Strategic Management Chapters 6-10 – Flashcards

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Business-level strategy
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Details the actions managers take in their quest for competivie advantage when competing in a single product market. "How should we compete?". Who, what, why, how.
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Strategic position
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Determined by business-level strategy, and is a firm's strategic profile based on value creation and cost. Goal is to maximize gap between value and cost (V-C).
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Strategic trade-offs
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Situations that require choosing between a cost or value positions, necessary because higher value tends to require higher cost.
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Differentiation strategy
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Generic business strategy that seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping the firm's cost structure the same or similar. Can be focused if targeting more narrow market.
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Cost-leadership strategy
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Generic business strategy that seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers. Can be focused if targeting more narrow market.
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Scope of competition
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The size -- narrow or broad -- of the market in which a firm chooses to compete.
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Mass customization
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Manufacture of a large variety of customized products or services at a relatively low unit cost.
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Economies of scale
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As output increases, cost per unit decreases.
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Minimum efficient scale (MES)
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Output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position possible via economies of scale.
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Integration strategy
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Business-level strategy that successfully combines differentiation and cost leadership activities. Drivers are quality, economies of scope, innovation, and structure culture and routines.
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Economies of scope
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Savings that come from producing two or more outputs at less cost than producing each output individually, despite using the same resources and technology.
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Ambidextrous organization
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An organization able to balance and harness different activities in trade-off situations
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Conglomerate
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An organization that combines two or more business units, often active in different industries, under one overarching corporation.
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Productivity frontier
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Relationship that captures the result of performing best practices at any given time; the function is convex to capture the trade-off between value creation and production cost.
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Innovation
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The commercialization of any new product, process, or idea, or the modification and recombination of existing ones. To drive growth, innovation also needs to be useful and successfully implemented.
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Industry life cycle
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The four different stages -- introduction, growth, maturity, decline -- that occur in the evolution of an industry over time.
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Network effects
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Increases in the value of a product to each user, including existing users, as the total number of users rises.
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Standard
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An agreed-upon solution about a common set of engineering features and design choices; also known as dominant design
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Product innovations
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New products, such as the jet airplane, electric vehicle, MP3 player, and netbook.
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Process innovations
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New ways to produce existing products or deliver existing ones
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Entreprenuership
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Process by which people undertake economic risk to innovate -- to create new products, processes, and sometimes new organizations.
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Strategic entreprenuership
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Pursuit of innovation using the tools and concepts available in strategic management
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Incremental innovation
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Squarely builds on the firm's established knowledge base, steadily improving the product or service it offers. Targets existing markets by using existing technology. Defends strategic position (economic), reinforces existing structure (organizational), and reinforce value network (strategic)
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Radical innovation
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Draws on novel methods or materials, is derived from either an entirely different knowledge base or from the recombination of the firm's existing knowledge base with a new stream of knowledge, or targets new markets by using new technologies.
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Architectural innovation
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A new product in which known components, based on existing technologies, are reconfigured in a novel way to attack new markets.
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Disruptive innovation
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An innovation that leverages new technologies to attack existing markets from the bottom up. Examples include digital photography, changes in data storage (flash drives), and desktop computers
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Long tail
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Business model in which companies can obtain a large part of their revenues by selling a small number of units from almost unlimited choices.
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Thin markets
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Situations in which transactions are likely not to take place because there are only a few buyers and sellers who have difficulty finding each other. Overcome by long tail.
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Discontinuities
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Periods of time in which the underlying technological standard changes. Include film to digital, propeller planes to jets, vinyl to iPod, etc.
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Paradigm shift
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Situation in which a new technology revolutionizes an existing industry and eventually establishes itself as the new standard.
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Absorptive capacity
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A firm's ability to understand, evaluate, and integrate external technology developments.
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Hypercompetition
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Situation in which there is a lot of very strong competition between companies, markets are changing very quickly, and it is easy to enter a new market, so that it is not possible for one company to keep a competitive advantage for a long time.
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Corporate-level strategy
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The decisions that senior management makes and the actions it takes in the quest for competitive advantage in several industries and markets simultaneously. Where to compete.
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Scope of the firm
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The boundaries of the firm along three dimensions -- industry value chain, products and services, and geography (national regional or global).
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Transaction cost economics
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A framework in strategic management to explain and predict the scope of the firm, which is central to formulating a corporate-level strategy that is more likely to lead to competitive advantage.
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Transaction costs
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All costs associated with an economic exchange, whether within a firm or in markets
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Administrative costs
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All costs pertaining to organizing an economic exchange within a hierarchy, including recruiting and retaining employees, paying salaries and benefits, and setting up a business
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Principal-agent problem
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Situation in which an agent performing activities on behalf of a principal pursues his or her own interests
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Information assymetries
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Situations in which one party is more informed than another, mostly due to the possession of private information
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Strategic alliances
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Voluntary agreements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services together. Long-term contracts (franchising and licensing), equity alliances, and joint ventures.
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Licensing
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Form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property.
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Franchising
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Long-term contract in which a franchiser grants a franchisee the right to use the franchiser's trademark and business processes to offer goods.
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Equity alliance
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A partnership in which at least one partner takes partial ownership in the other partner in order to signify greater commitment to the partnership.
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Credible commitment
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A long-term strategic decision that is both difficult and costly to reverse.
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Joint venture
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Organization form in which two or more partners create and jointly own a new organization
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Vertical integration
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The firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs
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Industry value chain
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Depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing
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Backward vertical integration
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Changes in an industry value chain that involve moving ownership of activities upstream to the originating point of the value chain.
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Forward vertical integration
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Changes in an industry value chain that involve moving ownership of activities closer to the end point of the value chain.
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Specialized assets
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assets that have significantly more value in their intended use than in their next-best use (high opportunity costs); they come in three types: site specificity (mining), physical asset specificity (coke bottling machinery), and human asset specificity.
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Taper integration
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a way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside market firms for some of its supplies, and/or is forwardly integrated but also relies on outside market firms for some of its distribution
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Strategic outsourcing
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Moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain.
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Diversification
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An increase in the variety of products or markets in which to compete.
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Product diversification strategy
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Corporate strategy in which a firm is active in several different product markets.
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Geographic diversification strategy
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Corporate strategy in which a firm is active in several different countries.
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Product-market diversification strategy
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Corporate strategy in which a firm is active in several different product markets as well as several different countries.
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Related diversification strategy
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Corporate strategy in which a firm derives less than 70% of its revenues from a single activity but obtains revenues from other lines of business that are linked to the primary business activity
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Unrelated diversification strategy
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Corporate strategy in which a firm derives less than 70% of its revenues from a single business activity and there are few, if any, linkages among its businesses.
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Diversification discount
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Situation in which the stock prices of highly diversified firms is valued at less than the sum of their individual business units.
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Diversification premium
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Situation in which the stock prices of highly diversified firms is valued at greater than the sum of their individual business units.
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Restructuring
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The process of reorganizing and divesting business units and activities to refocus a company in order to leverage its core competencies more fully
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Merger
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Joining of two independent companies to form a combined entity
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Acquisition
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Friendly or unfriendly purchase or takeover of one company by another
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Hostile takeover
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Acquisition in which the target company does not wish to be acquired
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Horizontal integration
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The process of acquiring and merging with competitors, leading to industry consolidation Leads to reduction in intensity, lowered costs, increased differentiation, and access to new markets and distribution.
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Managerial hubris
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a form of self-delusion, in which managers convince themselves of their superior skills in the face of clear evidence to the contrary
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Relational view of competitive advantage
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Strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.
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Learning races
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situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary; the firm that accomplishes its goal more quickly has an incentive to exit the alliance or reduce its knowledge sharing
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Non-equity alliance
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partnership based on contracts between firms. the most frequent forms are supply agreements, distribution agreements, and licensing agreements
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Explicit knowledge
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Can be codified (information, facts, instructions, recipes) and concerns knowing about a process or product
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Tacit knowledge
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Cannot be codified and concerns knowing how to do a certain task. Can only be learned through active participation
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Corporate venture capital (CVC)
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equity investments by established firms in entrepreneurial ventures. Goal is to gain access to new, disruptive technology
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Alliance management capability
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a firms ability to effectively manage three alliance-related tasks concurrently: 1.partner selection and alliance formation. 2.alliance design and governance. 3.post formation alliance managment
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Strategic network
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social structure composed of multiple organizations and the links among them (nodes and ties). Consists of strong and weak ties
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Degree centrality
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The number of ties between group members; the group's degree centrality is the average of the direct connections among group members
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Structural holes
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spaces where two organizations are connected to the same organization, but are not connected to one another. firms that bridge structural holes gain information and control benefits over the nonconnected firms
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Small-world phenomenon
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situation in which a network exhibits local clusters, each with high degree centrality
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Globalization
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Process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs
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Multinational enterprise (MNE)
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Company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries
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Foreign direct investment (FDI)
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A firm's investments in value-chain activities abroad
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Global strategy
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A firm's plan to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world Advantages are gaining access to larger markets, lower cost input factors, new competencies
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Location economies
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Benefits from locating value-chain activities in the world's optimal geographies for a specific activity, wherever that may be.
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Liability of foreignness
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Additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances.
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National culture
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The collective mental and emotional "programming of the mind" that differentiates human groups. Studied by Hofstede.
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Power-distance dimension
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Dimension of culture that focuses on how a society deals with inequality among people in terms of physical and intellectual capabilities, and how those methods translate into power distributions within organizations
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Individualism dimension
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Dimension of culture that focuses on the relationship between individuals in a society, particularly the relationship between individual and collective pursuits
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Masculinity-femininity dimension
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Dimension of culture that focuses on the relationship between genders and its relations to an individual's role and work and in society.
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Uncertainty-avoidance dimension
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Dimension of culture that focuses on societal differences in tolerance toward ambiguity and uncertainty
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Cultural distance
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Cultural disparity between an internationally expanding firm's home country and its targeted host country
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Globalization hypothesis
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Assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogeneous.
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Local responsiveness
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The need to tailor product and service offerings to fit local consumer preferences and host-country requirements; generally entails higher cost.
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International strategy
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Strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets. Advantageous when the MNE faces low pressures for both local responsiveness and cost reductions.
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Localization strategy
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MNE's use this to maximize local responsiveness with the intent that local consumers will perceive them to be domestic companies. Arise out of high pressure for local responsiveness and low pressure for cost reductions.
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Global-standardization strategy
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Attempts to reap significant economies of scale and local economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost
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Transnational strategy
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Attempts to combine the benefits of localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest cost attainable). Glocalization.
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Regional cluster
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a group of interconnected companies and institutions in a specific industry, located near each other geographically and also linked by common characteristics
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