Firm Internalization Strategies Flashcards

1
Q

What are different questions entreprises have to consider when entering a market?

A

Where/which
When/timing (first mover and late mover)
How/ entry mode

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2
Q

What are factors influencing which foreign markets to enter?

A

Resources
- natural/human/tecnological

Risks
- political/economic/legal/cultural

Market size
- population
- purchasing power
- growth potential

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3
Q

What are the common framework for assessing foreign markets?

A

PESTL
CAGE
Porter’s five forces

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4
Q

What is the PESTL framework?

A

Political environment
Economic environment
Technological environment
Legal environment

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5
Q

What is the CAGE framework

A

Cultural distance
Administrative distance
Geographic distance
Economic distance

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6
Q

What are Porter’s five forces?

A

Buyers
Suppliers
Competitors
Barriers to entry
Substitutes

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7
Q

What are the different entry modes/strategies?

A

Contractual entry mode
Export entry mode
Equity entry mode

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8
Q

What are the foreign market entry mode criteria?

A

Required resource commitment
- financial, capital, human

Foreign market entry risk
- investment, contractual risk

Control
- strategic control, control of operations

Returns/profits
- return on investment

Speed of entry
- slow or fast

Flexibility
- sunk cost

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9
Q

What is the different between direct and indirect export?

A

Indirect exports uses intermediaries in the home country to get into the foreign country’s customers or other intermediaries.

Direct exports do not use intermediaries in the home country

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10
Q

What are some indirect export modes

A

Cooperative/piggyback exporter
Foreign purchase agent
Export management company
Export trading company

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11
Q

What are some direct export entry modes

A

Foreign subsidiary
Foreign distributor
Foreign agent

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12
Q

What are some contractual/non-equity entry modes?

A

Franchising
Licensing
Turnkey projects
Management contracts
Contract manufacturing
Strategic alliances

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13
Q

What is a licensing agreement

A

A company (licensor) grants another firm (licensee) located in a foreign country the right to use its intangible asset (eg technology) for a specified time under stipulated terms agreed by both parties

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14
Q

What are the advantages and the disadvantages of a licensing agreement

A

Advantages
- less resource commitment
- less risks
- reduce counterfeit
- technology upgrade

Disadvantages
- restricts licensor future
- reduces global consistency
- technology know/how risk
- less control
- less profit

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15
Q

What is a franchising agreement?

A

A company provides a company located in a foreign country with an intangible asset along with management knowledge for a specified time period. Export of business model

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16
Q

What are the advantages and disadvantages of franchising?

A

Advantages
- low cost and risk
- rapid expansion
- local knowledge

Disadvantages
- cumbersome
- loss flexibility
- know how risk
- can create future competitors

17
Q

What is a management contract?

A

A firm supplie another firm with managerial expertise for a specific period of time

18
Q

What are advantages and disadvantages of management contract?

A

Advantages
- few assets risked
- clients finance projects
- develops local workforce

Disadvantages
-Personnel at risk
- can create competitor

19
Q

What is a turnkey project?

A

An international firm designs, constructs and tests a production/service (e.g BOT, BOO) facility for a client in a foreign country

20
Q

What are advantages and disadvantages of a turnkey project?

A

Advantages
- firm specialize in core competency
- nation obtains infrastructure project

Disadvantages
- politicized process
- create competitor

21
Q

What is a strategic alliance?

A

Two or more firms cooperate (but do not form a separate company) on a common project to achieve strategic goals

22
Q

What are advantages and disadvantages of strategic alliances?

A

Advantages
- share project cost
- learning from partner
- tap competitors strength
- gain channel access
- protect interest

Disadvantages
- can create competitor
- can lead to conflict

23
Q

What are the equity based foreign market entry modes

A

Ownership: international joint venture, wholly owned subsidiary

Newness and novelty: acquisition, green-field

24
Q

What is an international joint venture

A

A foreign firm created a new local firm that becomes jointly owned by two or more independent firms

25
What are the advantages and the disadvantages of an international joint venture?
Advantages - foreign market access - reduce market risk level - easier penetration of market - access to local channels - protection from political risk Disadvantages - partner conflict - loss of control - sharing of return - risk of loss of intellectual property
26
What is a wholly owned subsidiary
Establishing a firm in a foreign country that is 100% owned and controlled by the parent company
27
What are the advantages and disadvantages of a wholly owned subsidiary?
Advantages - greater control - strategic control - no sharing of profit Disadvantages - greater resource commitment - higher risk
28
What is a wholly owned green-field subsidiary
Building a brand new foreign subsidiary from scratch
29
What are the advantages and disadvantages of wholly owned green-field subsidiary
Advantages - greater control - strategic coordination - no sharing of profits - latest technology -less costly compared to acquisition - better local market adaptation - provides room to examine local market potential Disadvantages - slower than acquisition - takes time to build
30
What is a wholly owned foreign acquisition
Enter a foreign market by buying an existing firm
31
What are the advantages and disadvantages of a wholly owned foreign acquisition
Advantages - greater control - greater strategic control - no sharing of profits - fast market entry - access to established local networks Disadvantages - most expensive - highly risky - out-dated technology - compatibility with other subsidiary - synergy challenges - organizational culture conflicts
32
What are some firm specific factors which can influence the foreign market entry strategy?
Entry motive Resources and capabilities Key success factors International experience International structure
33
What are some host country factors which can influence foreign market entry strategy?
Market size Psychic distance Trade and investment policy Industry structure Market risks
34
What are some home and global factors which can influence foreign market entry strategy?
Home industry structure Trade and investment policy Global industry structure
35
What is the uppsala internalization process theory
Ability of a firm success in new foreign markets is a function of: - it’s experience in the foreign market - psychic distance between home and host countries - more experience your firm has the riskier markets it can enter