Firm Internalization Strategies

Question 1

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

Answer 1

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

Question 2

What are factors influencing which foreign markets to enter?

Answer 2

Resources
- natural/human/tecnological

Risks
- political/economic/legal/cultural

Market size
- population
- purchasing power
- growth potential

Question 3

What are the common framework for assessing foreign markets?

Answer 3

PESTL
CAGE
Porter’s five forces

Question 4

What is the PESTL framework?

Answer 4

Political environment
Economic environment
Technological environment
Legal environment

Question 5

What is the CAGE framework

Answer 5

Cultural distance
Administrative distance
Geographic distance
Economic distance

Question 6

What are Porter’s five forces?

Answer 6

Buyers
Suppliers
Competitors
Barriers to entry
Substitutes

Question 7

What are the different entry modes/strategies?

Answer 7

Contractual entry mode
Export entry mode
Equity entry mode

Question 8

What are the foreign market entry mode criteria?

Answer 8

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

Question 9

What is the different between direct and indirect export?

Answer 9

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

Question 10

What are some indirect export modes

Answer 10

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

Question 11

What are some direct export entry modes

Answer 11

Foreign subsidiary
Foreign distributor
Foreign agent

Question 12

What are some contractual/non-equity entry modes?

Answer 12

Franchising
Licensing
Turnkey projects
Management contracts
Contract manufacturing
Strategic alliances

Question 13

What is a licensing agreement

Answer 13

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

Question 14

What are the advantages and the disadvantages of a licensing agreement

Answer 14

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

Question 15

What is a franchising agreement?

Answer 15

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

Question 16

What are the advantages and disadvantages of franchising?

Answer 16

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

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

Question 17

What is a management contract?

Answer 17

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

Question 18

What are advantages and disadvantages of management contract?

Answer 18

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

Disadvantages
-Personnel at risk
- can create competitor

Question 19

What is a turnkey project?

Answer 19

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

Question 20

What are advantages and disadvantages of a turnkey project?

Answer 20

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

Disadvantages
- politicized process
- create competitor

Question 21

What is a strategic alliance?

Answer 21

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

Question 22

What are advantages and disadvantages of strategic alliances?

Answer 22

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

Disadvantages
- can create competitor
- can lead to conflict

Question 23

What are the equity based foreign market entry modes

Answer 23

Ownership: international joint venture, wholly owned subsidiary

Newness and novelty: acquisition, green-field

Question 24

What is an international joint venture

Answer 24

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

Question 25

What are the advantages and the disadvantages of an international joint venture?

Answer 25

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

Question 26

What is a wholly owned subsidiary

Answer 26

Establishing a firm in a foreign country that is 100% owned and controlled by the parent company

Question 27

What are the advantages and disadvantages of a wholly owned subsidiary?

Answer 27

Advantages - greater control - strategic control - no sharing of profit Disadvantages - greater resource commitment - higher risk

Question 28

What is a wholly owned green-field subsidiary

Answer 28

Building a brand new foreign subsidiary from scratch

Question 29

What are the advantages and disadvantages of wholly owned green-field subsidiary

Answer 29

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

Question 30

What is a wholly owned foreign acquisition

Answer 30

Enter a foreign market by buying an existing firm

Question 31

What are the advantages and disadvantages of a wholly owned foreign acquisition

Answer 31

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

Question 32

What are some firm specific factors which can influence the foreign market entry strategy?

Answer 32

Entry motive Resources and capabilities Key success factors International experience International structure

Question 33

What are some host country factors which can influence foreign market entry strategy?

Answer 33

Market size Psychic distance Trade and investment policy Industry structure Market risks

Question 34

What are some home and global factors which can influence foreign market entry strategy?

Answer 34

Home industry structure Trade and investment policy Global industry structure

Question 35

What is the uppsala internalization process theory

Answer 35

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