chapter 9: Entry Strategies, Aliances, Evolution, Entry to Foreign Market
HOW DOES A FIRM DECIDE TO ENTER A FOREIGN MARKET?
WHICH market(s) to enter?
WHEN to enter the market? (example of Mcdonald's and KFC)
WHY enter a foreign market?
on what SCALE? adv and disadv of each
Market Seeking
Efficiency seeking
Natural Resource seeking
Innovation seeking
Natural resource seeking
Market seeking
Efficiency seeking
Innovation seeking
Company's objective
Level of domestic and foreign competition
First Mover
Attractiveness of a particular regional, national or international market place
Late-Mover
advantages: strong brand name, gaining cost advantages, switching costs
disadvantages; pioneering costs, costs of promoting
advantages from first movers: educating customers(done already), learning about the market, letting the market and technological uncertainties be sorted out, leapfrog the early mover
disadvantages: cannot benefit from the first movers advantages.
Acquisitions (fully)
JV (newly established0
Partial Acquisition
Greenfield (wholly owned)
6 Modes of Market Entry: from Low to High Commitments & Risks
click to edit
Exporting
Fully Owned Subsidiaries
Turnkey projects
Licensing
Franchising
Joint Venture
advantages: helps firms achieve Experience Curve and Location Economies, avoid cost of establishing manufacturing overseas
advantages: reduce the risk of loosing control, gain 100% of the profits
advantages: earning economic returns, less risky
advantages: avoids development costs & risks, avoids barriers to investment
advantages: avoids costs and risks opening up a foreign market, quickly build a global presence
advantages:benefits from local partner's knowledge, costs and risks of opening a foreign markets are shared.
disadvantages: high transports Costs and Tariffs, agent cannot be controlled closely.
disadvantages: full risk and cost of setting overseas, difficult to transfer organizational culture and ways of operating to acquired companies.
disadvantages: create local competitor, no long-term interest
disadvantages: lack of control over technology & intellectual property, does not have tight control over manufacturing, marketing & strategy.
disadvantages: geographical and administrative distances cause poor quality at one branch can hurt the brand globally
disadvantages:giving control of its technology to its partner, shared ownership can lead to conflicts between partners
click to edit
click to edit
click to edit
click to edit
click to edit
click to edit
STRATEGY ALLIANCES: (SAs) are collaborations between independent companies using equity modes, non-equity contactual agreements or both .
JV and short-term contractual agreements are forms of strategic alliances example: SMART=Swatch+Mercedes
why choose a strategic alliances?
advantages: facilitates entry to a foreign market, stepping stone to a full acquisition, share FC and risks of developing new products, establishing technological standards
disadvantages: low-cost route to technologies and market, competitor you choose will benefit from you secrets, failure rate very high, some run into serious financial and managerial trouble
for success of an alliance: partner selection, alliance structure, management capability, example in the airline industry, national airlines from alliances to connect to all major destinations, also share frequent flyer programmes and facilitates and resources such as passenger lounges.
click to edit
Strategies that a firm can adopt when they enter a foreign market:
2 main forms of FDI
click to edit
OLI's Framework
INTERNALIZATION ADAVNATGES
Greenfield investment: wholly owned new
Brownfield acquisition or merger: existing firm
LOCATION ADVANTAGES
OWNERSHIP ADVANTAGES
Dunning & Lundan (2009)
RESOURCES ENDOWNMENTS
AGGLOMERATION
MARKETS
INSTITUTIONS
Localization Strategy: give itself a competitive edge in foreign market.
Global Standardisation Strategy: we move her when there are pressures to reduce costs together with requirement to grow market.
International Strategy: sell domestic products in foreign markets with minimal customisation
Transnational Strategy: when there are pressure to reduce costs we retain local responsoveness and grow the market globally,