chapter 15

Question 1

what are strategic alliances

Answer 1

Cooperative agreements between potential or actual competitors.

Question 2

the attractiveness of a country as a poentjail market depends on what

Answer 2

• on balance the benefits, costs and risks associated with doing business in that country
• size of the market, size of customers
• want a politically stable area
• offering dif products for good value

Question 3

once attractive markets have been indeitified, what should be considered

Answer 3

timing of entry

Question 4

what is timing of entry

Answer 4

Entry is early when a firm enters a foreign market before other foreign firms and late when a firm enters after other international businesses have established themselves.
when a firm should enter the market

Question 5

what are first mover advantages

Answer 5

Advantages accruing to the first to enter a market

Question 6

what are examples of first mover advantages

Answer 6

the ability to preempt rivals and capture demand by establishing a strong brand name and customer satisfaction
the ability to build sales volume in that country –> cost advantage
able to switch costs that tie customers into their prodicts and services (The ability to establish switching costs means a company can make it more difficult or inconvenient for customers to switch to a competitor’s products or services.)

Question 7

what are first mover disadvanates

Answer 7

Disadvantages associated with entering a foreign market before other international businesses
- give rise to pioneering costs

Question 8

what are pioneering costs

Answer 8

Costs an early entrant bears that later entrants avoid, such as the time and effort in learning the rules, failure due to ignorance, and the liability of being a foreigner.
refer to the expenses associated with introducing a new product, service, or technology to the market.

Question 9

what do pioneering costs include

Answer 9

the costs of business failure if the firm makes major mistakes
promoting and establishing a product offering

Question 10

what is another issue that an International business needs to consider when contemplating market entry

Answer 10

the scale of entry as it involves the commitment of a lot of resources and rapidity

Question 11

scale of entry and strategic commitments

Answer 11

A strategic commitment has a long-term impact and is difficult to reverse.
Rapid large-scale market entry can have an important influence on the nature of competition in a market.
Must be balanced against the resulting risks and lack of flexibility associated with significant commitments.
neither good or bad they just change the competitive playing field

Question 12

what does small scale entry allow

Answer 12

a firm to learn about a foreign market while limiting the firms exposer to that market.
a way ti gather info about a foreign market before deciding whether to enter on a dsignifcant scale

Question 13

what are the six different modes to enter foreign markets

Answer 13

exporting, turnkey projects, licensing, franchising, estabilsihinhg joint ventures with a host country firm, setting up a new wholly owned subsidiary in the host country

Question 14

what is exporting

Answer 14

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

Question 15

what are the two advantages of exporting

Answer 15

it avoids the substantial costs of estabolsuhing manufacturing in the host country
exporting may help a firm achieve experience curve and location economies– By exporting to different markets, a company can enhance its production volume, potentially leading to cost efficiencies and economies of scale. Additionally, location economies involve producing goods or services in the most cost-effective location. Through exporting, a firm can strategically choose where to manufacture its products, taking advantage of factors such as lower production costs, access to skilled labor, or proximity to raw materials.

Question 16

disavdnatges of exporting

Answer 16

May not be appropriate if lower-cost locations for manufacturing the product can be found abroad.
High transport costs can make exporting uneconomical, particularly for bulk products.–> a way to get around this would be to manufacture bulk products regionally in areas where the product will be sold

high supply chain costs

Tariff barriers can make exporting uneconomical.–> lots of unknowns

when a firm delegates its marketing, sales and services in each country where it does business to another company –> local agents may be an issue because they may not do as good of a Job marketing the product.

the way to solve this is to set up wholly owned subsidiaries in foreign nations over marketing, sales

Question 17

what is a turnkey project

Answer 17

A project in which a firm agrees to set up an operating plant for a foreign client and hand over the “key” when the plant is fully operational.
firm handles every part of the project

Question 18

where are turnkey projects most common

Answer 18

most common in the chemical, pharmaceutical, petroleum-refining, and metal-refining industries, all of which use complex, expensive production technologies.

Question 19

advantages of turnkey projects

Answer 19

Can earn great economic returns
Can be less risky than conventional F D I.

Question 20

disadvantages of turnkey projects

Answer 20

1. Firm that enters into the deal will have no long-term interest in the foreign country.–>It builds the project, transfers it to the client, and then exits. This lack of ongoing involvement can limit the firm’s ability to benefit from long-term relationships or market developments in that country.
2. the firm that enters into a turnkey project with a foreign enterprise may inadventrinely create a comeptiitot
3. if the firms process technology is a source of compeotove advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and or actual comeptitotd

Question 21

what is a licensing agreement

Answer 21

Arrangement in which a licensor grants the rights to intangible property to a licensee for a specified period and receives a royalty fee in return

borrowing someone else intangible property

Question 22

advantages of licensing

Answer 22

No development costs and risks associated with entering a foreign market.–>When a company licenses its product or technology to another in a foreign market, the licensee takes on the responsibility of developing and introducing the product locally.

Used when a firm wishes to participate in a foreign market but is prohibited from doing so by barriers to investment.–> By licensing, the company can still tap into the foreign market without making significant capital investments or dealing with prohibitive barriers. It offers a more accessible entry point.

Used when a firm possesses some intangible property that might have business applications but does not want to develop those applications itself.

Question 23

what are disadvantages of licensing

Answer 23

Does not give a firm the tight control over manufacturing, marketing, and strategy required for realizing experience curve and location economies.
Limits a firm’s ability to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another.
Risk associated with licensing technological know-how to foreign companies.

Question 24

how can you reduce licensing risk

Answer 24

by entering into a cross-licensing agreement with a foreign firm. Under a cross-licensing agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm
and link an agreement to license know-how with the formation of a joint venture in which the licensor and licensee take important equity stakes.

Question 25

what is franchising

Answer 25

A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business.
similar to licensing but more long term

Question 26

what are advantages of franchising

Answer 26

Firm experiences lower costs and risks than opening a foreign market on its own because the franchisee assumes those costs and risks
Helps build a global presence quickly.

Question 27

what are the disadvanatages of franchising

Answer 27

May inhibit firm’s ability to take profits out of one country to support competitive attacks in another.
quality control–> maintaining consistent quality across all franchise locations can be challenging. Each franchisee operates somewhat independently, and variations in service or product quality may occur.

Question 28

what Is a way to fight the disadvantages of franchising

Answer 28

set up a subsidiary in each country in which the firm expands
will also help reduce the quality control challenge

Question 29

what is a joint venture

Answer 29

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

A joint venture is a business arrangement where two or more parties come together to collaborate and work on a specific project or business activity. Instead of forming a completely new and separate entity, the parties pool their resources, skills, and expertise to achieve a common goal.

Question 30

advantages of joint ventures

Answer 30

Local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems, and business.
shared costs and risks
Political considerations (government interference, nationalism, etc.).

Question 31

what are disadvantages of joint ventures

Answer 31

Loss of technology control.
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 32

what is a wholly owned subsidiary

Answer 32

A subsidiary in which the firm owns 100 percent of the stock.like a baby of a parent company

Question 33

what are the two ways that a wholly owned subsidiary be set up

Answer 33

firm can either set up a new operation in that country aka a Greenfield venture
it can also acquire an established firm in a host nation and use that firm to promote its products (acquisition)

Question 34

advantages of wholly owned subsidiary

Answer 34

Reduces the risk of losing control over technology.
100 percent share of profits.
Location and experience curve economies.
Can tightly control operations in different countries.

Question 35

disadvantages of wholly owned subsidiaries

Answer 35

Bear full cost and risk of establishing new market.
Risks with conducting business in a new culture.
Can be other problems associated with acquisitions that outweigh the benefits.

Question 36

how to decide which entry mode to use

Answer 36

look at technological know how’s and management know how

Question 37

technological know how’s

Answer 37

Often shared through a wholly owned subsidiary.
Licensing and joint-venture arrangements should be avoided unless the technological advantage is transitory

This means that knowledge about how to use or implement technology is frequently communicated or passed on through a fully owned subsidiary. A subsidiary is a company that is controlled by another company, which in this case, has complete ownership

’s saying that if the technological edge is likely to last for a long time, it’s better to keep full control through wholly owned subsidiaries rather than sharing it through licensing or joint ventures.

Question 38

management know how’s

Answer 38

the skills of management. dont want to lose the skills of management Less risk for franchises or joint ventures.

Question 39

the greater the pressures for cost reductions

Answer 39

more likely a firm will want ti pursue some combination of exporting and wholly owned subsidiaries

Question 40

which type if firms prefer wholly owned subsidiaries

Answer 40

firms pursuing global standardization ( it allows them complete control over operations, ensuring that standardized processes and products are implemented consistently across different regions.). or transnational strategies (Wholly owned subsidiaries provide the flexibility needed for a transnational strategy. The firm can closely manage operations, technology transfer, and knowledge sharing across different locations while still adapting to local conditions when necessary.)

Question 41

what are the pros of acquisitions

Answer 41

quick to execute –> firm can rapidly build its presence in the target foreign market
May help preempt competitors.–> important in markets cha are rapidly globalizing
May be less risky than greenfield ventures.–> when a firm makes an acquisition, it buys a set of assets that are producing a known revenue and profit stream

Question 42

cons of acquisitions

Answer 42

often produce disappointing results.

Question 43

why do acquisitions fail

Answer 43

Overpaying for assets of the acquired firm
Hubris hypothesis–> the management of the acquiring firm is too optimistic about the value that can be created via acquisitona dn will overpay
Culture clash between cultures of the acquiring and acquired firms
Integrating the operations of the acquired and acquiring entities often run into roadblocks and take much longer than forecast.–> differences in national culture and bureaucratic haggling will worsen this problem
Inadequate pre-acquisition screening.–> many firms decide to acquire other firms without abalzyong the potential benefits and costs

Question 44

how should you reduce the failures of acquisitions

Answer 44

Detailed audit of operations, financial position, and management culture.
Reduce unwanted management attrition.
Put integration plan quickly in place.

Question 45

pros of Greenfield ventures

Answer 45

gives the firm a much greater ability to build the kind of subsidiary compnamh that I wants
much easier to establish a set of operating routines in a new subsidiary than it is to convert the operating routines of an acquired unit

Question 46

cons of Greenfield ventures

Answer 46

slow to establish
risky
possibility of being preempted by a more aggressive global competitor who enters via acquisotions and builds a big market presence that limits the market potential for the Greenfield venture

Question 47

when would a firm choose an acquisition

Answer 47

if the firm is seeking to enter a market where there is already well estvaljshed incumbent enterprises or where global comeotitiros are also interested in establishing a precedes

when it wants to enter a market where strong competitors are already established or when there is global competition seeking to establish a presence. Acquiring an existing company allows the acquiring firm to quickly gain access to the market, established customer base, and expertise, rather than starting from scratch. It’s a strategic move to shortcut the time and effort required to build a presence in a competitive or globally contested industry.

Question 48

when would a firm establish a Greenfield venture

Answer 48

when a firm is considering entering a country where there are np incumbent competitors to be acquired

when it’s looking to enter a new country where there are no existing competitors to be acquired. In this scenario, instead of buying an established company, the firm chooses to build its operations from the ground up, starting with a “greenfield” or undeveloped site. This approach is taken when there are no suitable acquisition targets available, and the firm believes it’s more feasible or cost-effective to create its presence in the new market.

Question 49

what are advantages of strategic alliances

Answer 49

*May facilitate entry into a foreign market.
*Allow firms to share the fixed costs (and associated risks) of developing new products or processes.
*Brings together complementary skills and assets that neither company could easily develop on its own.
*May help the firm establish technological standards for the industry that will benefit the firm.

Question 50

what are the cons of strategic alliances

Answer 50

*May give competitors a low-cost route to new technology and markets.
*May generate short-term profits, but the result is to “hollow out” U.S. firms, leaving them with no competitive advantage in the global marketplace
can give away more than it receives

Question 51

how to make a strategic alliance work

Answer 51

select the right ally
alliance structure
manner in which the alliance is managed

Question 52

what is a good partner

Answer 52

• helps the firm achieve its strategic goals
• shares the firms vision
• won’t exploit the alliance

Question 53

to increase the probability of selecting a good partner, the firm should

Answer 53

collect as much pertinent, public available info on potential allies
gather data from infirimed third parties
get ti know the potential partner

Question 54

how can an alliance be structured

Answer 54

Reduce the risk of giving away too much to the partner.
Contractual safeguards guard against risk of opportunism by a partner.
Agree in advance to swap skills and technologies that the other covets, thereby ensuring a chance for equitable gain. (usr cross licensing agreements )
Extract a significant credible commitment from the partner in advance.

Question 55

how should the alliance be managed

Answer 55

Be sensitive to cultural differences.
Build trust.
Build relational capital.–> building interpersonal relationships between the firms managers
Learn from the alliance partner and apply the knowledge within one’s own organization.

Question 56

Political Economy and Entry Choices

Answer 56

Long-run economic benefits of market entry depend upon factors such as market size, purchasing power of consumers in that market, and likely future wealth of consumers.
May change due to changes in political, economic and legal systems.
ex: Venezuela (used to be nice, now its poor)

Question 57

how can Changes in the macro environment affect entry choices

Answer 57

the legal rules governing foreign investments, can have a profound impact upon the favored entry mode.
ex: india

Question 58

what are the two recent trends in the macro envriomennt

Answer 58

Declining trade barriers have made exporting more attractive as entry mode.
Countries have mostly become more welcoming to foreign investment and more willing to allow foreign enterprises to establish wholly owned entities in their nations.