12.1: Basic Entry Decisions

Question 1

What are the two closely related topics concerning a company’s decision to go international?

Answer 1

The two topics are (1) the decision of which foreign markets to enter and when to enter them, and (2) the choice of entry mode.

Question 2

What are the implications of strategic alliances in entering foreign markets?

Answer 2

Strategic alliances, like joint ventures, imply a greater involvement and commitment to the foreign market and are part of a company’s internationalization strategy.

Question 3

What are some market entry modes that require lower levels of commitment?

Answer 3

Market entry modes that require lower levels of commitment include exporting, licensing, or franchising.

Question 4

What did IKEA’s market entry into China and India exemplify about international market strategies?

Answer 4

IKEA’s market entry into China was conducted the Swedish way, implying a less tailored approach, while its entry into India was adapted to the local market, indicating a more customized strategy.

Question 5

How did IKEA approach its market entry in India?

Answer 5

IKEA committed to building their own stores, hiring local Indian staff, and placing an emphasis on Swedish furniture and processes, but with an Indian feel and flavor.

Question 6

What are some choices for serving foreign markets?

Answer 6

Choices for serving foreign markets include exporting, licensing, franchising, establishing joint ventures, setting up wholly owned subsidiaries, or acquiring established enterprises in the host nation.

Question 7

What factors determine the advantages and disadvantages associated with each entry mode?

Answer 7

Factors include transportation costs, trade barriers, political risks, economic risks, business risks, costs, and firm strategy.

Question 8

How do firms decide which foreign markets to enter?

Answer 8

Firms must assess the potential for relative long-run growth and profit, considering demographics, consumer wealth, economic growth rates, and other economic and political factors.

Question 9

What are the main benefits of entering politically stable developed and developing nations?

Answer 9

The main benefits are a more favorable benefit-cost-risk trade-off due to free market systems and the absence of dramatic upsurges in inflation or private-sector debt.

Question 10

Why might the value an international business can create in a foreign market be crucial for entry decisions?

Answer 10

If the business can offer a product that satisfies an unmet need and is not widely available, it can charge higher prices or build sales volume more rapidly compared to offering something already available in the market.

Question 11

What is the ‘timing of entry’ in an international business context?

Answer 11

The timing of entry refers to when a company enters a foreign market relative to other international firms.

Entry is early when a business enters before other foreign firms and late when it enters after others have already established themselves.

Question 12

What are first-mover advantages?

Answer 12

First-mover advantages are benefits that a company gains by entering a market early.

These include

the ability to preempt rivals and capture demand by establishing a strong brand name,

the ability to ride down the experience curve ahead of rivals (cost advantage),

and the ability to create switching costs that tie customers into their products or services.

Question 13

How can later entrants benefit from the actions of first movers?

Answer 13

Later entrants can benefit by

learning from the mistakes of first movers,

avoiding the pioneering costs,

and exploiting the market potential created by the investments of the first movers,
such as in customer education and market development.

Question 13

What are some disadvantages of being a first-mover?

Answer 13

First-mover disadvantages may include

pioneering costs, which are expenses borne by entering an unfamiliar market, such as the costs of educating customers
and establishing a product offering.

These can lead to major mistakes and a higher liability for early entrants.

Question 14

What are strategic commitments and how do they relate to market entry scale?

Answer 14

Strategic commitments are long-term and difficult to reverse decisions associated with entering a foreign market on a significant scale.

They can have a major strategic impact and influence the nature of competition within a market.

Question 15

What is the ‘scale of entry’ and its implications?

Answer 15

The scale of entry refers to the amount of resources a company commits when entering a foreign market.

A large scale entry implies significant resource commitment and rapid entry, which can signal to the market a long-term investment and create barriers for competitors.

Question 16

How can cultural similarity influence market entry decisions?

Answer 16

Companies may prefer to enter markets with similar cultures (often signified by language) because it makes the entry process easier and the results more assured, as cultural understanding can affect how business is conducted and products are received.

Question 17

What are the advantages and disadvantages of small-scale market entry?

Answer 17

Advantages of small-scale entry include lower risk and the opportunity to learn about a foreign market with less exposure.

However, it may result in missed chances to capture first-mover or early-mover advantages.

Disadvantages include the lack of commitment, which may hinder building market share and establishing a strong presence.

Question 18

Why is it important to consider the implications of large-scale entry into a market?

Answer 18

Large-scale entry can affect how actual and potential competitors react, and it may allow a firm to capture first-mover advantages such as

demand preemption,
scale economies,
and switching costs.

It also has implications for strategic flexibility and the risks associated with significant commitments.

Question 19

What is a key consideration for a firm from a developed country when entering a foreign market?

Answer 19

The firm must consider the different levels of risk and reward associated with the market entry decision.

Question 20

How does entering a developing nation like China or India on a large scale impact a foreign firm?

Answer 20

It is associated with high levels of risk due to the liability of being foreign and the absence of prior foreign entrants’ experience to guide them, but it also presents potential long-term rewards.

Question 21

What are the risks and rewards associated with entering a large developing nation like China or India before other international businesses?

Answer 21

High levels of risk are associated with being an early large-scale entrant due to the liability of being foreign and the absence of prior foreign entrants as a guide.

However, potential long-term rewards include capturing significant first-mover advantages.

Question 22

How does market entry differ between developed nations like Australia or Canada and large developing nations?

Answer 22

Entering developed nations involves lower levels of risk and smaller potential long-term rewards because the firm is forgoing the opportunity to capture significant first-mover advantages and the small-scale entry may limit future growth potential.

Question 23

According to Christopher Bartlett and Sumantra Ghoshal, how can late entrants from developing nations succeed in foreign markets?

Answer 23

Late entrants can succeed by benchmarking their operations against competing foreign multinationals and differentiating their product offerings, targeting market niches that multinationals ignore or serve ineffectively.

Question 24

What is Jollibee, and how did it become a success story in the Philippines?

Answer 24

Jollibee is one of the Philippines’ most successful food corporations. It differentiated its product offering from McDonald’s by localizing its menu to Philippine tastes and adopted operational systems to improve quality, cost, and service, which helped it maintain a leadership position.

Question 25

What strategy did Jollibee use for its international expansion?

Answer 25

Jollibee’s international expansion involved localizing the menu to match local tastes and focusing on markets with a large Filipino expatriate population. This approach helped differentiate Jollibee from McDonald’s and allowed it to enter and succeed in foreign markets.

Question 26

How has Jollibee performed in the U.S. market, and what is its future outlook?

Answer 26

ollibee has performed well in the U.S., with plans to expand further. Initially targeting the Filipino community, its customer base is now diversifying, suggesting a bright future as a niche player in a market dominated by U.S. multinationals.