Chapitre 15

Question 1

Explain the 3 basic decisions firms must make when
they decide on foreign expansion

Answer 1

which markets to enter?
when to enter those markets?
on what scale?

(can use Decision Matrix diagram to help compare)

Question 2

on what factor do we choose which markets to enter?

Answer 2

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.

Question 3

on what factor do we choose when to enter those markets?

Answer 3

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.

Question 4

describe 3 first mover advantage

Answer 4

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)

Question 5

describe some first mover disadvantage;

Answer 5

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

Question 6

name 2 strategic scales to enter? and concequences of commiting

Answer 6

conscequences : A strategic commitment has a long-term impact and is difficult to reverse

1) rapid large scale market entry
2) small scales entry

Question 7

carracteristics of Rapid large-scale market entry

Answer 7

• 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.

Question 8

carracteristics of small-scale market entry

Answer 8

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

Question 9

Signals of Rapid Large-Scale Entry (3)

Answer 9

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.

Question 10

name all entry modes (6)

Answer 10

Exporting.
Turnkey projects.
Licensing.
Franchising.
Joint ventures.
Wholly Owned Subsidiaries

Question 11

what is exporting

Answer 11

Sale of products produced in one country to residents of another country.

Question 12

pros of exporting

Answer 12

pros;
1) avoids cost of establishing manufacturing operation in host contry
2) may help achieve experience curve + location economies

Question 13

cons of exporting

Answer 13

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)

Question 14

what is a turnkey projects

Answer 14

-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…)

Question 15

pros of turnkeys projects

Answer 15

pros;
1) potential for great economic return
2)potentialy less risky than fdi

Question 16

cons of turnkeys projects

Answer 16

cons:
1)short term profit as firm has no long term interest
2)selling competitive advantage, loose it in the long run

Question 17

what is licensing

Answer 17

Licensor grants rights to intangible property to another entity:
(patents, inventions, formulas, processes, designs, copyrights, and trademarks.)

pourcentage of sales in return

Question 18

pros of licensing

Answer 18

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

Question 19

cons of licensing

Answer 19

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

Question 20

what is franchising

Answer 20

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

Question 21

pros of franchising

Answer 21

1)lower cost and risk than fdi on its own
2) helps build global presence quickly

Question 22

cons of franchisings

Answer 22

1) limits ability to coordinate strategic moves (invest profit of good places to attack bad places)
2) needs to impliment costly quality control

Question 23

what are joint ventures

Answer 23

Cooperative undertaking between two or more firms.
50-50 ventures are most common.

Question 24

pros of joint ventures

Answer 24

1) leverage local partner knoledge (culture, competitive condition, language)
2) shared cost and risk
3) political concideration

Question 25

cons of joint ventures

Answer 25

-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.

Question 26

Wholly Owned Subsidiaries
and ways to do it

Answer 26

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.

Question 27

pros wholly owned subsudiaries

Answer 27

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.

Question 28

cons wholly owned subsudiaries

Answer 28

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)

Question 29

how to expand with high Technological Know-How.

Answer 29

• prefer a wholly owned subsidiary. (better control over tech)
• Licensing and joint-venture arrangements should
  be avoided unless the technological advantage is
  transitory.

Question 30

how to expand with high Management Know-How

Answer 30

Less risk for franchises or joint ventures (prefer them), since valuable asset is brand name (well-protected internationally)

Question 31

how to expand with high pressure for cost reduction

Answer 31

• 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.

Question 32

pros of acquisition

Answer 32

• Quick to execute.
• May help preempt competitors.
• May be less risky than greenfield ventures

Question 33

cons of aquisition

Answer 33

Acquisitions often produce disappointing
results:

high rate of faillure

Question 34

why do aquisition fail

Answer 34

• 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)

Question 35

Pros & cons greenfield venture

Answer 35

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

Question 36

Strategic Alliance Pros & Cons

Answer 36

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

Question 37

3 key-factors for partner selection in strategic alliances,
alliance structure components and management of the alliance.

Answer 37

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