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Gs entry mode freixenet

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    • 1. Foreign Market Entry StrategiesForeign Market Entry Strategies www.studsplanet.comwww.studsplanet.com
    • 2. World Market Principal Motives for Int’l ExpansionPrincipal Motives for Int’l Expansion Locations Economies Economies of Scale Economies of Scope To seek lower production factor costs To expand sales and production volume To exploit proprietary assets www.studsplanet.comwww.studsplanet.com
    • 3. Forms of FDIForms of FDI  OwnershipOwnership  Wholly ownedWholly owned operationsoperations  Green-fieldGreen-field investmentinvestment  Full acquisitionFull acquisition  Partially ownedPartially owned operationsoperations  Partial acquisitionPartial acquisition  Joint ventureJoint venture  RelatednessRelatedness  Horizontal FDIHorizontal FDI  Vertical FDIVertical FDI  UnrelatedUnrelated diversificationdiversification www.studsplanet.comwww.studsplanet.com
    • 4. Host CountryHome Country Forms of FDI: OwnershipForms of FDI: Ownership MNE New Entity Local Firm Joint Venture Full Acquisition (i.e., 100%) Green Field 100% Owned Partial Acquisition (e.g., 50%) Ownership = s% Ownership = (1 - s)% www.studsplanet.comwww.studsplanet.com
    • 5. Entry Decision Making Under Uncertainty:Entry Decision Making Under Uncertainty: Trade-off Between Flexibility and CommitmentTrade-off Between Flexibility and Commitment  Timing: When is aTiming: When is a good time to enter?good time to enter?  Potential gain fromPotential gain from waitingwaiting  Cost of delayCost of delay  Scale of entryScale of entry  Small scale: EstablishSmall scale: Establish a foothold to learna foothold to learn  Large scale: AcquireLarge scale: Acquire first mover advantagefirst mover advantage  Speed of expansion: HowSpeed of expansion: How fast to grow?fast to grow?  Value of learningValue of learning  Preemption of competitorsPreemption of competitors  Constraints of internalConstraints of internal resourcesresources  ModeMode  Some modes have moreSome modes have more flexibility embeddedflexibility embedded  Some modes reduceSome modes reduce resource requirementsresource requirements www.studsplanet.comwww.studsplanet.com
    • 6. Choice of Market Entry ModeChoice of Market Entry Mode www.studsplanet.comwww.studsplanet.com
    • 7. Marketing and Sales ProductionR&D Company Infrastructure Organization, Coordination & HRM Value Chain of an MNEValue Chain of an MNE Innovative Capabilities Advanced Technology & Know- How Industry- Specific Marketing Expertise  What additional resources may the MNE need to enter a foreign market?  Local expertise: marketing, government relations, etc.www.studsplanet.comwww.studsplanet.com
    • 8. Marketing and Sales ProductionR&D Company Infrastructure Organization, Coordination & HRM Typical Value Chain of a Local FirmTypical Value Chain of a Local Firm Imitative Capabilities Older Technology and Know- How Country- Specific Marketing Expertise What may the MNE desire from a local firm?  Complementary resources  Not necessarily strength in every areawww.studsplanet.comwww.studsplanet.com
    • 9. Complementarity ofComplementarity of ResourcesResources Local Firm’s Resources  Imitating capabilities  Older technology and know-how  Country-specific marketing expertise  Country specific organization skills MNE’s Resources  Innovative capabilities  Advanced technology and know-how  Industry-specific marketing expertise  Organization structure and systems www.studsplanet.comwww.studsplanet.com
    • 10. Going it Alone: ExportGoing it Alone: Export HOME COUNTRY HOST COUNTRY Export of Goods MNE Revenues Customers www.studsplanet.comwww.studsplanet.com
    • 11. Going it Alone: ExportGoing it Alone: Export AdvantagesAdvantages  Low initial investmentLow initial investment  Reach customers quicklyReach customers quickly  Complete control overComplete control over productionproduction  Benefit of learning forBenefit of learning for future expansionfuture expansion DisadvantagesDisadvantages  Potential costs of tradePotential costs of trade barriersbarriers  Transportation costTransportation cost  Tariffs and quotasTariffs and quotas  Foregoes potentialForegoes potential location economieslocation economies  Difficult to respond toDifficult to respond to customer needs wellcustomer needs well When Is Export Appropriate?When Is Export Appropriate?  Low trade barriersLow trade barriers  Home location has cost advantageHome location has cost advantage  Customization not crucialCustomization not crucialwww.studsplanet.comwww.studsplanet.com
    • 12. Licensing AgreementLicensing Agreement Local Firm Licensing of Technology HOME COUNTRY HOST COUNTRY MNE Fees and Royalties www.studsplanet.comwww.studsplanet.com
    • 13. Licensing AgreementLicensing Agreement AdvantagesAdvantages  Low initial investmentLow initial investment  Avoids trade barriersAvoids trade barriers  Potential for utilizingPotential for utilizing location economieslocation economies  Access to localAccess to local knowledgeknowledge  Easier to respond toEasier to respond to customer needscustomer needs DisadvantagesDisadvantages  Lack of control overLack of control over operationsoperations  Difficulty in transferring tacitDifficulty in transferring tacit knowledgeknowledge  Negotiation of a transfer priceNegotiation of a transfer price  Monitoring transfer outcomeMonitoring transfer outcome  Potential for creating aPotential for creating a competitorcompetitor When Is Licensing Appropriate?When Is Licensing Appropriate?  Well codified knowledgeWell codified knowledge  Strong property rights regimeStrong property rights regime  Location advantageLocation advantagewww.studsplanet.comwww.studsplanet.com
    • 14. Foreign AcquisitionForeign Acquisition Local Firm Investment HOME COUNTRY HOST COUNTRY MNE Profit www.studsplanet.comwww.studsplanet.com
    • 15. Foreign AcquisitionForeign Acquisition AdvantagesAdvantages  Access to target’s localAccess to target’s local knowledgeknowledge  Control over foreignControl over foreign operationsoperations  Control over ownControl over own technologytechnology DisadvantagesDisadvantages  Uncertainty about target’sUncertainty about target’s valuevalue  Difficulty in “absorbing”Difficulty in “absorbing” acquired assetsacquired assets  Infeasible if local market forInfeasible if local market for corporate control iscorporate control is underdevelopedunderdeveloped When Is Acquisition Appropriate?When Is Acquisition Appropriate?  Developed market for corporate controlDeveloped market for corporate control  Acquirer has high “absorptive” capacityAcquirer has high “absorptive” capacity  High synergyHigh synergy www.studsplanet.comwww.studsplanet.com
    • 16. Going it Alone: “Green Field” EntryGoing it Alone: “Green Field” Entry New Subsidiary Company Investment HOME COUNTRY HOST COUNTRY MNE Profit www.studsplanet.comwww.studsplanet.com
    • 17. Going it Alone: “Green Field” EntryGoing it Alone: “Green Field” Entry AdvantagesAdvantages  Normally feasibleNormally feasible  Avoids risk ofAvoids risk of overpaymentoverpayment  Avoids problem ofAvoids problem of integrationintegration  Still retains full controlStill retains full control DisadvantagesDisadvantages  Slower startupSlower startup  Requires knowledge ofRequires knowledge of foreign managementforeign management  High risk and highHigh risk and high commitmentcommitment When Is “Green Field” Entry Appropriate?When Is “Green Field” Entry Appropriate?  Lack of proper acquisition targetLack of proper acquisition target  In-house local expertiseIn-house local expertise  Embedded competitive advantageEmbedded competitive advantage www.studsplanet.comwww.studsplanet.com
    • 18. Management ContractManagement Contract Management Fees Local Firm Technological Inputs HOME COUNTRY HOST COUNTRY Profit MNE Wholly-Owned Subsidiary Managerial Service www.studsplanet.comwww.studsplanet.com
    • 19. Management ContractManagement Contract AdvantagesAdvantages  Access to localAccess to local management skillsmanagement skills  Avoids buying unwantedAvoids buying unwanted assetsassets  Retains strategic controlRetains strategic control DisadvantagesDisadvantages  Potential incentivePotential incentive problemproblem  Potential adversePotential adverse selection problemselection problem  How do you know theHow do you know the competencies of thecompetencies of the manager?manager? When Is a Management Contract Appropriate?When Is a Management Contract Appropriate?  Manager has a reputation to protectManager has a reputation to protect  HotelsHotels  Consulting companiesConsulting companies  Performance-based contract provides no perversePerformance-based contract provides no perverse incentivesincentives www.studsplanet.comwww.studsplanet.com
    • 20. Joint VentureJoint Venture Joint Venture Company Inputs MNE Local Firm HOME COUNTRY HOST COUNTRY Inputs Share of Profit Share of Profit www.studsplanet.comwww.studsplanet.com
    • 21. Joint VentureJoint Venture AdvantagesAdvantages  Access to partner’s localAccess to partner’s local knowledgeknowledge  Reduction of concern aboutReduction of concern about overpaymentoverpayment  Both parties have someBoth parties have some performance incentivesperformance incentives  Significant control overSignificant control over operationoperation DisadvantagesDisadvantages  Potential loss ofPotential loss of proprietary knowledgeproprietary knowledge  Potential conflicts betweenPotential conflicts between partnerspartners  Neither partner has fullNeither partner has full performance incentiveperformance incentive  Neither partner has fullNeither partner has full controlcontrol When Is a Joint Venture Appropriate?When Is a Joint Venture Appropriate?  Both partners contribute hard-to-measure inputsBoth partners contribute hard-to-measure inputs  Large expected mutual gains in the long-runLarge expected mutual gains in the long-run  Trade secrets can be walled offTrade secrets can be walled off www.studsplanet.comwww.studsplanet.com
    • 22. Common Market Entry ModesCommon Market Entry Modes Joint Venture Company Licensing Acquisition Joint Venturing Local Firm New Subsidiary Company “Green Field” Entry HOME COUNTRY HOST COUNTRY Export MNE www.studsplanet.comwww.studsplanet.com
    • 23. Kumar & Subramaniam (1997) A Contingency Framework for the Mode of Entry Decision  RiskRisk  ReturnReturn  ControlControl www.studsplanet.comwww.studsplanet.com
    • 24. Modes of entry Exporting Contractual Agreeme nt Joint Venture Acquisition Greenfield Investm ent Risk Low Low Moderate High High Return Low Low Moderate High High Control Moderate Low Moderate High High Integration Negligible Negligible Low Moderate High www.studsplanet.comwww.studsplanet.com
    • 25. Decision Strategies:Decision Strategies:  Rational Analytic StrategyRational Analytic Strategy  Cybernetic StrategyCybernetic Strategy  SerendipitySerendipity www.studsplanet.comwww.studsplanet.com
    • 26. DiscoversDiscovers www.studsplanet.comwww.studsplanet.com
    • 27. The Australian ChallengeThe Australian Challenge  What’s FreixenetWhat’s Freixenet corecore competency?competency?  Evaluate Freixenet’s market entry modesEvaluate Freixenet’s market entry modes  Freixenet in AustraliaFreixenet in Australia  What lessons can we draw?What lessons can we draw?  Where next?Where next?  Adds: what is the theme?Adds: what is the theme?  Is it a global theme (standarization/adaptaion?Is it a global theme (standarization/adaptaion?  GloGloccalization (Akio Morita)alization (Akio Morita) www.studsplanet.comwww.studsplanet.com
    • 28. Good luck!Good luck! www.studsplanet.comwww.studsplanet.com
    • 29. Future ReadingFuture Reading - Anderson, Erin and Hubert Gatignon. 1986. Modes of Foreign Entry:- Anderson, Erin and Hubert Gatignon. 1986. Modes of Foreign Entry: A Transaction Cost Analysis.  Journal of International BusinessA Transaction Cost Analysis.  Journal of International Business Studies, 17: 1-26.Studies, 17: 1-26. - Kogut, B. and H. Singh. 1988. The effect of national culture on the- Kogut, B. and H. Singh. 1988. The effect of national culture on the choice of entry mode. Journal of International Business Studies, 19:choice of entry mode. Journal of International Business Studies, 19: 411-432.411-432. - Hennart, J.-F. and Y.-R. Park. 1993. Greenfield vs. acquisition: The- Hennart, J.-F. and Y.-R. Park. 1993. Greenfield vs. acquisition: The strategy of Japanese investors in the United States. Managementstrategy of Japanese investors in the United States. Management Science, 39(9): 1054-1070.Science, 39(9): 1054-1070. - Hennart, J. F., and Reddy, S. 1997. The Choice Between- Hennart, J. F., and Reddy, S. 1997. The Choice Between Mergers/Acquisitions and Joint Ventures: The Case of JapaneseMergers/Acquisitions and Joint Ventures: The Case of Japanese Investors in the United States. Strategic Management Journal 18: 1-12.Investors in the United States. Strategic Management Journal 18: 1-12. - Barkema, H. G. and Vermeulen, F. 1998. International Expansion- Barkema, H. G. and Vermeulen, F. 1998. International Expansion Through Start-up or Acquisition: A Learning Perspective. Academy ofThrough Start-up or Acquisition: A Learning Perspective. Academy of Management Journal 41: 7-26.Management Journal 41: 7-26. - Brouthers, K. D. and Brouthers, L. E. 2000. Acquisition or Greenfield- Brouthers, K. D. and Brouthers, L. E. 2000. Acquisition or Greenfield Start-up? Institutional, Cultural and Transaction Cost Influences.Start-up? Institutional, Cultural and Transaction Cost Influences. Strategic Management Journal 21: 89-97.Strategic Management Journal 21: 89-97. www.studsplanet.comwww.studsplanet.com