MNE Entry strategy Flashcards
Internationalization decisions
When to enter and how to enter.
Timing of entry: first mover, fast follower, exporting, licencing, franchising, strategic alliances,
First mover
entry is early, the firm enters a foreign market before other foreign firms.
adv: lock suppliers into contracts that make it difficult to serve future competitors in the market.
disadv: pioneering costs - when the foreign environment is so diff from the firm’s home market. takes considerable time effort and expense. cost of promoting and establishing a product offering, including the cost of educating customers are high.
Fast-follower
entry is late, the firm enters the market after firms have already established themselved in the market.
followers can sometimes never catch up with the leader so is a bit of a gamble
Entry strategies
Exporting, licensing, franchising : non-equity based modes - small scale
Joint-ventures, WOS: equity based modes - large scale.
as you move from non-equity to equity based modes you gain more control but also it becomes more risky to go from small to large scale.
Exporting
pros: low cost so available to SMEs, higher economies of scale - when production is standardised. very cheap
cons: high transportation costs, affected by trade restrictions, low learning economies - no knowledge transfer with the other country, you don’t learn about foreign markets.
Licencing
when a firm has assets- patent, trademark give permission to another firm in another country to use those services and then gets a percentage of the profit.
grants the rights of intangible property or assets to another firm.
very common in tech, high R&D industries
pros: little or no capital required, overcomes barriers to FDI, diversify into other product lines - brand extention
cons: lack of control, brand threats, low learning economies
Franchising
similar to licencing but more of a long-term commitment, control is stricter in franchising.
franchising is more inclusive and could involve business models - often same line of business and same approaches.
franchisor receives a royalty from the franchisee - usually an agreed percentage of sales.
franchising works better for companies with recognizable global brands
Strategic alliances
co-operative agreements between potential or actual competitors.
strategic alliances range from the short-term contractual agreements (5-10yr) to longer term joint ventures (30-50 yrs).
international joint ventures are used to enter foreign markets - involves creation of an independent entity
Why are joint ventures so common?
Overcome FDI restrictions - caps on ownership, improve local acceptance - align with trusted brands. Gain market knowledge - learn about new markets. Mitigate competition with local firms in foreign markets. Leverage competencies and resources. Manage uncertainty and exposure- reduce exposure and share costs.
Disadvantages of JV
changes of diff in strategic objectives between partners. culture clashes and conflict - double parenting problems and disagreements. National culture influences corporate culture
IJV liabliity
disadvantage that foreign firms experience in host countries due to their non-native status.
partner selection is very important and choosing complementary partners.
Criteria for selecing a JV partner
strategic attributes - market position, marketing competence, networks, firm age and previous partnership experience.
organizational attributes - ownership type, financial attributes, structure and governance.
MNE motives and partner criteria
Seeking markets: market competence, market position, business networks
seeking resources: financial capital, political networks.
seeking cost-savings: business networks, tech competence, financial capital
Wholly owned-subsidiary (WOS)
involve full ownership of foreign operation/subsidiary.
how are they established? via acquisitions (brownfield FDI) - buying existing operations/firms in a foreign country.
greenfield fdi - establishing a new operation in a foreign country
WOS - buy or build?
build: replicate culture, transfer core competencies, favoured by foreign governments.
not suitable in highly competitive markets
pros: full control over operations, full ownership of profits, faster decision-making, learning economies from foreign experience.
cons: risky, expensive, time consumer
Country of origin effects
some countries have good/bad reputations, which affect how goods and services from these countries are perceived in foreign markets.
acquisitions can weaken negative brand perceptions when they acquired brand names are retained.
Why cross-border acquisitions often fail?
overpaying for targets, culture clashes, integration challenges, inefficiency
How to avoid failure
through pre-screening of target firms. post-acquisition integration planning - management of culture structures
Selecting an Entry mode
Market size - attractive markets are candidates for equity modes
sector - non-equity modes easier in service industries compared to manufacturing
institutional environment - PESTEL issues
competitor presence - equity modes preferable in highly competitive markets
corporate objectives - equity modes for learning and control, non-equity modes for flexibility.
corporate resources - equity modes if a firm possesses financial resources. If the firm’s core competence is tech know-how then WOS is preferable.
Uppsala model
Advances a dynamic model of FDI, focusing on incremental internationalisation. firms do not immediately start doing FDI. Firms develop in the home market first. Start with a samll commitment that increases over time. Firms most likely to enter psychically close foreign markets first - culturally similar countries.
