Modes of Market Entry

Question 1

Why do firms export? (4)

Answer 1

Expand sales
diversify sales
Gain experience
Economies of Scale

Question 2

Drawbacks of exporting (3)

Answer 2

High transport costs
Trade barriers (protective government)
'double agents'

Question 3

Contractual entry modes (5)

Answer 3

Exports
Turnkey Contracts (tech transfer) - where FDI is restricted
Licensing - low risk
Franchising - no control of technology
Management Contracts - lump sum

Question 4

Investment Entry Modes

Answer 4

Joint Ventures, Strategic Alliances

Question 5

What are the advantages of a joint venture? (5)

Answer 5

Risk reduction
Gain access to previously restricted markets
Gain access to another firm’s distribution network
Enlist support from home government
Share costs

Question 6

What are the disadvantages of a joint venture? (2)

Answer 6

Lack of control

Conflict between partners

Question 7

Example of a strategic alliance

Answer 7

Kodak and Canon photocopiers

Question 8

Why commit to a strategic alliance?

Answer 8

Research would be too expensive on own

Question 9

Disadvantages of a strategic alliance (2)

Answer 9

Can create a competitor

Low cost technology for your competitor

Question 10

Strategic Factors in selecting an Entry Mode (5)

Answer 10

Cultural Environment
Political and legal environment
Market size
Production and shipping costs
International experience