Global Business Strategy – Factors of Collusion, Drivers for Attack, Knowledge Management in Multinational Enterprises
1. What are the 8 factors of collusion? (EXPLAIN them briefly).
1. Market concentration: If there are a few firms in the market, collusion is more possible as it’s easier for a few firms to collude than many firms to agree on collusion.
2. Existence of price leader: If there’s a dominant firm in the market which can act as a price maker, such firm usually signals to the market setting its own price. Having such dominant firm helps maintain order in the market for collusion.
3. Product Homogeneity: It’s easier to collude when products being sold are same or similar (in other words, homogenous), rather than products with different features, quality, characteristics, etc.
4. High entry barriers: If the concerned market has high entry barriers, it’s easier and more possible for existing firms to collude than markets that can be easily penetrated.
5. High market commonality (Multi-market contacts): Commonality occurs if there is an overlap between two competitors’ markets, also an intensity of rivalry between the firms. In such cases, multimarket firms may follow each other to enter new markets, start respecting each others’ influence or dominance in certain markets, which lead to hidden collusion betwen the firms.
6. Links Among Competitors: If a firm has a participation in a competitor (doesn’t have to be controlling shareholder), collusion becomes more likely. For instance, with a representative of a firm on the board of a rival firm makes the coordination of pricing and marketing policies easier.
7. Evolution of Demand: Demand stability may help sustain collusion, as it increases the degree of observability in the market. In an unstable market with frequent demand shocks or large uncertainty, it might be harder to collude, but in a stable market renders collusion easier.
8. Price inelasticity of demand: If the price elasticity of demand is low, collusion is more possible because the sellers will be in a better/stronger position than buyers to manipulate the market and determine the price. However, if the price elasticity is high, there is less reason to worry about possible collusion.
2. Define the 3 drivers for attacks and Explain them with examples for each).
The three main drivers for attacks in collusion are gambit, thrust and feint.
1. Gambit: In this strategy, a firm withdraws its forces from a low-value market to attract rival firms to divert resources into the low-value market which allows original withdrawing firm to better focus on capturing a high-value market.
A good example for gambit is Gillette and Bic’s allocation of razor and lighter markets. Gillette withdrew from the lighter business leaving the entire market to Bic. Bic then focused its resources from razors to lighter which at the end they both gained dominance in their respective markets (Macmillan, 2003).
2. Thrust: In this strategy, a firm attacks hard and powerful to capture the market fast and strongly.
A good illustration for thrust would be the war between HTC and other smartphone providers. When HTC entered into the market hard and strong by launching the world’s first Android smartphone, it became the largest smarpthone vendor in just 3 years gaining the 25% of total market share in the US beating Apple, Blackberry at that time.
3. Feint: Feint is used by a firm to fool a counterparty where the firm attacks on a focal arena important to a competitor but not to himself. When the competitor focuses on the coming attack, the attacker firm commits its resources to its ”actual” target market.
A good illustration for feint is the Philip Morris example. P. Morris first attacked the US cigarette market knowing that it’s crucially imporant for R.J. Reynolds When R.J. Reynolds saw that, they diverted their resources to defend the focal arena, which allowed Philip Morris to pour resources into its target arena, Eastern Europe (Macmillan, 2003).
Mcmillan, I. (2003). Global Gamesmanship. Harvard Business Review. Retrieved from https://hbr.org/2003/05/global-gamesmanship
3. What are the four types of MNEs in knowledge management? (expalin them with current business as examples).
1. Home Replication: Home replication means exporting / duplicating whatever you have at home to foreign countries. If you’re a manufacturing firm, it’s called exporting. If services, it occurs as licencing or franchising.
A good example for a firm that uses home replication strategy would be Walmart. When Walmart expands to a new market, say, Brazil, it replicates its methods, style, stores, tactics, etc. in the new market.
2. Localization (Multidomestic): Localization means customizing your products, services, and operations so they can respond to customers and employees in each of the countries where it operates. The branches in each market act like local subsidiaries where they act independently, and determine in their own right how the products are designed, distributed, marketed and all. Localization is used to ensure the local needs of the customers.
A good illustration for localization strategy would be Netflix. Netflix is one of the best tech companies that integrates localization strategy into its business and operations very well. Now Netflix is accessible and available in 220 countries, and in each market, the shows and movies that are aired in Netflix are all picked based on the local culture’s needs and demands.
3. Global Standardization (Meganational): Meganational strategy sees the world as one huge national market. Firms that integrates meganational strategy try to reduce costs utilizing economies of scale. This strategy also allows firms to exploit location economies.
For example, you can buy the raw material from another country where the materials are cheap, manufacture in one country where the labor costs are low, or assembly in another country where the electric costs are low, etc. Most of the phone operators in the US outsource their call center or IT support to India where service labor support costs are low. Or, auto companies source auto parts from all over the world, and bring them together in global factories, and export the finished products to all over the world again.
4. Transnational: This is a hybrid strategy where the company tries to be local and global simultaneously. Companies adapting this strategy make trade offs one way or another from either of the sides because it’s almost impossible to be both local and global at the same time. In this strategy, the branches in local markets exchange information between each other and the main headquarter to make more informed decisions.
We can give Starbucks as an example to transnational company. In every Starbucks in the world, you find the ambiance the same, but the products may be different. Starbucks in China may have green tea latte whereas in England or India, they offer tea with milk.
4. What are the two known problems in international division structure?
The first problem in the international division structure is that the managers in the foreign subsidiaries/branches may not be given sufficient voice, or heard as much as the heads or managers in the domestic market. This occurs naturally because of time, location, and in some cases cultural or language differences between the headquarter and foreign branches. For example, Walmart can listen to its heads of domestic division and takes their feedback more often than the the managers or heads in the foreign countries.
Second problem would be that the international division serves as a silo isolated from the rest of the firm. This occurs when the headquarter focuses mainly on domestic activities, and the international division’s activities are not coordinated with the headqaurter. So eventually, many firms phase out the international division after their initial stage of expansion is completed. For instance, Walmart can shut it down its international division when it’s fully settled in, say, Brazil. Since Walmart is engaged in home replication strategy, it doesn’t need an international division structure after its initial stage of overseas expansion is completed. A firm who has trnsnational or meganational strategy would still need it, but not a home-replicated firm like Walmart.