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Market Entry Strategies (How Can Firms Enter Foreign Markets? (Franchising…
Market Entry Strategies
How Can Firms Enter Foreign Markets?
Licensing
Licensor grants licensee the rights to intangible property for a specified time period, and in return, receives a royalty fee from the licensee
Franchising
Specialized form of licensing where the franchisor not only sells intangible property to the franchisee but also insists that the franchisee agree to abide by strict rules as to how it does business
Used primarily by service firms
Turnkey Projects
Contractor handles every detail of the project for a foreign client, including the training of operating personnel
Joint venture with a host country firm
Firm that is jointly owned by 2 or more otherwise independent firms
50–50 partnerships
Exporting
Wholly Owned Subsidiary
Firm owns 100% of the stock
How Do Core Competencies Influence Entry Mode?
Optimal entry mode depends on the nature of a firm’s core competencies
When competitive advantage is based on proprietary
technological know-how
Avoid licensing and joint ventures unless the technological advantage is only transitory or can be established as the dominant design
When competitive advantage is based on
management know-how
Risk of losing control over the management skills is not high
Benefits from getting greater use of brand names is significant
How Do Pressures for Cost Reductions Influence Entry Mode?
When pressure for cost reductions is high, firms are more likely to pursue some combination of exporting & wholly owned subsidiaries
Allows the firm to achieve location & scale economies and retain some control over product manufacturing & distribution
Firms pursuing global standardization or transnational strategies prefer wholly owned subsidiaries
What Are Strategic Alliances?
Cooperative agreements
between potential / actual competitors
Range from formal joint ventures to short-term contractual agreements
Why Choose Strategic Alliances?
1) Facilitate entry into a foreign market
2) Allow firms to share the fixed costs & risks of developing new products / processes
3) Help a firm establish technological standards for the industry that will benefit the firm
4) Bring together complementary skills and assets that neither partner could easily develop on its own
BUT, the firm needs to be careful not to give away more than it receives :!:
What Makes Strategic Alliances Successful?
Alliance structure
Alliance should;
1) Minimize the risk of opportunism by an alliance partner
2) Make it difficult to transfer technology not meant to be transferred
3) Allow for skills & technology swaps with equitable gains
4) Have contractual safeguards to guard against the risk of opportunism by a partner
Manner in which alliance is managed
Requires;
1) Interpersonal relationships between managers
Cultural sensitivity is important
2) Learning from alliance partners
Knowledge must then be diffused through the organization
Partner selection
A good partner;
2) Shares the firm’s vision for the purpose of the alliance
3) Helps firm achieve its strategic goals & has capabilities the firm lacks and that it values
1) Will not exploit the alliance for its own ends