Lecture 8: International strategy Flashcards
Foreign market entry modes: 3 main categories
- Exporting
- Strategic alliances
*franchising
*licensing
*joint venture - Foreign direct investments
*acquisition
*greenfield
Foreign market entry mode: exporting
Resource commitment and control: L
–>least expensive way to set up international activities.
–>allows low level of control over foreign operations
Typical to work through contractual agreements: high transaction costs, low control over distribution and marketing, high dependency on tariffs and quotas.
ex. Boeing
Foreign market entry mode:
strategic alliance
*Licensing
Also quite inexpensive.
Foreign partners take all risks and benefits of production and sales.
Local companies (licensees) take risk by licensing other company’s (licensor’s) product.
Licensors have little control.
Quite low potential gains from global strategy.
High risk of opportunistic behaviour from licensee.
ex. Walt Disney
*Franchising
Relatively less expensive but has more control over foreign partner than licensing.
Franchisor allows franchisee to use an entire part of business system in exchange for compensation (fee).
Franchisee has to follow specific business model- low control–>lower risk of opportunistic behaviour.
ex. McDonalds
*Joint venture
More intense in terms of cooperation.
Allows to share risks and resources to help develop core competencies.
Not many resources needed.
High risk of conflict, incompatibility.
Hard to manage.
ex. Volkswagen
Foreign market entry mode:
foreign direct investments
*Acquisition
Directly purchasing or investing in a foreign company–>quick market entry.
Acquiring already established company can be difficult–>complex negotiations and transactions, high costs, hostility of local market, government.
ex. Lenovo
*Greenfield
Direct investments to build new manufacturing, marketing, facilities. (instead of acquiring existing)
Most expensive!!!!
High complexity, high potential profit, high risk, high control.
2 factors influencing foreign market entry.
- company-specific international experience.
- local circumstances of foreign market environment.
Firms in early stages of international expansion use export and alliances. If lot of uncertainty use joint venture. If need more control use foreign direct investments.
How globalisation and business transforms the world?
Many scholars believed that globalisation would make world more HOMOGENEOUS–> similar business conditions and easier communication.
Helped information transfer around the world and thus to conduct global strategy.
Customers become homogeneous (ex. Nike, Amazon etc)
Enables:
faster transportation
communication
decreases the transportation cost
decreases cost of communication syst.
Global strategy
Sees world as “single, segmented market”.
Companies try to gain substantial control over their country’s operations.
Global strategy benefits
*Economies of scale through replication
ex. Disneyland
*Serving global customers
–>certain professional services (auditing, consulting, investment banking) want to globalise because they serve global customers.
ex. “big4”
*Learning benefits
grow local knowledge insights
ex. IKEA
*Springboarding
process, behaviour, motivation of MNEs that are from emerging economies and expand to developed countries. To obtain critical resources.
CAGE framework explanation
Managers should always be conscious of all dimensions and distance. 4 dimensions:
C- cultural
A- administrative/political
G- geographic
E- economic distance
CAGE framework benefits
*increase awareness of multiple dimensions of distance
*Identify specific differences of MNE to local.
*Explains why certain firms are better than others (geographic scope)
*Helps to determine countries with attractive opportunities
4 dimensions of CAGE
- Cultural distance
difference in beliefs, social norms, race, language. - Administrative distance
do not share the same history, restrictions with other country. - Geographical distance
transportation - Economic distance
difference of wealth and income.
cheap labour, natural resources exploration. Market.
Integration vs. responsiveness
Try to find balance between global integration strategy and local responsiveness strategy.
Ex. McDonalds
European MNC
At early 20th century european companies were pioneer of MNC (multi national corp). Difficult to expand due to transportation–> “multinational federations” subsidiaries of MNC and became highly autonomous.
American MNC
Post ww2, make use of “coordinated federation”–> keep resources and capabilities US based and use them as advantage in competitive market.
Japanese MNC
(1970-1980)Concentrated R&D and production in Japan whilst subsidiaries focused on functions such as sales, service and distribution. –> cost an quality benefits—>”centralised hubs”
