Key Concepts in Strategic Management

Jonathan Sutherland

• Publisher: Bloomsbury Academic
• Year: 2017
• Print ISBN:
  9781403921352
• eBook ISBN:
  9781350318267
• Edition: 1
• Topic: Study Aids
• Subtopic: Study Guides

Key Concepts in Strategic Management is one of a range of comprehensive glossaries with entries arranged alphabetically for easy reference. All major concepts, terms, theories and theorists are incorporated and cross-referenced. Additional reading and Internet research opportunities are identified. More complex terminology is made clearer with numerous diagrams and illustrations. With over 500 key terms defined, the book represents a comprehensive must-have reference for anyone studying a business-related course or those simply wishing to understand what strategic management is all about. It will be especially useful as a revision aid.

Aa

Absolute cost advantage

The term ‘absolute cost advantage’ is largely associated with one of the many barriers to entry which prevent businesses from entering new markets. Absolute cost advantages are the benefits which a larger, more established business can achieve through economies of scale or as a result of an innovation which has allowed them to reduce costs. Typically, a new competitor entering the market may face a price war, which often causes new entrants to fail, whilst the incumbent, having the absolute cost advantage, manages to survive.

The incumbent, having taken account of relevant opportunity costs, will expend resources and secure a first-mover advantage in a new market or with a new innovation, and thus will be able to enjoy, relatively speaking, monopoly profits. Any potential entrant into the market must devise a profitable entry plan. The scale of these costs is often referred to as a measure of the height of an entry barrier.

Absorptive capacity

The absorptive capacity of a business represents its abilities to identify, and to value, assimilate and then utilize, any new knowledge. In other words, it is the ability of the business to recognize the value of new, often external, information, then assimilate it and use it to its own commercial advantage. Businesses have increasingly realized that outside sources of knowledge are important, if not crucial, in continuing to innovate.

It is believed that there is a negative relationship between a business’s absorptive capacity and the practice of outsourcing. Businesses which carry out their own research and development are more likely to achieve absorptive capacity as a by-product of this activity.

Cohen, W. M. and Levinthal, D. A., ‘Absorptive Capacity: a New Perspective on Learning and Innovation’, Administrative and Science Quarterly, 35(1) (1990).

Accounting

Accounting, in its more general sense, involves the communication of a business’s financial position to its providers of capital and, for tax purposes, to governments. It is also used to evaluate performance, control expenditure and make forecasts and plans.

In international business, however, accounting is a far more complex discipline as businesses will need to adapt their accounting procedures to fall in line with the local demands in each environment in which they operate. There are a number of national differences in both accounting and auditing standards. As markets have become increasingly globalized over the past few decades, there has been a distinct lack of comparability between the accounting demands in each area in which a business operates. It is therefore difficult for a business to show why financial information appears to be different, depending on the accounting practices of each country in which it has an interest.

There have been attempts to institute a form of accounting standard harmonization, notably from the International Accounting Standards Committee (IASC). To date, their attempts have been rather limited. A multinational business, with subsidiaries in foreign countries, would be required to keep their accounting records and prepare financial statements in the currency of the country in which it is located. It is only when compiling consolidated accounts of the multinational that the subsidiaries’ financial statements have to be translated into the home country’s currency. This, in itself, is a difficult task as exchange rates fluctuate and assets which are valued in a foreign currency also have to be translated into the home currency, but usually at the exchange rate that was current when the assets were purchased. This leads to difficulties in making a multinational’s balance sheet balance.

Inevitably there are distortions in both budgets and performance data when the results are translated into another currency. Increasingly, multinational businesses are seeking ways whereby they can streamline this process, and make the assumptions required more transparent.

Madura, Jeff, International Financial Management. Mason, OH: South Western College Publishing, 2002.

Acquisition and restructuring strategy

The term ‘acquisition and restructuring’, in formulating a business strategy, makes the presumption that a business which has a superior internal governance system can create value simply by acquiring less efficient, or poorly managed, businesses and improving their efficiency.

An acquisition can be differentiated from either a merger or a take-over in as much as it is a transaction where one business buys another with the primary purpose of using that business’s core competence by making it a subsidiary.

There are a number of reasons why businesses choose to acquire other businesses. These include:

Increased speed to market – which is an expression closely related to barriers to entry as it allows market entry more easily.

Diversification – which allows the business to move quickly towards gaining experience and depth, although this does depend on the organization’s position.

Reshaping compet...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Introduction
• The Key Concepts
• Index