Lecture 7: International Modes of Entry Flashcards
What are some IB strategic choices?
- Global strategy
- Multidomestic strategy
- International strategy
- Transnational strategy
General purpose: maximise/make profit
- differentiate products, increase price: add value, features, quality, service
- achieve low cost
Key means: allocation of scare resources to attain goals
What are some means to fulfil these strategies?
- Export
- FDI
- Licensing
- Other means
IB expansion strategies
In order to enter the market and compete effectively, there are two conflicting pressures:
- COST REDUCTION (global integration) versus local responsiveness (adaptation)
- STANDARDISATION reduces costs but may lose revenue
Cost reduction (global integration) vs local responsiveness (adaptation). What are the local responsiveness pressures?
Differences in
- consumer tastes/preferences
- infrastructure/practices
- distribution channels
- host gov. needs
What is 3 global expansion benefits?
- earn greater return from distinctive skills, core competences
- inimitable or difficult to imitate skills in value chain
- realise location economies (choice of FDI location)
- create multinational network of activities (global web - Maccas)
- realise greater experience curve economies, which reduce the cost of value creation
- learning effects, economies of scale
What is International Strategy (IS)?
The firm uses the core competency or firm-specific advantage it developed at home as main competitive weapon in the foreign market it enters.
What is global strategy (GS)
The firm views the world as a single marketplace and its primary goal is to create standardized goods and services that will address the need of customers worldwide.
Since the global corporation must coordinate its world wide production and marketing strategies, it usually concentrates power and decision-making responsibility at a central headquarters location.
What is the main difference between international strategy and global strategy?
Main difference IS takes domestic way, GS tries to figure out best way to serve all of its customers in the global market.
(The international strategy and the global strategy share an important similarity, a firm conducts business the same way anywhere in the world.
What is a multidomestic strategy (MD)?
The firm views itself as a collection of relatively independent operating subsidiaries, each of which focuses on a specific domestic market.
Kraft, Unilever
(Think global – act regional e.g. Nestlé)
What is a transnational strategy (TN)?
The firm attempts to combine the benefits of global scale efficiencies with the benefits of local responsiveness.
e. g. Microsoft
- product development in US
- responsibility for marketing delegated to its foreign subsidiaries
Enter which foreign markets?
Each one’s attractiveness to a particular firm as a particular market depends on:
- The firm’s objectives
2. A balance of benefits, costs and risks
What are 4 first-mover advantages of timing of entry?
- Preempt rivals; establish strong brand name; capture demand
- Build sales volume; ride down experience curve ahead of competitors; cost advantage
- Create switching costs for that tie customers to 1st mover’s products
- Establish social ties ahead of following foreign competitors
- important in high-context cultures
What are first-mover disadvantages (pioneering costs) of timing of entry?
- Time spent to learn dos-don’ts; competitors can learn from 1st mover
- If 1st mover introducing a new industry, it builds infrastructure
- 1st mover “trains” customers for followers
- Break through host country’s adjustment to “foreignness” issues
- Regulations may change as a result of 1st mover’s entry
What is scale of entry?
- what level of resources to commit?
- what level of resources can firm afford to commit?
- a strategic commitment is difficult to reverse
- has a long-term impact
- means that the resources cannot be used elsewhere
- 1st mover advantages and large scale linked
- small scale entry allows learning at low risk
- entry in small or large potential market may require the same level of initial resources
What is external or “arms-length” modes of entry?
Firm does business overseas without investing in owned assets and own human resources in target market.
e.g. Exporting - sell “domestically” produced products into foreign markets through local independent agents or directly to customers
What are the importance of exports for the country and the firm?
For the country
- importance element in stimulating the economy
- achieve growth with export lead development
- achieve a positive trade balance on G/S
For the firm
- opportunities for growth
- additional profits
- market development
What are turnkey projects?
A turnkey or a turnkey project (also spelled turn-key) is a type of project that is constructed so that it could be sold to any buyer as a completed product.
What are 3 types of turnkey projects?
- Licensing
- Franchising
- International strategic alliances
What is licensing?
- licensor grants rights to licensee for use of intangible property over a specified period in return for a fee
- intangible property, patents, inventions, formulas, processes, designs, copyrights, trademarks
- licensing agreement likely allows licensor quality assurance rights over actual use of intangible asset
- if licensee sells to consumers using the licensor’s brand name, the license may also give the licensor rights to strategic brand control
What is franchising?
- Franchisor grants franchisee use of intangibles under the condition that franchisee follow strict rules of operating the business
- mode of operation is part of the brand image
What are the 2 types of internal modes of entry (involve FDI)?
- Wholly owned subsidiaries
- firms owned 100% by a company in a foreign country
- International joint ventures
- firms that are owned jointly by two or more otherwise independent firms; most IJVs are between two firms
- one (or more) parent firms are non-resident in the host market
- ownership % may vary from majority foreign owned, to 50-50% owned, to minority owned by the foreign firm
What is greenfield?
Establishing a new operation in a foreign country
What is internalisation
Control through self-handling of foreign operations by keeping them within the same corporation
