Market Entry Strategies SubsidiariesOutline1. Introduction2. Entering a foreign country 1. Reasons 2. Forms of entry 3. considerations3. Subsidiary 1. Definitions and Characteristics 2. Advantages and Disadvantages 3. Forms of Subsidiaries4. Example: Petrobras in Colombia5. Conclusion6. Bibliography Gloria Armesto, Alina Sachapow
Entering a Foreign CountryReasons• New geographic markets for existing products• By entering a new market – increased sales – diversified sales – higher brand awareness – business stability and avoiding crisis – gain experience Gloria Armesto, Alina Sachapow
Entering a Foreign CountryConsiderations• Market size and profitability• Legal barriers• Limitations to trade (high tariffs and quotas)• Incentives offered by government• Environmental factors• Cultural environment Gloria Armesto, Alina Sachapow
Entering a Foreign Country• Analysis of potential competitors, customers, suppliers• required level of knowledge and training in exporting procedures• Positioning of product• Competitive advantages• Market entry strategy: – resource consumption – reversibility – flexibility – speed – possibilities for control – timing (pioneer or follower) – Acceptance in the foreign market – Possibility of economies of scale and scope Gloria Armesto, Alina Sachapow
SubsidiariesDefinitions and Characteristics• Legally independent foreign entities• Control by more than 50%• All profits to parent company• Investment entry• Adherence to the foreign country’s laws• Consolidation• Own processes and tasks in marketing, production, logistics and sourcing decisions• Complete value chain and specialized subsidiaries• Centers of competence or centers of excellence• High risk and high control Gloria Armesto, Alina Sachapow
SubsidiariesAdvantages Disadvantages- Resources, capabilities and competences - Integration with company- Interaction with and knowledge about local - Expensive markets- Different perspectives and ideas - High amount of resources- Full control - Political, social, economic risks and uncertainties- Parent company receives all profits- Better coverage of regions- Improvement of competitiveness- Avoiding currency risks- Tax incentives- Less negotiations than for other modes of entry Gloria Armesto, Alina Sachapow
SubsidiariesForms of Subsidiaries• Ownership – Majority stake = 50.1% to 99.9 % of stock or voting right – Wholly owned subsidiary = entirely owned and controlled by parent company• Structure – Greenfield = start-ups – Acquisition = takeovers Gloria Armesto, Alina Sachapow
Subsidiaries• Greenfield – Establishment of new production facilities such as offices, buildings, plants and factories – Movement of intangible capital – Greenfield FDI directly adds to production capacity in the host country, contributes to capital formation and employment generation Gloria Armesto, Alina Sachapow
Subsidiaries• Cross border Mergers and Acquisitions – Merger: Merging of capital, assets and liabilities of existing enterprises – Acquisition: Partial or full takeover of an existing company – FDI through M&A does not directly add to capital stock of host country• Horizontal – same industry• Vertical – client-supplier or buyer-seller relationships Gloria Armesto, Alina Sachapow
Subsidiaries• Greenfield – For production of high-tech products – Internal diversification• Acquisition – Marketing – Valuable trade mark, brand name or process technology – Diversified and large firm, high entry barriers in markets, industries with slow growth – External diversification Gloria Armesto, Alina Sachapow
SubsidiariesGreenfieldAdvantages DisadvantagesNo restructuring or adaptation costs Much time, money and resources necessaryFull control over technology, No direct local knowledge, networksemployees etc. etc.More flexibility in human resources,suppliers, logistics, plant layout,manufacturing technologyGovernment incentives Gloria Armesto, Alina Sachapow
SubsidiariesAcquisitionAdvantages DisadvantagesExisting knowledge, local networks and Restructuring might require manydistribution channels resourcesProduction can start right away Integration is costly and time intensive, might not be supported by employeesLess competitors Hard to consolidate different values and normsFaster access to market Outdated equipment, plants, brand names, unmotivated workforceBetter adapted equipment to localconditions Gloria Armesto, Alina Sachapow
BibliographyInternet Sources• http://www.mybusiness.co.uk/YTeT-jBone4LcQ.html accessed on 10.11.2011, 20.00• http://www.wright.edu/~tdung/entry.pdf accessed on 10.11.2011, 20.15• http://macabacus.com/accounting/subsidiary-accounting accessed on 10.11.2011, 21.00• http://www.investopedia.com/terms/s/subsidiary.asp#axzz1dhvAiCRv accessed on 12.11.2011, 19.30• http://moneyterms.co.uk/subsidiary/ accessed on 12.11.2011, 20.35• http://www.kelley.indiana.edu/rugman/Papersbooks/Web%20Papers/SubsidiarySpecificAdvantagesinMN Es.pdf accessed on 18.11.2011, 20.00• http://dealbook.nytimes.com/2011/01/03/confident-deal-makers-pulled-out-checkbooks-in-2010/ accessed on 22.11.2011, 22.30• http://www.unctad.org/en/docs/webdiaeia20111_en.pdf accessed on 22.11.2011, 22.35 Gloria Armesto, Alina Sachapow
BibliographyLiterature• Global Marketing Management, Masaaki Kotabe, Kristiaan Helsen, John Wiley and Sons Inc., 2010• Strategies of Internationalization – an Overview, Stefan Schmid, ESCP-EAP, 2009• International Business, the challenges of globalization, John Wild, Kenneth Wild, Jerry Han, Pearson Prentice Hall, 2008• Handbuch International Business, Strategie, Praxis, Fallbeispiele, Susanne Czech-Winkelmann, Anke Kopsch, Erich Schmidt Verlag, 2008• Produktmanagement, Grundlagen, Methoden, Beispiele, Andreas Hermann, Frank Huber, Gabler, 2009• World Investment Report 2006, FDI from Developing and Transition Economies: Implications for Development, United Nations Conference on Trade and Development, United Nations, New York, 2006• Bachelorarbeit: Comparative Analysis on Different Impacts of Greenfield Investment and Merger&Acquisitions in Selected Foreign Markets, Audrey Indovina Juanda, Berlin, 2007 Gloria Armesto, Alina Sachapow
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