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Topic 11: Entering Foreign Markets, image, image, image, image, image,…
Topic 11: Entering Foreign Markets
Which markets to enter
favorable markets
politically stable
free market systems
low inflation rates
low private sector debt
less desirable markets
politically unstable
mixed or command economies
high inflation rates
excessive levels of borrowing
When to enter them
and on what scale
first mover
more time to accumulate and
master technical knowledge
access to scarce assets
build early base customers
later entrant
pioneering costs
costs of business failure
costs of promoting and
establishing a product offering
Types of entry mode
licensing
A licensor grants the rights to intangible
property to the licensee for a specified
time period, and in return, receives a
royalty fee from the licensee
Advantage
avoids development costs
and risk with opening
a foreign market
avoids barriers to investment
can capitalize on market
opportunities without developing
those applications itself
Disadvantage
doesn't have tight control for
realizing experience curve and
location economies
ability to coordinate strategic moves
across countries is limited
proprietary (or intangible) assets
could be lost
franchising
the franchisor insists that the
franchisee agree to abide by
strict rules as to how it does business
Advantage
avoids cost and risks of
opening up a foreign market
can quickly build a global presence
Disadvantage
inhibit ability to take profit out
of one country to support
competitive attacks in another
geographic distance makes it
difficult to detect poor quality
turnkey projects
the contractor handles every detail of
the project for a foreign client, and the
client is handed the "key" when it is ready
for full operation
Advantage
a way of earning
economic returns
can be less risky than
conventional FDI
Disadvantage
firm has no long-term interest
in the foreign country
may create competitors
if it is a competitive advantage,
it is selling it to potential/ actual competitors
joint ventures
a firm that is jointly owned
by two or more otherwise
dependent firms
Advantage
benefit from local
partner's knowledge
cost and risks are shared
satisfy political considerations
for market entry
Disadvantage
risks giving control to partner
may not have tight control
to realize experience curve
or location economies
can lead to conflicts and battles
exporting
the sale of products and services in
foreign countries that are sourced or
made in the home country
Advantage
avoids costs of establishing local
manufacturing operations
firm achieves experience curve
and location economies
Disadvantage
may be lower-cost
manufacturing locations
high transport costs and tariff
agents in foreign country may not
act in exporter's best interest
wholly owned subsidiary
business operation in a
foreign country that a firm fully owns
Advantage
reduce risk of losing control
over core competencies
tight control over operations
realize location and experience
curve economies
Disadvantage
bears full cost and risk
Factors of entry mode
transport costs
trade barriers
political risks
economic risks
costs
firm strategy
