Entry into foreign markets

Question 1

what are the four motives for internationalisation?

Answer 1

1. push factors (from home market) = escape (explore better positions elsewhere to avoid home’s conditions)
2. pull factors (from host markets) = buy better (exploit host’s capabilities to avoid home’s high costs)
3. chance factors (in host markets) = upgrade (explore host’s capabilities to upgrade home’s operations)
4. entrepreneurial factors (from the company itself) = sell more (exploit current resources to obtain more revenue)

Question 2

what is the difference between the pull and chance factors?

Answer 2

pull factor relocates the business, while chance factor only brings the strategic resources back to the home country

Question 3

which has been more popular in the past with emerging economies - pull or chance factor?

Answer 3

chance (get strategic resources, but stay in the home country)

Question 4

which has been more popular in the past with companies from developed economies - pull or chance factor?

Answer 4

pull (relocate the business)

Question 5

what are the 4 decisions a company has to make before entering a new market?

Answer 5

1. which market to enter
2. when to enter it
3. the scale of entry (geographical)
4. how ot enter it

Question 6

what do companies do to decicde which market to enter? (to make a market choice) (3)

Answer 6

1. preliminary screening = macro-oriented screening of the foreign environment
2. fine-grained screening = market characteristics (combined with the firm’s capabilities)
3. marketing research = competiton and customer analysis

Question 7

with which tool is preliminary screening done? what does it do?

Answer 7

business environment risk index (BERI) = measures the quality of a country’s business environment (economic, political, financial factors)

Question 8

what matrix helps us to determine the market characteristics (and is a result of fine-grained screening)?

Answer 8

market/country attractiveness & competitive strength matrix
(adaptation of MABA matrix)
-> tells us which countries to invest in, which to do selective investments for, and which to divest from

Question 9

define the country attractiveness & competitive strength matrix

Answer 9

x axis: competitive strength, 5 on L and 1 on R

y axis: market/country attractiveness, 1 on (0,0) and 5 on top

Question 10

state 3 (example) components of market attractivess

Answer 10

competitive conditions, average industry margin, market size and potential

Question 11

state 3 (example) components of competitive strength

Answer 11

market share (potential), marketing capabilites, access to distribution channels

Question 12

what are the options for companies on HOW to enter a foreign market (3 modes of entry, 3/4/3 options for each)?

Answer 12

1. export modes
   - indirect export
   - direct export
   - cooperative export
2. intermediate modes
   - franchising
   - licensing
   - strategic alliances
   - joint ventures
3. hierarchial/investmend modes
   - assembly operations
   - acquisition
   - wholly-owned subsidiary

Question 13

which of the 3 modes of entry is resource commited the highest?

Answer 13

hierarchial/investment mode(s - the three options of this one)

Question 14

which of the 3 modes of entry is the most flexible?

Answer 14

export mode

Question 15

what are the decision factors when a company is deciding how to enter a foreign market?

Answer 15

• internal factors (firm size, experience, type of product)
• external factors (country risk, trade barriers, competition intesity)
• transaction factors (costs, type of know-how)
• desired mode characteristics (risk avoidance, flexibility, control)

Question 16

which of the 3 modes of entry has the most control?

Answer 16

hierarchial/investment mode

Question 17

how do companies decide WHEN to enter a foreign market?

Answer 17

it depends on the barriers in the process of internationalisation (country risks, financial risks, and business risks)

Question 18

should all companies even internationalise? how do they decide if they should?

Answer 18

not all should. they need to consider two factors: how globalised their industry is, and to what extent their company is prepared for the internationalisation

Question 19

describe the decision of internationalisation matrix

Answer 19

in the ppt!

Question 20

do first-movers always have advantages?

Answer 20

not really. it depends on the characteristics of the BE: pace of market evolution and pace of technological evoulution

Question 21

how likely is the first-mover advantage in these scenarios:

• slow tech evolution, slow market evolution
• fast tech evolution, slow market evolution
• slow tech evolution, fast market evolution
• fast tech and market evolution

Answer 21

• very likely
• unlikely
• likely if the firm has the resources to address all market segments
• very unlikely

Question 22

what are advantages of exporting? (4)

Answer 22

1. minimizes risk
2. minimises investment
3. high speed of entry
4. maximises economies of scale

Question 23

what are the 5 disadvantages of exporting?

Answer 23

1. trade barriers
2. transport costs
3. lack of control (depending on distributers)
4. limited access to local info
5. outsider status

Question 24

def indirect export

Answer 24

supplier gives product to intermediary which exports it

Question 25

def direct export

Answer 25

supplier exports the product to an independent intermediary who then sells it

Question 26

dewf cooperative export

Answer 26

more suppliers get together, export the goods to an independent intermediary who then sells it

Question 27

3 advantages of licensing & franchising

Answer 27

• minimizes risk
• minimizes investment
• licensee/franchisee provides knowledge of local market

Question 28

4 disadvantages of licensing & franchising

Answer 28

• lack of control
• knowledge spillover
  (- limited time period) -> only for licensing
• licensee may become competitor

Question 29

5 advantages of joint ventures

Answer 29

• ownership
• combined resources
• less investment required
• learning opportunity
• insider status

Question 30

5 disadvantages of joint ventures

Answer 30

• difficult to manage
• dillution of control
• more risky
• knowledge spillover
• partner may become a competitor

Question 31

5 advantages of wholly owned subsidiary

Answer 31

• full ownership
• control
• minimizes knowledge spillover
• insider status
• ability to engage in global strategic coordination

Question 32

2 disadvantages of wholly owned subsidiary

Answer 32

• requires more resources and commitment

- more risky