chapter 16- entering developed and emerging markets Flashcards
3 basic decisions firms must make when they decide on foreign expansion
1.) which markets to enter
2.) when to enter them and on what scale
3.) which entry mode to use
- exporting
- licensing or franchising to a company
in the host nation
- establishing a joint venture with a
local company
- establishing aa new wholly owned
subsidiary
- acquiring an established enterprise
identify the factors that influence a firm’s choice of entrance
- transport costs
- trade barriers
- political risks
- economic risks
- costs
- firm strategy
the optimal mode varies by situation- what makes sense for one company might not make sense for another
WHICH foreign markets to enter
- favorable markets
- less desirable markets
markets are attractive when products are NOT widely available, and they satisfy UNMET needs
favorable markets (what we consider when determining market)
- are politically stable
- have free market systems
- have relatively low inflation rates
- have low private sector debt
less desirable markets
- are politically unstable
- have mixed or command economies
- have relatively high inflation rates
- have excessive levels of borrowing
WHEN a should a firm enter a foreign market
(timing of entry)
- enter early before other firms (first mover advantage)- control resources
- enter late when the market has been established- example Xbox
first mover advantage
if we can see industry can only have one or two primary manufacturers
for example: aerospace
WHEN- first mover ADVANTAGES
-preempt rivals by establishing a strong brand
- build sales exploiting the experience curve in front of rivals- gaining a cost advantage
- create switching costs that tie customers to products and services making it difficult for later entrants
WHEN-first mover DISADVANTAGES
- pioneering costs: costs than an early entrant has to bear that a later entrant can avoid
- considerable time, effort, and expense to learn the rule of the game
- ignorance of foreign markets leads to mistakes- cost of educating consumers
WHEN/what scale?
either:
go big or go home- firms that enter a market on a significant scale make a strategic commitment to the market
- the decision has a long term impact and is difficult to reverse
OR
small and steady- small scale entry has the advantage of allowing a firm to learn about a foreign market while simultaneously limiting the firms exposure to that market
HOW- firms enter foreign markets
1.) exporting
2.) turnkey projects
3.) licensing
4.) franchising
5.) joint ventures
6.) wholly owned subsidiaries
HOW- exporting advantages
(this is the easiest and most common entry into foreign markets)
- avoids the cost of establishing local manufacturing operations
- helps firm achieve experience curve and location economies
exporting disadvantages
- may be lower cost manufacturing
- high transportation costs and tariffs- uneconomical
- agents in a foreign country may not act in exporters best interest
HOW- turnkey projects
in country contractor handles every detail of the project for a foreign client- at the end handed a key to the plant- exporting process technology (chemical petroleum refining)
aka turn key over
HOW- turnkey arrangement advantages
- way of earning economic returns from the knowledge required to assemble and run a technologically complex process
- less risky than conventional FDI (foreign direct investment)
