Chapter 7 Internal Strategy

- SAIC, a major Chinese automaker,

- Globalization: a term that has two meanings: (1) the increase in international exchange,
including trade in goods and services as well as exchange of money, ideas, and information; (2)
the growing similarity of laws, rules, norms, values, and ideas across countries.
- One of the challenges with globalization is determining how to meet the needs of customers at
very different income levels.
- He concluded that there are four broad attributes of nations that individually, and as a system,
constitute what is termed the diamond of national advantage. These factors are:
o Factor endowments
o Demand conditions
o Related and supporting industries
o Firm Strategy structure and rivalry
- Multinational firms: firms that manage operations in more than one country.
- Arbitrage opportunities: an opportunity to profit by buying and selling the same good in
different markets.
- Reverse innovation: new products developed by developed-country multinational firms for
emerging markets that have adequate functionality at a low cost.
- Four main types of risk:
o Political risk: potential threat to a firm’s operations in a country due to ineffectiveness
of the domestic political system.
 Another source of political risk in many countries is the absence of the rule of
law: a characteristic of legal systems where by behavior is governed by rules
that are uniformly enforced.
o Economic risk: potential threat to a firm’s operations in a country due to economic
policies and conditions, including property rights laws and enforcement of those laws.
 Counterfeiting, a direct form of theft of intellectual property rights, is a
significant and growing problem.
 Counterfeiting: selling of trademarked goods without the consent of the
trademark holder.
o Currency risk: potential threat to a firm’s operations in a country due to fluctuations in
the local currency’s exchange rate.
o Management risk: potential threat to a firm’s operations in a country due to the
problems that managers have making decisions in the context of foreign markets.
- Another source of political risk in many countries is the absence of the rule of law.
o rule of law: a characteristic of legal systems where by behavior is governed by rules that
are uniformly enforced.
- Outsourcing: using other firms to perform value-creating activities that were previously
performed in-house.
- Offshoring: shifting a value-creating activity from a domestic location to a foreign location.
- The two opposing forces—cost reduction and adaptation to local markets—that firms face
when entering international markets.

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- International strategy: a strategy based on firms’ diffusion and adaptation of the parent
companies’ knowledge and expertise to foreign markets; used in industries where the pressures
for both local adaptation and lowering costs are low.
- Global strategy: a strategy based on firms’ centralization and control by the corporate office,
with the primary emphasis on controlling costs; used in industries where the pressure for local
adaptation is low and the pressure for lowering costs is high.
- multidomestic strategy: a strategy based on firms’ differentiating their products and services to
adapt to local markets; used in industries where the pressure for local adaptation is high and the
pressure for lowering costs is low.
- Transnational strategy: a strategy based on firms’ optimizing the trade-offs associated with
efficiency, local adaptation, and learning; used in industries where the pressures for both local
adaptation and lowering costs are high.
- Regionalization: increasing international exchange of goods, services, money, people, ideas, and
information; and the increasing similarity of culture, laws, rules, and norms within a region such
as Europe, North America, or Asia.
- Trading blocs: groups of countries agreeing to increase trade between them by lowering trade
barries.
- Licensing: a contractual arrangement in which a company receives a royalty or fee in exchange
for the right to use its trademark, patent, trade secret, or other valuable intellectual property.
- Franchising: a contractual arrangement in which a company receives a royalty or fee in
exchange for the right to use its intellectual property; franchising usually involves a longer time
period than licensing and includes other factors, such as monitoring of operations, training, and
advertising.
- wholly owned subsidiary: a business in which a multinational company owns 100 percent of the
stock.
Chapter 8 Entrepreneurial Strategy and Competitive Dynamics

- Entrepreneurship: the creation of new value by an existing organization or new venture that
involves the assumption of risk.

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- Opportunity recognition: the process of discovering and evaluating changes in the business
environment, such as a new technology, sociocultural trends, or shifts in consumer demand that
can be exploited.
- Angel investors: private individuals who provide equity investments for seed capital during the
early stages of a new venture.
- Venture capitalists: companies organized to place their investors’ funds in lucrative business
opportunities.
- Crowdfunding: funding a venture by pooling small investments from a large number of
investors; often raised on the Internet.
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