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International Business > chapter 15 > Flashcards

chapter 15 Flashcards

1
Q

International firms must consider (3) before foreign expansion

A

-which foreign market to enter, when and on what scale,
-choice of entry mode
-role of strategic alliances

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2
Q

Firms decide to enter a specific nations market based on

A

the long run profit potential

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3
Q

the long run profit potential is based on

A

the size of the market
the present and future wealth of consumers
costs and risks

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4
Q

the value of an international business can create in a foreign market depends on

A

suitability of its products to that market and the nature of indigenous competition

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5
Q

What are the first mover advantages (3)

A

-Preempt rivals and capture demand by establishing a strong brand name
-Build sales volume in that country and ride down the experience curve ahead of rivals.
-Create switching costs that tie customers into their products or services.

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6
Q

What are the first mover disadvantages (5)

A

-The enterprise has to devote considerable effort, time, and expense to learning the rules of the game.
-Costs of business failure.
-pioneering costs
-Regulations that change in a way that diminishes the value of an early entrant’s investments.
-Need to educate customers about your company’s products.

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7
Q

What are pioneering costs

A

costs that an early entrant has to bear that a later entrant can avoid

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8
Q

why do firms need to consider the scale of entry

A

entering a market on a large scale involves the commitment of lots of resources

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9
Q

rapid large scale market entry has an influence on

A

the nature of competition in the market

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10
Q

there must be a balance between (2) associated with significant commitments

A

the resulting risks and lack of flexibility

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11
Q

small scale entry allows

A

a firm to learn about a foreign market while limiting the firms exposure to that market

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12
Q

Rapid large scale entry signals (3)

A

commitment to the market and to stakeholders,
boosts confidence in the brand
Others who want to enter the market may pause and reconsider.

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13
Q

what are the 6 entry modes

A
  • exporting
    turnkey projects
    licensing
    franchising
    joint ventures
    wholly owned subsidiaries
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14
Q

what is exporting

A

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

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15
Q

advantages of exporting

A

-Avoids the often-substantial costs of establishing manufacturing operations in host country.
-May help firm achieve experience curve and location economies.

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15
Q

disadvantages of exporting

A

-May not be appropriate if lower-cost locations for manufacturing the product can be found abroad.
-High transport costs
-Tariff barriers
-Local agents for marketing, sales and service may have divided loyalties.

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16
Q

what are turnkey projects

A
  • 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.
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17
Q

Advantages of Turnkey Projects

A

-Can earn great economic returns.
-Can be less risky than conventional FDI.

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18
Q

Disadvantages of Turnkey Projects

A

-Firm will have no long-term interest in the foreign country.
-Selling a technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors.

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19
Q

what is licensing

A

Licensor grants rights to intangible property to another entity, such as patents, inventions, formulas, processes, designs, copyrights, trademarks

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20
Q

advantages of licensing

A

-No development costs and risks associated with entering a foreign market.
-Used when a firm wishes to participate in a foreign market but is prohibited from doing so by barriers to investment.
-Used when a firm possesses some intangible property that might have business applications but does not want to develop those applications itself.

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21
Q

disadvantages of licensing

A

-No 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.

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22
Q

what is franchising

A

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.

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23
Q

advantages of franchising

A

-Firm experiences lower costs and risks than opening a foreign market on its own.
- Helps build a global presence quickly.

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24
Q

disadvantages of franchising

A

-May inhibit firm’s ability to take profits out of one country to support competitive attacks in another.
-Quality control.

25
Q

what is a joint venture

A

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

26
Q

advantages of joint ventures

A

-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.).

27
Q

disadvantages of joint ventures

A

-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.

28
Q

what is a wholly owned subsidiary ,

A

Firm owns 100 % of the subsidiary.

29
Q

what are the 2 types of wholly owned subsidiaries

A
  • Greenfield venture – set up a new operation in host country.
  • Acquisition – acquire an established firm in a host nation.
30
Q

advantages of wholly owned subsidiaries

A

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

31
Q

disadvantages of wholly owned subsidiaries

A

-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

32
Q

when selecting an entry mode, firms must consider

A

their core competencies and the pressures for cost reductions

33
Q

which core competencies should be considered when choosing an entry mode

A

-technological know how
-management know how

34
Q

if a firm has technological know how as their core competency then

A
  • they should avoid licensing and joint venture to minimize the risk of losing control over the tech
    -they should choose wholly owned subsidiary.
35
Q

what is the exception for technological know how as the core competency, which entry mode should be chosen

A
  • when the company perceives that there will be rapid imitation of their tech
    -they should licence their tech rapidly to gain global advantage
36
Q

is the firms core competency is their management know how then they should

A
  • choose franchises or joint ventures
37
Q

how do pressures for cost reductions effect entry mode choices

A
  • ## the greater the cost reduction pressure the more likely the firm will choose exporting and wholly owned subsidiaries.
38
Q

why would a firm with high cost reduction pressures prefer wholly owned subsidiaries over joint ventures

A

they will have tight control over creating a globally dispersed value chain.

39
Q

firms pursuing global standardization or transnational strategy will prefer to establish

A

wholly owned subsidiaries

40
Q

why would a firm with high cost reduction pressures prefer to use a exporting method

A

by manufacturing where factor conditions are optimal and then exporting they get to realize substantial location and experience curve economies.

41
Q

What is a greenfield venture

A

when a firm establishes a wholly owned subsidiary by building it from the ground up

42
Q

what is an acquisiton

A

when a firm establishes a wholly owned subsidiary by acquiring an enterprise in the target market

43
Q

what are the pros of acquisitions

A

quick to execute,
may help preempt competitiors
less risky than a greenfield venture

44
Q

cons of acquisitions

A

acquisitions produce disappointing results

45
Q

why do acquisitions fail

A

-overpaying for the assets of the acquired firm
-acquirer overestimates ability to create value from the acquisition
-there may be a culture clash which causes employees to leave cause they dont like the acquirer
- difficult to integrate the operations of the acquirer and the acquired entities
-inadequate preacquisition screening leads to not thoroughly analyzing the benefits and costs

46
Q

how to reduce the risks of failure in acquisitions

A

-detailed audit of operations, financial position and management culture to make sure the acquirer doesnt overpay, doesnt uncover any bad surprises, make sure the cultures go well together
-put the integration plan quickly into place

47
Q

what is the hubris hypothesis

A

hypothesis that postulates that top managers typically overestimate their ability to create value from an acquisition

48
Q

what are the pros of a greenfield venture

A

give the firm a much greater ability to build the exact type of subsidiary it wants
-easier to establish a set of operating routines in a new subsidiary than it is to change the routines of an existing one
-

49
Q

what are the cons of a greenfield venture

A

-slower to establish than an acquisition
risky but less risky than an acquisition
-can be preempted by a more aggressive competitor through an acquisition

50
Q

when should a firm choose an acquisition

A

The firm is seeking to enter a market where there are already well-established incumbent (necessary) enterprises.
* Global competitors are also interested in establishing a presence (beat them too it through a quick acquisition )

51
Q

when should a firm choose a greenfield venture

A

  • The competitive advantage of the firm is based on the transfer of organizationally embedded competencies, skills, routines, and culture
52
Q

What are strategic alliances

A

refer to cooperative agreements between potential or actual competitors

53
Q

strategic alliances include

A

Cross-shareholding deals.
* Licensing arrangements.
* Formal joint ventures.
* Informal cooperative arrangements.

54
Q

what are the advantages of strategic alliances

A

-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.

55
Q

disadvantages of strategic alliances

A
  • 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
56
Q

to make a strategic alliance work, you must

A

choose a good partner

57
Q

a good partner for a strategic alliance has

A

-capabilities that the firm lacks
-wants to help the firm achieve its strategic goals
- not going to exploit you

58
Q

what should the alliance structure be like

A
  • reduce the risk of going too much to the partner
    -have contractual safeguards
    -agree in advance to swag skills and tech to ensure equitable gain
    -have cross licensing agreements
    -have a credible commitment from the partner
59
Q

what is a cross license agreement

A

“Patent pools” are legal contracts that are used for intellectual property in which both companies are granted rights to the intellectual property.

60
Q
A

International Business (7 decks)

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