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

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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

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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.

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Strategies that a firm can adopt when they enter a foreign market:

2 main forms of FDI

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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,