Chapter 1 Flashcards
Internationalization (strategic int. marketing)
What is internationalization
the cross-border business activities of a company
What activities does internationalization refer to?
-import
-export
-establishing sales
-establishing production facilities
What is globalization?
-increase in international integration of national economies and cross border activities of companies
What are objectives/motives of internationalization?
1 maximize profit
-personal motivations of
management
-creation of competitive advantage: value creation: cost reduction, overall increase in value; value distribution
-utilization of competitive advantage
Reasons for engagement abroad
-sales: develop new sales markets,
establish/expand company
offices, competitive situation,
proximity to customer
-procurement: development of
procurement markets, good local
supplier situation
-production: establishment /expansion production facilities and branch for outsourcing activities
general: use of better framework conditions, additional pillar of operations during crisis, better exchange rate better R&D abroad
What are market entry strategies?
organizational paths that company chooses when offering products or services in foreign markets
What are methods of market entry strategies?
-export alliances: indirect exports, export syndicates/export consortia, direct exports
-provision of services abroad: direct investment (fully controlled foreign companies, international joint ventures), international contracts (licensing agreements, franchising, made-to-order production, management agreements)
What is the eclectic theory framework ?
Ownership advantages, Location advantages, Internationalization incentive advantages.
-framework used by companies to determine to pursue foreign direct investment
Whats questions to ask for ownership advantage?
-Do I have a strong brand name with great reputation?
-Do I have the capital resources?
-Do I have the management and organizational and technological capabilities?
-Can I achieve economies of scale?
If no, then remain domestic
What questions to ask for location advantages?
-Does the new location have availability of cheaper raw material, low cost skilled labor, lower rental & tax rates?
If no, Export from home country
What are question to ask for internationalization advantage?
-Can I avoid search and negotiation costs
-Can I protect company’s rep?
-Can I ensure product quality?
-Can I avoid problems when I draft renegotiating contracts?
If no, then consider licensing
What are disadvantages of Dunning’s eclectic theory?
- no explanation of strategic approach (doesn’t explain why companies choose different market strategies at the same time)
-theory doesn’t apply to service companies
What are forms of international market entry strategy?
-exports
-direct investment
-mergers and acquisition
-cooperations
What are exports?
- a good or service sold abroad
What are the two forms of export?
-direct export
-indirect export
When is export unsuitable?
-low level demand for product
-a company already has monopolistic market position
-company has problems raising capital
-political or legal conditions prohibit production
Advantages of export as market entry strategy?
limited knowledge of foreign market is required
Disadvantages of export as market entry strategy?
-increased capital commitment and costs (establishment of export department, foreign sales department)
-increased need for qualified personnel
-increase of foreign specific risks
What are export communities?
-voluntary associations of legally and economically independent companies interested in exporting.
-transitional stage between indirect and direct exports
What are direct investments?
-cross-border investments intended to influence business activities of existing or new company
-serve to establish and expand production facilities abroad
-take the form of joint ventures
What are fixed assets
tangibles (e.g. property, equipment)
What are two types of joint ventures?
-contractual joint venture
-equity joint venture
What are equity joint ventures?
bilateral cooperation that results from establishment of new, independent company
What are contractual joint ventures?
classified as cooperations
-there is no merger of companies. purely agreements under the law of obligations
What are mergers?
-when two companies combine economically and legally- after combination only one legal entity remains
What are mergers by absorption?
-if only one of the companies gives up legal independence
What are mergers by consolidation?
-if both companies transfer assets to newly formed company
What are acquisitions?
-when company takes over ownership rights of another company and gains control
-transfer of capital shares or assets occur
What are the different acquisitions types?
-horizontal
-vertical
-concentric
-conglomerate
What are horizontal acquisitions?
both companies are active in the same industry
-synergies are exploited through better resource allocation
What are vertical acquisitions?
-two companies have supplier-customer relationship
-depth of service is increased, transaction cost can be reduced
What are concentric acquisitions?
target company is not related to existing product range but there are technical or marketing similarities
What are conglomerate acquisitions?
two companies are operating in different industries
-when pursuing diversification strategies
What are corporate cooperations
mergers with legal and economic independence
-restrictions imposed in certain areas to achieve objectives
What are two forms of cooperations?
-contractual joint ventures
-strategic alliances
What are strategic alliances?
-based on capital-related elements or contractual cooperation elements
-can be entered as precursor to merger or acquisition or alternative to traditional acquisitions or mergers
What are reasons for strategic alliances?
-improved access to difficult markets
-improved capabilities through innovation
-financial benefits due to economies of scale or reduced costs
