7- Market Entry Strategies And Decision Making

Question 1

Exporting

Answer 1

Direct: Firm produces domestically and sells goods in foreign markets By sales branches overseas using our own salesforce/foreign agents.

Indirect: Using export management companies.

Benefits: Creates foreign-exchange reserves, provides employment, establishes forward and backward linkages with the domestic firms and improve living standard, export intensity positively correlated to economic growth.

Question 2

Licensing

Answer 2

Licensor must evaluate overseas partner. Company/individual provides foreign partner with necessary means to manufacture and sell its products using licensors brand name in target country for annual license. This takes advantage of lower transport costs, labor, raw materials.

Question 3

Franchise

Answer 3

Obligated parent firm to provide specialised equipment/services to franchisee and at times fund start up costs. In return, franchisee pays annual fee.

Question 4

Cooperative ventures

Answer 4

Mutual agreement to cooperate, collaborate, or co-exist, by 2 or more firms.

Question 5

International Cooperative Ventures

Answer 5

Strategic alliances - Marriages of convenience between two or more firms that stand to gain revenue through cooperation with each other for reasons and given time period.

Joint ventures- Use joint production and sales distribution networks to generate increased revenue and profits. IJV = business jointly owned and operated by 2 or more firms to penetrate foreign markets, split profits, share risk. Local partner and equity contract required. Involved establishment of seperate legal entity.

Cross border merger and acquisitions - Domestic companies and to foreign markets by merging/acquiring well-established firms overseas. Merging strengths: more competitive. Risky bc lots of capital needed to acquire.

Question 6

Wholly owned subsidery

Answer 6

Domestic firms build and operate own new facilities overseas

Question 7

MNEs

Answer 7

Firms headquartered in one country, but own and control manufacturing, services, R+D on foreign soil. Willing to take on huge risks needed to operate globally.

Strategic motives: increasing revenues, cutting costs, minimising risks.
Reasons: competition in home market, associated with decreased profit margins and market saturated, new business opportunities abroad.

Question 8

First mover advantages

Answer 8

Strong brand name, economies of scale, create switching barriers. Disadvantages - no experience, uncertainty, pave way for late comers, pioneering costs.

Question 9

Cost minimising strategies

Answer 9

Economies of scale in production, minimising factor input costs, reacting to exchange rate movements

Question 10

Risk minimising strategies

Answer 10

Diversification

Correlation of returns

Product life cycle theory