Global Marketing


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Entry Strategy and Strategic Alliances

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Global Marketing

  1. 1. Lecture 06 Entry Strategy and Strategic Alliances 1
  2. 2. Basic foreign expansion entrydecisions• A firm contemplating foreign expansion must make three decisions• Which markets to enter• When to enter these markets• What is the scale of entry 2
  3. 3. Which foreign markets• Favorable • Politically stable developed and developing nations • Free market systems • No dramatic upsurge in inflation or private-sector debt• Unfavorable • Politically unstable developing nations with a mixed or command economy or where speculative financial bubbles have led to excess borrowing 3
  4. 4. How Do Firms Decide Which Marketsto Enter?1. Assess Alternative Foreign Markets • Market potential • Varies by type of product and business strategy • Objective and subjective measures • Level of competition • Current and future level – must consider technological change • Quality and distinctive competence of competition • Legal and political environment • Affects mode of entry, too • Political risk • Regulatory environment • Socio-cultural Influences • Effect on desirability of market varies by mode of entry 4
  5. 5. How Do Firms Decide Which Marketsto Enter?2. Evaluate Costs, Benefits, Risks given previous assessment of market • Costs • Direct costs • Opportunity costs • Benefits • Revenues, Profits • Cost reductions? • Risks • Exchange rate fluctuations • Inaccurate assessment of potential • More complex than envisioned • Political instability 5
  6. 6. How Do Firms Choose a Mode ofEntry?• Factors affecting choice of entry mode include: • Ownership advantages • Location advantages • Internalization advantages • Need for control • Resource availability • Global strategy 6
  7. 7. Timing of entry• Advantages in early market entry: • First-mover advantage. • Build sales volume. • Move down experience curve and achieve cost advantage. • Create switching costs.• Disadvantages: • First mover disadvantage - pioneering costs. • Changes in government policy. 7
  8. 8. Entry modes• Exporting• Turnkey Projects• Licensing• Franchising• Joint Ventures• Wholly Owned Subsidiaries 8
  9. 9. Figure 12.3 The LicensingProcess LICENSEE LICENSOR •Uses the intellectual •Leases the right to use property to create its intellectual property products for local sale •Earns new revenues with •Pays a royalty back to relatively low investment the licensor 9
  10. 10. Advantages and disadvantages of entrymodes 10
  11. 11. Foreign Direct Investment• Building new facilities (the Greenfield strategy)• Buying existing assets in a foreign country (acquisition strategy)• Participating in a joint venture 11
  12. 12. Foreign Direct InvestmentAdvantages Disadvantages • High financial and• High profit potential managerial investments• Maintain control over • Higher exposure to political risk operations • Vulnerability to restrictions• Acquire knowledge of on foreign investment • Greater managerial local market complexity• Avoid tariffs 12
  13. 13. Greenfield StrategyAdvantages Disadvantages • Longer time for• Can select best site implementation• Econ. Dev. Incentives • Land unavail. or expensive • Regs. in factory constr.• Clean slate (line- • Recruiting local workforce up/schedule) • Perceived as foreign 13
  14. 14. Selecting an entry modeTechnological Know-How Wholly owned subsidiary, except: 1. Venture is structured to reduce risk of loss of technology. 2. Technology advantage is transitory. Then licensing or joint venture OKManagement Know-How Franchising, subsidiaries (wholly owned or joint venture) Pressure for Cost Combination of exporting and wholly Reduction owned subsidiary 14
  15. 15. 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 markets 15
  16. 16. 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 ownership 16
  17. 17. Global Alliances, however, 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 identity 17
  18. 18. 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 committing 18
  19. 19. Characteristics of a strategicalliance Independence of Benefits Participants Technology Control Products Ongoing Shared Contributions Benefits Markets 19 Cooperation 14-23
  20. 20. Managing the alliance• Build trust • Relational capital• Learning from partners • Diffusion of knowledge 20