Week 3 - Country attractiveness and entering international markets Flashcards
What are the advantages of staged entry?
Staggered resource commitment
Opportunitu to assess foreign market entry strategy
Facilitates staged development of new or modified products
What are the disadvantages of staged entry?
Reduces first move advantage
Increased likelihood of a new generation of products creating obsolescence
Explain first mover advantage?
for first movers, their gain in time over later entrants (fast followers and laggards) allows for the capture of customers and the building of capabilities that can advance and perpetuate early gains
Explain second mover advantage
Time can also benefit later entrants by helping to improve risk estimations, clear uncertainties, remove capability gaps, and facilitate learning, partcularly from the costly activities (and mistakes) of earlier entrants. these are known as pioneering costs
What are the primary considerations when selecting the mode of entry?
strategic resource profile - does the firm have the competencies for this venture?
the level of resources that the organisation is prepared to commit
the level of control that the organisation wishes to have
which factors inform entry mode decision making?
Organisational factors including resource availability
Marketing strategy
Industry factors including the degree of industry saturation
Target country factors including market potential and market risk
How do large multi-business enterprises scale up their operation?
they exploit slack resources and complementary capabilities
What do Lieberman and Montgomery (1998) suggest about first movers?
that they might extend their advantage by applying logic consistent with industrial organisation economic theory:
they control scarce resources, retain technology leadership, increase customers switching costs and develop network effects
What are the modes of market entry?
Exporting
Contractual market entry
Direct investment market entry
What are the advantages of exporting?
Low set up costs with little infrastructure required in the international market
Quick access to the international market with opportunity for experniential learning
A typical first stage in a staged approach to internationalisation
What are the disadvantages of exporting?
Domestic market costs to production are carried into the international market
Transport costs may be high
Tariffs apply to many imports and may change over time
What forms of contractual agreements exist?
Licensing
Franchising
Foreign manufacturing
Contractual joint ventures
What are the advantages of contractual forms of market entry?
Cost advantages of local production
Licensed production may also bring distribution channel access through the association with the local manufacturer
Contractual joint ventures may bring agreement with competitors over distribution of market share or market access
What are the disadvantages of contractual forms of market entry?
duplication of support activities since we now have functions in the domestic market and international market
We dont have complete control since we are reliant on partner firms
We have released some intellectual property and entrusted partner firms with responsibility for quality
Quality will need to be communicated in every part of our value chain from manufacture to brand messages to customer communications
What are types of FDI?
International joint ventures
Wholly owned subsidiary
Mergers and acquisitions
Greenfield operations
Advantages to direct entry modes?
Full control over operations
Training of staff
Implementation of procedures to the same standards as the domestic market
Local sourcing of process inputs
Reverse export is possible whereby products produced at a lower cost can be exported to the domestic market
Potential for export from this new facility into neighbouring markets
What are the disadvantages of direct entry modes?
Large scale commitment of resources with high exit costs
Risk of changes to local formal institutions
