foreign market entry modes and fdi Flashcards
What are foreign market entry modes
Zhang 2024- the methods of which a firm expands internationally includes WOS, JV and franchise
What is Wholly Owned Subsidiary
Hill 2022- a firm establishing a fully owned operation in a foreign market by taking over an existing company. gaining 100% ownership and control over foreign branch
Adv of Wholly Owned Subsidiary
Buckley and Casson 2009- full ownership and control - uniformity of corp culture and retain all profits
Zhang 2024- location economies and experience curve
Zhang 2024- protects technology- comp adv - competitors hard to compete
Disadv of Wholly Owned Subsidiary
Hill 2022- high initial costs and risks - R&D
Zhang 2024- requirement of interaction and integration of local employees- diff language, culture and more
What is Joint Venture
Zhang 2024- partnering with an established foreign company to create a new jointly controlled entity
Adv of Joint Venture
Hill 2022- share resources, tech, knowledge and more to understand foreign preferences and make efficient operations to maximise profits
Hill 2022- partnering decreases the financial burden and risks as share costs and liabilities
Disadv of Joint Venture
Zhang 2024- the shared control can lead to conflicts of decisions which can be time consuming, expensive and decreasing efficiency
Zhang 2024- potential brand dilution or inconsistent market representation- if cultivated a unique identity- lowers brand loyalty and rep
What is a Franchise
Zhang 2024- this is a form of licensing where the franchisor provides the franchisee with intangible property and establishes the framework for conducting business such as McDonalds
ADV of Franchise
Hill 2022- relieved of many of the costs and risks of expanding as passed on- good incentive for franchisee to make profit fast- increases global presence quickly too
Zhang 2024- allows franchise to utilise possible circumvention of import barriers as they provide knowledge, branding, strategies and franchisee produce local goods avoiding tariffs as no imports. decreasing costs therefore increased profits also allows local customisation
Disadv of Franchise
Hill 2022- quality control- foundation of a firm so customers expect it- foreign franchisee may decrease quality to decrease costs. leads to decreased reputation and sales for franchise.
Zhang 2024- inability to engage in global strategy coordination - franchisee prioritises local needs causing decreased control over prices and product. inconsistencies lead to decreased brand image and loyalty
What is the FDI theory of OLI Framework
Zhang- OLI framework is a key theory of FDI that explains international activity through 3 determinants/ adv - ownership, location and internalization
Why use FDI - Ownernship
Zhang 2024- market access- establish presence in a foreign market, allowing them to serve local consumers better- increase revenue streams and market share - esp useful in emerging economies like India
Why use FDI - Location
Zhang 2024- allows firms access to protected markets. also allows them to utilise location adv such as low production costs (cheap labour), tax exemptions and availability of natural resources.
Why use FDI- internalization
Zhang 2024- firms that internalize leads to FDI- allows control ownership adv such as brand and reputation are retained, global strategies coordinated and enhanced operations globally ensuring high quality standards.
