©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom.  No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. Chapter 15 Entry Strategy and Strategic Alliances * ©McGraw-Hill Education. What Are the Basic Decisions Firms Make When Expanding Globally? Firms expanding internationally must decide Which markets to enter When to enter them and on what scale Which entry mode to use exportinglicensing or franchising to a company in the host nationestablishing a joint venture with a local companyestablishing a new wholly owned subsidiaryacquiring an established enterprise * LO 15-1: Explain the three basic decisions that firms contemplating foreign expansion must make: which markets to enter, when to enter those markets, and on what scale. ©McGraw-Hill Education. What Influences the Choice of Entry Mode? Several factors affect the choice of entry mode includingtransport coststrade barrierspolitical riskseconomic riskscostsfirm strategyThe optimal mode varies by situation – what makes sense for one company might not make sense for another * The Opening Case: Starbucks’ Foreign Entry Strategy explores the Seattle coffee company’s global expansion, and how the company approached each of the basic decisions. ©McGraw-Hill Education. Which Foreign Markets Should Firms Enter? (1 of 2) The choice of foreign markets will depend on their long-run profit potential Favorable markets are politically stable have free market systemshave relatively low inflation rates have low private sector debt * ©McGraw-Hill Education. Which Foreign Markets Should Firms Enter? (2 of 2) Less desirable markets are politically unstable have mixed or command economieshave excessive levels of borrowingMarkets are also more attractive when the product in question is not widely available and satisfies an unmet need * Management Focus: Tesco’s International Growth Strategy describes Tesco’s international expansion strategy. Tesco, the largest grocery retailer in the United Kingdom has established operations in a number of foreign countries. Typically, the company seeks underdeveloped markets in developing nations where it can avoid the head-to-head competition that goes on in more crowded markets, and then enters those markets via joint ventures where the local partner provides knowledge of the market while Tesco provides retailing expertise. ©McGraw-Hill Education. When Should a Firm Enter a Foreign Market? Once attractive markets are identified, the firm must consider the timing of entry Entry is early when the firm enters a foreign market before other foreign firms Entry is late when the firm enters the market afte ...

1. ©McGraw-Hill Education. All rights reserved. Authorized only
for instructor use in the classroom. No reproduction or further
distribution permitted without the prior written consent of
McGraw-Hill Education.
Chapter 15
Entry Strategy and Strategic Alliances
*
©McGraw-Hill Education.
What Are the Basic Decisions Firms Make When Expanding
Globally?
Firms expanding internationally must decide
Which markets to enter
When to enter them and on what scale
Which entry mode to use exportinglicensing or franchising to a
company in the host nationestablishing a joint venture with a
local companyestablishing a new wholly owned
subsidiaryacquiring an established enterprise

2. *
LO 15-1: Explain the three basic decisions that firms
contemplating foreign expansion must make: which markets to
enter, when to enter those markets, and on what scale.
©McGraw-Hill Education.
What Influences
the Choice of Entry Mode?
Several factors affect the choice of entry mode
includingtransport coststrade barrierspolitical riskseconomic
riskscostsfirm strategyThe optimal mode varies by situation –
what makes sense for one company might not make sense for
another
*
The Opening Case: Starbucks’ Foreign Entry Strategy explores
the Seattle coffee company’s global expansion, and how the
company approached each of the basic decisions.
©McGraw-Hill Education.
Which Foreign Markets
Should Firms Enter? (1 of 2)
The choice of foreign markets will depend on their long-run

3. profit potential Favorable markets are politically stable have
free market systemshave relatively low inflation rates have low
private sector debt
*
©McGraw-Hill Education.
Which Foreign Markets
Should Firms Enter? (2 of 2)
Less desirable markets are politically unstable
have mixed or command economieshave excessive levels of
borrowingMarkets are also more attractive when the product in
question is not widely available and satisfies an unmet need
*
Management Focus: Tesco’s International Growth Strategy
describes Tesco’s international expansion strategy. Tesco, the
largest grocery retailer in the United Kingdom has established
operations in a number of foreign countries. Typically, the
company seeks underdeveloped markets in developing nations
where it can avoid the head-to-head competition that goes on in
more crowded markets, and then enters those markets via joint
ventures where the local partner provides knowledge of the
market while Tesco provides retailing expertise.

4. ©McGraw-Hill Education.
When Should a Firm
Enter a Foreign Market?
Once attractive markets are identified, the firm must consider
the timing of entry
Entry is early when the firm enters a foreign market before
other foreign firms
Entry is late when the firm enters the market after firms have
already established themselves in the market
*
©McGraw-Hill Education.
Why Enter a
Foreign Market Early?
First-mover advantages include the ability to preempt rivals by
establishing a strong brand namethe ability to build up sales
volume and ride down the experience curve ahead of rivals and
gain a cost advantage over later entrantsthe ability to create
switching costs that tie customers into products or services
making it difficult for later entrants to win business

5. *
©McGraw-Hill Education.
Why Enter a
Foreign Market Late?
First-mover disadvantages includepioneering costs - arise when
the foreign business system is so different from that in the home
market that the firm must devote considerable time, effort, and
expense to learning the rules of the gamethe costs of business
failure if the firm, due to its ignorance of the foreign
environment, makes some major mistakesthe costs of promoting
and establishing a product offering, including the cost of
educating customers
*
©McGraw-Hill Education.
On What Scale Should a Firm Enter Foreign Markets?
After choosing which market to enter and the timing of entry,
firms need to decide on the scale of market entryfirms that enter

6. a market on a significant scale make a strategic commitment to
the market the decision has a long term impact and is difficult
to reversesmall-scale entry has the advantage of allowing a firm
to learn about a foreign market while simultaneously limiting
the firm’s exposure to that market
*
©McGraw-Hill Education.
Is There a “Right” Way to Enter Foreign Markets?
No, there are no “right” decisions when deciding which markets
to enter and the timing and scale of entry – the are just
decisions that are associated with different levels of risk and
reward
*
Large-scale entry strategic commitments - a decision that has a
long-term impact and is difficult to reversemay cause rivals to
rethink market entrymay lead to indigenous competitive
response
Small-scale entrytime to learn about marketreduces exposure
risk
©McGraw-Hill Education.

7. 15-12
Copyright © 2017 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written
consent of McGraw-Hill Education.
The Jollibee Foods Corporation was able to withstand
competition from McDonald’s in the Philippines and later found
success in an already-saturated U.S. fast food market by
localizing its menu to Filipino tastes and entering foreign
markets with a large number of Filipino expatriates.
What are the risks and potential rewards of such a strategy? If
you were the head of a successful apparel company based in a
developing nation, would you choose a similar strategy to enter
into the U.S. market, or would you pursue a different option,
such as licensing or forming a joint venture with an established
U.S. brand?
*
©McGraw-Hill Education.
How Can Firms
Enter Foreign Markets? (1 of 3)
*

8. LO 15-2: Compare and contrast the different modes that firms
use to enter foreign markets.
©McGraw-Hill Education.
How Can Firms
Enter Foreign Markets? (2 of 3)
*
Management Focus: The Jollibee Phenomenon describes the
remarkable success story of Jollibee. Jollibee, a fast food chain
from the Philippines, not only stood its ground when
McDonald’s invaded its market in 1981, but also managed to
find the weaknesses in the larger company’s global strategy and
capitalize on them. Jollibee, unlike McDonald’s, tailored its
menu to the local market. The company was able to build on
this localization strategy as it expanded into neighboring Asian
countries and the Middle East. Today, Jollibee has even
managed to find success in the United States, where it is being
hailed as a strong niche player.
©McGraw-Hill Education.
How Can Firms
Enter Foreign Markets? (3 of 3)

9. *
©McGraw-Hill Education.
Why Choose Exporting?
*
LO 15-3: Identify the factors that influence a firm’s choice of
entry mode.
©McGraw-Hill Education.
Why Choose a Turnkey Arrangement?
*
LO 15-3: Identify the factors that influence a firm’s choice of
entry mode.
©McGraw-Hill Education.
Why Choose Licensing?

10. *
LO 15-3: Identify the factors that influence a firm’s choice of
entry mode.
©McGraw-Hill Education.
Why Choose Franchising?
*
LO 15-3: Identify the factors that influence a firm’s choice of
entry mode.
©McGraw-Hill Education.
Why Choose Joint Ventures? (1 of 2)
*
LO 15-3: Identify the factors that influence a firm’s choice of
entry mode.
©McGraw-Hill Education.
Why Choose Joint Ventures? (2 of 2)

11. *
©McGraw-Hill Education.
Why Choose a
Wholly Owned Subsidiary?
*
LO 15-3: Identify the factors that influence a firm’s choice of
entry mode.
©McGraw-Hill Education.
Which Entry Mode Is Best?
Advantages and Disadvantages of Entry Modes
Jump to Appendix 1 long image description.
*
LO 15-3: Identify the factors that influence a firm’s choice of
entry mode.

12. ©McGraw-Hill Education.
How Do Core Competencies Influence Entry Mode? The optimal
entry mode depends on the nature of a firm’s core
competenciesWhen competitive advantage is based on
proprietary technological know-how avoid licensing and joint
ventures unless the technological advantage is only transitory,
or can be established as the dominant design When competitive
advantage is based on management know-how the risk of losing
control over the management skills is not high, and the benefits
from getting greater use of brand names is significant
*
LO 15-3: Identify the factors that influence a firm’s choice of
entry mode.
©McGraw-Hill Education.
How Do Pressures for Cost Reductions Influence Entry Mode?
When pressure for cost reductions is high, firms are more likely
to pursue some combination of exporting and wholly owned
subsidiariesallows the firm to achieve location and scale
economies and retain some control over product manufacturing
and distribution firms pursuing global standardization or
transnational strategies prefer wholly owned subsidiaries
*
LO 15-3: Identify the factors that influence a firm’s choice of
entry mode.

13. ©McGraw-Hill Education.
Which Is Better –
Greenfield or Acquisition? (1 of 2)
The choice depends on the situation confronting the firm
A greenfield strategy - build a subsidiary from the ground upa
greenfield venture may be better when the firm needs to transfer
organizationally embedded competencies, skills, routines, and
culture
*
LO 15-4: Recognize the pros and cons of acquisitions versus
greenfield ventures as an entry strategy.
©McGraw-Hill Education.
Which Is Better –
Greenfield or Acquisition? (2 of 2)
An acquisition strategy – acquire an existing
companyacquisition may be better when there are well-
established competitors or global competitors interested in
expandingThe volume of cross-border acquisitions has been
rising for the last two decades

14. *
©McGraw-Hill Education.
Why Choose Acquisition?Acquisitions are attractive
becausethey are quick to executethey enable firms to preempt
their competitorsthey may be less risky than greenfield ventures
Acquisitions can fail whenthe acquiring firm overpays for the
acquired firmthe cultures of the acquiring and acquired firm
clashanticipated synergies are slow and difficult to achievethere
is inadequate pre-acquisition screening To avoid these
problems, firms shouldcarefully screen the firm to be
acquiredmove rapidly to implement an integration plan
*
©McGraw-Hill Education.
Why Choose Greenfield?The main advantage of a greenfield
venture is that it gives the firm a greater ability to build the
kind of subsidiary company that it wantsBut, greenfield
ventures take longer to establishGreenfield ventures are also
risky

15. *
©McGraw-Hill Education.
What Are Strategic Alliances?
Strategic alliances refer to cooperative agreements between
potential or actual competitorsrange from formal joint ventures
to short-term contractual agreementsthe number of strategic
alliances has exploded in recent decades
*
LO 15-5: Evaluate the pros and cons of entering into strategic
alliances.
©McGraw-Hill Education.
Why Choose Strategic Alliances?Strategic alliances are
attractive because theyfacilitate entry into a foreign
marketallow firms to share the fixed costs and risks of
developing new products or processesbring together
complementary skills and assets that neither partner could
easily develop on its ownhelp a firm establish technological
standards for the industry that will benefit the firm But, the firm
needs to be careful not to give away more than it receives
*

16. ©McGraw-Hill Education.
What Makes Strategic Alliances
Successful? (1 of 3)
The success of an alliance is a function of
Partner selection A good partnerhelps the firm achieve its
strategic goals and has the capabilities the firm lacks and that it
valuesshares the firm’s vision for the purpose of the
alliancewill not exploit the alliance for its own ends
*
©McGraw-Hill Education.
What Makes Strategic Alliances
Successful? (2 of 3)
Alliance structureThe alliance shouldmake it difficult to
transfer technology not meant to be transferredhave contractual
safeguards to guard against the risk of opportunism by a
partnerallow for skills and technology swaps with equitable
gains minimize the risk of opportunism by an alliance partner

17. *
©McGraw-Hill Education.
What Makes Strategic Alliances
Successful? (3 of 3)
The manner in which the alliance is managedRequires
interpersonal relationships between managerscultural sensitivity
is importantlearning from alliance partnersknowledge must then
be diffused through the organization
*
©McGraw-Hill Education.
Case Study: Starbucks in ItalyRoastery in Milan,
Italyhttps://www.bloomberg.com/news/videos/2017-02-
28/starbucks-ceo-howard-schultz-on-first-roastery-in-
italyWhich entry mode do you think best fits with Starbuck’s
entry into the Italian Market?
Video on the Milan
Roasteryhttps://www.youtube.com/watch?v=W4QdlVpTMWo

18. Week 6 Case Study: Multimedia - Immigration or Outsourcing (
I prefer Immigration)
Outsourcing and immigration are controversial topics in the
global community. The purpose of this assignment is to
evaluate the issues that surround outsourcing OR immigration;
and additionally, to analyze its effects on both the domestic and
global economies.
Using Kaltura or another video platform you are comfortable
with creating a multi-media artifact. PPTX with voice-over
audio. Please keep the PPTX to a maximum of 7 slides.
Slides Must be
1. Bullet Point
2. Explain more in speaker notes
3. Write a 30-second explanation of each slide in word
documents (what the slide is about and what it says)
Criteria for your Multi-Media Project
You will pick one of the two topics to evaluate: Outsourcing OR
Immigration
Each student will find a minimum of five pieces of literature
pertaining to the topic you chose; either Immigration or
Outsourcing.
You will note three influences on BOTH the domestic and
global economies. For example, if you choose Immigration, note
three influences immigration has on the domestic economy and
three influences on the global economy. Please evaluate these
thoroughly.
Overall evaluation. In your opinion, is
Immigration/Outsourcing destructive or beneficial to the global
community? Why?Rubric
Week 6 Case Study: Immigration or Outsourcing
Week 6 Case Study: Immigration or Outsourcing
Criteria
Ratings

19. Pts
This criterion is linked to a Learning Outcome Literature
Sources and Multi Media
Each student will find a minimum of five pieces of literature
pertaining to the topic you chose. Each student will prepare
either an audio presentation of a PPTX or a Video presentation.
Audio/video are able to be heard/seen well.
10 pts
Full Marks
0 pts
No Marks
10 pts
This criterion is linked to a Learning Outcome Content
Note three influences on BOTH the domestic and global
economies
20 pts
Full Marks
0 pts
No Marks
20 pts
This criterion is linked to a Learning Outcome Summary
Overall evaluation stating an opinion on
Immigration/Outsourcing as either destructive or beneficial to
the global community.
10 pts
Full Marks
0 pts
No Marks
10 pts
Total Points: 40
Q. Reply
TSMC enters the USA market through two entry modes,

20. Exporting and Wholly Owned Subsidiaries. I am choosing
Wholly Owned Subsidiary as an example of how TSMC has
entered the market in the United States.
A Wholly Owned Subsidiary is a business entity whose equity is
100 percent owned by the parent company. For example,
WaferTech is a wholly owned subsidiary owned by TSMC.
TSMC (Taiwan) set up the operation of WaferTech in
Washington, USA since 1996. Now, WaferTech has a estimated
annual revenue $183.2 million and a estimated annual revenue
per employee of $318,088. Besides WaferTech, TSMC is
building another wholly owned subsidiary in Arizona, USA
starting operation in 2024.
References
Growjo. (2022).
WaferTech Revenue and Competitors. Retrieved
October 2, 2022, from
https://growjo.com/company/WaferTech#employee-
dataLinks to an external site.
WaferTech. (n. d.).
A TSMC Company. Retrieved October 2, 2022, from
https://www.wafertech.com/en/foundry/company.html