Modes of entry in Foreign Markets and ISAs

Question 1

Overall motivations for FDI

Answer 1

1. Natural resource seeking
2. Market seeking
3. Efficiency seeking
4. Innovation seeking

First mover advantage ;
- Proprietary, tech leadership
- Preemption of scarce resources 
- Establishment of barriers to entry 
- Avoidance of clash without dominant firms at home 
Late mover advantage; 
- Opportunities to free ride 
- Resolution of tech and market uncertainty 
- First mover may be difficult to adopt

Question 2

Mergers and Acquisitions

Answer 2

Quick to execute
Foreign firm has valuable strategic assets
Believe they can increase the efficiency of the acquired firm

Advantages;
- Does not disturb competitive balance 
- Easier assimilation of cultural, legal, and management problems 
- Package can include critical assets 
Disadvantages;
- Danger of overpayment 
- Problems of integration 
- Search costs

Question 3

Greenfield entry

Answer 3

• Can install appropriate production and management systems
• Cheaper - scale of operations can be matched to market expansion
• Avoids inheriting problems and overpayment for site
• Host Government may only accept Greenfield entry
• Greater chance of production locations

Question 4

Forms of cooperation/competition

Answer 4

1. Networks/alliances
2. Joint ventures
3. Franchises
4. Acquisition
5. Merger

Question 5

Joint ventures

Answer 5

Cooperative business activity formed by one or more organisations for strategic purposes, that create an independent entity and allocate ownership, operational responsibilities and financial risks and reward to each member while preserving their separate entity

ADV

• Benefit from a local partners knowledge
• Shared costs and risks of opening a foreign market
• In many countries, JVs are the only entry method
• Access to key assets

DIS

• Risk of leaking tech
• Conflicts and battles for control

Question 6

JVs in emerging markets

Answer 6

• Financial problems
• Different strategic objectives
• Management cultures
• Lack of comms
• Transfer price disagreements

Question 7

Alliances

Answer 7

ADV

• Access to markets
• Shared high fixed costs and associated risks
• Requires less financial resources
• Prevents the dangers of equity
• Complimentary skills and assets
• Helps establish tech standards for the industry

DIS

• Risk of giving competitors a low cost route to the new tech
• Can give away more than receives

Question 8

Risks of competitive collaboration

Answer 8

• Learn proprietary capabilities, opportunity to internalise them, risk of exploitation
• Can result in competitor taking control of agenda of alliance

Question 9

Costs of strategic & organisational complexity

Answer 9

• Substantial challenges in creating appropriate governance old management structure
• Often large cross-cultural management problems

Question 10

Key decisions in building cooperation ventures

Answer 10

• Partner selection
• Commitment
• Alliance scope

Question 11

Deciding on entry modes

Answer 11

• Control vs risk
• Costs vs return
• Firm resources and capabilities
• Host country constraints
• Competitors
• Nature of product

Question 12

Controls

Answer 12

• Ownership level; WOE vs JV
• Operations, firms location, timing and entry mode
  Resource based view suggests;
• The planning local ops require resources that the parent control
• The global ops requires resources controlled by a subsidiary
• The global competencies of the firm depends on a tight coordination and integration of its constituent parts