Firm Internalization Strategies Flashcards
What are different questions entreprises have to consider when entering a market?
Where/which
When/timing (first mover and late mover)
How/ entry mode
What are factors influencing which foreign markets to enter?
Resources
- natural/human/tecnological
Risks
- political/economic/legal/cultural
Market size
- population
- purchasing power
- growth potential
What are the common framework for assessing foreign markets?
PESTL
CAGE
Porter’s five forces
What is the PESTL framework?
Political environment
Economic environment
Technological environment
Legal environment
What is the CAGE framework
Cultural distance
Administrative distance
Geographic distance
Economic distance
What are Porter’s five forces?
Buyers
Suppliers
Competitors
Barriers to entry
Substitutes
What are the different entry modes/strategies?
Contractual entry mode
Export entry mode
Equity entry mode
What are the foreign market entry mode criteria?
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
What is the different between direct and indirect export?
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
What are some indirect export modes
Cooperative/piggyback exporter
Foreign purchase agent
Export management company
Export trading company
What are some direct export entry modes
Foreign subsidiary
Foreign distributor
Foreign agent
What are some contractual/non-equity entry modes?
Franchising
Licensing
Turnkey projects
Management contracts
Contract manufacturing
Strategic alliances
What is a licensing agreement
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
What are the advantages and the disadvantages of a licensing agreement
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
What is a franchising agreement?
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
What are the advantages and disadvantages of franchising?
Advantages
- low cost and risk
- rapid expansion
- local knowledge
Disadvantages
- cumbersome
- loss flexibility
- know how risk
- can create future competitors
What is a management contract?
A firm supplie another firm with managerial expertise for a specific period of time
What are advantages and disadvantages of management contract?
Advantages
- few assets risked
- clients finance projects
- develops local workforce
Disadvantages
-Personnel at risk
- can create competitor
What is a turnkey project?
An international firm designs, constructs and tests a production/service (e.g BOT, BOO) facility for a client in a foreign country
What are advantages and disadvantages of a turnkey project?
Advantages
- firm specialize in core competency
- nation obtains infrastructure project
Disadvantages
- politicized process
- create competitor
What is a strategic alliance?
Two or more firms cooperate (but do not form a separate company) on a common project to achieve strategic goals
What are advantages and disadvantages of strategic alliances?
Advantages
- share project cost
- learning from partner
- tap competitors strength
- gain channel access
- protect interest
Disadvantages
- can create competitor
- can lead to conflict
What are the equity based foreign market entry modes
Ownership: international joint venture, wholly owned subsidiary
Newness and novelty: acquisition, green-field
What is an international joint venture
A foreign firm created a new local firm that becomes jointly owned by two or more independent firms
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
What is a wholly owned subsidiary
Establishing a firm in a foreign country that is 100% owned and controlled by the parent company
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
What is a wholly owned green-field subsidiary
Building a brand new foreign subsidiary from scratch
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
What is a wholly owned foreign acquisition
Enter a foreign market by buying an existing firm
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
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
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
What are some home and global factors which can influence foreign market entry strategy?
Home industry structure
Trade and investment policy
Global industry structure
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
