Models Flashcards
def. Ricardian Model
All countries included benefit from trade. The model focuses on the comparative advantage controlled of the lowest opportunity cost and hereby find their Comparative Advantage
Lowest ratio, is the comparative advantage. it means that the labor productivity of the good is higher.
Uppsala model:
Experiential knowledge
- Knowledge learned by engaging in particular activity and context
- Easy to acquire through networks (they provide knowledge on how to do business in each host country)
o Access to assets/technology/customers
o Facilitate access to information
o Team up with firms
Uppsala model:
Internationalization model
institutional environment, Institutional distance besween countries)
- Step; Research commitment; Asset costs and risks
- Step; Establish more knowledge per step
- Step; non-equity to equity mode (country similar in culture, norms and geographically close)
- Step; Internationalized
Foreign Direct Investments (FDI)
MODEL; OLI paradigm model
Ownership or firm-specific advantages (Compeditors don’t have: tech. capital, mang. skillz)
- NO; Remain Domestic
Location advantages (Markets, resources, Agglomeration(cluster), Institutions(tax system)
- NO; Produce home, 6 Export
Internalization advantages (trust forming extern relationship into internal relationship – buying the partner. Transaction costs: search -, negotiate for partners and implement the transaction
- NO, Licesing
Foreign Market Entries
The entry strategy puzzle:
It is a plan that specifies the objectives of an entry and how to achieve them.
- It will be challenging to match resources with goals
Focus on which
Equity:
a. Larger, harder to reverse commitments.
b. Prefer when transferring intangible assets
c. Greenfield, Joint venture, partial/fully acquisition,
Non-equity
a. Relatively smaller commitments to overseas markets
b. Exports (Direct, Indirect), licensing, franchising, subcontracting
Foreign Market Entries
The entry strategy puzzle:
Why (4)
What is the firm looking from abroad (motive)
Four reasons
- Natural resource seeking
- Market seeking
- Efficiency seeking: efficient location featuring a combination of scale economies and low-cost factors
- Strategic asset seeking: renowned for generating world-class innovations, capabilities
Foreign Market Entries
The entry strategy puzzle:
Why (4)
Where (4+4)
Where:
Which market best match the intl motive (location)
Appealing markets are;
- Politically stable
- based on free market systems
- relatively low inflation rates
- Low private sector debt
ELSEWISE; match with ‘Why’
- Natural resource seeking
- Availability of resources
- The quality of resources
- The quantity of resources (enough there)
- Market seeking
- Strong demand and willing customers
- Fast growing GDP, GDP per capital (buy what I’m producing)
- Efficiency seeking:
- Low labor cost
- Economy of scale (concentration of production, to get lower costs per unit)
- Low transition cost (transportation, communication, infrastructure) - Strategic asset seeking
- Skilled level
- Industry
Foreign Market Entries The entry strategy puzzle: Why (4) Where (4+4) When (1)
When do we want to engage in an FDI? (timing)
First Mover
Entry is early when the firm enters a foreign market before other foreign firms. (E.g. Volkswagen, Colgate)
Advantage:
- Loyalty from customers (since first company) - establish relationship with local stakeholder (company/government) - pre-entry of capabilities/scare resources - set up barriers and market share - technological leadership (ex. patents)
Disadvantage
- Pioneering cost
- Less flexible (in terms of backing out)
Can keep position if continuously commit resources and actively learn about local environment
Foreign Market Entries The entry strategy puzzle: Why (4) Where (4+4) When (1) + (1)
Late Mover
Entry is late when the firm enters the market after other foreign firms. (Honda, Hyundai)
Advantage:
- Free ride on first-mover investments - Enjoy the resolution of technology and market uncertainty - Flexible to market changes (not taken risk, investment, can therefore easier make changes.
Disadvantage:
- Resources lack
Foreign Market Entries The entry strategy puzzle: Why (4) Where (4+4) When (1) + (1) How (2)
Which entry mode best match the above? (entry mode)
- Which scale? (scale)
Large up-front investment
Advantages:
- Realization power and no influence from outsiders
- Prevent new members
Disadvantages
- Large risks (if these large-scale ‘bets’ turn out wrong)
- Limited strategic flexibility
Small foothold operation (platform investment)
Advantages:
- Lower cost and risk of entry
Disadvantages
- Strong commitment
• But difficult to build market shares and capture first- mover advantages
Foreign Market Entries The entry strategy puzzle: Why (4) Where (4+4) When (1) + (1) How (2) + (1)
Full Acquisition: (e.g. Daimler)
Preferred mode when competencies need to be build fast
- Fast entry
- External resources (acquisitive)
Advantages
- Fully get profit - Full control over integration and coordination - Do not add capacity to the industry (competition)
Disadvantage
- Costly to buy a full company
- Coordination and integration cost
- Due diligence; Post-acquisition
- Politically sensitive
Foreign Market Entries The entry strategy puzzle: Why (4) Where (4+4) When (1) + (1) How (2) + (1) + (1)
Greenfield: (Eg. Nissan)
Enter a land and build company from scratch.
Preferred mode: when competitive advantages grounded in organizational structure and culture
- Full control (protection of intangibles) - Parent can build subsidiary itself - Internal resources (organic)
Advantages
- Reduce the risk of losing control over core competencies - Full profitability of the profit - Enable global strategic coordination but with tight control.
Disadvantage
- Slower to establish (Foreign ownership) - Add capacity to the industry (more competition) - High Investment risk
Foreign Market Entries The entry strategy puzzle: Why (4) Where (4+4) When (1) + (1) How (2) + (1) + (1) + (1)
Joint ventures (e.g. Fujifilm) agreement between two or more entities for a specific business purpose
Preferred mode: 1. new firm depend on resource contribution from the two firms 2. high transaction costs prevent market exchange
- not feasible to integrate one firm into the other
- Internal resources (organic)
Advantages o Share risk o Access partner’s knowledge o Access to partner resources o Politically acceptable
Disadvantage o Divergent goals and interests o Shared profit o High coordination cost globally o Low control
Foreign Market Entries The entry strategy puzzle: Why (4) Where (4+4) When (1) + (1) How (2) + (1) + (1) + (1) + (1)
Partial Acquisition: (e.g. Louis Vuitton)
: one company purchases most or all of another company’s shares to gain control of that company
Preferred mode; when the goal is to access to assets which otherwise would not be for sale, while limiting capital commitments
- External resources (acquisitive)
Advantages
o Experience of the partner
o Access resources that are not fully on sale
Disadvantage
o Politically sensitive
o Due diligence; Post-acquisition
- Coordination and integration cost
o Post integration issues
o Low control
Foreign Market Entries The entry strategy puzzle: Why (4) Where (4+4) When (1) + (1) How (2) + (1) + (1) + (1) + (1) The role of institution (4)
- Prohibit certain types of operations or transactions
- Create a need for local knowledge (‘weak’ institutions require partner’s knowledge)
- Change the relative transaction costs of alternative strategies (‘weak’ inst. Increase transaction cost)
- Inhibit trade favoring entry through FDI
