky than FDI

no long term interest in foriegn country

may create a competitor 

may sell competitive advantage 

legal diffefrence

agreement basics

business relationship

control 

local partner knowlegde

costs and risks are shared

satisfy political consideration 

risks giving control to partner

not have tight control (experience and location economies)

conflicts and battle 

controlled by a separate higher entity 

Parent company owns 100% of common stock 

reduce risk of losing control 

give firm tight control

When competitive advantage is based on proprietary technological know-how

build subsidary from ground up

Better when: firms need to transfer

aquire an existing company 

When there are well-established competitors expanding 

overpays for acquired firm

culture clash

much longer than forecasted

inadequate pre-acquistion screening

well-established, incumbent firms

competitors interested in entry

embedded skills, routines, culture

no competitors 

Why are strategic alliances attractive?

facilitate entry into a foreign market

allow firms to share fixed costs and risk

bring together complementary skills and assets 

help firm establish technological standards 

partner selection

alliance structure 

the manner in which the alliance is managed 

increase market size and profits 

seek new opportunities 

identify market opportunities

deal with foreign exchange risk 

navigate import and export financing 

understand the challenges of doing business in foreign market 

issued by a bank at request of importer:

bank will pay a specified of moeny to beneficiary, normally exporter

order written by exporter: 

instructs importer to pay specified amount at specified time 

issued to the exporter by the common carrier transporting the merchandise

-receipt

-contract

-document of title 

gives firm a way to finance an export deal when other means not available

gives competitive edge 

may involve exchange of unusable or poor quality goods 

requires the firm to establish an in-house trading department 

barter

counterpurchase

offset 

switch trading

buybuy (compensation)

buyback compensation 

occurs when a firm builds a plant in a country and agrees to take a certain percentage of the plant's output as a partial payment 

production (primary)

logistics (support) 

disperse production to the most efficient locations 

manage the global supply chain efficiently to better match supply and demand 

country factors

technological factors

product factors 

Economic, political, cultural conditions most conducive 

-availability of skilled labor

-fomal and informal trade barriers

-expectations of future exchange rates 

-transporation costs

-regulations affecting FDI 

level of fixed cost

minimum efficent scale

flexibility of technology 

minimum efficient scale

-level of output at which most plant-level scale economies are exhausted 

establishing multiple production locations can make sense when both 

product's value-to-weight ratio

whether the product serves universal needs 

pressure to lower costs or respond to local markets 

increase in the availability of advanced factors of production 

Vertical integration 

1. lower costs 
2. facilitates investments in highly specialized assets
3. protects proprietary technology
4. facilitates the scheduling of adjacent process 

why buy

1. gives firm greater flexibility 
2. helps drive down the firm's cost structure 
3. helps the firm capture orders from international customers 

1. manage global supply at the lowest possible cost and in a way that best servces customers needs 
2. establish a competitive advantage through superior customer service 

1. facilitates the tracking of inputs 
2. allows firms to optimize its production schedule
3. lets the firm and its suppliers communicate in real time
4. eliminates the flow of paperwork between the firm and its suppliers 

product attributes

distribution strategy

communication strategy

pricing strategy 

geography

demography

socio-cultural factors

pyschological factors 

differences btween countries

existence of segments that transcend national borderse 

culture 

level of economic development 

product and technical standards 

retail concentration

channel length

channel exclusivity

channel quality 

channel exclusivity 

channel quality 

when retial sector is fragmented 

direct selling

sales promotion

direct marketing

advertising 

1. cultural barriers 
2. source and country of origin effects
3. noise levels 

consumer goods 

channels are long

sufficient print and electronic media 

price discrimination

strategic pricing

regulations that affect pricing decisions 

price discrimination

1. predatory pricing 
2. multi-point pricing
3. experience curve pricing 

price low world-wide in an attempt to build global sales volume as rapidly as possible 

-further along experience curve, cost advantage 

-learning effecs + economies of scale 

• be led by a project manager with status in organization
• include members 
• have members located together
• establish clear goals 
• develop effective conflict resolution 

1. firm's strategy
2. staffing
3. perfromance evaluation
4. management development
5. compensation
6. labor relations 

reduce costs of value craiton 

add value by better serving customer needs 

ethnocentric

polycentric

geocentric 

-fills key management positions with PCN (international strategy)

-limits advancements of HCN and lead to cultural myopia 

-recruits HCN and PCN for national positions (localization strategy)

-HCN limited opportunities

-gap between HCN and PCN 

seeks betst people (global and transnational) 

-can be limited by immigration laws and is costly 

premature return of an expatriate manager to HCN 

(cost between $250,000 and $1 million)

1. self-orientation
2. other-orientation
3. perceptual ability
4. cultural toughness 

-Fundamental attribute of global managers 

(cognitive complexity and cosmopoltian outlook)

-more weight should be given to an on-site managers 

-former expatriate who has served in the same location should be involved 

-home office managers should be consulted before an on-site manager 

1) how to adjust compensation to reflect differences in economic circumstances 

2) how to pay expatriate managers 

1) base salary

2) foreign service premium

3) various allowances 

4) tax differentials

5) benefits 

1. employment practices
2. human rights
3. environmental regulations
4. corruption
5. moral obligation of multinational companies 

which human rights are taken forgranted in developed countries?

freedom of...

1. association
2. speech
3. assembly
4. movement 

outlawed practice of paying bribes to foreign government officals in order to gain business

(does allow for payments tat are made to speed up standard procedures)

honorable and benevolent behavior:

give something back to the societies that have made their success possible 

1. personal ethics
2. organizational culture 
3. unrealistic performance goals
4. leadership
5. decision-making process 

1. friedmen doctrine
2. cultural relativism
3. righteous moralist
4. naive immoralist 

culturally determined and firms should adopt the ethics of the cultures in which they operate

"when in rome do as romans do"

righteous moralist 

multinational's HCN standards should be followed in foreign countries 

-eliminates a key reason for making investment in developing country: lower wages

1. hire well grounded people
2. organizational culture 
3. leaders articulate ethical behavior
4. develop moreal culture
5. put in decision making processes 

1. identify which stake holder (internal or external) 
2. determine whether decision would violate fundamental rights of any stakeholders 
3. establish moral intent 
4. engage in ethical behavior 
5. audit decisions and review them 

all employees are trained in ethics

ethics considered in decision-making process

company's code of conduct is followed

Have only a professional relationship

 (Most legal thing to do)

Mark as a personal expense and reimburse your employer

(honesty and fairness) 

Talk with your colleagues about your concerns and leave it at that?

(can't correct but could prevent it in the future)