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Entry Strategy & Strategic alliance (Strategic alliances: cooperative…
Entry Strategy & Strategic alliance
3 basic dec to make when expanding gloablly
1) Which market to enter
depend on long run profit potential
more attractive when pdt is not common & can satisfy UNMET need
Favourable market
politically stable
free market systems
relatively low inflation rates
low private sector debt
Less favourable market
politically stable
mixed/command economies
excessive level of borrowing
2) When enter, on what scale
enter on significant scale = make STRATEGIC COMMITMENT to market [have LT impact & difficult to change back
enter on small scale: ad of letting firm learn about foreign market but also limit firm exposure to market
3) which entry mode to use [6]
optimal mode depend on situation, varies between companies
Exporting: common 1st step for manu firms
later they may switch to another mode
turnkey projects
contractor handle EVERY details of project for foreign client [include training of ops personnel]
at completion: hand 'key', plant ready for full ops to client
Licensing
licensOR grant rights to INTANGIBLE property to licensEE for SPECIFIED time period [in return: licensee pay royalty fee]
patents, inventions, formulas, processes, design, copyrights, trademarks
Franchising
specialised form of licensing: franchisOR not only sell intangible property but also insist that franchisEE agree to follow rules on how to do biz
used primarily by service firms
Joint venture w host country company
firm that is JOINTLY owned by 2/more independent firm
norm 50-50 partnerships
Establish new wholly owned subsidiary
firm own 100% of stock
set up new op
acquire established firm
2 factors that influence entry mode
core competencies
when competitive ad is based on PROPRIETARY technological know-how
AVOID licensing & joint venture unless tech ad only TRANSITORY/ can be established as DOMINANT design
when competitive ad. is based on MGMT know how
risk of losing control over mgmt skills is NOT high & benefits from getting greater use BRAND NAMES is signiificant
pressure for cost reductions
when high: firm norm use COMBI of exporting & wholly owned sub.
firm can achieve LOCATION & SCALE economies & RETAIN some control over pdt manu & distribution
Wholly owned sub: better for global standardisation/transnational strategies
6 factors that affect choice of entry mode
transport cost
trade barriers
political risks
costs
economic risks
firm strategy
Greenfield VS acquisition: depend on situation
Greenfield strategy
Build subsidiary from zero
better when firm need to transfer organisationally EMBEDDED competencies, skills, routines & culture
Ad: give firm greater ability to build sub like what firm wants
Disad: SLOWER to establish & RISKY
Acquisition strategy
acquire EXISTING company
better when there is WELL ESTABLISHED competitors/GLOBAL competitors interested in expanding
Ad:
quick to execute
allow firm to pre-empt competitors
Less risky than greenfield
can fail when:
acquirING firm overpays acquirED firm
CLASH of culture
tries to realise SYNERGIES meet probs & take longer than expected
POOR pre-acquisition screening
to avoid failing:
screen firm to be acquired carefully
move quickly to implement integration plan
Strategic alliances: cooperative agreements between POTENTIAL/ACTUAL competitor
range from FORMAL joint venture to ST contractual agreements
becoming more popular
Ad:
facilitate entry into foreign market
firm can share FC & RISK of developing new pdt/processes
bring together COMPLEMENTARY skills & assets that neither party can easily develop on their own
help firm establish technological standards for industry that will benefit firm
need to be careful to not give away > receive
3 success factors:
partner selection[good partner]:
help firm achieve strategic goals & has capabilities firm LACKS & VALUES
SHARE firm vision for purpose of alliance
will not take ad of alliance for their own INTERESTS
alliance structure: should
make it difficult to transfer tech that is not meant to be transferred
have contractual safeguards: to guard against risk of OPPORTUNISM by partner
allow skills & tech SWAP w EQUITABLE gains
min. risk of opportunism by alliance partner
manner that alliance is managed: requires
interpersonal r/s between managers
learning from partners
When to enter foreign market?: when identify attractive market, need consider TIMING OF ENTRY
Entry is EARLY: when firm enter BEFORE others
reason: 1st mover ad
win rivals by establishing STRONG brand name 1st
can build up sales vol. & rider down EXP. CURVE to be ahead of rivals & competitive ad over LATER entrants
can create SWITCHING costs that tie customer into pdt/service: difficult for LATER entrants to win biz
1st mover disad
pioneering costs
arise when foreign biz system is very diff from domestic market: firm need spend lots of TIME,EFFORT & MONEY to learn
cost of biz failure:if biz not sure about foreign envt & make major mistake
cost or PROMOTING & ESTABLISHING pdt
Entry is LATE: firm enter AFTER others have already established themselves in market