entry strategy and strategic alliances. mcgraw-hill/irwin international business, 5/e © 2005 the...
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Entry Strategy and Strategic Alliances
McGraw-Hill/IrwinInternational Business, 5/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-2
Basic foreign expansion entry decisions
A firm contemplating foreign expansion must make three decisions
Which markets to enter When to enter these markets What is the scale of entry
McGraw-Hill/IrwinInternational Business, 5/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Which foreign markets
Favorable Politically stable developed and developing
nations Free market systems
Unfavorable Politically unstable developing nations
McGraw-Hill/IrwinInternational Business, 5/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Timing of entry
Advantages in early market entry: First-mover advantage. Build sales volume. Move down experience curve and achieve cost
advantage. Disadvantages:
First mover disadvantage Changes in government policy.
McGraw-Hill/IrwinInternational Business, 5/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Scale of entry
Large scale entry Strategic Commitments - a decision that has a
long-term impact and is difficult to reverse. May cause rivals to rethink market entry.
Small scale entry: Time to learn about market.
McGraw-Hill/IrwinInternational Business, 5/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Entry modes
Exporting Licensing Franchising Joint Ventures
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© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Exporting
Advantages: Avoids cost of establishing manufacturing
operations Disadvantages:
May compete with low-cost location manufacturers Possible high transportation costs Tariff barriers
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Turnkey projects
Advantages: Less risky than conventional FDI
Disadvantages: No long-term interest in the foreign country May create a competitor
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Franchising
Advantages: Reduces costs and risk of establishing enterprise
Disadvantages: Quality control
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Joint Ventures
Advantages: Benefit from local partner’s knowledge. Shared costs/risks with partner.
Disadvantages:
Shared ownership can lead to conflict
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Wholly owned subsidiary
Subsidiaries could be Greenfield investments or acquisitions
Advantages: No risk of losing technical competence to a
competitor Tight control of operations.
Disadvantage: Bear full cost and risk
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© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Advantages and disadvantages of entry modes
McGraw-Hill/IrwinInternational Business, 5/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Partner selection
Get as much information as possible on the potential partner
Collect data from informed third parties Former partners Investment bankers Former employees
Get to know the potential partner before committing
McGraw-Hill/IrwinInternational Business, 5/e
© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Managing the alliance
Build trust Learning from partners