Entering Developed and Emerging Markets

1. DEBATING the Decisions of Entering Developed and
Emerging Markets
Sudhanshu Bhatt (https://www.linkedin.com/in/sudhanshu-bhatt-b3665115/)
MBA –IBA
16.05.2023
References
Bulatov, A. (2023). World Economy and International Business Theories, Trends, and Challenges. In Springer. https://doi.org/10.12737/16614
Hill, C. W. L. (2022). Global Business Today 12e Charles.
Hill, C. W. L. (2023). International Business: Competing in Global Marketplace. In McGraw Hill LLC. https://doi.org/10.4324/9780203879412
Shenkar, O., Luo, Y., & Chi, T. (2022). International Business, Routledge. Routledge.
Images sourced from the internet

2. Division of topics between SCOE MBA 22-24 Batch.
First Session Second Session
A1 B1 Export advantages Franchising disadvantages
A2 B2 Export disadvantages Joint venture advantages
A3 B3 Piggybacking advantages Joint venture disadvantages
A4 B4 Piggybacking disadvantages Wholly Owned Subsidiaries Advantages
A5 B5 Counter trade advantages Wholly Owned Subsidiaries disadvantages
A6 B6 Counter trade disadvantages Acquisition advantages
A7 B7 Turnkey advantages Acquisition disadvantages
A8 B8 Turnkey disadvantages Greenfield advantages
A9 B9 Licensing advantages Greenfield disadvantages
A10 B10 Licensing disadvantages Strategic alliance advantages
A11 B11 Franchising advantages Strategic alliance disadvantages
DEBATE Topics (with success and faliure examples)
GROUPS

3. 3 basic decisions firms must make when they
decide on foreign expansion
Three important points that firms must consider before deciding on foreign expansion
are:
1.Market Selection: Firms should carefully assess the long-term profit potential of
foreign markets by considering factors such as market size, consumer wealth,
economic growth rates, living standards, and political stability. The benefit-cost-risk
trade-off is typically most favorable in politically stable developed and developing
nations with market-based economic systems.
2.Timing of Entry: Firms need to consider the timing of entry into foreign markets,
whether early or late. Early entry can provide first-mover advantages such as brand
establishment, cost advantages, and the creation of switching costs. However,
there may also be first-mover disadvantages such as pioneering costs and the
need to educate customers. Late entrants can learn from early entrants' mistakes
and capitalize on market potential.
3.Scale of Entry and Strategic Commitments: Firms should determine the scale of
entry into foreign markets based on available resources and strategic goals.
Entering on a large scale involves significant commitments and can signal long-
term commitment, attracting customers and distributors. However, it also limits
strategic flexibility. Small-scale entry allows for learning and reduced risk, but may
miss out on capturing first-mover advantages.

4. Exporting
Exporting refers to the process of selling goods or services produced in one country to
customers located in another country. It serves as an entry mode for global expansion,
particularly for manufacturing firms.
Advantages of Exporting:
• Avoids the costs of establishing manufacturing or operations in a foreign country.
• Low-level commitment and involvement in the global marketplace.
• Helps achieve experience curve and location economies.
• Enables small- and medium-sized enterprises (SMEs) to enter various country
markets.
Disadvantages of Exporting:
• May not be suitable if lower-cost manufacturing locations are available.
• High supply chain costs can make exporting uneconomical, especially for bulk
products.
• Tariff barriers and the threat of such barriers by host-country governments can pose
risks.
• Issues of divided loyalties and control when delegating marketing, sales, and service
to another company.

5. Piggybacking
Piggybacking refers to a strategy in which a smaller business partners with a larger business in
a foreign market, allowing the smaller business to add its products or services to the larger
company's sales inventory. The arrangement is typically made between non-competing
companies, enabling cross-selling opportunities.
Advantages of Piggybacking:
1.Lower Risk: Piggybacking is considered one of the least risky strategies for small businesses
to enter foreign markets. By leveraging the established presence and distribution channels of
the larger company, the smaller business can reduce the risks associated with setting up its
own operations.
2.Access to Local Expertise: Partnering with a local, well-established company provides the
smaller business with valuable insights into the foreign market, including knowledge of
customer preferences, cultural nuances, and regulatory requirements. This access to local
expertise can help the smaller business adapt its products or services effectively.
3.Cost Savings: Piggybacking allows the smaller business to save on costs related to market
entry, such as establishing physical infrastructure, hiring local staff, and marketing expenses.
By utilizing the resources and infrastructure of the larger partner, the smaller business can
achieve cost efficiencies.
4.Cross-Selling Opportunities: Since piggybacking arrangements are typically made between
non-competing companies, there is an opportunity for cross-selling complementary products or
services. This can expand the customer base and increase sales for both the smaller and
larger businesses.

6. Disadvantages of Piggybacking
Disadvantages of Piggybacking:
1.Dependency on the Larger Partner: The success of the smaller business in the
foreign market becomes heavily dependent on the larger partner. Any changes or
issues within the larger partner's operations or strategy can directly impact the
smaller business's performance.
2.Limited Control: In a piggybacking arrangement, the smaller business has limited
control over its distribution and sales. It must rely on the larger partner to handle
logistics, marketing, and customer relationships, which can restrict the smaller
business's ability to shape its own brand image and customer experience.
3.Profit Sharing: To secure a piggybacking arrangement, the smaller business may
need to offer commissions or share profits with the larger partner. Ensuring a fair
and mutually beneficial profit-sharing agreement is crucial for maintaining a
sustainable partnership.
4.Potential Competition: While piggybacking is typically done between non-
competing companies, there is a possibility that the larger partner may enter the
same market or expand its product line, potentially becoming a competitor to the
smaller business in the future. This can create conflicts of interest and strain the
partnership.

7. Advantages of Countertrade
Countertrade refers to a set of international trade practices where goods or services are
exchanged directly for other goods or services, without the use of a common currency. It
is a method used when traditional forms of payment, such as cash or credit, are not
feasible or preferred by the parties involved. Countertrade can take various forms,
including barter, offset agreements, buyback arrangements, and counter purchase
agreements.
Advantages of Countertrade:
1.Overcoming Currency Constraints: Countertrade allows companies to conduct
business in markets where currency availability, convertibility, or stability is limited or
uncertain. It provides an alternative means of trade when traditional monetary
transactions are challenging.
2.Expanding Market Access: Countertrade can help companies access markets that
have strict regulations or trade barriers, making it difficult to enter through conventional
means. By offering goods or services in exchange for local products or services,
companies can navigate protectionist measures and gain entry into these markets.
3.Promoting International Relationships: Countertrade fosters long-term relationships
between companies in different countries. By engaging in mutually beneficial trade
arrangements, companies can establish partnerships, build trust, and strengthen their
international networks.
4.Mitigating Foreign Exchange Risk: By eliminating or reducing the need for currency

8. Disadvantages of Countertrade:
Disadvantages of Countertrade:
1.Complexity and Operational Challenges: Countertrade transactions can be
complex and administratively burdensome, requiring careful coordination
and negotiation between the parties involved. Companies need to manage
logistical, legal, and operational complexities associated with multiple
goods or services exchanged.
2.Lack of Price Efficiency: In countertrade, the value of goods or services
exchanged may not align with their market prices. Companies may face
difficulties in accurately assessing the fair value or equivalency of the
exchanged items, leading to potential inefficiencies or discrepancies in
pricing.
3.Limited Liquidity: Countertrade arrangements tie up a company's assets in
non-monetary forms, limiting their liquidity and ability to use cash or credit
for other business purposes. This can affect cash flow management and
financial flexibility.
4.Quality and Compatibility Risks: Countertrade involves exchanging goods
or services that may differ in quality, specifications, or compatibility with the
company's existing operations or customer requirements. Ensuring the
received goods or services meet the required standards can be
challenging, leading to potential quality or compatibility issues.

9. What is Turnkey Project
• A turnkey project refers to a type of contract where a contractor
takes responsibility for the entire project, from design and
construction to installation and commissioning. In a turnkey project,
the contractor assumes full control and accountability for delivering a
completed project that is ready for operation. The term "turnkey"
signifies that the client is handed the metaphorical "key" to a fully
functional facility or system upon project completion.
• In essence, a turnkey project involves the contractor providing a
comprehensive solution, including all necessary resources,
expertise, and services to deliver a fully operational project to the
client. This type of project is often used in industries that employ
complex and costly production technologies, such as chemical
plants, pharmaceutical facilities, petroleum refineries, and metal
refineries.

10. Advantages and disadvantages of Turnkey
Project
Advantages:
• Provides a means of exporting process technology to other countries.
• Allows firms to earn economic returns from valuable know-how in technologically
complex industries.
• Useful in countries with restrictions on foreign direct investment (FDI) in specific
sectors.
• Less risky than conventional FDI in politically and economically unstable
environments.
Disadvantages:
• Lack of long-term interest in the foreign country, potentially missing out on major
market opportunities.
• Risk of inadvertently creating competitors by sharing technology and know-how.
• Selling competitive advantage to potential and/or actual competitors through the
turnkey project.

11. Licensing - advantages
A licensing agreement involves granting the rights to intangible property to
another entity for a specified period in exchange for royalty fees. Here are
the advantages and disadvantages of licensing as discussed in the
provided data:
Advantages:
• Capital and risk sharing: The licensee typically invests most of the capital
required for the overseas operation, reducing the licensor's financial
burden and risk.
• Market entry without substantial investment: Licensing allows firms lacking
capital or resources to participate in foreign markets without the need for
significant financial investment.
• Overcoming market barriers: Licensing can be a viable option when
barriers to investment exist, allowing firms to access foreign markets that
would otherwise be restricted.
• Monetizing intangible assets: Licensing enables firms to generate revenue
from intangible property, such as patents, inventions, and trademarks,
without having to develop applications themselves.

12. Licensing - disadvantages
Disadvantages:
• Limited control over operations: Licensing restricts the licensor's control over
manufacturing, marketing, and strategic decisions, making it challenging to achieve
experience curve and location economies.
• Coordination challenges: Licensing hampers a firm's ability to coordinate strategic moves
across countries and use profits from one country to support competitive attacks in
another.
• Risk of losing technological know-how: Licensing exposes the licensor to the risk of losing
control over its technology and competitive advantage, as the licensee may assimilate
and improve the know-how for its own benefit.
• Reduced ability to enforce licensing agreements: Licensing agreements may not provide
sufficient protection against licensees using the know-how to compete directly with the
licensor, leading to the risk of market share loss.
To mitigate some of these disadvantages, firms can consider cross-licensing agreements,
where both parties exchange valuable intangible property, or establishing joint ventures with
equity stakes to align interests and reduce the risk of knowledge appropriation by the
licensee.

13. Advantages of Franchising
Franchising is a business arrangement in which the franchisor grants the franchisee the
right to operate a business using the franchisor's established brand, systems, and
support. The franchisor provides assistance and guidelines for running the business,
while the franchisee pays fees or royalties in return.
Advantages of Franchising:
1.Market Expansion: Franchising allows a company to rapidly expand its presence in
new markets through the efforts of franchisees, who invest in and operate their own
franchise locations.
2.Lower Costs and Risks: Franchisees bear the costs and risks associated with setting
up and operating individual franchise units, relieving the franchisor from significant
financial burdens.
3.Brand Recognition: Franchisees benefit from the established brand reputation and
customer base of the franchisor, which can provide a competitive advantage and help
attract customers.
4.Standardized Systems: Franchisors provide standardized operating systems, training,
and ongoing support, ensuring consistency in product quality, customer experience,
and overall operations.
5.Economies of Scale: Franchise networks can leverage economies of scale in
purchasing, marketing, and advertising, leading to potential cost savings for both the
franchisor and franchisees.

14. Disadvantages of franchising
Disadvantages of Franchising:
1.Limited Control: Franchisors have less direct control over individual franchise
units, as franchisees have some autonomy in managing their businesses. This
can pose challenges in maintaining consistent quality and customer experience.
2.Quality Control: Ensuring consistent quality across multiple franchise locations
can be challenging, especially when dealing with geographically distant
franchisees. Maintaining brand reputation and customer satisfaction may require
ongoing monitoring and support.
3.Profit Sharing: Franchisees typically pay royalties or fees to the franchisor,
reducing their profit margins. Franchisees may find it challenging to generate
sufficient profits after accounting for franchise fees and other expenses.
4.Dependency on Franchisees: The success of the franchisor is tied to the
performance and commitment of individual franchisees. If franchisees fail to meet
expectations or operate poorly, it can negatively impact the overall brand image
and profitability.
5.Legal and Regulatory Requirements: Franchising involves complying with various
legal and regulatory obligations, including disclosure requirements and franchise
agreement terms. Franchisors must ensure compliance and provide ongoing
support to franchisees in meeting these obligations.

15. Advantages of joint ventures
A joint venture is a business arrangement where two or more independent firms
come together to establish a jointly owned firm. Each firm contributes resources,
shares control, and benefits from the venture's operations.
Advantages of Joint Ventures:
1.Local Expertise: Partnering with a local firm provides valuable knowledge of the
host country's market conditions, culture, language, political systems, and
business practices. This helps navigate local challenges and enhances
competitiveness.
2.Shared Costs and Risks: Joint ventures allow firms to distribute the financial
burden and risks associated with entering foreign markets. Sharing costs and
risks with a local partner can make market entry more affordable and less risky.
3.Political Acceptance: In certain countries, joint ventures are often seen as a
favorable entry mode due to political considerations. Local partners can help
mitigate government interference, as they have a vested interest in protecting
their business and speaking out against adverse actions.

16. Disadvantages of Joint Ventures
Disadvantages of Joint Ventures:
• Technology Control: Joint ventures involve sharing control and knowledge, which can
result in the risk of technology leakage. Firms need to carefully manage technology
transfer to prevent unintentional disclosure of proprietary information to the partner.
• Limited Control and Coordination: Joint ventures may not provide the level of control
needed to realize economies of scale, location advantages, or engage in coordinated
global strategies. Decision-making and strategic coordination can be challenging due to
shared ownership and the autonomy given to the joint venture.
• Conflicts and Goal Misalignment: Sharing ownership and control can lead to conflicts and
disagreements between the partnering firms. Changes in goals, differing views on
strategy, or shifts in bargaining power can strain the relationship and potentially result in
the dissolution of the joint venture.
• Cultural and National Differences: Joint ventures between firms of different nationalities
may face challenges related to cultural differences, management styles, and divergent
business practices. These differences can contribute to misunderstandings and
difficulties in aligning objectives.
• Limited Strategic Options: Joint ventures may restrict a firm's ability to pursue alternative
strategies or partnerships. Being tied to a joint venture can limit the company's flexibility
and responsiveness to changing market conditions.

17. Advantages of Wholly Owned
Subsidiaries
A wholly owned subsidiary is a business entity that is completely owned and controlled by a
single parent company. It can be established by either setting up a new operation in a
foreign market (greenfield venture) or acquiring an existing company in the host nation.
Advantages of Wholly Owned Subsidiaries:
1.Technological Control: Wholly owned subsidiaries are advantageous when a firm's
competitive advantage relies on its technological competence. By having full ownership,
the parent company retains complete control over its proprietary technology and reduces
the risk of losing control over valuable knowledge.
2.Tight Operational Control: With a wholly owned subsidiary, the parent company has tight
control over operations in different countries. This level of control is crucial for
implementing global strategic coordination, such as utilizing profits from one market to
support competitive attacks in another.
3.Location and Experience Curve Economies: Wholly owned subsidiaries are suitable for
firms pursuing global and transnational strategies that aim to realize location and
experience curve economies. It allows the firm to configure its value chain and global
production system, maximizing value added at each stage and ensuring centrally
determined decisions on production, quantity, and pricing.
4.Full Profit Share: Establishing a wholly owned subsidiary enables the parent company to
enjoy 100 percent share in the profits generated in the foreign market. This provides
greater financial returns and control over the performance of the subsidiary.

18. Disadvantage of Wholly Owned
Subsidiaries
Disadvantage of Wholly Owned Subsidiaries:
1.Higher Capital Investment: Establishing a wholly owned subsidiary is
typically the most capital-intensive method of entering a foreign market.
The parent company bears the full costs and risks associated with setting
up and operating overseas operations, including infrastructure, facilities,
and staffing.
2.Cultural Integration Challenges: When acquiring an existing host-country
enterprise, merging divergent corporate cultures can pose significant
challenges. Integrating different work styles, values, and practices may
create internal conflicts that offset the benefits gained from acquiring an
established operation.
3.Learning Curve Risks: When establishing a greenfield venture, there are
risks associated with adapting to a new culture and business environment.
Acquiring an established enterprise may mitigate some of these risks by
leveraging existing local knowledge and relationships.

19. What do you mean by Acquisitions?
Acquisitions refer to the process by which one company, known as the acquiring or parent
company, purchases a controlling interest in another company, known as the target or acquired
company. It involves the transfer of ownership and control of the target company from its
original owners to the acquiring company.
In an acquisition, the acquiring company usually buys the majority of the target company's
shares or assets, allowing it to gain control over the target's operations, resources, and
decision-making. Acquisitions can occur within the same industry or across different industries,
and they can be domestic or cross-border transactions.
Advantages of Acquisitions:
1.Quick Market Entry: Acquisitions allow firms to rapidly establish a presence in the target
foreign market by acquiring an established enterprise. This saves time compared to building a
subsidiary from scratch through greenfield strategies.
2.Preempting Competitors: Acquisitions can be used as a strategy to preempt competitors,
especially in rapidly globalizing markets. Acquiring a target firm helps the acquiring company
gain a competitive edge and establish a global scale before competitors can enter the market.
3.Reduced Risk and Known Revenue Stream: Acquiring an established firm means acquiring a
known revenue and profit stream. This reduces the uncertainty associated with greenfield
ventures, where revenue generation is uncertain. Acquisitions also provide access to tangible
and intangible assets, including established infrastructure, customer base, brand name, and
local market knowledge.

20. Disadvantages of Acquisitions
Disadvantages of Acquisitions:
1.Overpayment: Acquiring firms often pay a premium price for the target firm,
especially when multiple firms are interested in its purchase. Overpaying for
assets can negatively impact the financial performance of the acquiring
company and erode shareholder value.
2.Cultural Clash: Cultural differences between the acquiring and acquired firms
can lead to clashes and management turnover. Different management
philosophies, work practices, and compensation structures may create
tensions and hinder integration efforts.
3.Integration Challenges: Integrating the operations of the acquiring and
acquired entities can be complex and time-consuming. Differences in
management philosophy, company culture, and national culture can create
roadblocks. Bureaucratic haggling, logistical considerations, and delays in
decision-making can impede the integration process.
4.Inadequate Pre-Acquisition Screening: Acquiring firms may fail to thoroughly
analyze the potential benefits and costs of the acquisition, leading to
unpleasant surprises post-acquisition. Insufficient understanding of the target
firm's national culture and business system can contribute to the failure of the
acquisition.

21. Greenfield investment
Greenfield investment refers to the strategy of establishing a wholly owned subsidiary
or business from scratch in a foreign country, without acquiring an existing company.
The term "greenfield" comes from the idea of starting with a blank slate, building a
new operation or facility on undeveloped land, and developing it from the ground up.
Advantages of Greenfield Investment:
1.Control and customization: Building a subsidiary from scratch allows the firm to have
full control over the design, operations, and organizational culture of the new entity,
tailoring it to fit the company's specific objectives and strategies.
2.Transfer of competencies: Greenfield ventures provide an opportunity to transfer
products, competencies, skills, and know-how from the established operations of the
parent company to the new subsidiary, enabling the creation of value through the
utilization of existing capabilities.
3.Long-term returns: While establishing greenfield ventures may take more time and
investment initially, it can lead to greater long-term returns compared to acquisitions,
especially when the firm's competitive advantage relies heavily on its unique
organizational culture or incentives that are challenging to transfer to acquired firms.

22. Disadvantages of Greenfield Investment
Disadvantages of Greenfield Investment:
1.Time-consuming and slower establishment: Building a new subsidiary
from scratch requires time and effort to set up operations, secure
necessary permits and licenses, establish supply chains, and develop
customer relationships. It may take longer to achieve operational efficiency
and profitability compared to acquiring an existing company.
2.Risk and uncertainty: Greenfield ventures carry inherent risks associated
with uncertainties in future revenue and profit prospects, as they involve
entering unfamiliar markets and dealing with new regulatory, cultural, and
economic environments. However, prior successful international
experience can mitigate these risks.
3.Potential market limitations: There is a possibility of being preempted by
competitors who enter the market through acquisitions, quickly building a
significant market presence that restricts the market potential for the
greenfield venture. Aggressive global competitors can limit the market
share and growth opportunities for the newly established subsidiary.

23. Strategic Alliance
A strategic alliance refers to a cooperative agreement between potential or actual
competitors. It is a collaborative arrangement between firms, often from different
countries, that involves sharing resources, capabilities, and risks to achieve common
strategic goals. Strategic alliances can range from formal joint ventures with equity
stakes to short-term contractual agreements aimed at specific tasks or projects. The
purpose of a strategic alliance is to leverage the strengths and synergies of
partnering firms to create mutual benefits and enhance competitive advantage.
Advantages of Strategic Alliances:
1.Facilitate market entry: Strategic alliances can help firms enter foreign markets by
partnering with local companies that possess a better understanding of the
business environment and have established networks and connections.
2.Shared costs and risks: By forming alliances, firms can share the fixed costs and
associated risks of developing new products or processes. This allows for more
efficient resource allocation and reduces the financial burden on a single company.
3.Complementary skills and assets: Alliances enable firms to bring together
complementary skills and assets that neither company could easily develop
individually. This collaboration enhances innovation, efficiency, and the ability to
deliver value to customers.
4.Establishing industry standards: An alliance can be formed to establish
technological standards for the industry, benefiting the participating firms. By
setting standards, companies can shape the industry landscape and gain a

24. Disadvantages of Strategic Alliances
Disadvantages of Strategic Alliances:
1.Technology and market access: Critics argue that alliances may
provide competitors with a low-cost route to access new
technologies and markets, potentially giving away valuable assets
and knowledge to partners.
2.Risk of hollowing out: In some cases, alliances between firms from
different countries have been accused of hollowing out Western
enterprises or transferring competitive advantages to other regions.
Overreliance on alliances can lead to a loss of competitive
advantage in the global marketplace.
3.Unequal benefits: Not all alliances result in equal benefits for both
firms. Some alliances may favor one partner over the other, leading
to imbalanced outcomes and potential conflicts.

25. How can organizations make strategic
alliances work effectively
1. Partner Selection:
• Choose a partner that aligns with the firm's strategic goals and complements its capabilities.
• Ensure the partner shares a common vision for the alliance to foster harmony and long-term success.
• Select a partner that demonstrates fair play and is unlikely to exploit the alliance for its own gains.
2. Alliance Structure:
• Design the alliance structure to safeguard sensitive technologies and prevent their unauthorized
transfer.
• Include contractual safeguards to mitigate the risk of opportunistic behavior by the partner.
• Seek opportunities for equitable gain through skill and technology swapping agreements.
• Extract credible commitments from the partner to ensure their dedication to the alliance's success.
3. Managing the Alliance:
• Cultivate interpersonal relationships and build trust between managers of both firms.
• Foster a culture of learning from the alliance partner to maximize knowledge exchange.
• Encourage employees at all levels to understand and leverage the partner's strengths to enhance the
firm's competitive position.
• Disseminate acquired knowledge throughout the organization to drive organizational learning and
maximize the benefits of the alliance.

26. • To be Continued……….