CHAPTER 7

1. Strategic alliances
- are “voluntary agreements between firms involving exchanging, sharing, or co-
developing of products, technologies, or services.”
2. Strategic networks
- (or constellations) are strategic alliances formed by multiple firms to compete against
other networks and a singular firm (Star Alliance)
3. Resource-based consideration - Rarity: relational (collaborative) capabilities
- the capabilities to successfully manage interfirm relationships
4. Resource-based consideration - Rarity: partner rarity
- the difficulty to locate partners with certain desirable attributes due to industry structure
and network position
5. Network centrality:
- It is a partner rarity resource-based consideration.
- The extent to which the firm’s position is pivotal with respect to others in the interfirm network

6. What approach do most firms adopt at the firm level based on resource-based
considerations?
- trial-and-error approach
7. Institution-based considerations- Formal regulatory pillar:
- (collusion concerns and entry requirements):
- Formal legal and regulatory frameworks impact

8. Institution-based considerations- Normative pillar:

- (the social pressures to find partners):

- Protect their legitimacy

- Normative pressure from the business press, the investment community, and board
deliberations
9. Institution-based considerations- cognitive pillar:

- (the internalized beliefs in the value of collaboration)

10. Formation stages:
 Stage one: To cooperate or not to cooperate

 Stage Two: Contract or Equity?

 Stage three: Positioning the relationship

11. Exploitation: Strong or weak tie?

 refinement, choice, production, efficiency, selection, and execution

 strong ties

12. Exploration: Strong or weak tie?

 search, variation, risk-taking, experimentation, play, flexibility, discovery, and innovation

 weak ties

13. 4 factors that may influence the performance of alliances and networks:
 equity

 learning and experience

 nationality

 relational capabilities

14. Stock market responds favorably to alliance activities, but only under certain
circumstances:
 Complementary resources

 Previous alliance experience

 Ability to manage the host country’s political risk

 Partner buyouts
15. Resource Based considerations -Organization for alliances and networks:
 At the firm level, most firms adopt a trial-and-error approach

- At the alliance/network level, difficult for others to replicate

16. What is a Contractual (non-equity-based) alliance? Give examples of it.

Those are contracts that do not involve sharing ownership:
 co-marketing

 R&D contract

 Turnkey project

 Strategic supplier

 Strategic distributor

 Licensing/Franchising
17. What are Equity-based alliances? Give examples of it.
- Alliance based on ownership or financial interest between the firms:
 strategic investment

 cross-shareholding

 joint venture

18. Antitrust authorities are more likely to approve what? why?

- They are more likely to approve alliances than acquisitions
- Because in alliance, companies are collaborating towards a specific goal for a certain
time, while acquisitions assume one company buying another company’s assets or
operations which can result in a concentration of market power and reduction of
competition (eliminating a competitor)
19. Institution-based considerations - informal normative pillar:
- the social pressure to find partners *protect their legitimacy
20. Institution-based considerations - informal cognitive pillar:
- the internalized beliefs in the value of collaboration
21. What are possible ways to minimize the threat of opportunism?
- Walling off critical skills and technologies through contractual safeguard (prenuptial
agreement)
- Swapping critical skills and technologies through credible commitments:

- In international alliances, setting up a parallel and reciprocal relationship in the foreign

partner’s home country may increase the incentives for both partners to cooperate

22. Advantages of strong ties:

- Exchanging finer-grained, higher-quality information

- Serve as an informal, social control mechanism that is an alternative to formal contracts for
combating opportunism.

CHAPTER 10
1.MNEs confront two sets of pressures:
- cost reduction and local responsiveness
2.Cost pressures
- influence global integration
3.Local responsiveness
- is the necessity to be responsive to different customer preferences around the world
4.Four strategic choices for MNEs:
(1) home replication: international or export
(2) localization: multi-domestic
(3) global standardization: Global
(4) transnational
5. Home replication (international or export) strategy:
- emphasizes the international replication of home country–based competencies such as
production scales, distribution efficiencies, and brand power
6. Localization (multi-domestic) strategy:
- is an extension of the home replication strategy:
- Focuses on a number of foreign countries/regions, each of which is regarded as a stand-
alone “domestic” market worthy of significant attention and adaptation
- Effective when there are clear differences among national and regional markets and low
pressures for cost reductions
- Has high costs due to duplication of efforts in multiple countries

7. Global standardization (global) strategy

- strategy is the development and distribution of standardized products worldwide to reap the
maximum benefits from low-cost advantages:
-MNEs may designate centers of excellence or subsidiaries
8. Centers of excellence:
- MNEs subsidiaries are explicitly recognized as a source of important capabilities, with
the intention that these capabilities be leveraged by and/or disseminated to other
subsidiaries.
9. What does global standardization sacrifice?
- Sacrifices local responsiveness
10. Transnational strategy
- endeavors to be cost-efficient, locally responsive, and learning is driven simultaneously:
- Innovations flow from the home country to host countries and vice-versa and also flow
among subsidiaries in multiple host countries
- It is organizationally complex and difficult to implement.
11. Four organizational structures that are appropriate for the four strategic choices:
- International division
- Geographical area
- Global product division
- Global matrix
12. International Division:
- Typically set up when firms initially expand abroad, often when engaging in a home
replication strategy
13. Problems of international division:
- Foreign subsidiary managers in the international division are not given sufficient voice
relative to the heads of domestic divisions
- The “silo” effect: International division activities are not coordinated with the rest of the
firm, which focuses on domestic activities
- Firms often phase out this structure after their initial overseas expansion
14. Geographic Area Structure:
- Organizes the MNE according to different geographic areas (countries and regions)
- Is the most appropriate for a localization strategy
- Its ability to facilitate local responsiveness is both a strength and a weakness
15. Problems with geographic area structure:
- While being locally responsive can be a virtue, it may also encourage the fragmentation
of the MNE into highly autonomous, hard-to-control “fiefdoms.”
16. Global Product Division Structure:
- Supports a global standardization strategy in treating each product division as a stand-
alone entity with full worldwide—as opposed to domestic—responsibilities for its
activities
- Facilitates attention to pressures for cost efficiencies in allowing for consolidation on a
worldwide (or regional) basis and reduction of inefficient duplication in multiple
countries
17. Problems with global product division structure:
- It is the opposite of the geographic area structure: Little local responsiveness
18. Global Matrix
- Is often used to alleviate the disadvantages associated with both geographic area and
global product division structures
- Is intended to support the goals of the transnational strategy—in practice, it is often
difficult to deliver
19. Problems with the global matrix:
- May add layers of management, slow down decision speed, and increase costs while not
showing significant performance improvement:
- Front-line managers must report to two bosses: a country manager and a product division
manager
20. Three key ideas of The Reciprocal Relationship Between Multinational Strategies
and Structures:
- Strategy drives structure: a misfit, such as combining a global strategy with a geographic
area structure, may have grave performance consequences
- The relationship is two-way. To the extent that certain strategies facilitate certain
structures, a given structure also supports a particular strategy
- Strategies and structures are not static. It is often necessary to change strategy, structure,
or both
21. Combining MNEs strategies and organizational structure:
- Based on two dimensions – cost reduction (high vs. low) and local responsiveness (high
vs. low)
22. The different nature of industries:
- Industrial products firms value technological knowledge that is not location-specific:
Favor global product divisions
- Consumer-goods industries require a deep knowledge of consumer tastes that are
location-specific: Favor geographic area structure
23. Porter’s forces:
- Interfirm rivalry:
o Competitors focus on learning and innovation
- Need to increase entry barriers:
o Behind some recent moves to phase out multi-domestic strategy and to erect
world-scale facilities to deter entrants
- Bargaining power of suppliers and buyers:
o They also have to internationalize if the focal MNE goes overseas
- Threat of substitute products:
o MNE R&D often generates competing substitute products
24. Organizational culture :
- is the collective programming of the mind that distinguishes members of one organization
from another
25. Formal and informal internal institutions - Three choices of the head of a
subsidiary:
 - a home-country national
- a host-country national
- a third-country national
26. Knowledge management
- is the structures, processes, and systems that actively develop, leverage, and transfer
knowledge.
27. What does knowledge management depend on?
- Knowledge management not only depends on IT but also on informal social relationships
within the MNE
28. Explicit knowledge
- is codifiable, it can be written down and transferred without losing much of its richness
(e.g., a driving manual):
29. Tacit knowledge:
- Tacit knowledge is not codifiable, hard to be written down and transmitted without losing much
of its richness (e.g., knowledge about how to drive)
- Its acquisition and transfer require hands-on experience
30. Globalizing Research and Development:
- R&D emerged as an important function to be internationalized and is often known as an
innovation-seeking investment:
- The intensification of competition for innovation drives the globalization of R&D
31. Knowledge retention:
- The problem of employee turnover which may lead to knowledge leakage
32. Solutions in knowledge management
- Manipulation of the formal rules of the game:
o Individual and organizational incentives
o Investing in tacit knowledge
o Informal integrating mechanisms
o Development of informal social capital
33. Social capital:
- the informal benefits individuals and organizations derive from their social structure and
network
CHAPTER 11
1. Concentrated ownership and control: (principal-agent conflicts)
- ownership and control rights concentrated in the hands of owners:
- Founders start-up and control firms
2. Diffused: (principal-principal)
 - Numerous small shareholders, none with complete control:
3. Separation of ownership and control
- control is the dispersal of ownership among many small shareholders, with control of the
firm largely concentrated in the hands of salaried, professional managers who own little
or no equity
4. Family ownership:
- Founding family and descendants maintain controlling interest
5. Advantages of family ownership:
- May provide better incentives for the firm to focus on long-term performance
- Minimizes conflicts between owners and professional managers
6. Disadvantages of family ownership:
- May lead to the selection of less qualified managers (cronyism)
- Family conflicts leading to the destruction of value
- Expropriation of minority shareholders
7. State ownership:
- Means of production owned by the government, central or local. Managers employed by the
state; firm governed by the state
8. Principal-Agent conflicts:
- The relationship between shareholders and professional managers is a relationship between
principals and agents
9. Principal-Principal conflicts:
- Such conflicts are between two classes of principals: controlling shareholders and minority
shareholders
10. Principal-Agent Relationship:
- One example: The relationship between shareholders and professional managers

11. Agency Theory:

- Because the interests of principals and agents do not completely overlap, there will inherently
be principal-agent conflicts, which result in agency costs
12. Agency costs include:
(1) the principals’ costs of monitoring and controlling the agents and
(2) the agents’ costs of bonding (signaling their trustworthiness)
13. Why do conflicts persist?
- Conflicts persist because of information asymmetries between principals and agents (agents
always know more about their tasks than principals)
14. Agency Problems:
- Excessive on-the-job consumption
- Low-risk, short-term investments
- Empire-building (excessive diversification)
- In SOEs, agency problems are also extensive
15. Reducing Agency Problems:
- While it is possible to reduce information asymmetries and minimize agency problems, it
probably is not realistic to expect to eliminate such problems
16. Principal-Principal Conflicts
- Instead of between principals (shareholders) and agents (professional managers), the primary
conflicts are between two classes of principals: controlling shareholders and minority
shareholders
17. Key features of the board of directors:
- Board Composition: Otherwise known as the insider/outsider mix
- Leadership Structure: Involves whether the board is led by a separate chairman or by the CEO
who doubles as a chairman—a situation known as CEO duality
- Board Interlocks: When one person affiliated with one firm sits on the board of another firm
18. The role of Boards of Directors:
(1) control, (2) service, and (3) resource acquisition functions.

19. Directing strategically:

- Directors must strategically prioritize
20. Internal (Voice-based) Governance Mechanisms -
- motivate managers; stock options used as (1) carrots that transform managers from agents to
principals, or (2) sticks - CEO and top management team turnover
21. External (Exit-based) Governance Mechanisms:
- The market for corporate control: the takeover market
- The market for private equity: going private
22. Exit-based Mechanisms: The Market for Corporate Control
- The takeover or mergers and acquisitions (M&A) market
- The stock of a firm will be undervalued by investors when managers engage in self-interested
actions and internal governance mechanisms fail.
23. Managerial human capital:
- the skills and abilities of top managers and directors
24. Three aspects of globalization:
- Contact with different governance norms
- Foreign Portfolio Investment (FPI) investors demand more protection
- Global capital requires adherence to listing requirements