DBA 8710: International Business and Global Strategy 1

Course Learning Outcomes for Unit V Upon completion of this unit, students should be able to:

5. Contrast the bargaining power of suppliers and the bargaining power of buyers. 5.1 Determine the bargaining power of a buyer, and determine why strategies might change.

Course/Unit Learning Outcomes

Learning Activity

5.1 Unit Lesson Chapter 13, pp. 372–400

Required Unit Resources Chapter 13: The Strategy of International Business, pp. 372–400

Unit Lesson In an economic sense, it is a buyer and supplier world. Without each, no products are bought, sold, created, designed, or even used. As we contrast the bargaining power of suppliers and buyers, we will examine strategies, value creation, leveraging, and economies of scale, and we will start with the importance of communication along with the psychological capital that is needed. An international agreement involves a meeting of the minds. There is no doubt that both parties must know what they are agreeing to (i.e., the obligations, benefits, and potential consequences). The greatest challenge in international negotiation lies in misunderstanding the culture of the parties involved. Note that there may be cultural differences as to how rules are negotiated for integrity, politeness, use of deception or coercive approaches/methods, and body language; therefore, it is highly important to work collaboratively and consider diversity when creating organizational policies. For international negotiations, that preparation includes understanding the culture of the company or person with whom you are negotiating. Take time to learn the local customs and culture to evaluate bargaining power abilities. A few points to take into consideration include being flexible, knowing where to negotiate, developing relationships, focusing on interests, avoiding generalizations, listening and acting ethically, knowing when to use an interparty, knowing foreign expectations, developing a negotiation plan, socializing before working together, ensuring that the opening demands are carefully crafted (i.e., they should not be too modest), providing enough time for negotiations, avoiding a my way or the highway attitude, having face-to-face negotiations, and using a win-win tactic. It is important to have clear objectives of the negotiation, a well- planned strategy, and a plan for implementing the strategy. From understanding the mindfulness needed to understanding the challenges of negotiation, there are other important components to consider. One of these is global psychological capital, which represents the personality variables that underlie effectively working with people of different nationalities. The first of these competencies is passion for diversity. This signifies a person’s passion for traveling and getting to know people from other parts of the world. Passion for diversity is a crucial component in an individual’s ability to understand his or her bargaining power! The more knowledge and curiosity that an individual possesses, the higher the chance to understand your counter’s strategy, purpose, and goals. We all understand that in international business, one must have a quest for adventure. This refers to one’s willingness to take risks, test his or her ability, and handle challenging and unpredictable situations in the global environment. High self-assurance is another ideal quality for individuals working in a global setting.

UNIT V STUDY GUIDE

The Strategy of International Business

DBA 8710, International Business and Global Strategy 2

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Assessing self-assurance involves determining how energetic and self-confident someone is and how comfortable someone is in uncomfortable situations. Across cultures, it is generally accepted that an individual’s personality is consistent and does not easily change; therefore, for someone to see improvement in his or her global psychological capital, it requires immersion and regular coaching to understand the complexities of international negotiations. For example, in negotiation, you must have a passion for diversity. What does it mean to have passion for diversity? If you have a passion for diversity, you most likely have the characteristics described below.

Passion for Diversity

One enjoys exploring other cultures and tendencies.

One enjoys getting to know people from other parts of the world.

One enjoys traveling and living in another country.

Do you have a thirst for international negotiation? Review the checklist below.

Thirst for International Negotiation

Do you have an interest in dealing with challenging situations?

Are you willing to take risks?

Are you willing to test your abilities?

Do you enjoy dealing with unpredictable situations?

Once the passion for international negotiation has been established, it is important to start with strategy. Strategy is about attaining goals for the firm, but it is much more than this. You must know your own strategy first! What does it consist of? Most strategies are created based on the following criteria: generating profits, having a return on investment (ROI), entering new marketplaces, creating value, and increasing margins based on demand in the future (Hill, 2021). Value in your international business can be increased by sales easier than by margins alone. For example, if a customer can see more value in a company’s products, the company can expand its pricing structure, offer warranties, and offer money-back guarantees. When understanding the bargaining power of a supply or product, one needs to understand the creation of value from the product. Most companies are not as successful as Apple, yet many dream of having Apple’s negotiating power with suppliers and buyers. That was not always the case for Apple. For years, Apple struggled finding a home for manufacturing. It was only because of their core competencies and incredible knowledge of how to utilize them that allowed them to expand in ways not possible several years ago. We know that any company can increase their growth by selling products on an international level; however, many of the companies that are now multinationals started out manufacturing their product(s) in their home country first (Hill, 2021). When negotiating, where is your company? Are they just starting out, or are they already a multinational entity? The success of an international business is dependent on understanding your core competencies regarding your product! This includes production, sales, shipping, management, and others. These core competencies are essential to knowing your leveraging abilities to sell and move products. Think of it in relation to Maslow’s hierarchy of needs. The bottom of the pyramid would be your core competencies. This allows a company to show value or perceived value in order to utilize bargaining power to sell or buy. Apple has a core competency in the production of iPhones. It can produce high-quality, well- designed phones at a price that consumers are willing to spend for the protection of data, durability, and ease of software. This leverage allows Apple to use its core competencies to exercise its bargaining power across the world. Apple creates global effects known as economies of scale. This is when a company begins to create something in mass quantity, which then reduces the cost to the consumer or seller of products. This is a dream of many companies to operate at such a level. Imagine having so much power that you can lower your unit cost, increase profitability, and have sellers constantly knocking at your door. One way to accomplish

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such a goal would be to lower fixed costs for many products, and you could make your costs even lower by selling to more countries. As sales increase globally, Apple’s bargaining power with suppliers increases, which can allow the company to successfully utilize economics of scale in the purchasing of raw materials and bargain down the cost to increase profitability. Sears, Roebuck and Company is an excellent example of this in the early 20th century. If you wanted to buy something, then you got a Sears, Roebuck and Company catalog, ordered the product, and it would be delivered. Walmart is the example from the late 20th century. With stores and superstores all across the United States, they used their massive overall sales numbers and bargain basement to outprice competitors so they would either have to do business with Walmart or compete against them. Amazon would be a modern example. Consider the following question: What strategy does your company want to implement? Then, how do we use our bargaining powers to acquire the best deals possible for our products and services? Companies focus on product development first, and then they focus on research and development (R&D) in their own home country. If the company is lucky, they have used some bargaining power to find a manufacturing location within another country where they would hope to conduct business. While this may raise costs, it opens the world of international business to companies that could only dream of using this strategy just a decade ago. Managing costs allows international companies to thrive in an ever-evolving international environment.

Reference Hill, C. W. L. (2021). International business: Competing in the global marketplace (13th ed.). McGraw-Hill

Education.

Suggested Unit Resources In order to access the resources below, utilize the CSU Online Library to begin your research. The article below attempts to evaluate the effectiveness of using coercion and reward power to appropriate value in buyer-supplier negotiations. Reimann, F., Shen, P., & Kaufmann, L. (2016). Effectiveness of power use in buyer-supplier negotiations: The

moderating role of negotiator agreeableness. International Journal of Physical Distribution & Logistics Management, 46(10). https://doi.org/10.1108/ijpdlm-11-2015-0278

The article below uses the lens of social exchange theory to investigate the influence of incentives on supplier performance under various conditions of buyer-supplier dependence. Terpend, R., & Krause, D. R. (2015). Competition or cooperation? Promoting supplier performance with

incentives under varying conditions of dependence. Journal of Supply Chain Management, 51(4), 29– 53. https://doi.org/10.1111/jscm.12080