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Chapter 5: Entry Strategy and Strategic Alliances (how can firms enter…
Chapter 5: Entry Strategy and Strategic Alliances
how can firms enter foreign markets?
exporting
Adv:
ability to realise location & experience economies
increased speed & flexibility of engaging target markets
Dis:
high transport costs
trade barriers
turnkey contracts: contractor handles whole project for foreign client (training of operating personnel)
Adv:
ability to earn returns from process technology skills in countries where FDI is restricted
Dis:
lack of long term market presence
licensing: licensor grants rights to intangible property for period of time and received royalty free
Adv:
low development costs & risk
moderate involvement & commitment
Dis:
lack of control over technology
inability to recognise location & experience curve economies
joint ventures: firm that is jointly owned by two/ more independent firms
Adv:
access to partner's knowledge
politically acceptable
Dis:
lack of control over technology
inability to realise location & experience economies
wholly owned subsidiary: firm owns 100% of stock
Adv:
protection of technology
ability to realise location & experience economies
Dis:
high costs & risks
need for more human & nonhuman resources
how do core competencies influence entry mode?
if competitive advantage is technological know-how
avoid licensing & joint ventures
if competitive advantage is management know-how
risk of losing control of management is low
great benefits from use of brand names
how do pressures for cost reductions influence entry modes
when pressure is high = firms use combination of exporting + wholly owned subsidiaries
allows firms to achieve location and scale economies
retain control over product manufacturing & distribution
firms pursuing global standardisation or transnational prefer wholly owned subsidiaries
why choose strategic alliances
facilitate entry into foreign market
allow firms to share the fixed costs & risks of developing
bring together complementary skills and assets that neither partner could develop alone
help firm establish technological standards for industry to benefit firms
what makes strategic alliances successful
partner selection
alliance structure
manner which alliance is managed
what are basic decisions firms make when expanding globally
which markets to enter
when and what scale to enter
which entry mode to use
why enter market early?
first mover advantage
what influences of the choice of entry mode
transport costs
tarde barriers
political risks
economic risks
costs
firm strategy
which foreign markets should firms enter
favourable markets:
politically stable
free market systems
relatively low inflation rates
low private sector debt
unfavourable markets:
politically unstable
mixed or command economies
excessive levels of borrowing
what scale to enter market?
significant scale make a strategic commitment to the market
small-scale entry has the advantage of allowing a firm to learn about a foreign market & limiting the firm’s exposure to that market