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Chapter Fourteen           Entry Strategy and           Strategic Alliances
14 - 3                                Introduction         • Any firm contemplating foreign expansion must           strug...
14 - 4                              Which Foreign Markets     • The choice must be based on an assessment of a       natio...
14 - 5                              Timing the Entry     • Advantages frequently associated with entering a       market e...
14 - 6                              Scale of Entry     • Large scale entry            - Strategic Commitments - a decision...
14 - 7                              Entry Modes     • Firms can use six different methods to enter a market            -  ...
14 - 8                                Exporting     • Advantages:            - Avoids cost of establishing manufacturing o...
14 - 9                              Turnkey projects     • Advantages:            - Can earn a return on knowledge asset  ...
14 - 10                              Licensing: Advantages     • Reduces development costs and risks of establishing forei...
14 - 11                              Franchising     • Advantages:            - Reduces costs and risk of establishing ent...
14 - 12                              Joint Ventures     • Advantages:            - Benefit from local partner’s knowledge ...
14 - 13                              Wholly Owned Subsidiary       • Subsidiaries could be Greenfield investments or      ...
14 - 14                        Advantages and Disadvantages                               of Entry ModesMcGraw-Hill/IrwinI...
14 - 15                              Core Competencies and                                   Entry Mode     • The optimal ...
14 - 16                              Core Competencies and                                   Entry Mode     • Technologica...
14 - 17                         Acquisitions Pros and Cons     • Pro:                           • Con:            - Quick ...
14 - 18                              Greenfield Ventures                                Pros and Cons     • Pro:          ...
14 - 19                              Acquisition or Greenfield     • Acquisitions are                    • Greenfield vent...
14 - 20                              Strategic Alliances     • Cooperative agreements between potential or actual       co...
14 - 21                              Alliances are popular     • High cost of technology development     • Company may not...
14 - 22                      Global Alliances are Different     • Firms join to attain world leadership     • Each partner...
14 - 23                              Partner Selection     • Get as much information as possible on the potential       pa...
14 - 24                              Structuring the Alliance to                                 Reduce OpportunismMcGraw-...
14 - 25                              Looking Ahead to Chapter 15     • Exporting, Importing, and Countertrade            -...
Entry s trategy
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Entry s trategy

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  • Table 14.1, p. 494
  • Figure 14.1, p. 503
  • Transcript of "Entry s trategy"

    1. 1. Chapter Fourteen Entry Strategy and Strategic Alliances
    2. 2. 14 - 3 Introduction • Any firm contemplating foreign expansion must struggle with the following decisions - Which foreign market(s) to enter, when to enter them, and on what scale - Which mode of entry will be utilizedMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    3. 3. 14 - 4 Which Foreign Markets • The choice must be based on an assessment of a nation’s long-run profit potential • The attractiveness of a country depends upon balancing the benefits, costs, and risks associated with doing business in that country • Benefits include - Size of market - Present wealth of the consumers in the market - Likely future wealth of consumers - Economic growth ratesMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    4. 4. 14 - 5 Timing the Entry • Advantages frequently associated with entering a market early are commonly known as first-mover advantages - The ability to preempt rivals and capture demand by establishing a strong brand name - Ability to build sales volume - Ability of early entrants to create switching costs • Disadvantages associated with entering a foreign market before other international businesses are referred to as first-mover disadvantages - Pioneering costs are costs that an early entrant has to bear - Possibility that regulations may changeMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    5. 5. 14 - 6 Scale of Entry • Large scale entry - Strategic Commitments - a decision that has a long-term impact and is difficult to reverse - May cause rivals to rethink market entry - May lead to indigenous competitive response • Small scale entry - Time to learn about market - Reduces exposure riskMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    6. 6. 14 - 7 Entry Modes • Firms can use six different methods to enter a market - Exporting - Turnkey Projects - Licensing - Franchising - Joint Ventures - Wholly Owned SubsidiariesMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    7. 7. 14 - 8 Exporting • Advantages: - Avoids cost of establishing manufacturing operations - May help achieve experience curve and location economies • Disadvantages: - May compete with low-cost location manufacturers - Possible high transportation costs - Tariff barriers - Possible lack of control over marketing repsMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    8. 8. 14 - 9 Turnkey projects • Advantages: - Can earn a return on knowledge asset Contractor agrees - Less risky than conventional FDI to handle every detail of project • Disadvantages: for foreign client - No long-term interest in the foreign country - May create a competitor - Selling process technology may be selling competitive advantage as wellMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    9. 9. 14 - 10 Licensing: Advantages • Reduces development costs and risks of establishing foreign enterprise • Lack capital for venture • Unfamiliar or politically volatile market • Overcomes restrictive investment barriers • Others can develop business applications of intangible property Agreement where licensor grants rights to intangible property to another entity for a specified period of time in return for royalties.McGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    10. 10. 14 - 11 Franchising • Advantages: - Reduces costs and risk of establishing enterprise • Disadvantages: - May prohibit movement of profits from one country to support operations in another country - Quality control Franchiser sells intangible property and insists on rules for operating businessMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    11. 11. 14 - 12 Joint Ventures • Advantages: - Benefit from local partner’s knowledge - Shared costs/risks with partner - Reduced political risk • Disadvantages: - Risk giving control of technology to partner - May not realize experience curve or location economies - Shared ownership can lead to conflictMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    12. 12. 14 - 13 Wholly Owned Subsidiary • Subsidiaries could be Greenfield investments or acquisitions • Advantages: - No risk of losing technical competence to a competitor - Tight control of operations - Realize learning curve and location economies • Disadvantage: - Bear full cost and riskMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    13. 13. 14 - 14 Advantages and Disadvantages of Entry ModesMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    14. 14. 14 - 15 Core Competencies and Entry Mode • The optimal entry mode for firms depends to some degree on the nature of their core competencies • A distinction can be drawn between firms whose core competency is - Technological know-how - Management know-how • The greater the pressures for cost reductions are, the more likely a firm will want to pursue some combination of exporting and wholly owned subsidiariesMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    15. 15. 14 - 16 Core Competencies and Entry Mode • Technological Know-How • Management Know-How - Licensing and joint-venture - The firms valuable asset is arrangements should be normally a brand name avoided if possible - The result is that - Should probably use a franchising and subsidiaries wholly owned subsidiary are very attractive - Exceptions include - Often times a joint venture • An arrangement can be is politically more structured to reduce the acceptable risk of licensees • If the technological advantage is only transitoryMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    16. 16. 14 - 17 Acquisitions Pros and Cons • Pro: • Con: - Quick to execute - Disappointing results - Preempt competitors - Overpay for firm - Possibly less risky - Optimism about value creation (hubris) - Culture clash - Problems with proposed synergiesMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    17. 17. 14 - 18 Greenfield Ventures Pros and Cons • Pro: • Con: - Can build subsidiary it - Slow to establish wants - Risky - Easy to establish - Preemption by operating routines aggressive competitorsMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    18. 18. 14 - 19 Acquisition or Greenfield • Acquisitions are • Greenfield ventures are attractive if: attractive if: - There are well - There are no competitors established firms already - Competitors have a in operation competitive advantage - Competitors want to that consists of enter the region embedded competencies, skills, routines, and cultureMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    19. 19. 14 - 20 Strategic Alliances • Cooperative agreements between potential or actual competitors • Advantages: - Facilitate entry into market - Share fixed costs - Bring together skills and assets that neither company has or can develop - Establish industry technology standards • Disadvantages: - Competitors get low cost route to technology and marketsMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    20. 20. 14 - 21 Alliances are popular • High cost of technology development • Company may not have skill, money or people to go it alone • Good way to learn • Good way to secure access to foreign markets • Host country may require some local ownershipMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    21. 21. 14 - 22 Global Alliances are Different • Firms join to attain world leadership • Each partner has significant strength to bring to the alliance • A true global vision • Relationship is horizontal not vertical • When competing in markets not part of alliance, they retain their own identityMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    22. 22. 14 - 23 Partner Selection • Get as much information as possible on the potential partner • Collect data from informed third parties - Former partners - Investment bankers - Former employees • Get to know the potential partner before committingMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    23. 23. 14 - 24 Structuring the Alliance to Reduce OpportunismMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
    24. 24. 14 - 25 Looking Ahead to Chapter 15 • Exporting, Importing, and Countertrade - The Promise and Pitfalls of Exporting - Improving Export Performance - Export and import Financing - Export Assistance - CountertradeMcGraw-Hill/IrwinInternational Business, 6/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
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