Please enable JavaScript.

Coggle requires JavaScript to display documents.

Entering Foreign Markets (Entry Modes (Exporting: sale of products…

- - - - Avoids the often subsitantial costs of establishing manufacturing operations in the host country
      - may help a firm achieve experience curve and location economies
    - - may not be appropriate if lower-cost locations for manufacturing the product can be found abroad
      - high transportation cost can make exporting uneconomical, particularly for bulk products
      - tariff barriers can make exporting uneconomical
      - a firm delegates its marketing, sales and service in each country where it does business to another company
  - - - a way of earning great economic returns from a valuable asset
      - The strategy is particularly useful where FDI is limited by host-government regulations
    - - the firm that enters into a turnkey deal will have no long-term interest in the foreign country
      - 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.
  - - - the firm does not have to bear the development costs and risks associated with opening a foreign market
      - being very attractive for firms lacking the capital to develop operation overseas
      - 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
    - - 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
  - - - the firm is relieved of many of the costs and risks of opening a foreign market on its own
      - 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
    - - franchising may inhibit the firm's ability to take profits out of one country to support competitive attacks in another
      - a more significant disadvantage of franchising is quality control
      - One way around this advantage is to set up a subsidiary in each country in which the firm expands
      - the proximity and the smaller number of franchises to oversee reduce the quality control challenge
  - - - a firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business system
      - when the development costs and/or risks of opening a foreign market are high, a firm might gain by sharing these cost and/or risks with a local partner
      - Political considerations make joint ventures the only feasible entry mode
    - - a firm that enters into a joint venture risks giving control of its technology to its partner
      - a joint ventrue does not give a firm the tight control over subsidiaries that it might need to realize experience curve or location economies
      - the shared ownership arrangement can lead to conflicts and battles for control between the investing firms if their goals and objective change or if they take different views as to what the strategy should be
  - - - a wholly owned subsidiary gives a firm tight control over operations in different countries
      - a wholly owned subsidiary may be required if a firm is trying to realize location and experience curve economies
      - when a firm's competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence
    - - Being generally the most costly method of servinga foreign market from a capital investment standpoint
      - Firms doing this must bear the full capital costs and risks of setting up overseas operations
      - acquisitions raise additional problems, including those associated with trying to marry divergent corporate cultures
- - - - If a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how, it will probably do so through a wholly owned subsidiary
      - Sometimes a licensing or joint-venture arrangement can be structured to reduce the risk of licensees or joint-venture partners expropriating technoligical know-how
      - The attractions of licensing are frequently out-weighted by the risks of losing control over technology, and if this is a risk, licensing should be avoided
    - - The risk of losing control over the management skills to franchisees or joint-venture partners is not that great
      - Many service firmsfavor a combination of franchising and subsidiaries to control the franchises within particular countries or regions
- - - - The acquiring firms often overpay for assets of the acquired firm. The price of the target firm can get bid up if more than one firm is interested in its purchase, as is often the case.
      - Many acquisitions fail because there is a clash between the cultures of the acquiring and acquired firms. After an acquisition, many acquired companies experience high management turnover, possibly because their employees do not like the acquiring company's way of doing things
      - Many acquisitions fail because attempts to realize synergies by integrating the operations of the acquired and acquiring entities often run into roadblocks and take much longer than forecast
      - Many acquisitions fail due to inadequate pre-acquisition screening. Many firms decide to acquire other firms without thoroughly analyzing the potential benefits and costs
    - - makes sure the firm does not pay too much for the acquired unit
      - make sure the firm does not uncover any nasty surprises after the acquisition
      - make sure the firm acquires a firm whose organization culture is not antagonistic to that of the acquiring enterprise
  - - - it gives the firm a much greater ability to build the kind of subsidiary company that it wants
      - It is much easier to establish a set of operating routines in a new subsidiary than it is to convert the operating routines of an acquired unit
      - This is a very important advantage for many international business, where transferring products, competencies, skills and know-how from the established operations of the firms to the new subsidiary are principal ways of creating value
    - - Greenfield ventures are slower to establish
      - They are also risky
      - The possibility of being preempted by more aggressive global competitors who enter via acquisitions and build a big market presence that limits the market potential for the greenfield venture
  - - - if the firm is seeking to enter a market where there are already well-established incumbent enterprises and where global competitors are also interested in establishing a presence, it may pay the firm to enter via an acquisition
    - - If the firm is going to make an acquisition, its management should be cognizant of the risks associated with acquisitions that were discussed earlier and consider these when determining which firms to purchase