Entering Foreign Markets

Question 1

What are the basic entry decisions for foreign markets?

Answer 1

1) Which Foreign Markets: Assessing country attractiveness through external (Opportunities and Threats – PESTL) and internal factors (Strengths and Weaknesses).
2) Timing: Early versus Late entry into the foreign market.
3) Which Entry mode: Exporting, Licensing or Franchising, Joint Venture, Establishing a Subsidiary, Acquisition.

Question 2

What is First Mover Advantage?

Answer 2

First mover advantage refers to the advantages from being the first in the market, including establishing a strong brand name, building sales volume for cost advantages, and creating switching costs for customers.

Question 3

What are the disadvantages of First Mover Advantage?

Answer 3

Disadvantages include pioneering costs, which involve the time, effort, and expense of being the first in a new market, and the costs of promoting and establishing a new product offering.

Question 4

What is a strategic commitment in market entry?

Answer 4

A strategic commitment has a long-term impact and is difficult to reverse. Large-scale market entry can influence competition, while small-scale entry allows learning with limited exposure.

Question 5

What are the foreign market entry modes?

Answer 5

1) Exporting
2) Turnkey Projects
3) Licensing
4) Franchising
5) Joint Ventures
6) Subsidiary: Greenfield and Acquisition.

Question 6

What are the advantages of Exporting?

Answer 6

Advantages include low cost and risk to enter the market and maintaining a centralized production facility for economies of scale.

Question 7

What are the disadvantages of Exporting?

Answer 7

Disadvantages include transportation costs, tariff barriers, and reliance on third parties for marketing and sales.

Question 8

What are Turnkey Projects?

Answer 8

Turnkey Projects involve a foreign company handling all aspects of design, construction, and start-up of a production facility, common in complex industries.

Question 9

What are the advantages of Turnkey Projects?

Answer 9

Advantages include being a practical way to address FDI regulations and being less risky.

Question 10

What are the disadvantages of Turnkey Projects?

Answer 10

Disadvantages include no long-term interest in the country and the potential to provide technology to competitors.

Question 11

What is Licensing?

Answer 11

Licensing is an arrangement where the licensor grants rights to intangible property to the licensee for a royalty fee.

Question 12

What are the advantages of Licensing for the Licensor?

Answer 12

Advantages include avoiding development costs and risks, meeting FDI requirements, leveraging brand equity, and applying technological processes.

Question 13

What are the disadvantages of Licensing for the Licensor?

Answer 13

Disadvantages include potential loss of control over quality and marketing, and loss of proprietary technologies.

Question 14

What is Franchising?

Answer 14

Franchising involves the franchisor selling rights to the trademark and marketing systems to the franchisee for a fee and a royalty based on sales revenue.

Question 15

What are the advantages of Franchising for the Franchisor?

Answer 15

Advantages include fast expansion, capital from franchisee fees, limited investment risk, and operational advantages.

Question 16

What are the disadvantages of Franchising for the Franchisor?

Answer 16

Disadvantages include less control over quality, sharing profits with franchisees, and accountability to franchisees.

Question 17

What are Joint Ventures?

Answer 17

Joint Ventures involve establishing a firm that is jointly owned by two or more independent firms.

Question 18

What are the advantages of Joint Ventures?

Answer 18

Advantages include local partner knowledge, lowered investment risk, and meeting FDI requirements.

Question 19

What are the disadvantages of Joint Ventures?

Answer 19

Disadvantages include less autonomy in decision making and potential conflicts with joint venture partners.

Question 20

What are Wholly Owned Subsidiaries?

Answer 20

Wholly Owned Subsidiaries can be established through acquisitions or greenfield investments.

Question 21

What are the advantages of Acquisitions?

Answer 21

Acquisitions are attractive because they are quick to execute, enable firms to preempt competitors, and may be less risky than greenfield ventures.

Question 22

What can cause Acquisitions to fail?

Answer 22

Acquisitions can fail due to overpayment, cultural clashes, slow achievement of synergies, and inadequate pre-acquisition screening.

Question 23

What is a Greenfield Investment?

Answer 23

A Greenfield investment involves setting up a new operation in a foreign market where the parent company owns 100% of the subsidiary.

Question 24

What are the advantages of Greenfield Investments?

Answer 24

Advantages include starting with a blank slate and having control over product processes and systems.

Question 25

What are the disadvantages of Greenfield Investments?

Answer 25

Disadvantages include greater risk associated with startups and slower establishment of market presence.

Question 26

When should a firm choose Acquisition over Greenfield?

Answer 26

Choose Acquisition when entering a market with established competitors or when global competitors are also interested.

Question 27

When should a firm choose Greenfield over Acquisition?

Answer 27

Choose Greenfield when there are no incumbent competitors to acquire and the firm’s competitive advantage relies on transferring embedded competencies.