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competitive action
a strategic or tactical action the firm takes to build or defend its competitve advantages or improve its market position
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competitive response
a strategic or tactical action the firm takes to counter the effects of a competitor's competitive action
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strategic action/response
a market-based move that involves a significant commitment of specific & distinctive organizational resources and is difficult to implement & reverse; often involves big amounts of money; ex. major acquisition
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tactical action/response
a market-based move that is taken to fine-tune a strategy; it involves fewer resources & is relatively easy to implement & reverse; not a big deal; ex. price cut
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first mover
a firm that takes initial competitive action in order to build or defend its competitive advantages or to improve its market position; allocate funds for product innovation & development, aggressive advertising, & advanced R&D
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second mover
a firm that responds to the first mover's competitive action, typically through innovation; more cautious, studies customers' reactions to product innovations before moving; can avoid major investments required of the pioneers
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late mover
a firm that responds to a competitive action a significant amount of time after the first mover's action and the second mover's response; considerably less success; success possible especially if others messed up and/or exhausted their resources
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corporate-level strategy
specifies actions a firm takes to gain competitive advantage by selecting & managing a group of different businesses competing in different product markets; helps companies select new strategic positions that are expected to increase the firm's value
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single-business diversification strategy
when a firm generates 95% or more of its sales revenue from its core business area; low level diversification
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dominant-business diversification strategy
when a firm generates between 70-95% of its total revenue within a single business; low level diversification
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related constrained diversification strategy
when a firm generates less than 70% of revenue from the dominant bus; all businesses share product, technological, & distribution linkages; directly share resources & activities between the businesses; moderate & high levels of diversification
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related linked diversification strategy
when a firm generates less than 70% of revenue from the dominant bus; there are only limited links between businesses; share fewer resources & assets between the businesses; concentrates on transferring knowledge & core competencies between them; moderate & high levels of diversification
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unrelated diversification strategy
when a firm generates less than 70% of revenue from the dominant bus; there are no common links (relationships) between businesses; high levels of diversification; challenging to manange; firms using this often called conglomerates
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economies of scope
cost savings that the firm creates by successfully sharing some of its resources & capabilities or transferring 1 or more corporate-level core competencies that were developed in one of its businesses to another of its businesses
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corporate-level core competencies
complex sets of resources & capabilities that link different businesses, primarily throught mangerial & technological knowledge, experience, & expertise; used in the related link diversification strategy
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market power
exists when a firm is able to sell products above the existing competitive level or to reduce the costs of its primary & support activities below the competitive level, or both; used in related constrained & linked strategy
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multipoint competition
exists when 2 or more diversified firms simultaneously compete in the same product areas or geographical markets; ex. UPS & FedEx in overnight delivery & ground shipping
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vertical integration
exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration); firms can partially integrate as well; commonly uses in firm's core bus.
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financial economies
cost savings realized through improved allocations of financial resources based on investments inside or outside the firm; used in unrelated diversification strategy; can be imitated more easily
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synergy
exists when the value created by business units working together exceeds the value that those same units create working independently
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corporate governance
the set of mechanisms used to manage relationships among stakeholders & to determine and control the strategic direction & performance of organizations; concerned w/ identifying ways to ensure decisions are made effectively & that they facilitate a firm's efforts to achieve strategic competitiveness
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agency relationship
exists when 1 or more people (principals, firm's owners, risk bearing) hire another person (agents, top-level managers) as decision-making specialists to perform a service; responsibility to a second party for compensation; can be between managers & their employees
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managerial opportunism
the seeking of self-interest with guile (cunning or deceit); an attitude & a set of behaviors
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agency costs
the sum of incentive costs, monitoring costs, enforcement costs, & individual financial losses incurred by principals because governance mechanisms can't guarantee total compliance by the agent
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ownership concentration
defined by the number of large-block shareholders and the total percentage of the firm's shares they own
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large-block shareholders
typically own at least 5% of a company's issued shares
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institutional owners
financial institutions such as mutual funds & pension funds that control large-block shareholder positions
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board of directors
a group of elected individuals whose primary responsibility is to act in the owners' best interests by formally monitoring & controlling the firm's top-level managers
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executive compensation
a governance mechanism that seeks to align the interests of managers & owners through salaries, bonuses, & long-term incentives such as stock awards & options
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market for corporate control
an external governance mechanism that is active when a firm's internal governance mechanisms fail; individuals & firms that buy ownership positions in or purchase all of potentially undervalued companies or merge 2 previously separate firms
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merger
a strategy through which 2 firms agree to integrate (combine) their operations on a relatively coequal basis
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acquisition
a strategy through which 1 firm buys a controlling, or 100%, interest in another firm with the intent of making the acquired firm a subsidiary business within its portfolio; most common; use of competency/resource
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takeover
a special type of acquisition wherein the target firm does not solicit the acquiring firm's bid; unfriendly acquisitions, can be hostile; coercion; leaders seek to reduce excess capacity; condition encourage
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horizontal acquisition
buying a company in the same industry as the acquiring firm; increase a firm's market power by exploiting cost-based & revenue-based synergies; result in higher performance when the 2 firms have similar characteristics like strategy & managerial styles
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vertical acquisition
when a firm acquires a supplier or distributor of 1 or more of its goods or services; increased market power by controlling additional parts of the value chain
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related acquisition
acquiring a firm in a highly related industry; firms seeks to create value through the synergy that can be generated by integrating some of their resources & capabilities
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cross-border acquisition
acquisitions made between companies with headquarters in different countries
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due diligence
a process through which a potiential acquirer evaluates a target firm for acquisition; to examine the quality of the strategic fit & the ability of the acquiring firm to effectively integrate the target to realize the potential gains from the deal
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junk bonds
a financing option through which risky acquisitions are financed with money (debt) that provides a large potential return to lenders (bondholders); increases debts; have high interest rates; unsecured
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synergy
exists when the value created by units working together exceeds the value those units could create working independently; assets worth more when used together
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private synergy
created when combining & integrating the acquiring & acquired firms' assets yield capabilities & core competencies that could not be developed by combining & integrating either firm's assets with another company; possible when firms' assets are complementary
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cooperative strategy
a means by which firms collaborate for the purpose of working together to achieve a shared objective; to create value for a customer that it likely couldn't do by itself
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strategic alliance
a cooperative strategy in which firms combine some of their resources & capabilities for the purpose of creating a competitive advantage; co-develop, sell, & service goods & services
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joint venture
a strategic alliance in which 2 or more firms create a legally independent company to share some of their resources & capabilities for the purpose of developing a competitive advantage; when firms intend to enter highly uncertain markets; effective in establishing long-term relationships & transferring tacit knowledge
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equity strategic alliance
when 2 or more firms own different percentages of the company they have formed by combining some of their resources & capabilities for the purpose of creating a competitive advantage; many FDI's completed this way
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nonequity strategic alliance
2 or more firms develop a contractual relationship to share some of their resources & capabilities for the purpose of creating a competitive advantage; separate independent company NOT established; less formal & demand fewer partner committments; not for complex projects; ex. licensing & distribution agreeement, supply contracts
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business-level cooperative strategy
through which firms combine some of their resource & capabilities for the purpose of creating a competitive advantage by competiting in 1 or more product markets
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vertical complementary alliance
firms share some of their resources & capabilities from different stages of the value chain (supply-chain mgmt, operations, distribution, marketing, & follow-up services) for the purpose of creating a competitive advantage; often formed to adapt to environmental changes
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horizontal complementary alliance
firms share some of their resources & capabilities from the same stage(s) of the value chain (supply-chain mgmt, operations, distribution, marketing, & follow-up services) for the purpose of creating a competitive advantage; often formed to adapt to environmental changes; difficult to maintain
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explicit collusion
exists when 2 or more firms negotiate directly to jointly agree about the amount to produce as well as the prices for what is produced; illegal in U.S. & most developed economies
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tacit collusion
exists when several firms in an industry indirectly coordinate their production & pricing decisions by observing each other's competitive actions & responses; results in production output that is below fully competitve levels & above fully competitive prices
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mutual forbearance
a form of tacit collusion in which firms do not take competitive actions against rivals they meet in multiple markets; b/c it could be destructive competition
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corporate-level cooperative strategy
through which a firm collaborates with 1 or more companies for the purpose of expanding its operations; require fewer resource committments & permet greater flexibility in terms of efforts to diversify partners' operations compared against mergers & acquisitions
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diversifying strategic alliance
corporate-level cooperative strategy in which firms share some of their resources & capabilities to engage in product and/or geographic diversification
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synergistic strategic alliance
corporate-level cooperative strategy in which firms share some of their resources & capabilities to create economies of scope between multiples functions or businesses between partner firms
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cross-border strategic alliance
an international cooperative strategy in which firms with headquarters in different countries decide to combine some of their resources & capabilities for the purpose of creating a competitve advantage; less risky than M & A, can be complex & hard to manage; create value in locations outside home market
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