Liability of Foreignness and Regionalism - Essay Example

Liability of Foreignness and Regionalism: The concept of Liability of Foreignness was coined by the economist Stephen Hymer in 1960, when studying about Multi National companies. He defines this concept simply as the “costs of doing business abroad.” Different regions may vary in terms of culture, social behavior, economic and legal systems. A particular way of social behavior that is acceptable to one country or region may be totally unacceptable elsewhere.. An international strategy, when implemented will have far reaching consequences, and hence formulating international strategies, such differences have to be taken into consideration. Taking these factors lightly may result in situations that may ultimately lead to strained relationships or even hostility. 2. What is a corporate strategic alliance and why would a company want to develop one? Are strategic alliances necessary for a company to expand internationally? Grading Criteria Maximum Points Corporate strategic alliance There are two main advantages in forming alliances. The first is to obtain latest technology and gain market advantage. The second is to save on expenditure and investment required to increase sales and revenue. Corporate strategic alliance can be defined as “a relationship between two or more firms involving the sharing of complimentary disciplines, technologies, products, organizational structures, marketing channels and/or financial resources” (Nester, 2003. The foreign company stands to gain in forming an alliance. Lack of familiarity with the culture of the host country, understanding and complying with the laws of the host country, the distance between the home country and host country, the unwritten laws prevailing, the political relationships between the two countries or regions, dealing with bureaucracy, corruption and level of transparency are some of the problems faced. A strategic alliance is not necessary, but if problems of the above nature exist it is better to have one. It is unavoidable if prevailing law in the host country deems it necessary. Case Study – Dell in China: Use Porters Five Forces Model to analyze the PC industry in China. Given this analysis, is the industry attractive or unattractive? Strategic management concept is mainly consists of four elements like situation analysis, formulation of strategy, its implementation, and evaluation of such strategy in an effective manner. Porter’s five force model like supplier power, buyer power, obstacle to enter, competition, and risk of substitutes etc. are also very effective in this regard. Here supplier power means the ability of the suppliers to enhance the price of commodities. But on the other hand, the buyer power refers to the ability of the buyers to bring down the prices to certain extend for enhancing the buying power. Threat of competitors’ entry means bringing down the profit made by the existing entities with the entrance of new firms. Competition or rivalry another key factor of Porter’s model. Threat regards to the introduction of substitute products means the chance of reducing the usage of the own products. Which competitor is Dells main rival? How shielded are Dells competitive advantages? Evaluate Dells tangible and intangible resources? Which are more important as a source of competitive advantage? Why? What are the main capabilities of Dell? Does Dell have a core competence? The general environment in china is playing a significant role for the development of effective strategic management in their economy. By taking in to consideration the previous events, it is very clear that the Chinese economy is having a better cultural attitude and business strategies for enhancing their economic power. By speaking about the Dell in China, it is clear that the company had attained an outstanding success in their business, mainly with the help of their strategic principles. Chinese economy is considered to be one of the leading or developing economy in the world. Being an acknowledged manufacturing as well as an exporting country, the economic development in China is quite amazing. From the financial situation presently prevailing in china is giving a clear idea about the over all economic impact of this country. As a result, the income of the country is goes on increasing. Due to the increment of income/revenue, the demand or buying behavior of the population is also increasing. It is very essential to make a clear analysis of the rapid changes in the business environment and market avenues, according to the technological enhancement. This will not only maximize sales, but also improves the economy. The entrance of Chinese economy, in the international market was a tremendous effort, which was done along with the support of WTO (World Trade Organization). As the time passes, the export and manufacturing capability of China got enhanced in a speedy manner, this creates a lot of rivalries for them. The incorporation with Chinese economy provides enormous benefits for the economic impact of number of developed countries. The developed countries like Western Europe and North America are undertaking the export of a majority of its capital exhaustive goods and other relevant value added services to the economy of China, and a smaller proportion to rest of the countries. The opportunities in the Chinese economy is very wide enough. Because the overall development in the Chinese economy is inviting number of opportunities, rather than that of threats. Business-level cooperative strategy and corporate-level cooperative strategy: In a highly competitive business environment, it is not only a good idea, but an imperative one that firms try and form alliances that are mutually beneficial to all parties involved. Business level cooperative strategies are formed primarily to help a firm improve the market performance of its individual products. Corporate level cooperative strategies have a wider significance and are used when a firm wants to diversify its product range and its market. Existence of common objectives and goals among partner companies, gaining product, technical and market advantages over competitors, saving costs by avoiding acquisitions, accessing unknown or untapped markets, uncertainty in the market, are areas where forming a cooperative strategy will be beneficial. Some instances where cooperative strategy is not a good idea are when, gains to partner firms tends to be unequal, ambiguity of roles of the partner firms exists, there is risk of partner firms joining forces with competitors and there is risk of facing anti trust laws. 4. Describe the three types of strategic alliances and the reasons why companies develop them. Describe situations when each is most appropriate to adopt Strategic alliances: The main reasons why companies form strategic alliances are to overcome market restrictions, stabilize the market, saving time in developing new products, market leadership, reducing research and development costs, outliving market uncertainty, reduce costs through large scale production, absorb new techniques and compete with rivals etc. Three Types of Strategic Alliances 1. Joint Ventures: Two or more companies forming an entirely new entity to pool individual resources and capabilities. It is useful in large scale operations and in cases when required by law of country. 2. Equity Strategic Alliance: Creating an entity where each partner holds shares, which may or may not be in equal proportion. 3. Non Equity Strategic Alliance: Mutual contractual agreement for cooperation without formation of a new entity. Case Study – Fiat and GM: An agreement between Fiat Spa of Italy and General Motors, the world’s largest car makes was formed in 2000. The agreement was for an exchange of shares and for joint ventures for mutual use of automotive component and parts. The international scenario prevailing in the car market is overproduction. Competitiveness is the order of the day and such an alliance between two giants is a right step in that direction. Furthermore, globalization has forced many automakers to go in for joint ventures. Porter’s Five Forces are threat of substitutes, buyer power, degree of rivalry, barriers to entry and supplier power. An analysis of the global automotive industry is done using this model. As regards to threat of substitutes, there is not much of relevance in the automotive industry. There is really no substitute for a car. One can go in for a bigger or smaller model or to a car in a different category like SUV’s instead of a sedan. But all of these are considered cars. The same goes for two wheelers or heavy vehicles or MPV’s. The only instance where it is applicable is when a customer is thinking about buying a two wheeler or car, a scenario which is not very common. This industry is undoubtedly an area where degree of rivalry exists to a degree. In industry where excess production is taking place, buyer power is essential and the JV between Fiat and GM is an example where buyer power can be increased. More and more companies are either forming JV’s or outsourcing to gain the buyer power advantage. In an era of globalization barriers to entry is not very high in terms of international expansion. But other market factors like cost advantage or concentration of industries so pose a threat. Joint ventures are a solution to most of the problems regarding barriers of entry. In a highly competitive market, buyer is king and hence powerful. The automotive industry is dominated by buyer power. The automotive industry is dominated by GM, Ford, Daimler Chrysler, Toyota and Volkswagen. Gm is still the world’s largest car maker and now that GM has now entered into a JV with Fiat, the hold of the other companies in the market can be discussed. Ford, the world’s second largest car maker has under its belt Lincoln Mercury, Jaguar, Mazda, Volvo, Aston Martin and Land Rover. Volkswagen has Skoda, Bentley, Seat, Audi, Bugatti and Lamborghini. Mercedes Benz, Chrysler, Plymouth. Dodge, Jeep and Smart are owned by Daimler Chrysler. Toyota has its own well known brands. All these companies have powerful brands under them and this particular alliance need not be perceived as a threat to other carmakers. Fiat has made great advancement in its power train through the introduction of the Common rail diesel engine and this can be of great benefit to GM. Fiat can use GM’s global presence and brand visibility to their advantage. The value chain involves inbound logistics, operations, outbound logistics, marketing & sales and after sales service. Since the joint venture is mainly in the field of power train supply, logistics involved are manageable and both companies have the capability for it. Operations are mainly done in Fiat’s plant in Italy. Outbound logistics more or the same as inbound and both companies can manage it well. Service is done by the respective companies, since no new product is involved, service need to be done only for the components involved. The JV never got off well and Fiat is now plagued by massive layoffs and strikes. In reality an agreement was reached whereby Fiat had an option to sell of its car unit to GM as a part of the JV. GM later became reluctant to buy out the company and this resulted in a dispute between the two. The two have officially decided to call off the JV, but will still retain ties in certain areas. The alliance was a joint venture for manufacture of power trains in a new Fiat GM plant in Poland. Since it involved only few components and not a totally new product, the joint venture did not make an impact in the global market. If the JV was for bringing out new products into the market jointly, it would have been much better for both of them, even if it would have involved thrashing out a lot of issues. What are the similarities and differences between international corporate governance structures? Is it a good thing that international corporate governance structures are coming to resemble those in the U.S. more and more? In simple terms, corporate governance refer to how a business organization is run. For small companies and proprietorships, this is not much of an issue. But for large corporations and multinational companies, the way a company is managed is of extreme importance. They have more than profits to take care of. Their actions will affect the share holders, employees, the public, the environment and much more. After the Enron debacle, transparency is becoming an issue. The general structure of an organization comprising the Chairman, CEO, Board of directors, and shareholders is similar thought the world; there are some differences as to control and decision making. The US governance is more regulation controlled where as governance in UK and Europe is more shareholders controlled. But the Board of Directors in US Corporations are given much more power by the shareholders than in other places around the world. Taking into consideration the dynamism in the market place and responsibility of the management it is better that a US style of governance is followed and more and more companies are shifting towards this. Discuss checks and balances of the three corporate internal governance mechanisms. How effective are these checks and balances? Checks and balances of banking, government and manufacturing corporate transport sectors are discussed here. The first level of checks should be from the board of directors on a daily basis. The next level is from internal auditors who keep check of things monthly or quarterly. Then comes the yearly inspection by the external auditors and finally the government regulations that govern the industry as a whole. Such checks are common to all the three categories above. The banking sector will have in addition a credit rating department and a loan recovery department. The manufacturing sectors will have department for control over product wastage, pollution etc. and the transport structures will have to have controls on movement an safety and timely arrivals. Case Study —Daimler Chrysler This company was formed with the merger of Germany’s Daimler Benz and US’s Chrysler Corporation in 1998. They have a large array of automobiles ranging form cars to medium sized vehicles to trucks. The company is known for its high quality luxury vehicles and sturdy trucks. Its opportunities include entry into Asian markets, ability to make use of the high profile brand name since both Chrysler and Benz are well known names across the world. Innovation possibilities exist because of the combined technologies of both the companies. Its threats include competition form other mergers and the highly competitive environment existing in the industry. They are also not known for fuel economy for their vehicles. An analysis of the global automotive industry is done using Porter’s Five Forces Model. This is just a repetition since a similar analysis was done earlier in this paper. As regards to threat of substitutes, there is not much of relevance in the automotive industry. There is really no substitute for a car. One can go in for a bigger or smaller model or to a car in a different category like SUV’s instead of a sedan. But all of these are considered cars. The same goes for two wheelers or heavy vehicles or MPV’s. The only instance where it is applicable is when a customer is thinking about buying a two-wheeler or car, a scenario which is not very common. This industry is undoubtedly an area where degree of rivalry exists to a degree. More and more companies are either forming JV’s or outsourcing to gain the buyer power advantage. In an era of globalization barriers to entry is not very high in terms of international expansion. But other market factors like cost advantage or concentration of industries so pose a threat. Joint ventures are a solution to most of the problems regarding barriers of entry. In a highly competitive market, buyer is king and hence powerful. The automotive industry is dominated by buyer power. The automotive industry is dominated by GM, Ford, Daimler Chrysler, Toyota and Volkswagen. GM is still the world’s largest car maker. Ford, the world’s second largest car maker has under its belt Lincoln Mercury, Jaguar, Mazda, Volvo, Aston Martin and Land Rover. Volkswagen has Skoda, Bentley, Seat, Audi, Bugatti and Lamborghini. Mercedes Benz, Chrysler, Plymouth. Dodge, Jeep and Smart are owned by Daimler Chrysler. Toyota has its own well known brands. The company’s core competency includes ability to make high quality luxury cars and its market leadership for commercial vehicles. Innovation is another core competency and this company is far ahead of others in this respect. Safety and advanced technology are other instances. Business strategy of this company is mainly focused on gaining ability to foresee customer preferences. To succeed in a competitive market, Daimler Chrysler focuses on dynamism to be able to adapt to changes in business environment. The company is also trying to reduce product development time and to standardize operations across the whole company. Known for its big and powerful cars and poor fuel economy, the company is also focusing on developing new small cars to enter into the fuel economy market. The company should focus more on reducing costs of its vehicles. It should also take serious view of environmental concerns. More effort should be done to promote the importance of the Daimler Chrysler brand. The merger between Daimler Benz and Chrysler Corporation was on of the biggest in the world. It happened in 1999 and was worth about USD 48 billion. It created shockwaves in business world. Although initially it was seen as a “merger of equals” the reality was that the German Company had in taken over Chrysler and so in effect it was not a merger. Chrysler Corporation presence was mainly limited to the US markets and during its long history had a roller coaster ride with reference to its finances. In 1998 the cash strapped company welcomed the cash rich German company. Benz wanted to get into other segments apart from luxury cars. Moreover the products of both these companies did not really clash with each other. But it was not smooth transition for this new company. Chrysler management was centralized while it was not the case with Daimler. There were differences in attitudes of Germans and Americans and there were frequent ego clashes. Each company had their own identity was fiercely proud about it. Daimler Chrysler is a company incorporated in Germany. The general corporate governance of both companies are quite similar except for ion or two major differences. All German companies have a supervisory board apart form the board of directors with clearly differentiated functions, which is not the case on the US. Another difference is that the boards should take into consideration the interests of the employees and public when taking decisions. Discuss the relationship between organizational structure and organizational controls. Are they always interrelated? What will happen to a companys competitive advantage if one or the other isnt in place? Organizational structure refers to the formal structure in the organization starting form the shareholders and ending with the workers. Organizational control is the way the company is run with all its components like decision making, communication, controls etc. In a large organization they are complementary to each other and no organization will be efficient if either of them cease to exist. If there is only organizational structure and no organizational control, absolute mayhem will be the result. Targets will not be met, cost overruns will occur, absenteeism and lack of professionalism will creep in. The problems that will occur is too large to discuss. In case the there exists only organized control the problem is that there will be no one to implement these controls. There is no way that the company can survive without both of the being present. Describe the attributes of an effective strategic leader and the value that person brings to the strategic management process? Management means leading or controlling a group of people for an intention to achieve a particular goal or objectives.. Leading is the activity to coordinate and maintain all members of management towards the objectives of organization and motivation of all members for goal achievements.. No business organization is able to perform its business activities without a sufficient leader. A vast application of skill and knowledge is essential for a good leader. Generally, leadership means as integration of certain inherent qualities of an individual, which may some times leads towards in a right area, not only for him but also for his co-workers,. The wisdom and discipline of a leader is highly reflecting in the functioning style of organization.. In this context an organizations decision-making is highly relating with its leaders wisdom and discipline. Proper interaction between a Leader and his subordinates are very important it will helps to improve the performance of management and competency of the organization. A leader is providing clear sense of direction through which he may earn respect and honor. Proper communication through out the organization is reflected in a good leadership. Honesty and integrity are the key qualities of a good leader; the success of a leader depends on the trust he obtains from his followers and it is necessary to keep it in constant. Case Study —Succession Battles at Viacom Viacom by itself might not be familiar with most people outside the US, but it a company that owns world famous brands like MTV, Nickelodeon and Paramount pictures. Viacom has a presence in every continent in the world except Iceland. This company is primarily in the entertainment media industry. Its portfolio includes films, television and games. This industry is highly dynamic and creative and always evolving. In other words, this must be the least static industry in the world. Porter’s Five Forces are threat of substitutes, buyer power, degree of rivalry, barriers to entry and supplier power. Threat of substitution is very high in this industry and it is easy to understand why. People will switch over from watching television and move on to computer games. They may decide not to go for a movie if there is a popular TV program to be aired. They may decide to go to an amusement park rather than sitting and playing computer games. Degree of rivalry is also very high with hundreds of high profile companies in the US also. Suppler power is subject to the availability of the inherent qualities needed to succeed in this industry. Viacom with its diverse holding in TV and Cinema does have many of these qualities. Size is not a major criterion here. But in the case of Viacom it has this advantage also. Due to stiff competition, buyer power is also high. Globalization has eliminated barriers of entry into any market for any industry including entertainment. Some barriers include local competition and cultural and legal obstacles. Viacom had a split with CBS, and now they are two separate entities. Its stock value has gone down and advertising revenue thorough its cable TV network is falling. It has been pointed that this company is not aggressive enough in its attempts at acquisitions. There are problems with Google and Youtube regarding copyright problems. Viacom has implemented its strategies well, because the company is all set for a comeback. The company is aggressively trying to get a hold on the internet, especially the social networking sites. Its advertising revenues have risen and its films division, Paramount Pictures was doing extremely well. The strategy to get into the internet market seems to be paying of and Viacom is one of the few companies whose financial results were not in the red. Paramount Pictures has a strategic alliance with DreamWorks Animation regarding next generation HD DVD format. DreamWorks animation is a world famous studio specializing in digital animation movies. It’s well known works include Sinbad, Chicken Run, El Dorado, Joseph – king of Dreams, and the extremely popular Shrek Series, Antz and Shark Tale. DreamWorks also has a video games division. Its problems over copyright issues with Google’s Youtube are continuing with a one billion dollar law suit slapped on the latter by Viacom. The problem here is that Youtube has been featuring snippets or full programs broadcast by many of Viacom’s TV channels like MTV and Nickelodeon. Those familiar with Youtube will know how the web site features professional broadcasts and amateur videos. Viacom has now seen the benefits of tying up with social networking sites and has now made it a part of its policy. Viacom still does not allow Youtube broadcast its programs. Founder and Executive Chairman of the board of Directors is Sumner M Redstone, and Shari Redstone is non Executive vice chair of the board. Philippe P. Dauman is President and CEO and Thomas E. Dooley the Senior Executive Vice President, Chief Administrative Officer and Chief Financial Officer. Other board members are George S. Abrams, Alan C. Greenberg, Robert K. Kraft, Blythe J. McGarvie, Charles E. Phillips, Jr, Frederic V. Salerno and William Schwartz. (VIACOM, 2007). Explain human capital. Discuss how it is developed and what impact it has on strategic entrepreneurship and company growth. Human capital simply refers to the quality of labor. It implies all the skill, technical, social and interpersonal found in the labor of a company. Human capital in earlier times was simply referred to as labor. Strategic entrepreneurship is a combination of entrepreneurship and business strategy. The term entrepreneurship does not indicate that the situation is with reference to a sole proprietorship. It means an individual who is part of the organization who has such abilities. Human capital is an intangible asset and it can be developed through proper training. Entrepreneurship requires humans and strategy requires humans and development of human capital will be beneficial for both. Discuss how and why strategic entrepreneurs create value while at the same time earn above-average returns and gain competitive advantage over their competitors? Strategic entrepreneurship implies the use of entrepreneurship plus strategy. As competition developed, the need stay competitive has helped human beings evolve better and better techniques in management. They started out with plain entrepreneurship, after which strategic planning came into being. It would be prudent to explain a little about entrepreneurship and strategy in a management perspective. It is the entrepreneur who is responsible for the material aspect of the business. In other words they are responsible to see that goods and services have to be made available so that the managers can market the same using different strategy. Strategy is the various techniques developed or copies form others that will give a competitive advantage over others. So competitors who are just entrepreneurs or strategists who are not entrepreneurs are at a disadvantage when compared to situation that combines the two. This combination will definitely produce more value, both in terms of volume and financial returns. “Entrepreneurs create goods and services and managers seek to establish a competitive advantage with the goods and services created.” (Sailaja, 2007). Case Study — A.G. Lafley: Innovating P&Gs Innovations There was a period when the word research and development was of paramount importance to manufacturing companies. It was generally believed that the more a company spent on R&D, the better its prospects for staying ahead of competitors. But there came a time when spending more on R&D stopped giving corresponding returns. Firms like IBM started to purchase research from outside. This policy was started at P&G’s when the newly appointed CEO A.G. Lafley was appointed in 20000. The company later went on to outsource almost 50% of innovations form outside, mainly from smaller organizations who were more than willing to sell the intellectual property rights for money. The problems faced by P & G were primarily due to its innovations through R&D. Regular changes had to be made to its production line. Due to this testing of the changes for reliability could not be undertaken and this resulted in an increased failure rate to its production line. Issues facing the company: The main issue facing the company is poor business performance. Prior to 1996, its rate of growth was almost 5%.But this came down to almost 2.5% by 2001. This issue has been resolved to some extent by the polices of CEO Durk Jager in 1999 through a plan called organization 2005. It also had to lay off many workers. The company faces criticism on its policies on animal testing of its products. The company is still following this practice. P&G is seen as slow moving, bureaucratic and conservative in certain areas of management. The company is also has a reputation of being responsible for polluting the environment. The factors that will determine the success of P&G in a competitive environment will be innovation, cutting down on excess work force, outsourcing of non core areas of operations, less bureaucracy etc. The public image of P&G as a world class and innovative company is its greatest intangible asset. Tangible assets include ability for innovation specially through outsourcing, as mentioned earlier. Its supply chain management is also very strong. Quality management is also a strong asset. The ability for innovation is its strongest factor. Applying Porter’s threat of substitutes, the treat of substitutes is very high in this industry. To cite an instance, people regularly switch over from one brand of soap to another. Innovation and publicity is the key to counter this threat. Any competitive industry will have buyer power dominating over supplier power. P&G being in such an industry, finds itself in the same situation. Attracting customers through advertisements, product attractiveness and innovation is the answer. Degree of rivalry is extremely high here. There is no real solution, but to remain competitive. Barriers to entry are soon becoming an irrelevant factor in today’s age of globalization. Supplier power does exist if the company in question is large. Here, size does matter and P&G is a multinational. Focusing on areas that have relevance is one area this company could focus on for future growth. For example, the company’s water purifier PUR is highly relevant since the world is increasingly facing a shortage of clean drinking water due to high levels of pollution. Focusing on innovation is very important. But it is to the company’s credit that this area is already a part of its strategy. New international regulations on environmental safety will stress on less harmful chemicals to be used on consumer products. It is a fact that a lot of chemicals need to be used to manufacture products like soaps, shampoos and detergents. Focusing on use of less harmful ingredients through research should be looked into. Cost of energy is showing a steady trend due to rise in petroleum prices. The company should take measures to cut costs on this area. Increase in use of renewable energy sources like solar power, wind and water should be made. Operational costs should be streamlined and all wasteful expenditure be avoided. Outsourcing will help the company to cut down on fixed costs because this concept entails only variable cost References Sailaja, V. (2007). Entrepreurship- In strategic perspective. Indian MBA.com. Retrieved February 28, 2008, from http://www.indianmba.com/Faculty_Column/FC536/fc536.html VIACOM. (2007). Board of Directors. Retrieved February 28, 2008, from http://www.viacom.com/aboutviacom/Pages/boardofdirectors.aspx Read More