Managing in a global enviornment

  • Created by: molly
  • Created on: 05-05-17 14:46

CAGE Framework

Identifies Cultural, Administrative, Geographic and Economic differences or distances between countries that companies should address when crafting international strategies

Cultural

  • Hofstede (1997) defines culture as “the collective programming of the mind that distinguishes the members of one group of people from another”.
  • Etiquette and Stereotypes 
  • Ronan & Shenkar (2013) found more evidence of cultural divergence than convergence
  • Hofstede's cultural dimensions; Power Distance, Uncertainity Avoidance, Individualism/Collectivism, Mascunility/Feminity
  • Management techniques and training packages have almost exclusively been developed in individualist (western) countries and are based on cultural assumptions that may not hold in collectivist countries (Hofstede et al., 2010)
  • Schwartz Dimensions (2006) : The theory specifies three bipolar dimensions of culture that represent alternative resolutions to each of three problems that confront all societies: embeddedness versus autonomy, hierarchy versus egalitarianism, and mastery versus harmony 
  • The Ronen & Shenkar Framework; World Cluster Formations- use with examples of Nespresso 
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CAGE Framework

Cutural Examples

  • Nespresso  
    • Important components of Chinese culture include literature, music, visual arts, martial arts, cuisine, and religion etc. (Discover China, 2014)
    • George Clooney - US vs China- Human rights battles in China- therefore do what red bull did; tailor logos, advertisments, celebs used 
    • Japanese culture is very open to incorporating western customs in Neapolitan cities such as Tokyo. Due to the existing culture of drinking tea, coffee could be offered as an alternative to locals and would serve the large number of ex pats already living in Japan. Western retailers such as McDonalds have entered the Japanese market successfully, showing the willingness of locals to adopt western flavours and customs.
    • This is present in the upscale Russian market in terms of culture, the market is well suited and is similar to European based markets such as Italy, Switzerland and France, where Nespresso is already well rooted and experienced. Already operating in Poland- same culture clusture 
    • Nespresso Club = countries big on e- commerce; China 1, Japan 4, Russia 9 
    • Singapore - 4 different languages
    • China is more Communist and economy is centrally planned which lead Giant bicycle to enter the market through joint venture
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CAGE Framework

Administrative

  • Government policies, politicial hostility, instututional weakness
  • Host bargaining power comes from creating an attractive environment (location advantages).
  • The legal environment can influence... choice of production techniques, product characteristics, packaging and labelling, advertising and sales promotion, terms and conditions of trade, the way competition is conducted, ownership of assets, financial reporting, the treatment of employees
  • Law on e-commerce difficult to enforce, lacks clarity 
  • International Law; UN Guiding principles 
  • Legal risk from law- fines, tax, accidents , enviornmental damage 
  • Political risk - e.g. South Sudan War means lacking infastructure

Administrative Examples: 

  • Governments such as China subsidise their internal businesses which will also limit to competitiveness of Nespresso within the market. However adversely, in several developing countries, there are few property laws e.g. patents meaning technology is usually reproduced for lower cost (Nespresso relies on patent (Matzler et al., 2013) - differs from Japan less proetctionist already penetarted by Western MNE's 
  • Trump, trade-war with China; may envoke further protectionist policies (See IT theory)
  • Only 3 production plants -rely on imports and exports e.g. Singapore ( need IN Permit) and Honk Hong 0% tarriff
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CAGE Framework

Economic

  • In many countries, the costs that western consumers shrug off as a minor indulgence are prohibitive given much lower income levels. 
  • resources, income, infastructure, GDP etc.
  •  Use with Porters Diamond critique (Demand factors) 
  • Firms directly create national wealth

Economic Examples 

  • eco is much larger than in the case of Japan in China since the income of the vast majority of the population is currently too low to indulge in Nespresso. However, the rapidly expanding economic elite in the major cities can easily afford Nespresso’ prices. Thus, while perhaps not as attractive overall as Japan for a widespread roll-out, China offers great future potential for educating consumers about coffee and hence expanding the market, particularly in more affluent locations (e.g. Shanghai) where an appetite for coffee might be established in the near term.
  • Need developing countries as luxary brand
  • Worlds richest economy: China is number 3, Japan is number 4
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CAGE Framework

Geographical

  • Borders, Oceans, size, time-zones etc  
  • Supply chain must be efficient in order to ensure internationalization is a viable proposition.  Transport and communication links should be strong to ensure that the supply chain is effectively managed 

Examples: 

  • Nespresso to expand first in nearby markets, and then to focus on locations with relatively good communications infrastructure in developing countries, but its Head Office from which it manages globally is based in Lausanne rather than regionally.
  • Both China and Japan are of a considerable distance but have strong communciation and transport links- mkaes it more viable 
  • Supply chain is too long - build a plant outside of Switzerland? 
  • Need economies of scale to be viable 
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CAGE Framework

Advantages: 

  • 'liability of foreigness' 
  • Adhikari (2016) suggests essential risk control - too big a distance= won't work
  • May be used for countries to work out mitgations of risk e.g. giant, Nespresso in China collective approach compared to indidualistic in U.S. 
  • Wiedersheim-Paul et al.(1978), firms should move sequentially from a country with less physical distance to a country of greater phisical distance.

Critque: 

  • EMNE’s abilities to internationalize rapidly despite ostensibly significant “distance” factors
  • Rapid expanison = first-mover advanatages so can be positive (Chang and Rhee, 2011)
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Porter's Diamond (1990)

  •  It is the interaction among four sets of parameters that count, Industry based view of the IB strategy tripod (Peng)
  • Four dimensions can be used by international businesses to assess the attractiveness of their prospective host country business environments (i.e. Locational or Country-specific Advantages). The four dimensions are interrelated, in other words each is influenced by the others and, in turn, influences the others. 
  • Recognises the influence of (i) “chance” or luck (e.g. unforeseen opportunities or threats), and (ii) “government”; determines  whether  infrastructure is conducive to international business which may include either barriers (e.g. tariffs) to, or incentives (e.g. economic development zones) for FDI. This is particularly relevant to China’s state invested “industrial symbioisis” in contrast to US aversion to state interference.   
  • Factor conditions: are there adequate industry-based factor conditions (e.g. human resources; transport; technology; financial institutions)? e.g. 50% Nespresso sales are online = god transoport system needed 
  • Demand conditions: what is the size and sophistication of domestic demand?e.g. french customers feedback on wine 
  • Related and supporting industries: are there the necessary complementers within the ecosystem on which the firm depends (e.g. suppliers; distribution channels; advertising agencies)?  
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Seminar 6

EMNE'S - Wang et al (2012)

Suggest industry based and institution based views of the IB strategy tripod (Peng) are more important than the resource based view. 

This is because resources, both LA and FSA can be acquired through acquisitions and partnerships. Haier's expansion into America is the perfect example of this.

Due to lack of RA's, there's a lack of innovation, meaning EMNE's more likely to compete on price, not differentiation.

Suggested EMNE's can learn through inward FDI as well - TNC's coming into China - Chinese gov only allows inward FDI through parternships with local companies - so firms can learn. Seen this with AIG partnering with the People's Insurance Company in China.

However main taking point is that EMNE's (e.g. Haier) can acquire these resources they lack. This theory goes against Barney's RBV theory and VRIO framework. As well as the 'O' in OLI. Supported by Mathews LLL theory.

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Porter's Diamond (1990)

  • Firm strategy, industry structure, and rivalry: who are the other players (e.g. competitors) and what are their relative positions/strategic trajectories in the market-space?  Firm rivalry is important because, by competing against others, a firm hones its skills and becomes more internationally competitive. Good examples might include the way that the Japanese automakers or Chinese white goods manufacturers have become competitive in the world market by taking on the major US and European producers.
  • Porter’s Diamond Model dimensions to achieve economic competitiveness; Suppliers to Italian tile firms keep these companies abreast of changes in technology, factor conditions and developments in the industry.

Critique

  • Focuses on location advantages (LAs) rather than firm specific advantages (FSA)
  • A narrow focus on industry-based factors can result in overlooking broader distance factors (CAGE), too much emphasis on industry 
  • Should be used with the business enviornment map 
  • Cartwright (1991) not applicable to smaller countries such as NZ and Canada, need for a double Dimond Framework to address issues such as free trade agreement between Canada and US. 
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IB Strategy Tripod (Peng)

  • The industry-based and institution-based views of the IB strategy tripod help to determine “where to play” by encouraging companies to evaluate Location Advantages and Institutional Voids, whereas the resource-based view (RBV) helps companies to determine “how to win” by evaluating their internal resources and (dynamic) capabilities (i.e. ownership advantages) and how to transfer/develop their FSAs (e.g. by absorption (learning), adaptation (recombination) and innovation (new technologies)) to align with their strategic goals of internationalization.
  • Companies need to be able to justify internationalizing by demonstrating that the benefits of entering a foreign country outweigh those of remaining in their home country, taking into account the additional costs of overcoming the “liability of foreignness” which Ghemawat’s CAGE Distance Framework can help them to determine.
  • A failure to adequately address all three legs of the IB strategy tripod may reflect “bounded rationality” problems (e.g. inadequate information/knowledge or inability to effectively process/apply it) or lack of “contextual intelligence” (Khanna). But, as many IB scholars (e.g. Wang et al) emphasise, the question of “where to play” precedes the question of “how to win”, especially in the case of EMNEs which often lack transferable FSAs to begin with.

(Taken off illustartory questions) 

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Seminar 6

Differences between MNE's and EMNE's:

Purpose of internationalisation:

MNE's are resource/asset seeking: e.g. Shell oil drilling in Nigeria

Market seeking: e.g. AIG going into huge untapped Chinese insurance market.

Efficiency seeking: Economies of scale and scope, also cheap labour. e.g. Nike outsourcing production of clothes to South-East Asia.

These can be linked to PLC (Vernon) for MNE's

EMNE's:

Are knowledge and capability seeking. For example, Haier technlogy acquisition: purchasing information from Lieberherr, partnering with Mitsubishi to provide air conditioning. Knew their core competencies and if they wanted to diversify away from their core competencies they formed partnerships. This enabled them to develop dynamic capabilties (Teece)

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Business Environment Map

  • Market Forces: Key customer issues in  arena, such as growing or shrinking segments; customer switching costs; changing jobs, pains, and gains

e.g. developing countries, globalisation is good for Nespresso e.g. China 

  • Key Trends : Key trends shaping arena, such as technology innovations; regulatory constraints; social trends

(See cultural isssues from CAGE for examples) e.g. coffee machine technology-  Nespresso designed a bigger one for US for a larger cup, more features 

  • Industry Forces: Key actors in  space, such as competitors; rising value chain actors; new or fading technology providers

US $45 billion on coffee - widely traded agricultural commidity, threat ONE is low due to sophisticated business plan

  • Macroeconomic Forces: Macro trends, such as global market conditions; access to resources; high or low commodities prices

Marginal cost of coffee - nespresso marginal cost 85% compared to average 40-50%, high inflation 

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Seminar 6

Need Management Mindset: Zhang, their leader, enoucraged innovation - gave employees chance to develop solutions. Also his 'Customer service leadership' - met needs of customers didn't focus on profits - such as the vegetables example. He had 'global leadership capabilities' (complex, connectedness, change and context)

 Helped create local responsiveness - understood local markets. e.g. in rural China, they understood people were using washing machines to wash vegetables as well as clothes, so developed machine that could do both. Also in their production plant in Camden, America, they employed locals. Resolved problems of unfamiliarity of Haier's management with local market.

 Link to ability to avoid bounded rationality (Verbeke 2013), and Maitland and Sammartino's view that cognition of the leader/managment is crucial

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Ghemawat’s AAA Framework

  • Ghemawat emphasises that overcoming the negative effects of distance between countries is key to successful internationalization.
  • managers often underestimate the efforts required to achieve this and hence overestimate the international profit potential of their companies. 
  • Adaptation: adapt or reconfigure their capabilities and processes (firm specific resources) to overcome the negative effects of distance, e.g. value proposition to suit different tastes e.g. Nespresso introducing tea 
  • Aggregation: recombine resources (e.g. by vertical or horizontal integration) to overcome negative effects of distance, e.g. by acquiring their own distribution channels e.g. Nespresso AAA programme (68% of coffee sourced from their own programme)
  • Arbitrage: companies can develop a deep knowledge of foreign markets and collaborate to acquire complementary resources that turn distance to their advantage, e.g. by partnering with local agents e.g. Nespresso coffee machine partnerships, Nespresso has also partnered with popular chic department stores in major metropolitan cities across the world, including, but not limited to: New York, Madrid, Milan, Tokyo, Seoul, Sao Paulo, and most recently the flagship boutique on the Champs-Elysees, Paris.

Nespresso in South Sudan? Needs to use framework; 99% of people in poverty, 3 cooperatives 

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Seminar 6

Also, EMNE's usually need to acquire intangible FSA's e.g. knowledge and access to networks so they can develop dynamic capabilities and dynamic network structures.

How did Haier acquire dynamic cpabilties?

Absorb: Purchased information from Liebherr. A leading fridge manufacturer.

Adapt: e.g. in Indonesia, they created low-power watt appliances so they'd carry on when power outages (that were common) occurred. 

Innovation: They invested heavily iin R and D

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Seminar 6

Also needed dynamic network structures (Ghoshal and Bartlett)

Felixible and Responsive: 

Non-hierarchical and participative: e.g. Haier's management only serve to provide employees with resources who work for cusomters.

Indeperdependent and interactive: e.g. Haier and Mitsubishi. 

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Porter's 5 forces

Framework for analyzing the level of competition within an industry and business strategy development, use with Diamond model for further detail. 

Only companies that succeed in building a sustained competitive advantage will be successful (Porter, 1996) 

Product innovation no longer offers significant competitive advanatge (McGrath, 2011)

70% of CEO's regarded business model innovation as strategic proprity (IBM Study, 2009) 

Nespresso

  • Supplier Power - Alunminium and coffee bean suppliers threaten Nespresso, dependant on their supply chian for the quality product, but do pay better than normal and conduct good relations so threat is limited, also build up places e.g. South Sudan
  • Buyer Power- nearly no bargaining power, sells in specific shops, not available everywhere , exclusivity 
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Seminar 6

OLI Paradigm:

Owership advantages: EMNE's do not possess these FSA's on which successful internationalisation relies. So have to acquire them through LLL (Mathews). Bring in previous notes on Haier here. Also, the notes on Wang et al. How it's a counter-argument to the OLI theory. Makes it redundant. 

You then have the schoalrs' 3 theories regarding what to do (on mindmap for semianr 6). Bear in mind this question came up last year, so probably not explicitly asked about it but useful to link in/links to Wang's theory.

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Seminar 7 - Institutional Voids

IV's associated with emerging economies = increased risk of market entry. Success dependent on manager's understanding of IV's - hindered by bounded rationality. Link here to Maitland and Sammartino's emphasis on the cognition of the manager 'Global mindsets'?

What can MNE's do?

Avoid market altogether 

OR

Adapt:

E.g. Dell in China, previously their business model had revolved around low inventory though internet sales. But in China people not buying PC’s on internet, so they only sold a few amount of products in stores in order to keep inventory low until supply chain efficient enough to sell wider variety of items.—adapted but kept core business proposition - this is critical. Changing business model but keeping core value business proposition the same.

Absorb:

Acquire knowledge on the void. Link to abritrage in AAA Ghemawat.

Innovate:

Change context. e.g. Multinationals in Brazil encouraging big 4 Accountancy firms to set up there to provide auditing. (Deloitte PwC etc)

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Seminar 7 - Institutional Voids

Khanna and Palepu

Highly diversified business groups can adjust to institutional voids in emerging economies. Comglomerates can imitate the institutional role by mediating between their companies. Link to Haier's diversification

Brand name very important in emerging economies as lack of institutional infrastructure, such as legal system, means lack of assurance/trust so place trust in brand name. Also makes it easier for them to raise capital as canr refer to previous ventures for credibiity. 

 Many companies take for granted the role of soft intermediaries in home courty – such as market research firms to tell about consumer preferences. Not many recruitment firms for recruitment etc.

 Power centres  = where the power comes from. Is it in the media? Bureaucracy, civil society? This needs to be figured out before entry.

More open an economy = more likely global intermediaries can work there. But openness isn’t just acceptance of FDI. Its how they let citizens travel, how they let ideas come into the country etc/ China lower on ideas and until recently the movement of people.

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Seminar 7 - Institutional Voids

Burki

informal institutions become crucial in those economies where exchange actors anticipate that contract implementation is fragile due to deficient legal framework.    

Hofstede’s framework can back this up. Asian countries more collectivist - more trust which underpins their informal institutions. Use of family firms and social networks. Fam firms and social neworks give intangible FSA’s such as trust between actors, this means they tie into Barney’s RB, this trust becomes FSA – showing how the 3 legs of the tripod are interlinked not mutually exlcsuive. 

Is a heavy reliance on informal institutions and personal ties in Asian markets to accomplish corporate targets -- Link to AIG returning relics - gain trust of the people of China.

  • “liability of foreignness” and relate this to Ghemawat’s concept of “administrative distance” and explain why a country’s social, political, legal and economic institutions on which business depends are so important to MNEs
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Seminar 7 - Institutional Voids

AIG

Beijing wants AIG as a pace-setter to make People's Insurance Company of China (PICC) competitive. Want PICC to learn from AIG. link to point in seminar 6 regarding how EMNE's can learn from FDI in their home country. Don't even need to go abroad to get it!?

Also the importance of Greenberg. Like Haier, AIG have great leader. In order to get access to China, Greenberg paid £515,000 to return relics to Chinese government and provided educational seminars for local government officials himself - 'frount of house CEO.'

Link to Maitland and Sammartino's suggestion a leader with 'global mindset' is needed.

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seminar 7 - Institutional Voids

AIG (p2) 

What was their entry strategy for China?

       Timing of entry: first mover advantages

      Develop FSAs in government relations (relics, seminars)

      Establish presence and brand early and dominate niche markets before other foreign competitors enter the market - China insurance market completely untapped

      Achieve efficiencies early / become a low-cost competitor vis-à-vis latecomers (=> higher profit margins)

       Evaluating market attractiveness

      Non-traditional: evaluated market based on long-term potential

       Partner policy

      Initially relied on government-owned partner (PICC) to gain entry / reduce BRat problems

      Switched to direct distribution at the first opportunity

       Timing of entry: early stages of market development (link to PLC vernon, the 'introduction')

       Tailor products and channels to the Chinese market

      Substantial investment in training agents 

      Agency distribution system (solution to lack of 

      Re-designed product and tailored marketing to adjust to local culture (life insurance viewed as bringing bad luck)

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seminar 7 - Institutional Voids

AIG (part 3)

Coping with Institutional Voids - strategy was to create LB FSA's.

       Macro-level political and social context

      Political power monopoly, little influence of media and NGOs

      Solution: build a strong political network

       Country openness

      Lack of openness to FDI

      Solution: start with JVs to build relevant FSAs, engage in extensive relationship building to gain access to marke

Product markets

      Weak property right protection, weal legal enforceability, Lack of established distribution network, Lack of marketing / research intermediaries

      Solution: created own distribution network (link with changing context) invest in training, learn the market and culture, engage in marketing efforts to tailor products to local needs

       Labour market

      Labour force had no expertise in insurance

      Solution: heavy investment in training 

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seminar 7 - Institutional Voids

AIG (part 4)

AIG’s FSAs

                  NLB FSAs

      Expertise in insurance business

      Independent broker distribution model

      International experience, particularly in Asia

      Size of operations (largest foreign insurer in Asia)

      Position “at the leading edge of opening markets” (established model for entering emerging markets

LB FSAs developed in China

      Strong political/government relationship network

      Favourable public image (achieved through public gestures/investments that signalled long-term commitment)

      Understanding of local market and culture (through history / JV partnerships)

      Skilled and motivated workforce (achieved through significant investment in training/commission-based compensation system)

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seminar 7 - Institutional Voids

AIG (part 5) 

AIG in China: Relationship Building

AIG rules for entering emerging markets

      Know what you want to do

      Develop a long-term view

      Understand the local culture

      Be persistent

      “Have the CEO out front”

JV between AIG and PICC in 1980

      Niche market and modest profits

      BUT!  Developed important FSAs in government relations

      Transferred LB knowledge from partner (PICC)

       Large investments into local infrastructure: demonstration of commitment

       Helped establish International Business Advisory Council for Shanghai: expanded network, improved “guan’xi”

       Efforts to raise public profile

       Granted license in 1992

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Porter's 5 forces

  • Threat of new entry- low as well developed, difficult to compete with as very established and strong business model. Matzler et al (2013) profitable business model, coffee machines sold at economic price . Nespresso made in 2013 investing $250 million on a new plant [Lackner, Gao and Bonnet, 2014) - reuqires a lot of capital difficult to get, Nespresso 32% Market share (Bloomberg, 2016)
  • Competitive rivlary- firece competition, high amount of MNE's in the field, Nespresso has 7 patents on capsules to protect itself, other companies are still producing capusles. Starbucks is a big rival. Competition is increasing in the coffee industry, with more a brewers attempting to capitalise on the expiration of Nespresso’s patents, using cheaper products, effectively denouncing Nespresso’s competitive advantage (Sheetz, 2014). Industry worth $20 billion ( Goldschein, 2011). Nespress Market share 32%-25% competition 2010-2015 (Bloomberg, 2016)
  • Threat of substitution- alternative beverages (Tea, water, coke, filter coffee, instant coffe) offers exclusivity to show differentiation (rational or emotional customer benefits) , target market wouldn't want cheaper versions anyway, 16 different tastes. “The most widely used psychoactive substance in the world”. (Olekalns & Bardsley 1996).= health effects so want subtitutes but depends on how dependant, can be good and bad. 
  • Buyer Power- nearly no bargaining power, sells in specific shops, not available everywhere , exclusivity- 24/7 service (Nestle- Nespresso, 2010)  
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Seminar 4

Only business can createprosperity Healthy businesses need a healthy community There is a growing awareness of major societal challenges - acitivst groups, social media platfrom, new reportings  Companies are increasingly perceived to be prospering at the expense of the broader community Business increasingly is seen as a major cause of social, environmental, and economic problems Governmentandcivilsocietyoften attempt to address societalissuesat the expense of business

Philanthrop: donations 

CSR: Philanthropy, Good corporate citizenship, Compliance with community standards, Aligned with the business

Creating Shared Value: One above CSR, Corporate policies and practices that enhance the competitivenessof a company while simultaneouslyadvancing social and economic conditions in the communities in which it operates (Usually developing or disadvantaged countries)

e.g. excess packaging damages enviornment and costs the company (Dove- Unilever), environmentally friendly, cheap phones  

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Seminar 4

Companies have adopted a narrow modelof economic value creation (Neoclassical)

- Meeting conventional needs of conventional customer

- Driving revenue through acquisitions instead of new expansion

- Profit improvement throughdownsizing, outsourcing, relocating, andglobalizing

- Shorttime horizons

- Societal issues treated asoutsidethe scope of business Social needs represent the largest marketopportunities- e.g. work place accidents (cheap vs rational/efficient), Enviornment (saving energy = more competitive, reduce pollution = better resource utilisation)  Value chain, customer needs/products/markets, enabling local cluster development   

Novo Nordisk in China - Diabetestrainingprograms together with governments, NGOs, and opinion leaders to promote the latest thinking among physicians on diabetes prevention, screening, treatment, and patient communication,Targeting smaller cities, 220,000 sessions to date

- “Diabetesbus” program to raise patient awareness and provide on-site advice, NovoCare telephone hotline allows patients to reach specialists with questions.  NovoCare Club provides ongoing updates to members

- Patient education focuses on prevention, lifestyle changes, and effective use of insulin products, 80,000 patients educated to date

- Since 1997, this program is estimated to have reduced healthcare costs in China by $700 millionthrough reducing diabetes related complications

- Novo Nordisk sales have increased by an estimated $114 million

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Seminar 4

  • Redefining productivity in the value chain (different activities layed out systematically)
  • All differentiation comes from something you do in the Value Chain that customer is willing to pay for, or which lowers cost
  • Price + cost advantage emanates from value chain
  • Purchasing, Resource use, Energy use, Logistical efficiency, Employee productivity, Location of facilities and the supply chain
  • Recruiting from disadvantaged communities, Diversity, Employee education and job training, Safe working conditions, Onsite housing so miners can be close to families, Employee health, Compensation and benefits to support low income workers, Staff retraining and rehabilitation after mine closes
  • Hindustan Unilever’s restructuring of its value chain through its Project Shakti in India.
  •  Microcredit and training to empower underprivileged women to become direct-to-home distributors of Unilever products in Indian villages of less than 2,000 people. 
  •   Providing women with earnings that often double their household income, but also by creating access to much-needed health and hygiene products.  In return, Unilever is able to greatly expand its customer reach into rural areas and effectively communicate its brand to media-dark regions. 
  •   To date, there are over 45,000 Shakti entrepreneurs covering over 135,000 villages across 15 Indian states.  Hindustan Unilever’s goal is to create one million entrepreneurs selling products to 600 million low-income consumers.

 

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Seminar 4

A strong local cluster improves company growth and productivity Local suppliers Supporting institutions and infrastructure Related businesses
Companies, working collaboratively, can catalyze major improvements in the local cluster and business environment Local cluster development strengthens the link between a company’s success and community success

e.g. the investment that Cisco has made in strengthening human resources in numerous countries through its Networking Academy, which works in partnership with educational institutions in 147 countries. 

Web-based distance learning curriculum to train network administrators.  More than 200,000 students graduate every year from the Academy Greatly increasing the pool of candidates qualified to maintain Cisco equipment for its customers while greatly improving employment opportunities for more than a million workers, including high school dropouts from inner city schools in the U.S. and women with few other employment prospects in developing countries. e.g. Nespresso

  • Implementing shared value in sourcing premium coffees from farmers in Costa Rica, Guatemala, Colombia, Ghana and South Sudan
  • AAA Sustainable quality programme - brand image, quality coffee, good supplier relationships= strong business model, link with Porters 5 forces 
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Seminar 4

- Gov. should make platform investments in public assets and infrastructure to enable CSV

- Gov. should regulate in a way that reinforces and rewards CSV, rather than working against it

Intrepid Travel:  Value Proposition - Sustainable small-group travel - Unique real-life experiences involving significant interaction with the local communities

- Cost-conscious, adventurous, socially aware travelers looking for authentic experiences Distinctive Activities 

- Smaller groups allow for frequent use of local public transport, supporting local infrastructure and reducing environmental impact, stays at local hotels and homestay opportunities as well as dining at local restaurants.

- Some trips involve community volunteer projects where travellers help build local infrastructure - Significant training of local tour guides and other local businesses such as hotels to improve quality and efficiency - Projects such as Kilimanjaro Porters Assistance Project outfits 300+ porters per month with climbing gear and has trained 10,000 porters in first aid, conversational  English, money management, and HIV/AIDS awareness since 2004 -Cooperation with Victoria University to study the impact of small group travel on sensitive rural communities

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Resource based theory - VRIO (A)

  • Why do some firms outperform other firms?
  • Traditional theories feel it’s a fluke, however if it's sustained they’re implementing a monopoly on the market.
  • A firm can gain a competitive advantage based on its unique organisational resources
  • These resources need to be Valuable, rare, perfectly imitable, and non-substitutable
  • Value – firm develops strategies to improve its efficiency e.g. a company’s branding like Nespresso club – repeat customers through brand loyalty
  • Rare: resources owned must be exclusive to achieve a competitive advantage or sustained advantage - intitially nepresso pods (before they were copied)
  • Imitable: not easily reproduced or copied by competition companies (copyrights, product specific advantages like apples ios software)
  • Organisation "Is the firm organized, ready, and able to exploit the resource/capability?" "Is the firm organized to capture value?"
  • Dynamic capabilities perspective emphasizes resource development and renewal  
  • Asymmetries: they’re a skill process or asset that a firm cannot easily duplicate at an affordable price
  • Firm don’t set out to find these, they tend to stumble on them
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Porter and Kramer (2011) Journal

  • CSV “can give rise to the next major transformation of business thinking"
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MIGE Summatives CSV

  • Afrin (2013)  suggests that business and society are dynamically interconnected
  • CSV has featured in a variety of newspapers, whilst also becoming a discussion point for several CEO roundtables at Davos (Jais, 2017)
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RSV / VRIO Critique (A)

Priem and Butler (2001) raised many key points of criticism:

  • The RBV may be tautological, or self-verifying. Barney has defined a competitive advantage as a value-creating strategy that is based on resources that are, among other characteristics, valuable (1991, p106).
  • Different resource configurations can generate the same value for firms and thus would not be competitive advantage - main point
  • The role of product markets is underdeveloped in the argument - subsquent point
  • Limited focus on capabilities - subsequent point
  • Retrospective causality issues: any current success could be attributed to a number of reasons (e.g. unique resources), but the causality is not always clear.
  • overlooked the role of entrepreneurial strategies and entrepreneurial abilities as one of the crucial sources of the competitive advantage of a firm.
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Seminar 7 theory critique

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Product life cycle Vernon (A)

Product Life-Cycle Theory

According to the Product Life-cycle (PLC) theory:

       Firm develops a new product and has first-mover FSA

       The product is initially produced and sold in the home country where the firm has a Location Advantage (LA) – introduction stage

       The firm then develops the market in other advanced countries by exporting its product – growth stage

       Competitors reproduce the product by exploiting alternative location advantages (LAs) and firm specific advantages (FSAs) and export their products to established markets (based on differential cost or quality – value proposition) - maturity

       The original firm no longer has first-mover FSA so is forced to develop new and  internationally transferrable FSAs to extend its product life-cycle (or decline)

NB Porter’s theory is consistent with this view

Implications

1.      Export performance of the home innovating country is better for new products than it is for products approaching maturity.

2.      Technology is simplified as the growth process continues so cost of production falls with economies of scale.

3.      Innovating and imitating competitors develop FSAs and exploit alternative Location Advantages (LAs) and take over the market if the principal innovator can no longer compete and falls into decline.

4.      International trade increases in the later stages of the product life cycle.

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Steenkamp's 4v's (2014)

- Seeks to analyse different ways in which global brands create firm value.

- The interrelations between the 4Vs can be conceptulaised as a value chain.

- Global Brands: those that use similar brand names, positioning strategies, and marketing mixes in

most of their target markets (Levitt, 1983; Yip and Hult, 2012).

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Dynamic Capability (A)

The Dynamic Capability perspective:

FDI is not a one-off occurrence but a dynamic attribute of adaptability that an MNE possesses in conjunction with an understanding of its own capabilities – focusing on adaptation and innovation (entrepreneurship). Dynamic capability is a meta-competence that transcends operational competence. It enables firms not just to invent but also to innovate profitably (Teece, 1986, 2006).

        In the dynamic capabilities tradition the essence of strategy involves selecting and developing technologies and business models that build competitive advantage through assembling and orchestrating difficult-to-replicate assets, thereby shaping competition itself.

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Resource-dependence Theory (Pfeffer & Salancik) (A

·       argues the goal of an organization is to minimize its dependence on other organizations for the suplly of scares resources in its environment

·       Analyses: 1) how vital a resource is 2) extent to which others control said resource

·       an organisation’s ability to gather, alter and exploit raw materials faster than competitors can be fundamental to success

·       RDT is underpinned by the idea that resources are key to organisational success and that access and control over resources is a basis of power. Resources are often controlled by organisations not in the control of the organisation needing them, meaning that strategies must be carefully considered in order to maintain open access to resources.

·       Organisations typically build redundancy into resource acquisition in order to reduce their reliance on single sources e.g. by liaising with multiple suppliers. 

Limitation/ solution:

Organizations depend on multidimensional resources: labor, capital, raw material, etc. Organizations may not be able to come out with countervailing initiatives for all these multiple resources. Hence organization should move through the principle of criticality and principle of scarcity. 

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CSV

Shared Value = corporate policies & practices that enhance a company’s competitiveness while simultaneously advancing social & economic conditions in the communities in which it operates.

Claims to:

Relegitimise Business and its relationship to society - “there does n’t have to be a trade-off between profit and societal value” (Bulloch et al, 2011) - by simultaneously creating societal value and economic value; Recognise that all profit is not equal - profit imbued with social purpose enables society to advance more rapidly while allowing firms to grow; Represent the next evolution in capitalism - concern with societal issues will be a defining characteristic of the post-crisis era - incorporating societal [and environmental] issues into strategy and operations is the next major transformation in management thinking.

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