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Entering Foreign Markets (Entry Modes (Exporting: sale of products…
Entering Foreign Markets
Basic Entry Decisions
Which Foreign Markets?
The attractiveness of a country as a potential market for an international business depends on balancing the benefits, costs, and risks associated with doing business in that country
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The costs and risks associated with doing business in a foreign country are typically lower in economically advanced and politically stable democratic nations, and they are greater in less developed and politically unstable nations
Timing of Entry
Entry is early when an international business enters a foreign market before other foreign firms and late when it enters after other international business have already established themselves
The advantages frequently associated with entering a market early are common known as first-mover advantages
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Pioneering Costs: Cost an early entrant bears that later entrants avoid, such as the time and effort in learning the rules, failure due to ignorance, and the liability of being a foreigner
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Market Entry Summary
The potential long-term rewards are also likely to be lower because the firm is essentially forgoing the opportunity to capture first-mover advantages
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Entry Modes
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Turnkey Projects: A project in which a firm agrees to set up an operating plant for a foreign client and hand over the "key" when the plant is fully operational
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Disadvantages
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the firm that enters into a turnkey project with a foreign enterprise may advertently create a competitor
If the firm's process technology is a source of competitive advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors.
Licencing: arrangement in which a licensor grants the rights to intangible property to the licensee for a specified period and receives a royalty fee in return
Advantages
the firm does not have to bear the development costs and risks associated with opening a foreign market
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being attractive when a firm is unwilling to commit substantial financial resources to an unfamiliar or politically volatile foreign market
being used when a firm wishes to participate in a foreign market but is prohibited from doing so by barriers to investment
being used when a firm possesses some intangible property that might have business applications, but it does not want to develop those applications itself
Disadvantages
Licensing limits a firm's ability to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another.
Most firms wish to maintain control over how their know-how is used, and a firm can quickly lose control over its technology by licensing it.
it does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies
Franchising: a specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business
Advantages
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this creates a good incentive for the franchisee to build a profitable operation as quickly as possible
using a franchising strategy, a service firm can build a global presence quickly and at a relatively low cost and risk
Disadvantages
franchising may inhibit the firm's ability to take profits out of one country to support competitive attacks in another
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