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International Market Development and Trade > Entry Modes > Flashcards

Entry Modes Flashcards

1
Q

What are the motives for internationalising?

A
  • Seeking new markets
  • Seeking new resources and capabilities
  • Exploiting differences (arbitrage)
  • Efficiency seeking
  • Learning new competencies
  • Imitate competitors
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2
Q

Why might an MNC be seeking a new market?

A
  • Large customer base
  • Enter a different market
  • Follow a customer
  • Follow globalised customers
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3
Q

How might an MNC exploit differences (arbitrage)?

A

Differences in factors of production of different countries e.g Silicon Valley - spill overs and sharing of knowledge, take advantage of different resources

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4
Q

What is an example of an MNC learning new competencies?

A

Starbucks has established a presence in China through a strategic partnership with Alibaba enabling voice ordering and fast delivery of coffee

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5
Q

What is FDI and what are the FDI entry modes?

A

When a firm invests in foreign assets with the objective of taking full/partial control over them

  • M&As
  • Greenfield investments
  • Joint ventures
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6
Q

What are examples of non FDI entry modes?

A

Exporting and contractual entry modes

  • Turnkey contracts
  • Licensing
  • Franchising
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7
Q

What is a turnkey contract?

A

Contractor handles every detail of the project for the foreign client and hands over the operation to the client at the project end

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8
Q

What is licensing?

A

A licensor grants the rights to intangible property to the licensee for the specified time period, which enables the licensee to make/sell in the host country, a similar product to that of the licensor. Licensor gets royalty fee.

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9
Q

What is franchising?

A

Franchisor not only sells intangible property to the franchisee, but also insists that the franchisee agrees to abide by strict rules as to how to do business

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10
Q

What are strategic alliances?

A

Cooperative agreements between firms.
- Joint ventures: a firm that is jointly owned by two or more independent firms e.g Google and NASA - google earth
- A new entity where two companies shave equal staked in the company
E.g Tesco and Carrefour
E.g Spotify and Uber

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11
Q

What is a wholly-owned entry mode via Greenfield investment?

A
  • Creating an activity in a country from scratch

- Full ownership of the investment

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12
Q

What is a wholly-owned entry mode via mergers or acquisitions?

A
  • Acquisition - one firm takes ownership of existing firms

- Merger - two firms are consolidated as one firm

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13
Q

How do the entry modes relate to resource commitment and control?

A

Wholly owned subsidiary and Joint venture = high resource and high control (high risk)

Franchising and exporting and licensing low resource and low control (low risk)

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14
Q

What is Dunning’s eclectic paradigm - OLI?

A

Ownership, location and internationalisation framework - 3 tiered evaluation framework that companies can follow when attempting to determine if it is beneficial to pursue a foreign direct investment

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15
Q

What are the ownership advantages from Dunning’s eclectic paradigm - OLI?advantages from

A

Branding, copyright, trademark or patent rights and the use of management of internally available skills. Intangible factors that provide competitive advantage.

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16
Q

What are the location advantages from Dunning’s eclectic paradigm - OLI?

A

Availability and cost of resources when functioning in one location compared to another. Can refer to natural or created resources, generally immobile, require a a partnership or foreign investor in that location to be utilized to full advantage

17
Q

What are the internationalisation advantages from Dunning’s eclectic paradigm - OLI?

A

Whether it is better to produce a product in house vs contracting to a 3rd party. Outsourcing is only good when they can do the job at a lower cost. Although, benefits of local knowledge from local producers.

18
Q

What are the advantages of mergers and acquisitions?

A
  • Geographically diversified
  • Faster to merge
  • Faster to acquire EOS
  • Can make decisions faster once you are in control
19
Q

What are the disadvantages of Mergers and Acquisitions?

A
  • Price involved buying another company
  • Potential diseconomies of scale: hard to communicate across such a vast organisation
  • Cultural clash between two companies: difficult to merge
  • May be limited synergistic benefits
20
Q

What are the advantages of Greenfield sites?

A
  • Creates jobs in host country: potential for subsidies and grants
  • Full control over price setting and strategy
  • No restrictions: ability to innovate
  • Focus on the heritage of the product and create a niche in the new market/country
21
Q

What are the disadvantages of Greenfield sites?

A
  • Very risky - high investment cost, may have little local knowledge
  • Subject to trade barriers: local content requirements etc
  • High fixed costs
  • Merging offers greater local knowledge and connections with contractors
  • Vulnerable to political risk: significant commitment
22
Q

What are the advantages of exporting?

A
  • Local ‘made in Germany’ creates a desire from consumers in a foreign country
  • Low commitment level but still able to significantly expand market
  • Increased production = increased scope for EOS
23
Q

What are the disadvantages of exporting?

A
  • Cost of transport
  • Barriers of trade like tariffs, export regulations, import quotas
  • Can lose focus on home market and existing customers
24
Q

What are the advantages of licensing?

A
  • Reduce cost of shipping or transport, minimal investment from the perspective of licensor because the costs go onto the licensee
  • Licensing is only for a specific period so it is contractual relationship, you can terminate the contract if you are unhappy with the deal
25
Q

What are the disadvantages of licensing?

A
  • Giving the name of your brand to a third party and there are risks that they could ruin the brand name
  • Risk of theft - smaller players do not have full control so the third player could steal the intellectual property and not have much control over it
26
Q

What are the advantages of joint ventures?

A
  • Risk reduction as you have information on abiding by government as you share the investment
  • Shared risk
27
Q

What are the disadvantages of joint ventures?

A
  • Risk of partner stealing ideas, greater risk than licensing as the sharer can set up own company
  • May be cultural clashes as there is shared control
  • JV partners do not always see the same future, can divorce unless there is a legal obligation to remain
28
Q

What are the three factors that affect the choice of international entry mode?

A
  • Strategic variables: extent of national differences, extent of EOS, global concentration
  • Environmental variables: country risk, location familiarity, demand conditions, volatility of competition
  • Transaction variables: firm-specific know-how, tacit nature of know-how
29
Q

How do the strategic variables favour low/high control entry modes?

A

Localisation favours low control - adapting to local market

Standardisation favours high control to get EOS and control of supply chains

Global strategic coordination favours high control to react quickly to the market

30
Q

Which environmental variables favour low resource commitment entry modes?

A
  • High country risk - can leave if need to
  • Greater perceived distance - culturally , more unfamiliarity
  • Uncertain demand - adjust resources to demand
  • Volatile competition - respond when it is more stable
31
Q

How do transaction specific variables favour low/high control entry modes?

A
  • High control when revenue is due to MNC’s know how

- Tacit component of know-how = high control

32
Q

How does Uppsala recommend firms should enter?

A
  • Start with small scale investments in geographically similar countries
  • Increase scale as you gain familiarity
  • Learn how to manage risk internationally
  • Start with low resource entry mode and invest more as you gain more skills
    E.G IKEA
33
Q

How does Born Global/The Rapid Internationalisation Process recommend firms should enter?

A
  • Use entry modes in multiple environments
  • Use the internet to internationalise quickly and learn
  • Simultaneous expansion to multiple countries
  • Uber
34
Q

How do firms decide on the timing of entry?

A

Benefit of capturing customer base as a first mover.

Late movers find it harder to establish valuable relationships and EOS but benefit from hindsight.

International Market Development and Trade (8 decks)

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