6 - International Strategy II: Going International

Question 1

Four steps for going international

Answer 1

1 Basic decisions
2 Systematic of entry modes
3 Evaluating entry strategies
4 International strategic alliances

Question 2

Issues for going international

Answer 2

Focus on (young) firms entering the global arena

Analyzing foreign markets

Market-entry strategies

Foreign Direct Investment (FDI)-decisions

Decision on collaboration (i.e. strategic alliances)

Question 3

1 Basic decisions

Answer 3

Which markets to enter?

Timing of entry

Scale of entry and entry strategy

Question 4

Going international theoretical viewpoints

Answer 4

Classical interpretation: Process theory (Uppsala)

Modern interpretations: International intrepreneurship and born globals

Question 5

Basic decisions: Timing of entry

Answer 5

Pioneer X Early Follower X Late Follower

Waterfall strategy X Sprinkler Strategy

Question 6

Building and eroding of competitive advantage

Answer 6

Buildup period: Strategic moves produce competitive advantage

Benefit period: Size of competitive advantage achieved

Erosion period: Moves by rivals erode competitive
advantage

Question 7

Systematic of entry modes: Direct exporting

Answer 7

Direct contact with companies located in the foreign market

Question 8

Systematic of entry modes: Indirect exporting

Answer 8

Intermediary firms provide knowledge and contacts necessary to sell overseas

Question 9

Systematic of entry modes: Turnkey project

Answer 9

Clients pay contractors to design and construct new facilities and train staff

At completion of the contract, the foreign client is handed the “key” to facilities ready for operations

Just “move in”

Question 10

Systematic of entry modes: Licensing

Answer 10

Arrangement whereby one firm (licensor) permits another (the licensee) to use its intellectual property for a specified period of time

In return the licensor receives a royalty fee from the licensee

Trademark and copyright licensing, know-how licensing

Question 11

Systematic of entry modes: Franchising

Answer 11

Franchising is basically a specialized form of licensing

Franchisor sells intangible property (normally trademark) to another,
independent entity (the franchisee)

Franchisee agrees to abide strict rules

Franchisor receives royalty payment

Question 12

Systematic of entry modes: Joint venture

Answer 12

Entity owned by two or more parent companies

Each party contributes assets, has some equity and shares risk

3 types of joint ventures: Minority JV (focal firm holds 50%)

Question 13

Systematic of entry modes: Wholly owned subsidiaries

Answer 13

Firm owns 100 percent of the stock

Greenfield operation: Establishment of a new operation in a foreign country “from scratch”

Acquisition: Buying control of a corporation either
hostile or friendly

Question 14

Advantages & Disadvantages: Exporting

Answer 14

Economies of scale in existing facilities
Speedy market entrance
Low resource commitment
Inexpensive

High transportation costs
Trade barriers and protectionism
Lack of control over distribution channels
Limited opportunities to learn

Question 15

Advantages & Disadvantages: Turnkey projects

Answer 15

Ability to earn returns from process technology in countries where FDI is restricted
Less risky than conventional FDI

Lack of long-term market presence
May create efficient competitor: selling process technology may lead to selling the competitive advantage

Question 16

Advantages & Disadvantages: Licensing /

franchising

Answer 16

Speedy and easy entry
Overcomes investment barriers
Low risk and development costs
Allows high return on investment

Little control over technology or quality
May create competitors
Provides only small experimental knowledge in foreign markets
Could damage the firm’s reputation

Question 17

Advantages & Disadvantages: Joint Ventures

Answer 17

High learning potential
Shared costs and risks
Knowledge exchange
Reduced political risk

Different interests and asymmetric
information of the partners
Risk of giving technology to partner
Difficult to coordinate globally
Managerial issues a challenge

Question 18

Advantages & Disadvantages: Greenfield operations (wholly owned subsidiaries)

Answer 18

Build subsidiary company wants to own
Easy to establish efficient routines
Protection of know-how
Tight control of operations
Quick and direct market feedback

Slowest entry speed
Cultural and political problems
High development costs and capital commitment
Could not rely on pre-existing relationships

Question 19

Advantages & Disadvantages: Acquisitions (wholly owned subsidiaries)

Answer 19

Fast entry speed
Protection / acquisition of know-how
Tight control of operations
Quick and direct market feedback
Could rely on pre-existing relationships

Cultural and political problems
Realization of synergies
Overpay for firm
High capital commitment
Too optimistic about value creation
Disadvantages

Question 20

International strategic alliances

Answer 20

Collaborative arrangements where two or more companies from different countries join forces to achieve mutually beneficial outcomes

Allows companies to bundle competencies and resources that are more valuable in joint effort than when kept separate

Question 21

Advantages & Disadvantages: international strategic alliances

Answer 21

Advantages
Cost-related:
 Market entry at low risks and costs (small
scale entry)
 To gain economies of scale in procurement,
production and/or marketing
Learning-related:
 Fast access to knowledge about markets
and cultures
 To collaborate on technology/new product
development and acquire new
competencies
Other:
 Meeting government requirements
 To reduce competitive threats
 To gain legitimacy (i.e. small firms)

Disadvantages
Losing core resources and competencies
to competitors (i.e. technology)
 Diverging objectives and priorities of
partners
 Inability of partners to work together
 Emergence of new technologies
 Marketplace rivalry between partners