The document discusses various entry strategies and strategic alliances for firms expanding into foreign markets, including exporting, turnkey projects, licensing, franchising, joint ventures, and wholly owned subsidiaries. It provides advantages and disadvantages of each entry mode and notes that firms must consider factors like their core competencies, level of control desired, and willingness to assume costs and risks when selecting an entry strategy.
Factors associated with Entry Mode
Timing of an Entry
FIRST MOVER ADVANTAGE
Scale of Entry & Strategic Commitments
ENTRY MODES
Explain exporting, turnkey projects and licensing entry modes with their advantages and disadvantages.
Explain franchising, joint venture and wholly owned subsidiaries with its advantages and disadvantages.
SELECTING ENTRY MODE
PROS & CONS OF ACQUISITION
PROS &CONS OF GREENFIELD VENTURES
What is strategic alliance?
What are the advantage and disadvantages of strategic alliance?
What are the factors contributing to the success of an alliance?
> To define globalization and international business and show how they affect each other
> To understand why companies engage in international business and why international business growth has accelerated
> To discuss globalization’s future and the major criticisms of globalization
> To become familiar with different ways in which a company can accomplish its global objectives
> To apply social science disciplines to understanding the differences between international and domestic business
> To define globalization and international business and show how they affect each other
11 The Strategy of International BusinessBrent Weeks
To evaluate industry structure, firm strategy, and value creation
To profile the features and functions of the value chain
To assess how managers configure and coordinate a value chain
To explain global integration and local responsiveness
To profile the types of strategies firms use in international business
Factors associated with Entry Mode
Timing of an Entry
FIRST MOVER ADVANTAGE
Scale of Entry & Strategic Commitments
ENTRY MODES
Explain exporting, turnkey projects and licensing entry modes with their advantages and disadvantages.
Explain franchising, joint venture and wholly owned subsidiaries with its advantages and disadvantages.
SELECTING ENTRY MODE
PROS & CONS OF ACQUISITION
PROS &CONS OF GREENFIELD VENTURES
What is strategic alliance?
What are the advantage and disadvantages of strategic alliance?
What are the factors contributing to the success of an alliance?
> To define globalization and international business and show how they affect each other
> To understand why companies engage in international business and why international business growth has accelerated
> To discuss globalization’s future and the major criticisms of globalization
> To become familiar with different ways in which a company can accomplish its global objectives
> To apply social science disciplines to understanding the differences between international and domestic business
> To define globalization and international business and show how they affect each other
11 The Strategy of International BusinessBrent Weeks
To evaluate industry structure, firm strategy, and value creation
To profile the features and functions of the value chain
To assess how managers configure and coordinate a value chain
To explain global integration and local responsiveness
To profile the types of strategies firms use in international business
With export entry modes a firm’s products are manufactured in the domestic market or a third country and then transferred either directly or indirectly to the host market. Export is the most common mode for initial entry into international markets. Sometimes an unsolicited order is received from a buyer in a foreign country, or a domestic customer expands internationally and places an order for its international operations. This prompts the firm to consider international markets and to investigate their growth potential.
Exporting is thus typically used in initial entry and gradually evolves towards foreign-based operations. In some cases where there are substantial scale economies or a limited number of buyers in the market worldwide (e.g. for aerospace), production may be concentrated in a single or a limited number of locations, and the goods then exported to other markets.
Exporting can be organized in a variety of ways, depending on the number and type of intermediaries. As in the case of wholesaling, export and import agents vary considerably in the range of functions performed. Some, such as export management companies, are the equivalent of full-service wholesalers and perform all functions relating to export. Others are highly specialized and handle only freight forwarding, billing or clearing goods through customs.
In establishing export channels a firm has to decide which functions will be the responsibility of external agents and which will be handled by the firm itself.While export channels may take many different forms, for the purposes of simplicity three major types may be identified: indirect, direct and cooperative export marketing groups.
Global Marketing
Svend Hollensen
Fifth Edition
A decision-oriented approach
14 Direct Investment and Collaborative StrategiesBrent Weeks
To clarify why companies may need to use modes other than exporting to operate effectively in international business
To comprehend why and how companies make foreign direct investments
To understand the major motives that guide managers when choosing a collaborative arrangement for international business
To define the major types of collaborative arrangements
To describe what companies should consider when entering into international arrangements with other companies
To grasp why collaborative arrangements succeed or fail
To see how companies can manage diverse collaborative arrangements
the political economy of international trade
,
instrument of trade policy
,
what is the political reality of international tr
,
how has the current world trading system emerged
,
what is the future of the world trade organization
,
what do trade barriers mean for managers
,
how do governments intervene in markets
,
why government intervene
,
3:import quota
10 key points for professional developmentSilvia Sowa
Process to find the 10 most important key points to develop professionally. Making questions, answering them, analyzing opportunities, personal characteristics, and to be prepared, are some of the steps to be able to find the inner needs and mostly to enjoy professional growth.
With export entry modes a firm’s products are manufactured in the domestic market or a third country and then transferred either directly or indirectly to the host market. Export is the most common mode for initial entry into international markets. Sometimes an unsolicited order is received from a buyer in a foreign country, or a domestic customer expands internationally and places an order for its international operations. This prompts the firm to consider international markets and to investigate their growth potential.
Exporting is thus typically used in initial entry and gradually evolves towards foreign-based operations. In some cases where there are substantial scale economies or a limited number of buyers in the market worldwide (e.g. for aerospace), production may be concentrated in a single or a limited number of locations, and the goods then exported to other markets.
Exporting can be organized in a variety of ways, depending on the number and type of intermediaries. As in the case of wholesaling, export and import agents vary considerably in the range of functions performed. Some, such as export management companies, are the equivalent of full-service wholesalers and perform all functions relating to export. Others are highly specialized and handle only freight forwarding, billing or clearing goods through customs.
In establishing export channels a firm has to decide which functions will be the responsibility of external agents and which will be handled by the firm itself.While export channels may take many different forms, for the purposes of simplicity three major types may be identified: indirect, direct and cooperative export marketing groups.
Global Marketing
Svend Hollensen
Fifth Edition
A decision-oriented approach
14 Direct Investment and Collaborative StrategiesBrent Weeks
To clarify why companies may need to use modes other than exporting to operate effectively in international business
To comprehend why and how companies make foreign direct investments
To understand the major motives that guide managers when choosing a collaborative arrangement for international business
To define the major types of collaborative arrangements
To describe what companies should consider when entering into international arrangements with other companies
To grasp why collaborative arrangements succeed or fail
To see how companies can manage diverse collaborative arrangements
the political economy of international trade
,
instrument of trade policy
,
what is the political reality of international tr
,
how has the current world trading system emerged
,
what is the future of the world trade organization
,
what do trade barriers mean for managers
,
how do governments intervene in markets
,
why government intervene
,
3:import quota
10 key points for professional developmentSilvia Sowa
Process to find the 10 most important key points to develop professionally. Making questions, answering them, analyzing opportunities, personal characteristics, and to be prepared, are some of the steps to be able to find the inner needs and mostly to enjoy professional growth.
There is a wide range of specific skills needed to undertake one-to-one coaching, team building, facilitating, counseling, besides being an interventionist and change agent, explained here is the Skills of an Effective Trainer, as a part of lesson “Effective Hr training and Development Strategy”, brought to you by Welingkar’s Distance Learning Division.
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Training & development evaluation is a continual and systematic process of assessing the value or potential value of a training program, course, activity or event. Results of the evaluation are used to guide decision-making around various components of the training (e.g. delivery, results) and its overall continuation, modification, or elimination.
The success of export promotions can be judged from the growth of exports and the dynamism of the export sector. An effective export promotion should compensate for the disadvantages of the national exporters and should make the export business profitable enough to lure entrepreneurs to this sector.
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The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an "importer" who is based in the country of import where the overseas based seller is referred to as an "exporter". Thus an import is any good(e.g. a commodity) or service brought in from one country to another country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale. Imported goods or services are provided to domestic consumers by foreign producers. An import in the receiving country is an export to the sending country.
This presentation explains how to play some team building activities that are important to the effective management and growth of teams and their objectives.
market entry strategy of textile and garmentsNasif Chowdhury
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of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
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Entry strategy and strategic alliances ppt
1. 12 - 1
Chapter 14: Entry Strategy and
Strategic Alliances
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•5. Võ Thị Thôi
•6. Trương Huệ Nhi
2. 12 - 2
Chapter 14: Entry Strategy and
Strategic Alliances
BASIC ENTRY DECISIONS
Three basic decisions that a firm contemplating foreign
expansion must make:
• Which markets to enter
• When to enter those markets
• On what scale
3. 12 - 3
Chapter 14: Entry Strategy and
Strategic Alliances
Which Foreign Markets?
•The choice based on nation’s long run profit potential.
•Look in detail at economic and political factors which influence foreign
markets.
•Long run benefits of doing business in a country depends on following
factors: Size of market, the present wealth of consumer markets, nature of
competition
•By considering such factors firm can rank countries in terms of their
attractiveness and long-run profit.
4. 12 - 4
Chapter 14: Entry Strategy and
Strategic Alliances
Timing of Entry
•When firms enter early in the foreign market commonly known
as first-mover advantages: the ability to prevent rivals and capture
demand by establishing a strong brand name, ability to build sales
volume in that country, ability to create customer relationship
•The disadvantages are:
Firm has to devote effort, time and expense to
learning the rules of the country
Risk is high for business failure
5. 12 - 5
Chapter 14: Entry Strategy and
Strategic Alliances
Scale of Entry and Strategic Commitments
• The consequences of entering a market on a significant
scale are associated with the value of the resulting strategic
commitments
• Deciding to enter a foreign market on a significant scale is
a major strategic commitment that changes the competitive
playing field
• Small-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
6. 12 - 6
Chapter 14: Entry Strategy and
Strategic Alliances
ENTRY MODES
Exporting
• Exporting means “producing goods in one country and
selling them in another country”
• Most manufacturing firms begin their global expansion as
exporters and only later switch to another mode for
servicing a foreign market
7. 12 - 7
Chapter 14: Entry Strategy and
Strategic Alliances
Advantages of Direct Exporting
•Target management and control of the sales become possible
which is unrealistic in the case of indirect exports.
•The strategy offers potential for higher profits because of
more direct contact.
•Direct exports may also enable the producer to have a closer
relationship with foreign buyers and the marketplace.
•Direct exporting is applicable to a wider range of goods and
services.
8. 12 - 8
Chapter 14: Entry Strategy and
Strategic Alliances
Disadvantages of Direct Exporting
•May be inappropriate for goods with a short work life and
are unlikely to be exported
•May have high transport costs or goods that require
complex after - sales service which cannot be granted by
resellers.
•May require the producer to acquire new capabilities like
marketing skills and financial resources in order to be able
to contract with clients or business partners.
9. 12 - 9
Chapter 14: Entry Strategy and
Strategic Alliances
Advantages of Indirect Exporting:
• The exporter will have less complexity in dealing with when
selling products in foreign markets, complexities which range
from clashing cultures to volatile exchange rates.
• The exporter will not have to worry about managing product
distribution in a foreign country as this is done by an export
partner.
• The market entry barriers tend to be less in this form of exporting.
• Indirect exporting does not require a lot of organizational effort or
commitment of staff workers, the firm only employs a small
number of employees as the main work is carried out by foreign
trade partners.
10. 12 - 10
Chapter 14: Entry Strategy and
Strategic Alliances
Disadvantages of Indirect Exporting:
• Not all brokers are using the optimum market potential and
opportunities for marketing, thus mistakes and miscalculations in
their actions affect the income of producers of export goods.
• May lead to diminishing returns in the long run as trading partners
try to get maximum profit from their service as mediators.
• May lack recognition from the end users of the product or service,
who are much more familiar with the end product.
11. 12 - 11
Chapter 14: Entry Strategy and
Strategic Alliances
Turnkey Projects
• In a turnkey project, the contractor agrees to handle every
detail of the project for a foreign client, including the
training of operating personnel
• At completion of the contract, the foreign client is handed
the "key" to a plant that is ready for full operation
12. 12 - 12
Chapter 14: Entry Strategy and
Strategic Alliances
Advantages:
• Turnkey projects are a way of earning great economic returns
from the know-how required to assemble and run a
technologically complex process
•Turnkey projects make sense in a country where the political
and economic environment is such that a longer-term investment
might expose the firm to unacceptable political and/or economic
risk
13. 12 - 13
Chapter 14: Entry Strategy and
Strategic Alliances
Disadvantages:
• The firm that enters into a turnkey deal will have no long-term
interest in the foreign country
• The firm that enters into a turnkey project may create a competitor
• If the firm's process technology is a source of
competitiveadvantage, then selling this technology through a
turnkey project is also selling competitive advantage to potential or
actual competitors
14. 12 - 14
Chapter 14: Entry Strategy and
Strategic Alliances
Licensing
• A licensing agreement is an arrangement whereby a licensor
grants the rights to intangible property to another entity for a
specified time period, and in return, the licensor receives a
royalty fee from the licensee
• Intangible property includes patents, inventions, formulas,
processes, designs, copyrights, and trademarks
15. 12 - 15
Chapter 14: Entry Strategy and
Strategic Alliances
Advantages:
• The firm does not have to bear the development costs and
risks associated with opening a foreign market
• The firm avoids barriers to investment
• It allows a firm with intangible property that might have
business applications, but which doesn’t want to develop those
applications itself, to capitalize on market opportunities
16. 12 - 16
Chapter 14: Entry Strategy and
Strategic Alliances
Disadvantages:
• Doesn’t have the tight control over manufacturing, marketing,
and strategy that is required for realizing experience curve and
location economies
• Limits a firm’s ability to coordinate strategic moves across
countries by using profits earned in one country to support
competitive attacks in another
• Is the potential for loss of proprietary technology or property
17. 12 - 17
Chapter 14: Entry Strategy and
Strategic Alliances
Franchising
Franchising is a business strategy for getting and keeping
customers. It is a marketing system for creating an image in
the minds of current and future customers about how the
company's products and services can help them. It is a
method for distributing products and services that satisfy
customer needs.
18. 12 - 18
Chapter 14: Entry Strategy and
Strategic Alliances
Advantages:
• Low investment and low risk
• Franchisor can get the information regarding the market culture,
customs and environment of the host country
• Franchisor learns more from the experience of the franchisees
• Franchisee gets the benefits of R&D with low cost
• Franchisee escapes from the risk of product failure.
19. 12 - 19
Chapter 14: Entry Strategy and
Strategic Alliances
Disadvantages:
•It may be more complicating than domestic franchising
•It is difficult to control the international franchisee
•It reduces the market opportunities for both
•Both the parties have the responsibilities to maintain
product quality and product promotion
•There is a problem of leakage of trade secrets
20. 12 - 20
Chapter 14: Entry Strategy and
Strategic Alliances
Joint Ventures
• A joint venture is the establishment of a firm that is jointly
owned by two or more otherwise independent firms
• Joint venture occurs when an international company enters in
to an agreement with a local partner to develop a new entity
and assets for a finite time by contributing equity
•A joint venture can also bring positive benefits to the foreign
partner through their local partners
21. 12 - 21
Chapter 14: Entry Strategy and
Strategic Alliances
Advantages:
• Risk diversification and allocation of risks between the
partners
•Sharing of resources
•Can be a means of reducing political and other investment
risks
•Access to the distribution network
22. 12 - 22
Chapter 14: Entry Strategy and
Strategic Alliances
Disadvantages:
• Lack of management control
•Joint venture’s negotiations are time consuming, requires a lot of
contractual framework and long period of due-diligence
•Lack of trust
•Risk of conflict as a result of cultural differences
23. 12 - 23
Chapter 14: Entry Strategy and
Strategic Alliances
Wholly Owned Subsidiaries
In a wholly owned subsidiary, the firm owns 100 percent of
the stock.
Establishing a wholly owned subsidiary in a foreign market
can be done two ways:
• The firm can set up a new operation in that country
• The firm can acquire an established firm
24. 12 - 24
Chapter 14: Entry Strategy and
Strategic Alliances
Advantages:
• A wholly owned subsidiary reduces the risk of losing control over core
competencies
• A wholly owned subsidiary gives a firm the tight control over operations
in different countries that is necessary for engaging in global strategic
coordination
• A wholly owned subsidiary maybe required if a firm is trying to realize
location and experience curve economies
Disadvantage:
• Firms bear the full costs and risks of setting up overseas operations
25. 12 - 25
Chapter 14: Entry Strategy and
Strategic Alliances
SELECTING AN ENTRY MODE
26. 12 - 26
Chapter 14: Entry Strategy and
Strategic Alliances
Core Competencies and Entry Mode
Technological Know-How
• A firm with a competitive advantage based on proprietary
technological know-how should avoid licensing and joint venture
arrangements in order to minimize the risk of losing control over
the technology
• If a firm believes its technological advantage is only transitory, or
the firm can establish its technology as the dominant design in the
industry, then licensing may be appropriate even if it does involve
the loss of know-how
27. 12 - 27
Chapter 14: Entry Strategy and
Strategic Alliances
Management Know-How
• The competitive advantage of many service firms is based upon
management know-how
• The risk of losing control over the management skills to
franchisees or joint venture partners is not high, and the benefits
from getting greater use of brand names is significant
28. 12 - 28
Chapter 14: Entry Strategy and
Strategic Alliances
Pressures for Cost Reductions and Entry Mode
• The greater the pressures for cost reductions, the more likely
a firm will want to pursue some combination of exporting and
wholly owned subsidiaries
• This will allow it to achieve location and scale economies as
well as retain some degree of control over its worldwide
product manufacturing and distribution
29. 12 - 29
Chapter 14: Entry Strategy and
Strategic Alliances
GREENFIELD VENTURE OR ACQUISITION?
The two primary modes of investment: Greenfield and
acquisition are compared below on the basis of
their definitions, factors affecting their implementation and
the advantages & disadvantages of each.
30. 12 - 30
Chapter 14: Entry Strategy and
Strategic Alliances
Pros and Cons of Acquisition
Benefits of Acquisitions
Acquisitions have three major points in their favor:
• They are quick to execute
• Acquisitions enable firms to preempt their competitors
• Managers may believe acquisitions are less risky than
green-field ventures
31. 12 - 31
Chapter 14: Entry Strategy and
Strategic Alliances
Why Do Acquisitions Fail?
Acquisitions fail for several reasons:
• The acquiring firms often overpay for the assets of the
acquired firm
• There may be a clash between the cultures of the acquiring
and acquired firm
• Attempts to realize synergies by integrating the operations of
the acquired and acquiring entities often run into roadblocks
and take much longer than forecast
• There is inadequate pre-acquisition screening
32. 12 - 32
Chapter 14: Entry Strategy and
Strategic Alliances
Pros and Cons of Greenfield Ventures
• 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 wants
• However, greenfield ventures are slower to establish
• Greenfield ventures are also risky
33. 12 - 3333
Strategic Alliances
Advantages
• Strategic alliances permit a company to pursue an opportunity more
quickly, leveraging the resources and knowledge of the other party.
Fewer resources are required than if a company pursued an opportunity
on its own. An alliance can provide easier access to new opportunities
and a lower barrier to entry.
Disadvantages
• Implementing and managing a strategic alliance may be difficult because
each alliance partner has a different way of operating. Mistrust could
occur, particularly when competitive or proprietary information is
involved. The alliance partners could become more dependent on each
other, making it difficult to operate again as separate entities if required.
34. 12 - 3434
Making Strategic Alliances Work:
Partner Selection
• Strong alliance partners are not created overnight
• Each partnership should start with a well-defined project that
serves to “pilot” the alliance
• This is a low-risk initiative that helps each partner learn about the
pros and cons of working together with a shared objective
• Lessons learned from these initiatives also help to best match
alliance partners with initiatives that require more resources,
longer periods of time, higher levels of risk and greater potential
returns
35. 12 - 3535
Making Strategic Alliances Work:
Managing the Alliance
• Sensitivity to cultural differences and their effects on
management style
• Building interpersonal relationships among managers
from different companies
• Ability to learn from alliance partners and put the
knowledge to good use