89.
What is a core competence? Why is it essential to the success of the firm?
The term core competence refers to skills within the firm that competitors
cannot easily match or imitate. These skills may exist in any of the firm’s
value creation activities—production, marketing, R&D, human resources,
logistics, general management, and so on. Such skills are typically
expressed in product offerings that other firms find difficult to match or
imitate. Core competencies are the bedrock of a firm’s competitive
advantage. They enable a firm to reduce the costs of value creation and/or
to create perceived value in such a way that premium pricing is possible.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
90.
Explain the concept of location economies.
Location economies are the economies that arise from performing a value
creation activity in the optimal location for that activity, wherever in the
world that might be. For a firm that is trying to survive in a competitive
global market, basing each value creation activity it performs at that
location where economic, political, and cultural conditions are most
conducive to the performance of that activity will provide benefits to the
firm. As firms pursue location economies, they may also be in the process of
creating a global web of value creation activities, with different stages of
the value chain being dispersed to those locations around the globe where
perceived value is maximized or the costs of value creation are minimized.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
91.
Discuss the creation of a global web of value creation activities.
The creation of a global web of value creation activities involves different
stages of the value chain being dispersed to those locations around the
globe where perceived value is maximized or where the costs of value
creation are minimized. In theory, a firm that realizes location economies by
dispersing each of its value creation activities to its optimal location should
have a competitive advantage vis-à-vis a firm that bases all of its value
creation activities at a single location.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
92.
What is an experience curve?
The experience curve refers to systematic reductions in production costs
that have been observed to occur over the life of a product. A number of
studies have observed that a product’s production costs decline by some
quantity about each time cumulative output doubles.
93.
What are learning effects? When are learning effects most significant?
Learning effects refer to cost savings that come from learning by doing.
Labor, for example, learns by repetition how to carry out a task, such as
assembling airframes, most efficiently. Labor productivity increases over
time as individuals learn the most efficient ways to perform particular tasks.
Learning effects tend to be more significant when a technologically complex
task is repeated, because there is more that can be learned about the task.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
94.
How can firms successfully leverage the skills developed at the subsidiary
level?
Firms can successfully leverage skills developed at the subsidiary level by
doing four things. First, managers must have the humility to recognize that
valuable skills that lead to competencies can arise anywhere within the
firm’s global network, not just at the corporate center. Second, the firm
must establish an incentive system that encourages local employees to
acquire new skills. Third, managers must have a process for identifying
when valuable new skills have been created in a subsidiary. Finally,
managers must act as facilitators helping to transfer valuables skills within
the firm.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-02 Recognize how firms can profit by expanding globally.
Topic: Global Expansion, Profitability, and Profit Growth
95.
What are the two types of competitive pressures that firms competing in the
global marketplace face? How do firms respond to these pressures?
Firms that compete in the global marketplace typically face two types of
competitive pressure that affect their ability to realize location economies
and experience effects, to leverage products and transfer competencies and
skills within the enterprise. They face pressures for cost reductions and
pressures to be locally responsive. These competitive pressures place
conflicting demands on a firm.
Responding to pressures for cost reductions requires that a firm try to
minimize its unit costs. Responding to pressures to be locally responsive
requires that a firm differentiate its product offering and marketing strategy
from country to country in an effort to accommodate the diverse demands
arising from national differences in consumer tastes and preferences,
business practices, distribution channels, competitive conditions, and
government policies.
AACSB: Analytic
Blooms: Understand
96.
Discuss the factors that lead to pressure for local responsiveness.
There are many factors that contribute to the need for local responsiveness.
When consumer tastes and preferences differ significantly between
countries, a firm’s products and marketing message must be customized to
the local market. Differences in infrastructure and traditional practices
among countries may require the firm to delegate manufacturing and
production facilities to foreign subsidiaries. A firm’s marketing strategies
may have to be responsive to differences in distribution channels among
countries. Finally, economic and political demands imposed by host country
governments may require local responsiveness.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-03 Understand how pressures for cost reductions and pressures for local responsiveness influence
strategic choice.
Topic: Cost Pressures and Pressures for Local Responsiveness
97.
What are the four basic strategies that firms use to compete in international
markets?
The four basic strategies that firms use to compete in international markets
are the international strategy, the global standardization strategy, the
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Identify the different strategies for competing globally and their pros and cons.
Topic: Choosing a Strategy
98.
Describe localization strategy.
A localization strategy focuses on increasing profitability by customizing the
firm’s goods or services so that they provide a good match to tastes and
preferences in different national markets. This strategy is most appropriate
when there are substantial differences across nations with regard to
consumer tastes and preferences.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Identify the different strategies for competing globally and their pros and cons.
Topic: Choosing a Strategy
99.
Consider a transnational strategy. Why would a firm choose this strategic
alternative? What are the disadvantages of this strategy?
Firms that are pursuing a transnational strategy are trying to simultaneously
achieve low costs through location economies, economies of scale, and
learning effects; differentiate their product offering across geographic
markets to account for local differences; and foster a multidirectional flow
of skills between different subsidiaries in the firm’s global network of
operations. In essence, a transnational strategy requires a firm to
simultaneously achieve cost efficiencies, global learning, and local
responsiveness. This strategy makes sense when a firm faces high
pressures for cost reductions and high pressures for local responsiveness.
Building an organization that is capable of supporting a transnational
strategic posture is complex and difficult. It is difficult to pursue this
strategy because it puts conflicting demands on the company.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Identify the different strategies for competing globally and their pros and cons.
Topic: Choosing a Strategy
100.
Discuss the evolution of strategy. How does cost become important in the
long term?
An international strategy is typically not considered to be a sustainable
long-term strategy. Over time, more efficient competitors emerge, forcing
firms to make cost reductions or risk losing significant market share. To
survive, companies following an international strategy need to move toward
a global standardization strategy or a transnational strategy prior to the
emergence of competition. Similarly, a localization strategy is not
considered a long-term strategy. Instead, companies following a localization
strategy need to reduce their cost structures, and the only way to achieve
that are to move toward a transnational strategy.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 13-04 Identify the different strategies for competing globally and their pros and cons.
Topic: Choosing a Strategy