Foreign Entry modes and Cultural dimensions Flashcards
How many types of foreign entry modes are there?
5
What increases with foreign entry modes?
Commitment, risk, control and potential profit
What are the types of foreign entry modes?
- Indirect Export
- Direct Export
- Licensing
- Joint Venture
- Wholly owned subsidiary (WOS)
- Indirect Export
Indirect export is through third parties like cooperatives, agents, and trading companies.
Less investment + less risk + no control over market
Done by small companies
- Direct export
Is the direct negotiation with foreign customers
Adopted by medium companies, E commerce, direct contacts with large retailers
- Licensing
extent of the use of a legally protected intellectual property (IP) between the licensor and the license
Difference between Licensor and Licensee ?
Licensor= the owner of a technology
Licensee= the party which will be entitled by the agreement to use these property rights
What is the main form of Licensing?
Franchising
The franchising system
The franchise agreement is a contract about the right to use an approved, well-established and successfully tested business format, that may include a shop design, the service
The franchising agreement
The core of the franchise agreement involves the transfer of tangible and intangible knowledge, marketing, training embedded and delivered in the business concept. Training embedded and delivered in the business concept which typically includes the rights to use trademarks, brands, store or industrial design,
- Joint Venture
foreign investors share ownership and control of the business with local investors
How to choose the JV partner?
- Overall strategic orientation
- Ability to interact with the local market
- Organisational and technological skills
- Profitability, solidity and liquidity
What is the country origin effect?
is the influence that the manufacturer country has on the positive or negative consumer judgment. Consumers tend to have a stereotype about products and countries that have been formed by experience, hearsay, and myth.
- Wholly Owned Subsidiaries (WOS)
Established for the purpose of operating directly in a foreign market is part of a complex structure organised and maintained by a multinational firm.
Ex: Production sites or assembly plants in foreign territory
Advantages of WOS
- Cost reduction
- Better image of the company in the foreign country
- greater control over investment
Disadvantage of WOS
Very high level of risk
What are the two levels of WOS?
Greenfield Strategy and Brownfield strategy
Greenfield
Establishing of a new company.
More likely in industries in which technological skills and production technology is key.
Brownfield (Acquisitions)
Acquiring an enterprise in the target market.
–> but then the investing company undertakes wholesale restructuring of, a new investments in, the acquired entity to the point where it comes to resemble a greenfield.
What are the Pros of Acquisitions?
- A firm can rapidly build its presence in the target foreign market
- Firms make acquisitions to preempt their competitors
- Less risky tan greenfield venture
Cons of acquisitions
- Acquiring firms often overplay the assets of the acquired firm.
- Clash between the cultures of acquiring and acquired firms.
What is culture according to Geert Hofstede?
“Collective programming of the mind distinguishing the members of one group or category of people”
What are the 6 cultural dimensions?
- Power distance
- Uncertainty Avoidance
- Individualism VS collectivism
- Masculinity VS Femininity –> Motivation towards achievement and success
- Long term VS Short term orientation
- Indulgence VS restraint
Power distance
Power Distance is defined as the extent to which the less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally.
