1) The document discusses international business strategies, including global standardization, localization, transnational, and international strategies. It analyzes when each strategy is most effective based on pressures for cost reductions and local responsiveness. 2) Key factors that influence strategic choice are differences in consumer tastes, infrastructure, distribution channels, and government demands between countries. 3) The document also examines how firms can increase profits through global expansion by leveraging core competencies, realizing location economies, exploiting experience curve effects, and transferring skills between subsidiaries.

1. (Mt) – Temple University Management Paper
Global Business Today 11e by Charles W.L. Hill and G. Tomas M. Hult
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permittedwithout withoutthe theprior priorwritten written consent McGraw-Hill
Education. Part 5: The Strategy of International Business Chapter 12: The Strategy of
International Business ©McGraw-Hill Education Source: ©Handout/Handout/Getty Images
Learning Objectives 12-1 Explain the concept of international business strategy. 12-2
Recognize how firms can increase revenue and profit by expanding globally. 12-3
Understand how pressures for cost reductions and local responsiveness influence strategic
choice. 12-4 Identify the different international strategies for competing and their pros and
cons. 12-5 Explain the pros and cons of using strategic alliances to support international
strategies. ©McGraw-Hill Education Opening Case: Red Bull, a Leader in International
Strategy Red Bull is known for strategic global placements of brand • Has highest market
share of all energy drinks Focuses on a universal product concept • Sponsors extreme-
events and sports teams as part of marketing strategy • Packaging also plays a part in the
global appeal • Doesn’t look like an American product or an Asian product—sleek look
appeals to all ©McGraw-Hill Education Introduction Managers must consider: • The
benefits of expanding into foreign markets • Which strategies to pursue in foreign markets •
The value of collaboration with global competitors • The advantages of strategic alliances
©McGraw-Hill Education Strategy and the Firm 1 Strategy: the actions taken by managers
to attain the goals of the firm • Profitability: the rate of return the firm makes on its invested
capital • Profit growth: the percentage increase in net profits over time ©McGraw-Hill
Education Figure 12.1 Determinants of Enterprise Value ©McGraw-Hill Education Access
the text alternative for these images. Source: C. W. L. Hill and G. T. M. Hult, G. T. M.,
International Business: Competing in the Global Marketplace (New York: McGraw-Hill
Education, 2017). Strategy and the Firm 2 Value Creation • The difference between V (the
price that the firm can charge for that product given competitive pressures) and C (the costs
of producing that product) • Michael Porter’s two basic strategies 1. Differentiation 2. Low
cost ©McGraw-Hill Education Figure 12.2 Value Creation ©McGraw-Hill Education Access
the text alternative for these images. Source: C. W. L. Hill and G. T. M. Hult, International
Business: Competing in the Global Marketplace (New York: McGraw-Hill Education, 2017).

2. Did You Know? Did you know FedEx’s global strategy focuses on more than transportation?
Click to play video ©McGraw-Hill Education Strategy and the Firm 3 Strategic Positioning •
Pick a position on the efficiency frontier that is viable, meaning there is enough demand to
support the choice • Configure internal operations to support the position • Have the right
organization structure in place to execute the strategy ©McGraw-Hill Education Figure 12.3
Strategic Choice in the International Hotel Industry Access the text alternative for these
images. ©McGraw-Hill Education Source: C. W. L. Hill and G. T. M. Hult, International
Business: Competing in the Global Marketplace (New York: McGraw-Hill Education, 2017).
Strategy and the Firm 4 Operations: The Firm as a Value Chain • Primary Activities •
Involves the design, creation, and delivery of the product; its marketing; and its support and
after-sale service • Divided into: research and development, production, marketing and
sales, customer service • Support Activities • Provides the inputs that allow the primary
activities to occur • Divided into: information systems, company infrastructure, logistics,
human resources ©McGraw-Hill Education Figure 12.4 The Value Chain ©McGraw-Hill
Education Access the text alternative for these images. Source: C. W. L. Hill and G. T. M. Hult,
International Business: Competing in the Global Marketplace (New York: McGraw-Hill
Education, 2017). Operations Near and Far A Caterpillar motor factory in Germany helps to
ensure product after-sales and service outside the United States. ©McGraw-Hill Education
Source: ©Bernd Wustneck/picture-alliance/dpa/AP Images Is Education Creating Value for
You? The concept of a value chain can be used to examine the role your education plays in
your life plans, if you look closely at your personal development plans (education,
internship, work, physical and emotional fitness, and extracurricular activities) and think
about them in terms of primary and support activities. If we use the logic that the amount of
value you receive from your education is the difference between the costs (e.g., tuition, time,
lost income) and what you receive in the form of education (e.g., knowledge, tools,
networks), how does your choice of major area of focus in your education fit into your
personal development strategy? How do your choices of how you spend your time fit into
your value chain? Do you ever spend time doing things that do not support the strategic
goals of your personal value chain? But, most importantly, what is the one thing you should
do more of to drive the value higher for yourself today and in the future? ©McGraw-Hill
Education Strategy and the Firm 5 Organization: The Implementation of Strategy •
Organization architecture: the totality of a firm’s organization, including the formal
organizational structure, control systems and incentives, organizational culture, processes,
and people • Organizational structure: • The formal division of the organization into
subunits • The location of decision-making responsibilities within that structure • The
establishment of integrating mechanisms to coordinate the activities of subunits including
cross functional teams and or panregional committees ©McGraw-Hill Education Figure 12.5
Organization Architecture ©McGraw-Hill Education Strategy and the Firm 6 Organization:
The Implementation of Strategy continued • Controls: metrics used to measure the
performance of subunits and make judgments about how well the subunits are run •
Incentives: devices used to reward appropriate managerial behavior • Processes: manner in
which decisions are made and work is performed • Organizational culture: norms and value
systems that are shared among the employees • People: employees and the strategy used to

3. recruit, compensate, and retain those individuals ©McGraw-Hill Education Strategy and the
Firm 7 Strategic Fit • The operations of the firm must support the firm’s strategy • The
organizational architecture of the firm must match the firm’s operations and strategy • If
market conditions shift, so must the firm’s strategy, operations, and organization
©McGraw-Hill Education Figure 12.6 Strategic Fit ©McGraw-Hill Education Global
Expansion, Profitability, and Profit Growth 1 Firms that operate internationally: 1. Expand
the market for their domestic product offerings by selling those products in international
markets 2. Realize location economies by dispersing individual value creation activities to
locations around the globe where they can be performed most efficiently and effectively 3.
Realize greater cost economies from experience effects by serving an expanded global
market from a central location, thereby reducing the costs of value creation 4. Earn a
greater return by leveraging any valuable skills developed in foreign operations and
transferring them to other entities within the firm’s global network of operations
©McGraw-Hill Education Global Expansion, Profitability, and Profit Growth 2 Expanding the
Market: Leveraging Products and Competencies To increase growth, a firm can sell products
or services developed at home in foreign markets • Success depends on the type of goods
and services and the firm’s core competence – the skills within the firm that competitors
cannot easily match or imitate • Enable the firm to reduce the costs of value creation •
Create perceived value so that premium pricing is possible • They are the source of a firm’s
competitive advantage ©McGraw-Hill Education Core Competencies P&G’s core
competency in marketing is evidenced in this photo of Olay men’s skin care products for
sale in a Shanghai, China, supermarket. ©McGraw-Hill Education Source: ©Weng
lei/Imaginechina/AP Images Global Expansion, Profitability, and Profit Growth 3 Location
Economies • Firms should locate value creation activities where economic, political, and
cultural conditions are most conducive to the performance of that activity • Firms that
successfully do this realize location economies: arise from performing a value creation
activity in the optimal location for that activity, wherever in the world that might be •
Locating value creation activities in optimal locations • Can lower the costs of value creation
• Can enable a firm to differentiate its product offering from those of competitors
©McGraw-Hill Education Global Expansion, Profitability, and Profit Growth 4 Creating a
Global Web • Multinationals that take advantage of location economies create a global web
of value creation activities • Under this strategy, different stages of the value chain are
dispersed to those locations around the globe where perceived value is maximized or where
the costs of value creation are minimized • Introducing transportation costs and trade
barriers complicates this picture • Political and economic risks must be assessed when
making location decisions ©McGraw-Hill Education Global Expansion, Profitability, and
Profit Growth 5 Experience Effects • Experience curve: systematic reductions in production
costs that have been observed to occur over the life of a product • A product’s production
costs decline by some quantity about each time cumulative output doubles • Learning
effects: cost savings that come from learning by doing • Labor productivity increases when
individuals learn the most efficient ways to perform particular tasks and management
learns how to manage the new operation more efficiently ©McGraw-Hill Education Figure
12.7 The Experience Curve ©McGraw-Hill Education Access the text alternative for these

4. images. Source: C. W. L. Hill and G. T. M. Hult, International Business: Competing in the
Global Marketplace (New York: McGraw-Hill Education, 2017). Global Expansion,
Profitability, and Profit Growth 6 Experience Effects continued • Economies of scale:
reductions in unit cost achieved by producing a large volume of a product • The ability to
spread fixed costs over a large volume • Unable to attain efficient scale of production unless
serving global markets • Bargaining power increases with suppliers, which may allow
economies of scale in purchasing • Strategic Significance • Moving down experience curve
allows firm to reduce its cost of creating value and increase its profitability • Once firm has
established low-cost position, it can act as a barrier to new competition ©McGraw-Hill
Education Global Expansion, Profitability, and Profit Growth 7 Leveraging Subsidiary Skills •
Recognize that valuable skills can be developed anywhere within the firm’s global network
(not just at the corporate center) • Use incentive systems to encourage local employees to
acquire new skills • Develop a process to identify when new skills have been created • Act
as facilitators to transfer valuable skills within the firm ©McGraw-Hill Education Global
Expansion, Profitability, and Profit Growth 8 Profitability and Profit Growth Summary •
Firms that expand internationally can increase their profitability and profit growth by: 1.
Entering markets where competitors lack similar competencies 2. Realizing location
economies 3. Exploiting experience curve effects 4. Transferring valuable skills within the
organization ©McGraw-Hill Education Cost Pressures and Pressures for Local
Responsiveness 1 Pressures for Cost Reductions • Strong in industries producing
commodity-type products that fill universal needs: needs that exist when the tastes and
preferences of consumers in different nations are similar if not identical • When major
competitors are based in low-cost locations • Where there is persistent excess capacity •
Where consumers are powerful and face low switching costs ©McGraw-Hill Education
Figure 12.8 Pressures for Cost Reductions and Local Responsiveness ©McGraw-Hill
Education Access the text alternative for these images. Source: C. W. L. Hill and G. T. M. Hult,
International Business: Competing in the Global Marketplace (New York: McGraw-Hill
Education, 2017). Cost Pressures and Pressures for Local Responsiveness 2 Pressures for
Local Responsiveness 1. Differences in consumer tastes and preferences 2. Differences in
infrastructure and traditional practices 3. Differences in distribution channels 4. Host
government demands 5. The rise of regionalism Firms facing these pressures need to
differentiate their products and marketing strategy in each country ©McGraw-Hill
Education Cost Pressures and Pressures for Local Responsiveness 3 Differences in
Consumer Tastes and Preferences • When consumer tastes and preferences differ
significantly between countries, firms face strong pressures for local responsiveness
Differences in Infrastructure and Traditional Practices • When there are differences in
infrastructure and/or traditional practices, a need to customize products emerges
Differences in Distribution Channels • ©McGraw-Hill Education A firm’s marketing
strategies may be influenced by differences in distribution channels between countries,
which may necessitate delegation of marketing functions to national subsidiaries Cost
Pressures and Pressures for Local Responsiveness 4 Host Government Demands • Economic
and political demands imposed by host country governments may necessitate a degree of
local responsiveness The Rise of Regionalism • Regional convergence of tastes and

5. preferences can influence product offerings within a bloc of nations ©McGraw-Hill
Education Choosing a Strategy 1 Firms use four basic strategies in global markets: 1. Global
standardization 2. Localization 3. Transnational 4. International ©McGraw-Hill Education
Figure 12.9 Four Basic Strategies ©McGraw-Hill Education Access the text alternative for
these images. Source: C. W. L. Hill and G. T. M. Hult, International Business: Competing in the
Global Marketplace (New York: McGraw-Hill Education, 2017). Choosing a Strategy 2 Global
Standardization Strategy • Focuses on increasing profitability and profit growth by reaping
the cost reductions that come from economies of scale, learning effects, and location
economies • The goal is to pursue a low-cost strategy on a global scale • Makes sense when
there are strong pressures for cost reductions and demands for local responsiveness are
minimal ©McGraw-Hill Education More Customized Products in the Global Marketplace?
The Coca-Cola Company’s (TCCC) Minute Maid Pulpy became the cola giant’s 14th brand to
reach $1 billion in global retail sales (in 2011). As opposed to cola carbonates, which often
rely on global brand recognition and crossgenerational formulas for success, Minute Maid
Pulpy has relied on product development and innovations inspired by local flavors and
textures. Toward the end of 2004, Minute Maid released Minute Maid Pulpy, which
contained less than 24 percent actual fruit juice, but TCCC was able to retail the product at a
much lower price point than products with a higher content of fruit juice. In China and
throughout the Asia-Pacific region, consumer notions of freshness and health are connected
much more to the consumption of actual fruit. Minute Maid Pulpy acknowledged this by
including pieces of fruit in the drink, thereby creating a thicker texture that would not
appeal to most North American consumers but has proven very popular in this region of the
world. In customizing the product, Minute Maid Pulpy went from the 10th most popular
fruit/vegetable juice brand in China in 2004 to first by the time it had achieved $1 billion in
total sales in 2011. But isn’t the world becoming more globalized? Do we still need large
multinational corporations customizing their products to local markets? Source:
http://blog.euromonitor.com ©McGraw-Hill Education Choosing a Strategy 3 Localization
Strategy • Focuses on increasing profitability by customizing the firm’s goods or services so
that they provide a good match to tastes and preferences in different national markets •
Makes sense when there are substantial differences across nations with regard to consumer
tastes and preferences, and where cost pressures are not too intense ©McGraw-Hill
Education Choosing a Strategy 4 Transnational Strategy Tries to simultaneously: • Achieve
low costs through location economies, economies of scale, and learning effects •
Differentiate the product offering across geographic markets to account for local differences
• Foster a multidirectional flow of skills between different subsidiaries • Makes sense when
there are both high cost pressures and high pressures for local responsiveness ©McGraw-
Hill Education Choosing a Strategy 5 International Strategy • Involves taking products first
produced for the domestic market and then selling them internationally with only minimal
local customization • Makes sense when there are low cost pressures and low pressures for
local responsiveness ©McGraw-Hill Education Choosing a Strategy 6 The Evolution of
Strategy • As competition increases, international and localization strategies become less
viable • To survive, firms may need to shift to a global standardization strategy or a
transnational strategy in advance of competitors ©McGraw-Hill Education Figure 12.10

6. Changes in Strategy over Time Access the text alternative for these images. ©McGraw-Hill
Education Source: C. W. L. Hill and G. T. M. Hult, International Business: Competing in the
Global Marketplace (New York: McGraw-Hill Education, 2017). Strategic Alliances 1
Strategic alliances are cooperative agreements between potential or actual competitors •
Examples include formal joint ventures and short-term contractual arrangements • The
number of international strategic alliances has risen significantly in recent decades
©McGraw-Hill Education Strategic Alliances 2 The Advantages of Strategic Alliances •
Facilitate entry into a foreign market • Allow firms to share the fixed costs and risks of
developing new products or processes • Bring together complementary skills and assets
that neither partner could easily develop on its own • Can help establish technological
standards for the industry that will benefit the firm ©McGraw-Hill Education A Strategic
Alliance Canadian actor Chris Collins, actress Jacky Cai, and actress Hanna Chan arrive at the
red carpet of the premiere of film ‘Paradox’ on August 14, 2017 in Beijing, China. The
strategic alliance between Warner Brothers and their Chinese partners has helped
streamline the process for film distribution. ©McGraw-Hill Education Source:
©VCG/VCG/Getty Images Strategic Alliances 3 The Disadvantages of Strategic Alliances •
Strategic alliances can give competitors low-cost routes to new technology and markets •
Unless a firm is careful, it can give away more in a strategic alliance than it receives
©McGraw-Hill Education Strategic Alliances 4 Making Alliances Work • Partner Selection •
Collect as much information as possible • Gather data from informed third parties • Get to
know the potential partner well before committing • Alliance Structure • Can be designed to
make it difficult to transfer technology meant to be transferred • Contractual safeguards can
be written into alliance agreement to guard against risk of opportunism • Both parties can
agree in advance to swap skills and technologies that the other covets ©McGraw-Hill
Education Strategic Alliances 5 Making Alliances Work continued • Managing the Alliance •
Requires managers from both companies to build interpersonal relationships (relational
capital) • Should promote learning from alliance partners • Should promote the diffusion of
learned knowledge throughout the organization ©McGraw-Hill Education Summary In this
chapter, we have • Explained the concept of international business strategy. • Recognized
how firms can increase revenue and profit by expanding globally. • Understood how
pressures for cost reductions and local responsiveness influence strategic choice. •
Identified the different international strategies for competing and their pros and cons. •
Explained the pros and cons of using strategic alliances to support international strategies.
©McGraw-Hill Education Because learning changes everything.® Chapter 13 Entering
Developed and Emerging Markets naqiewei/DigitalVision Vectors/Getty Images © 2022
McGraw Hill. 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. Learning Objectives 13-1 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. 13-2 Compare and contrast the different modes that firms use
to enter foreign markets. 13-3 Identify the factors that influence a firm’s choice of entry
mode. 13-4 Recognize the pros and cons of acquisitions versus greenfield ventures as an
entry strategy. © McGraw Hill 2 Opening Case Uber’s Foreign Market Entry Strategy Travis

7. Kalanick got the idea for Uber while trying to hail a cab in Paris. • Kalanick wanted to take
advantage of smartphone technology to build a ride hailing app. • The app allowed for GPS
tracking, automatic electronic payment, pre-ride display of pricing, estimation of wait time,
and driver ratings. Uber’s strategy focused on cities around the globe where demand was
likely to be high, picking cities designed as “accelerants” with concentrated needs. • Ignored
local regulations in favor of rapid growth and building its own networks. • Strategy worked
in the U.S. and Latin America, but not everywhere. Today, Uber has realigned its foreign
market entry strategy. © McGraw Hill fifg/Shutterstock 3 Introduction 1 Ways to Enter
Foreign Markets • Exporting. • Licensing or franchising to host-country firms. • Creating a
joint venture with a host-country firm. • Creating a wholly owned subsidiary in the host
country. • Acquiring an established enterprise in the host country. © McGraw Hill 4
Introduction 2 Considering Advantages and Disadvantages of Entry Modes • Transportation
costs. • Trade barriers. • Political risks. • Economic risks. • Business risks. • Costs. • Firm
strategy. © McGraw Hill 5 Basic Entry Decisions 1 Three Expansion Decisions 1. Which
markets to enter. 2. When to enter them. 3. Scale of entry. © McGraw Hill 6 Basic Entry
Decisions 2 Which Foreign Markets? Firms need to assess the long-run profit potential of
each market. • Favorable markets are politically stable developed and developing nations
with free market systems, low inflation, and low private sector debt. • Less desirable
markets are politically unstable developing nations with mixed or command economies or
developing nations where speculative financial bubbles have led to excess borrowing. • The
value an international business can create in a foreign market depends on the suitability of
its product offering to that market and the nature of indigenous competition. © McGraw Hill
7 Entering Foreign Markets Tesco is the largest grocery retailer in the United Kingdom and
the second-largest retailer worldwide after Walmart. © McGraw Hill Guang Niu/Getty
Images 8 Basic Entry Decisions 3 Timing of Entry After a firm identifies which market to
enter, it must determine the timing of entry. • Early entry is when a firm enters a foreign
market before other foreign firms. • Late entry is when a firm enters after other firms have
already established themselves in the market. © McGraw Hill 9 Basic Entry Decisions 4
Timing of Entry continued Firms entering a market early can gain first-mover advantages: •
Ability to preempt rivals and capture demand by establishing a strong brand name. • Ability
to build up sales volume in that country and ride down the experience curve ahead of rivals
and gain a cost advantage over later entrants. • Ability to create switching costs that tie
customers into their products or services. © McGraw Hill 10 Basic Entry Decisions 5 Timing
of Entry continued First-mover disadvantages: the disadvantages associated with entering a
foreign market before other international businesses. May result in pioneering costs—costs
that an early entrant bears that a later entrant can avoid—such as: • Costs of business
failure if the firm, due to its ignorance of the foreign environment, makes some major
mistakes. • Costs of promoting and establishing a product offering, including the cost of
educating customers. © McGraw Hill 11 Basic Entry Decisions 6 Scale of Entry and Strategic
Commitments Entering foreign markets on a significant scale make a major strategic
commitment that changes the competitive playing field. • Involves decisions that have a
long-term impact and are difficult to reverse. Small-scale entry can allow the firm to learn
about a foreign market, while limiting the firm’s exposure to that market. • Reduces the

8. risks associated with a subsequent large-scale entry. • May be more difficult to build market
share. © McGraw Hill 12 Basic Entry Decisions 7 Market Entry Summary • There are no
“right” decisions with foreign market entry—just decisions that are associated with
different levels of risk and reward. • Firms in developing countries can learn from the
experiences of firms in developed countries. © McGraw Hill 13 Entry Modes 1 Modes to
Enter Foreign Markets 1. Exporting. 2. Turnkey projects. 3. Licensing. 4. Franchising. 5. Joint
ventures. 6. Wholly owned subsidiaries. © McGraw Hill 14 Entry Modes 2 Exporting Often
the first method firms use to enter foreign market. Advantages: • Relatively low cost. •
Firms may achieve experience curve and location economies. Disadvantages: • Lower-cost
manufacturing locations may exist. • Transport costs can be high. • Tariff barriers can make
it uneconomical. • Foreign agents fail to act in the exporter’s best interest. © McGraw Hill 15
Entry Modes 3 Turnkey Projects • Involve a contractor who handles every detail of the
project for a foreign client, including 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. ©
McGraw Hill 16 Entry Modes 4 Turnkey Projects continued Advantages: • Earn great
economic returns from the know-how required to assemble and run a technologically
complex process. • Less risky than conventional FDI. Disadvantages: • Firm has no long-
term interest in the country. • Can create a competitor. • Firm’s process technology is a
source of competitive advantage. © McGraw Hill 17 Entry Modes 5 Licensing • A licensor
grants the rights to intangible property to another entity for a specified time period and
receives a royalty fee in return. • Intangible property includes patents, inventions, formulas,
processes, designs, copyrights, and trademarks. © McGraw Hill 18 Entry Modes 6 Licensing
continued Advantages: • Firm does not bear development costs and risks associated with
opening a foreign market. • Firm avoids barriers to investment. • Firm with intangible
property that might have business applications but doesn’t want to develop those
applications itself can capitalize on market opportunities. Disadvantages: • Firm doesn’t
have the tight control over manufacturing, marketing, and strategy necessary to realize
experience curve and location economies. • Firm’s ability to coordinate strategic moves
across countries by using profits earned in one country to support competitive attacks in
another is compromised. • Potential for loss of proprietary (or intangible) technology or
property. © McGraw Hill 19 Entry Modes 7 Franchising A form of licensing; the franchisor
sells intangible property and requires the franchisee agree to abide by strict rules as to how
it does business. Advantages: • Eliminates the costs and risks of opening a foreign market
alone. Disadvantages: • May inhibit the firm’s ability to take profits out of one country to
support competitive attacks in another. • The geographic distance of the firm from its
foreign franchisees can make it difficult to detect poor quality. © McGraw Hill 20 Entry
Modes 8 Joint Ventures Establishment of a firm that is jointly owned by two or more
otherwise independent firms. Advantages: • Firm can benefit from a local partner’s
knowledge of the host country’s competitive conditions, culture, language, political systems,
and business systems. • Shares the costs and risks of opening a foreign market with a
partner. • Can help firms minimize the risk of nationalization or other adverse government
interference. © McGraw Hill 21 Entry Modes 9 Joint Ventures continued Disadvantages: •
Firm risks giving control of its technology to its partner. • Firm may not have the tight

9. control over subsidiaries that it might need to realize experience curve or location
economies. • Shared ownership can lead to conflicts and battles for control if goals and
objectives differ or change over time. © McGraw Hill 22 Entry Modes 10 Wholly Owned
Subsidiaries Firm owns 100 percent of the stock. Two methods: • Set up a new operation in
that country, called a greenfield venture. • Acquire an established firm. © McGraw Hill 23
Entry Modes 11 Wholly Owned Subsidiaries continued Advantages: • Reduce the risk of
losing control over core competencies. • Allow for tight control over operations in different
countries necessary for engaging in global strategic coordination. • May be required if a firm
is trying to realize location and experience curve economies. Disadvantages: • Firm bears
the full costs and risks of setting up overseas operations. © McGraw Hill 24 Table 13.1
Advantages and Disadvantages of Entry Modes 1 Entry Mode Advantages Disadvantages
Exporting • Ability to realize location and experience curve economies. • High transport
costs. Increased speed and flexibility of engaging target markets. • Problems with local
marketing agents. • Turnkey contracts Licensing • Trade barriers. • Ability to earn returns
from process technology skills in countries where FDI is restricted. • Creation of efficient
competitors. • Low development costs and risks. • Lack of control over technology. •
Moderate involvement and commitment. • Inability to realize location and experience curve
economies. • Lack of long-term market presence. • Inability to engage in global strategic
coordination. Franchising © McGraw Hill • Low development costs and risks. • Lack of
control over quality. • Possible circumvention of import barriers, and strong sales potential.
• Inability to engage in global strategic coordination. 25 Table 13.1 Advantages and
Disadvantages of Entry Modes 2 Entry Mode Advantages Disadvantages Joint ventures •
Lack of control over quality. • • Inability to engage in global strategic coordination. Lack of
control over technology. • Inability to engage in global strategic coordination. • Inability to
realize location and experience economies. Wholly owned subsidiaries © McGraw Hill •
Protection of technology. • High costs and risks. • Ability to engage in global strategic
coordination. • • Ability to realize location and experience economies. Need for more human
and nonhuman resources, and interaction and integration with local employees. 26
Selecting an Entry Mode 1 Core Competencies and Entry Mode Technological Know-How. •
When competitive advantage is based on proprietary technological know-how, firms should
avoid licensing and joint venture arrangements in order to minimize the risk of losing
control over the technology. • If a technological advantage is only transitory or the firm can
establish its technology as the dominant design in the industry, licensing may be attractive.
© McGraw Hill 27 Selecting an Entry Mode 2 Core Competencies and Entry Mode continued
Management Know-How. • The competitive advantage of many service firms is based upon
management know-how. • International trademark laws are generally effective for
protecting trademarks. • The risk of losing control over management skills to franchisees or
joint venture partners is low. • © McGraw Hill Allows for greater use of brand names, which
is the most valuable asset. 28 Selecting an Entry Mode 3 Pressures for Cost Reductions and
Entry Mode Firms facing strong pressures for cost reductions are likely to pursue some
combination of exporting and wholly owned subsidiaries. • Allows the firm to achieve
location and scale economies as well as retain some degree of control over worldwide
product manufacturing and distribution. • Firms pursuing global standardization or

10. transnational strategies tend to establish wholly owned subsidiaries. © McGraw Hill 29
Greenfield Venture or Acquisition? 1 Pros and Cons of Acquisitions • Are quick to execute. •
Enable firms to preempt their competitors. • Can be less risky than greenfield ventures. •
However, many acquisitions are not successful. © McGraw Hill 30 Greenfield Venture or
Acquisition? 2 Pros and Cons of Acquisitions continued Why Do Acquisitions Fail? • Firm
overpays for the assets of the acquired firm. • Clash between the cultures of the acquiring
and acquired firm. • Attempts to realize gains by integrating the operations of the acquired
and acquiring entities run into roadblocks and take much longer than forecast. • Inadequate
pre-acquisition screening. © McGraw Hill 31 Greenfield Venture or Acquisition? 3 Pros and
Cons of Acquisitions continued Reducing the Risks of Failure. • Through careful screening of
the firm to be acquired. • By moving rapidly once the firm is acquired to implement an
integration plan. © McGraw Hill 32 Greenfield Venture or Acquisition? 4 Pros and Cons of
Greenfield Ventures Greenfield ventures are attractive because they allow the firm to build
the kind of subsidiary company that it wants. Disadvantages of establishing a greenfield
venture: • Slower to establish. • Risky because they have no proven track record. • Can be
problematic if a competitor enters via acquisition and quickly builds market share. ©
McGraw Hill 33 Greenfield Venture or Acquisition? 5 Which Choice? Dependent on
circumstances confronting the firm. If there are already well-established incumbent
enterprises or interest from global competitors, an acquisition is best. • Greenfield may be
too slow to establish a presence. If there are no incumbents or the firm’s competitive
advantage is based on the transfer of organizationally embedded competencies, skills,
routines, and culture, greenfield might be best. • Things such as skills and organizational
culture are much easier to embed in a new venture than in an acquired entity. © McGraw
Hill 34 360° View: Impact of the Macro Environment Conditions Choice of markets to enter
and mode of entry. Changes in macro environment can change attractiveness of markets.
Political Economy and Entry Choices Economic growth rates affect size of market and
purchasing power of consumers. May change over time due to political, economic, and legal
systems. • Venezuela, Kenya, India. © McGraw Hill 35 Summary In this chapter, we have •
Explained the three basic decisions that firms contemplating foreign expansion must make:
which markets to enter, when to enter those markets, and on what scale. • Compared and
contrasted the different modes that firms use to enter foreign markets. • Identified the
factors that influence a firm’s choice of entry mode. • Recognized the pros and cons of
acquisitions versus greenfield ventures as an entry strategy. © McGraw Hill 36 Because
learning changes everything. ® www.mheducation.com © 2022 McGraw Hill. 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.