Entering Developed & Emerging Markets (Chapter 13) Flashcards
Pioneering Costs
cost of promoting and establishing a product offering
Strategic Commitment
has a long-term impact and is difficult to reverse
6 Modes of Entry into a Foreign Market
exporting, turnkey project, licensing, franchising, joint venture with host-country firm, creating wholly owned subsidiary in host-country
Which 2 modes of entry become optimal as pressures to cut costs increase?
wholly-owned subsidiaries & exporting
Pros of Acquisitions
quick to execute, can preempt their competitors, less risky than Greenfield ventures
Why acquisitions fail
firms often overpay; there is often a clash of culture between the acquired and acquiring firms; attempts to integrate operations take longer than forecasted
Timing of entry
when a firm enters a market relative to its competitors (early or late)
Turnkey Project
client agrees to handle all every detail of the project for a foreign client; most common in chemical, pharmaceutical, and metal industries
Franchising
a type of licensing where the franchisee also must abide by strict rules as to how it does business
Advantages of Exporting
ability to realize location and experience curve economies; increased speed and flexibility of engaging target markets
Disadvantages of Exporting
high transportation costs, trade barriers, problems with local marketing agents
Advantages of Turnkey Contracts
ability to earn returns from process technology skills in countries where FDI is restricted
Disadvantages of Turnkey Contracts
creation of efficient competitors, lack of long-term market presence
Advantages of Licensing
low development costs and risks, moderate involvement and commitment
Disadvantages of Licensing
lack of control over technology; inability to realize location and experience curve economies; inability to engage in global strategic coordination
Advantages of Franchising
low development costs and risks; possible circumvention of import Barries; strong sales potential
Disadvantages of Franchising
lack of control over quality; inability to engage in global strategic coordination
Advantages of Joint Ventures
access to local partner’s knowledge; shared development costs and risks; politically acceptable; typically no ownership restrictions
Disadvantages of Joint Ventures
lack of control over technology; inability to engage in global strategic coordination; inability to realize location and experience economies
Advantages of Wholly Owned Subsidiaries
protection of technology; ability to engage in global strategic coordination; ability to realize location and experience economies
Disadvantages of Wholly Owned Subsidiaries
high costs and risks; need for more human/non-human resources and interaction/integration with local employees
