Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

MGCR 382 > Lecture 2b: Modes of Entry and Internalization > Flashcards

Lecture 2b: Modes of Entry and Internalization Flashcards

1
Q

What is the Pre-WW2 pattern of internalization?

A

firms involved in multi-stage production processes faced uncertainty on quantity and price of commodity inputs so internalized ownership of value chain:
vertical integration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the Post-WW2 pattern of internalization?

A

firms with brands, marketing skills as intellectual property (IP) faced buyer uncertainty and risk of IP leaks if licensing, hence internalized application of brand and marketing know-how across multiple products leading to international business based on diversification and product/service scope

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the Post-2000 pattern of internalization?

A

– firms with network platforms and network effects facing buyer
uncertainty, uncertain revenue streams and risk of IP leaks internalize ownership &
application of network platform across multiple markets: Facebook, Uber

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what are the two theories of the internationalization process?

A

learning/stages model vs. born global

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

describe the “learning model” or stages theory of internationalization?

A

Johanson & Vahne, 1977, 1990

  • gradual experiential learning or developing capabilities
    1. Initially no regular exports
    2. Exports via third parties (agents or distributors)
    3. Establishment of own foreign sales affiliates (bricks & mortar on sales side)
    4. Establishment of foreign production facilities
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Describe the born global idea of internationalization

A

McKinsey & Co., 1993; McDougall, Shane, Oviatt 1994; Madsen & Servais 1997
**why/how do some new ventures leapfrog
traditional stages and quickly become international?

  • Entrepreneurial vision
  • Mobile knowledge-intensive resources
  • Network platform (Facebook, Spotify, SoundCloud)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How do small and medium size firms acquire/learn capabilities for internationalization?

A 
• Learn capabilities through following
– Domestic trade association (social capital and domestic cluster in Chile agricultural processing) (Perez-Aleman, 2005)
– Regional trade association before going international (Toulan & Guillen 1996)
– Affiliation with multinational firm as part of international supply chain (Sobrero & Toulan 2000)
• Indirect internationalization (indirect exporting): Sell
components to larger local firm which is international, thereby becoming part of international supply chain and learning global
quality standards (Toulan & Guillen 1997)
• Local firms become the vehicle for multinational corporations trying to market to the “bottom of the pyramid” (Prahalad & Hart 2002)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the non-equity entry modes? (7)

A
  • Exporting
  • Licensing
  • Franchising
  • Contract manufacturing (outbound)
  • Management contract
  • Turnkey operation
  • Strategic alliances (sometimes lead to acquisition)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the equity entry modes?

A

• Equity alliance (minority stake in alliance partner)
• Joint ventures
• Mergers (not covered as entry mode in textbook)*
• Wholly-owned subsidiaries (FDI)
– Acquisition vs. Greenfield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the decision factors for modes of entry?

A 
• ownership advantages
• location advantages
• internationalization advantages
• other factors
1. need for control
2. resource availability
3. global strategy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Choice among entry modes: If firm has low experience & or low resources, then choose

A 
– Exporting
– Leasing
– Licensing, management contract, turnkey
– Contract manufacturing (downstream)
– Strategic alliance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Choice among entry modes: If learning goal

A

– Strategic alliance
– Equity alliance
– Joint venture
– Management contract (host is the learner), turnkey
– Licensing (opportunity to reverse-engineer)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Choice among entry modes: If firm has distinctive competencies, then

A

– If technological competency
• Wholly-owned subsidiary is preferred over licensing, strategic alliances and joint ventures
– If management competency
• Franchising, licensing, management contract, joint ventures, equity alliance, wholly-owned subsidiary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Choice among entry modes: If firm needs control (to protect intellectual property [IP], reputation, or integrated
global strategy/coordination) then

A

Wholly-owned subsidiary

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Choice among entry modes:If goal increased market

power and/or scale/scope economies, then perhaps

A

• Merger

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the two overarching modes of direct investment in a foreign country?

A

– Acquisition of existing facilities

– Greenfield investment – building new facilities

17
Q

Why do firms want control? (three main reasons)

A

– Internalization
– Appropriability
– Freedom to pursue a homogeneous global strategy rather than country by country strategy

18
Q

describe internalization as reason why firms want control

A
  • Choose the lower cost option between conducting operations under internal ownership versus contracting to another party
  • It may be cheaper to handle operations internally
19
Q

describe appropriability as a reason why firms want control

A

• Capacity of firm to retain for itself the added value it creates.
– Higher appropriability if 100% ownership
– Risk of lower appropriability due to intellectual property leaks in alliances, joint ventures and outsourcing activity to another firm. Hence higher risk of having a competitive position undermined

20
Q

advantages and disadvantages of exporting

A

Advantages:

  • relatively low financial exposure
  • permit gradual market entry
  • acquire knowledge about local market
  • avoid restrictions on foreign investment

Disadvantages:

  • vulnerability to tariffs and nontariff barriers
  • logistical complexities
  • potential conflicts with distributors
21
Q

advantages and disadvantages of licensing

A

Advantages:

  • low financial risks
  • low-cost way to assess market potential
  • avoid tariffs, nontariff barriers, restrictions on foreign investment
  • licensee provides knowledge of local markets

Disadvantages:

  • limits market opportunities and profits
  • potential conflicts with licensee
  • possibility of creating future competitor
22
Q

advantages and disadvantages of franchising

A

advantages:

  • low financial risk
  • low-cost way to assess market potential
  • avoid tariffs, nontariff barriers, restrictions on foreign investment
  • maintain more control than with licensing
  • franchisee provides knowledge of local market

Disadvantages:

  • limits market opportunities and profits
  • dependence on franchisee
  • may be creating future competitor
23
Q

advantages and disadvantages of contact manufacturing

A

Advantages:

  • low financial risk
  • minimize resources devoted to manufacturing
  • focus firm’s resources on other elements of the value chain

Disadvantages:

  • reduced control (may affect quality, delivery schedules, etc.)
  • reduced learning potential
  • potential public relations problems–may need to monitor working conditions,etc
24
Q

advantages and disadvantages of management contracts

A

Advantages:

  • focus firm’s resources on its area of expertise
  • minimal financial exposure

Disadvantages:

  • potential returns limited by contract
  • may unintentionally transfer proprietary knowledge and techniques to contracted
25
Q

advantages and disadvantages of turnkey projects

A

Advantages:

  • focus firm’s resources on its area of expertise
  • avoid all long-term operational risks

Disadvantages:

  • financial risks (cost overruns, etc.)
  • construction risks (delays, problems with suppliers, etc.
26
Q

advantages and disadvantages of foreign direct investment

A

Advantages:

  • high profit potential
  • maintain control over operations
  • acquire knowledge of local market
  • avoid tariffs and nontariff barriers

Disadvantages:

  • high financial and managerial investments
  • higher exposure to political risk
  • vulnerability to restrictions on foreign investment
27
Q

def. strategic alliance

A

business arrangement in which two or more firms choose to cooperate for their mutual benefit. Examples
international airline alliances: Oneworld, Star Alliance, Sky Team

28
Q

def. joint venture

A

arrangement in which two or more firms set up another entity, a jointly-owned subsidiary firm, for a common
purpose. Maersk-IBM Blockchain JV, , Swatch- Mercedes Smart Car

29
Q

def. equity alliance

A

business arrangement in which a cooperating company takes an equity position (almost always a minority position, but usually sufficient to get a board of directors seat) in the company with which it has a collaborative arrangement.

Sometimes used to
solidify a supplier-buyer relationship; less often used to solidify a
strategic alliance as in Nissan – Renault equity alliance, initially
Renault 37% stake in Nissan & Nissan 15% stake in Renault, later
expanded to include Mitsubishi

30
Q

advantages and disadvantages of joint ventures

A 
• Advantages
– Benefit from partner’s knowledge.
– Shared costs/risks with partner.
– Reduced political risk.
• Disadvantages
– Risk giving control of technology to
partner.
– May not realize experience curve or
location economies.
– Shared ownership & divergent goals
can lead to conflict.
31
Q

def. exporting

A

the sale of goods or services produced by a company based in one country to customers that reside in a different country

32
Q

def. licensing agreements

A

contracts whereby firms allow others to use some assets, such as trademarks, patents, copyrights, or expertise

33
Q

def. franchising

A

a contract in which a company assists another on a continuous basis and allows use of its trademark

34
Q

def. management contract

A

arrangements in which a company provides personnel to perform management functions for another organization

35
Q

def. turnkey operations

A

construction projects performed under contract and transferred to owners when they’re operational

36
Q

def. wholly-owned FDI

A

a foreign direct investment that is 100% owned by the company

37
Q

def. acquisition

A

acquiring pre-existing assets abroad

38
Q

def. Greenfield

A

start-up international investment; ie start from scratch

MGCR 382 (21 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions