Foreign Entry Strategies Flashcards
What is strategy?
Planned set of actions that managers take to make best use of the firms resources and core competencies to gain a competitive advantage
Why enter? Objectives of establishing foreign subsidiaries
Nature resource seeking
Market seeking
Efficiency seeking
Innovation seeking
Nature resource seeking advantages
Quality and costs of nature resources
Market seeking advantages
Strong market demand and customers willing to pay
Efficiency seeking advantages
Economies of scale
Abundance of low-cost labour force and suppliers
Transport and communication infrastructure
Innovation seeking advantages
Innovative individuals, firms and unis
Industry agglomeration (collection of things)
First mover advantages
Experience curve benefits
Scale benefits
Reputation
Pre-emotion of scale resources
Buyer switching costs
Late mover advantages
Free riding
Learning
Foreign market entry strategies
Exporting
Contractual agreements, strategic alliances, licensing and franchising
Joint ventures and mergers and acquisition
Wholly owned subsidiary- FDI
How to enter non-equity modes
Exporting
Licensing
Strategic alliances
- technological
- marketing
How to enter- equity modes
Mergers and acquisitions
Joint venture
- scale
- link
Wholly owned subsidiaries
Purpose of mergers and acquisition
Acquiring another business can fulfil several of a company’s needs
65/70% fail to deliver anticipated results
Finding an appropriate acquisition candidate
The integration responsiveness framework
Global integration
Local responsiveness
Global integration STANDARDISATION refers to
Coordination of firms activities across countries to achieve worldwide efficiency and synergy in order to take maximum advantage of similarities across countries
Emphasises efficiency/economies of scale
Local responsiveness/adaptation refers to
Meeting specific needs of buyers in individual countries
Learning/differentiation
How to organise your operation?
Standardisation/global strategy
Adaptation/multidomestic strategy
Glo-Cal/transnational strategy
Home replication strategy
Standardisation (global) strategy
Take a product and transfer it
Start from a single case e.g flagship store and scale up
Standardise best practices and maximise efficiency
Why not make same product same way everywhere
Management emphasises central control and coordination to achieve max synergy, efficiency and integration
View world as one large market
Advantages of standardisation strategy
Allows companies to liberate low cost advantage and achieve economies of scale
E.g McDonald’s
Disadvantage of standardisation strategy
Low level of local responsiveness
Only works for very simple or complicated products
Adaptation (Multidomestic) strategy
Need to understand customers need
Make them understand why product is important for them
Approach to internationalisation where high culture ensure autonomy towards each area allowing them to operate independently to pursue local responsiveness
E.g Nestle, often considered a local firm in each of its markets, varies the taste of coffee in different areas
Advantage of adaptation/multi-domestic strategy
Maximum local responsiveness
Disadvantage of adaptation/multi-domestic strategy
Cost of duplicating companies efforts to pursue local responsiveness
Glocal (transnational) strategy
Think globally act locally
Identify best practices and transfer them
Centralise core functions and decentralise others
Strives to be responsive to local needs while retaining sufficient control to ensure efficiency
E.g Starbucks chai latte
Lenovo locate HQ China US, manufacturing low cost countries for economies of scale, basic computers are the same but software and keyboard adapted to accommodate differences in language
Advantages of Glocal strategy
Has the benefits of global and multi-domestic strategy
Both global integration and local responsiveness
Disadvantages of Glocal strategy
Difficulty to balance integration and local responsiveness
Only works when the company does local exploration and creates local knowledge transfer mechanisms to capture learning
Local unions have to be listened to
Most find it difficult to implement
Home replication strategy
Views international business as separate/secondary to its domestic business
Emphasises international replication of home country based core competencies
Opportunity to generate additional sales for domestic product lines
Design with domestic market in mind but pursue international business to extend product life cycle and replicate home market success
E.g Walmart American footballs in Brazil
Advantages of home replication strategy
Relatively easy to use and implement
Allows companies to leverage home country based advantage
Disadvantages of home replication strategy
Little local responsiveness
Failing to be mindful of local customers need and wants
Foreign customers alienation
Global indusry
Industry in which competition is on a regional or worldwide scale
Multi-domestic industry
An industry in which competition takes place on a country by country basis
Global industry have same competitors
Multi-domestic cater to specific needs of local buyers, usually adapt product according to local characteristics of each market
Each country has a unique set of competitors.
Institutional constraints on foreign entry strategies
Prohibit certain types of operations or transactions
Create a need for local knowledge
Change the relative costs of alternative strategies
Motivate tariff jumping
Firm response to prohibiting certain types of operations or transactions
Establish joint ventures where wholly owned subsidiaries are not permitted
Locate where planning permissions are easier to obtain
Firm response to need for local knowledge
Establish joint ventures to access local knowledge
Locate in places that have agglomerations of foreign investors that help attain local knowledge
Firms response to high transaction costs due to costly contact enforcement or lack of financial intermediaries
Avoid complex arms length contracts with unfamiliar partners
Avoid joint ventures
Avoid full or partial acquisitions of local firms
Locate in areas where local uncertainty is lower
Firms response to higher tariffs or other trade barriers
Locate production in the target market
