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[ASM] G2 - International Strategy (ABS) (Way to enter foreign markets…
[ASM] G2 - International Strategy (ABS)
Introduction
A potential to enter foreign markets
Considerations
Opportunities & Risk
Easy or Difficult
External Environment
PEST Analysis
Industry Environment
Five Forces Analysis + Complementary Analysis
Firm Capabilities/Resources
Value Chain & VRIN Analysis
Standardization or Localization
Industry
Focus on Efficient
Automobiles
Focus on local responsiveness
Retail Banking
Management
EX. Airline Industry needs to standardize their services
Need to consider local norm/custom in most of the situations
Patterns of Internationalization
Occur in
International Trade
Exporting products internationally
Foreign Direct Investment
Establish Operation or Start-up in Foreign Location
4 Different Types of Industry
International Industries
Agriculture
Military Hardware
Aerospaces
Sheltered Industries
Milk
Hairdressing
Railroads
Global Industries
Semiconductors
Oil
Automobiles
Multi-Domestic Industries
Hotels
Consulting
Packaged goods
Where to compete
Strategic questions
What market should you enter?
Nature of the market opportunity?
Firm's ability to create value?
Which capabilities are most relevant, and do we have those capabilities?
Foreign market knowledge?
Management skills particular to that location?
How to compete with locals and succeed?
How should a firm compete in each market?
Location of production ( manufacturing and service )
Degree of adaptation to local conditions
Relationships with other firms
Modes of foreign direct investment ( FDI )
Way to enter foreign markets
Licensing/Alliances
A firm authorizes a host-country firm to manufacture and sell its products in exchange for a royalty
Advantages
Gain local cost
Gain political influence and local tastes knowledge
Low transit costs/traiffs
Disadvantages
Reduced profit potential
Firm specific assets may be hard to transfer
Lose control over product quality
Customization potential is limited
Divergent goals may arise
Licensee may acquire capabilities and compete
Foreign Direct Investment
Disadvantages
Higher managerial or bureaucratic costs
Perception of Foreigners
High financial costs and risks
Domestic firms may be politically advantaged
Why
Avoid transportation costs or importing tariffs
Transfer capabilities easily
Cost-effective
Keep control over all things
What
a firm establishes a controlling stake in a host country entity to manufacture or sell its products
Go all in and establish some operations in new foreign location
How
Greenfield development
Creating a new entity in a host country
Advantages
greatest control over technology,
marketing and distribution
Operations can be expanded incrementally as the firm learns
Appropriation of value by others least likely
Disadvantages
Local responsiveness limited during ramp-up phase
Need to acquire additional expertise relevant to host country
Acquisition
a firm acquires an established host-country firm
Advantages
Enables firm to make rapid entry
Appropriation risks limited
Perception of Foreigners overcome easily
Able to use acquired firms political influence
Disadvatages
Require complex and costly negotiations
Difficult to merge disparate cultures
Synergy trap
Exporting
Trading industry
Internationalized customer base
Advantages
Make use of excess domestic capacity or build economies of scale
Establish distribution channels
Rapidly enter new international market
No need to establish operations
Disadvantages
High transportation costs
High import tariffs
Cannot take advantage of better costs/ capabilities
Less control over marketing/distribution
Product customization harder