©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 ...