2.3 Market Entry strategies and foreign operation modes Flashcards
Market Entry Strategies - Exporting
- Sales of goods or services abroad
- First step of internationalization
- Indirect: partnership local distributor ( domestic or foreign exporter) middle hand with more experience of foreign markets
- Direct export - learn more, direct contact
PRO
- Low risk
- Low resource commitment
- Low org complexity
- Get to know foreign markets gradually
- High strategic flexibility
CON
- Cost for shipping, trade barriers etc
- No foreign experience and direct customer relation
Market Entry Strategies - Licencing
- Granting of permission to use intellectual property rights or not
protected practical knowledge under defined conditions. - Intellectual property rights Ex. patents, design, trademarks, copyrights
- Know-how licenses Ex. technical, commercial
- Strategy to increase market scope fast without much risk
- Ex. Adidas, pharmaceutical
PRO
- Low resource commitment
- Use of market know-how
- Entry strategy in case of trade barriers
- Fast market entry
CON
- Lack of control
- Disclosure of sentitive know how
Market Entry Strategies - Franchising
- Business format into foreign country ex sales, management concept, design, many, price level
- Obligations to each other (train, inform, report, make investments etc)
- Ex. Body shop, McDonalds etc
PRO
- Similar to licencing but higher control of partner
- uniform appearance world wide
CON
- standardize product
- Could get negative reputation and image
- Comples mangement and control
Market Entry Strategies - Strategic Alliances
- Long term cooperation for joint implementation
- Joint Venture: long term, two or more parties new firm, equal contribution, join mgn
- Strategic Alliances: strategic partnership, often in strategic important area ex. R&D
- Consortium: project oriented cooperation
PRO (JV)
- Local content rules and import restiction
- Fast market entry
- learning advantages
CON
- Hard to follow strategy of several countries (cross country)
- Instability (cancelled agreement)
Market Entry Strategies - Sales and production subsidiaries
- Legally dependent, Part of HQ
Market Entry Strategies - Wholly owned subsidiaries
- Legally independent
- Greenfield: new foreign subsidiary, resources developed internally
- Mergers: Combining two independent firms where one loses legal autonomy
- Acqusition: Firm buys majority ownership stakes in foreign firm
PRO
- Visible in host country
- Fast entry(M&A)
- Building on relations/image (M&A)
- Less risk bt growing internally with greenfield
- creates flexibility across countries
Olli Approach (Dunning)
Type and amount of international operations model:
- Ownership advantages: Advantages that can be realized abroad ex. ec. of scale, synergy, differentiated products, patents
- INTERNALIZATION advantages: Motivates and be able to realize it: Ex. transaction costs, internal or external
- Location advantages: chose location with greater benefits: cost, infrastructure, market attractiveness
Cost of internal organization of activities VS Cost of transactions with external agents (doing it yourself or let someone else do it?)
Yourself - Export, FDI
Someone else - Licencing, Franshising
Market Entry strategies - The Uppsala Modell
- Psycic Distance Chain: First go in to markets similar to the once you have (stepwise), country related
Establishment chain: operation and activites, start simple ec. export->licencse->FDI
Two graphs:
- Y-axel: phycis distance, X-axel: market knowledge/time
- Y-axel: resource commitment
Critique
- Ony based on swedish firms, small country, descriptive or normative? no time frame, does not work like that in reality
Born Global Phanomen
- Int ventures, start-ups,
. Network focus for fast internationalization
Ex. Logitech
External influencing factors:
- domestic market conditions (small, many legal conditions
- Technical change
- Demand characteristics (global customers)
- Networks
Internal factors:
- Founder (international experience, global orientation, strategic asset thinking, first mover strategies)
- Product
- Objectives and Strategies
