Chapitre 15 Flashcards
Explain the 3 basic decisions firms must make when
they decide on foreign expansion
which markets to enter?
when to enter those markets?
on what scale?
(can use Decision Matrix diagram to help compare)
on what factor do we choose which markets to enter?
Choice based on assessment of a nation’s long-run
profit potential.
* Size of the market.
* Present and likely future wealth of consumers. (econ growth rate)
* Costs and risks. (lower in economically/politicaly stable country)
-potential for suitability of its products and the nature of indigenous(local) competition.
on what factor do we choose when to enter those markets?
The advantages of entering a market early: first-mover advantages;
disadvantages of entering a foreign market before other international businesses : first-mover disadvantages.
Pioneering costs are those that arise when an early entrant has to bear a cost that a later entrant can avoid.
describe 3 first mover advantage
1) set the standard: establish a stong brand name + customer satisfaction.
2) lower cost than future comp: build sales volumes + ahead in the experience curve
3) leverage switching cost (cost linked to switching to a competitor)
describe some first mover disadvantage;
Pioneering costs: costs that early entrant has to bear that a later entrant can avoid such as:
1) when foreign market is different than home market; costly to adapt/learn
2) cost of failure (less chance of succeeding when first because can’t learn and observe competition)
3) risk of change in regulation
4) need to educate customer about product
name 2 strategic scales to enter? and concequences of commiting
conscequences : A strategic commitment has a long-term impact and is difficult to reverse
1) rapid large scale market entry
2) small scales entry
carracteristics of Rapid large-scale market entry
- can have an important influence on the nature of competition in a market. (attract workers/ gains confidence on market)
-Must be balanced against the resulting risks and lack of flexibility associated with significant commitments. (faillure and reputation)
lack of commitment associated with small-scale entry may make it more difficult for the small-scale entrant to build market share and to capture first-mover or early-mover advantages. The risk-averse firm that enters a foreign market on a small scale may limit its potential losses, but it may also miss the chance to capture first-mover advantages.
carracteristics of small-scale market entry
Small-scale entry allows a firm to learn about a foreign market while limiting the firm’s exposure to that market.
but more place for competition
Signals of Rapid Large-Scale Entry (3)
1) Signals commitment to the market and stakeholders.
2) Boosts confidence in the brand! It does not go away tomorrow!
3) Others who want to enter the market may pause and reconsider.
name all entry modes (6)
Exporting.
Turnkey projects.
Licensing.
Franchising.
Joint ventures.
Wholly Owned Subsidiaries
what is exporting
Sale of products produced in one country to residents of another country.
pros of exporting
pros;
1) avoids cost of establishing manufacturing operation in host contry
2) may help achieve experience curve + location economies
cons of exporting
cons;
1) not appropriate in lower cost location
2)high transport cost
3)tariff barriers
4)local agents for marketings/sales may not be loyal (creat future comp)
what is a turnkey projects
-turnkey p. : Contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel.
-Means of exporting technology to other countries.
-usually for capital extensive industry (pharma, minning…)
pros of turnkeys projects
pros;
1) potential for great economic return
2)potentialy less risky than fdi
cons of turnkeys projects
cons:
1)short term profit as firm has no long term interest
2)selling competitive advantage, loose it in the long run
what is licensing
Licensor grants rights to intangible property to another entity:
(patents, inventions, formulas, processes, designs, copyrights, and trademarks.)
pourcentage of sales in return
pros of licensing
pros:
1)no developpement cost and risk linked to entering
2) perfect when firms wishes to invest foreign but prohibited by barriers to invest
3) might allaws to waist no money on develloping application for intengible assets
cons of licensing
1) no tight control over licensed sub units: can’t leverage/benefits of experience curve / location economies
2) limits ability to coordinate strategic moves (invest profit of good places to attack bad places)
3)risk linked to the lost of competitive advantage over long run (when pattent ends). need do revel every secrets
what is franchising
Franchiser sells intangible property (normally a trademark) to the franchisee and insists that the franchisee agree to abide by strict rules as to how it does business.
more long therm than licensing
pros of franchising
1)lower cost and risk than fdi on its own
2) helps build global presence quickly
cons of franchisings
1) limits ability to coordinate strategic moves (invest profit of good places to attack bad places)
2) needs to impliment costly quality control
what are joint ventures
Cooperative undertaking between two or more firms.
50-50 ventures are most common.
pros of joint ventures
1) leverage local partner knoledge (culture, competitive condition, language)
2) shared cost and risk
3) political concideration
cons of joint ventures
-loss of technologie control (comme licensing)
-Lack of control over
subsidiaries that it might
need to realize experience
curve or location economies.
-Can lead to conflicts and
battles for control
between the investing
firms if their goals and
objectives change or if they
take different views as to what
the strategy should be.
Wholly Owned Subsidiaries
and ways to do it
Firm owns 100 % of the subsidiary.
ways to do it:
* Greenfield venture – set up a new operation in
host country.
* Acquisition – acquire an established firm in a host
nation.
pros wholly owned subsudiaries
1) Reduces the risk of
losing control over
technology.
2) Can tightly control
operations in different
countries
3) Location &
experience curve
economies
4) 100% share of profits.
cons wholly owned subsudiaries
1) Bear full cost and
risk of establishing new
market
2)Risks with conducting
business in a new
culture
3)Can be other problems
associated with
acquisitions that
outweigh the benefits. (marry different corporate culture + low succes rate of aquizition)
how to expand with high Technological Know-How.
- prefer a wholly owned subsidiary. (better control over tech)
- Licensing and joint-venture arrangements should
be avoided unless the technological advantage is
transitory.
how to expand with high Management Know-How
Less risk for franchises or joint ventures (prefer them), since valuable asset is brand name (well-protected internationally)
how to expand with high pressure for cost reduction
- The greater the pressures for cost reductions, the more
likely a firm will want to pursue some combination of
exporting and wholly owned subsidiaries. - Manufacture where factor conditions are optimal
and then use the place as a bench to export to other
location. - Wholly owned marketing subsidiaries give firm tight
control that might be required for coordinating a globally
dispersed value chain. (leverage location / experience economies) - Also gives firm ability to use profits generated in one
market to improve its competitive position in another
market.
pros of acquisition
- Quick to execute.
- May help preempt competitors.
- May be less risky than greenfield ventures
cons of aquisition
Acquisitions often produce disappointing
results:
high rate of faillure
why do aquisition fail
- Overpaying for the assets of the acquired firm.
- Hubris hypothesis of why acquisitions fail.
- Acquirer overestimates its ability to create value from
an acquisition. - Culture clash.
- Integrating the operations of the acquired &
acquiring entities often run into roadblocks and
take much longer than forecast. - Inadequate pre-acquisition screening (bad analysis)
Pros & cons greenfield venture
Greenfield Venture: Establish operations in new country/market
Pros: More control over how you want to build your operations, possible unpleasant surprise, if management know-how is the core competency (McDonald) greenfield/ joint-venture/ franchises or if there is no incumbent in market to be acquired
Cons: Slower than acquisition, you have all the risk & costs
Strategic Alliance Pros & Cons
Agreement between competitors to collaborate
Pros: Facilitates entry to foreign market, shared fixed-costs, synergy by combining complementary skills from both company
Cons: May give the other firm a low-cost route to your technology & market know-how on the long-term for short-term profit for your firm, bigger picture US is losing its competitive advantage through alliance to Japan because Japan acquires technological know-how through strategic alliances in semiconductor industry
3 key-factors for partner selection in strategic alliances,
alliance structure components and management of the alliance.
1- Good Partners: Has capabilities ur firm lacks, won’t exploit you & shares the same vision as u for the alliance
2- Alliance Structure: You need to incorporate contractual safeguards against opportunism by partner, solution: cross-licensing (all parties grant permission to intellectual property so they both have leverage)
3-Management of the alliance: Build interpersonal relationship between companies to build trust, leading to greater informal network between the firm and more information sharing
