Week 5

Question 1

What are the types of equity modes of entry?

Answer 1

1. Joint ventures

2. Wholly owned subsidiaries

Question 2

What are the types of non-equity modes of entry?

Answer 2

1. Exporting
2. International Licensing
3. International Franchising
4. Specialized modes (turn-key, management contracts)
5. Non Equity Strategic Alliances

Question 3

What are some pros and cons of exporting?

Answer 3

Pros:

• Low risk — cost of exit limited
• Low commitment — minimum capital
• Achieve EOScale by producing from a single location

Cons:

• Lack of central control — reliance on local distributor
• Vulnerable to trade barriers
• Exchange rate movements affect profitability

Question 4

What are some pros and cons of licensing?

Answer 4

Pros:

• Relative low cost
• Low risk — cost of exit limited
• Low commitment

Cons:

• Lack of central control — reliance on licensee
• Limited market opportunity
• Risk of creating a competitor or losing control over tech, especially for countries with weak IP protection

Question 5

What are some pros and cons of franchising?

Answer 5

Pros:

• Speed of entering multiple markets
• Moderate cost
• Established & proven product & operating system

Cons:

• Lack of central control — reliance on franchisee
• Limited market opportunity
• Needs quality control — knock on effects on franchisor is very real

Question 6

What is Turn-key Contracting?

Answer 6

Arrangement where a firm plans, finances, organizes, manages and implements all phases of a project abroad, and hands it over to a foreign country or company after training local personnel.

Question 7

What are some pros and cons of Specialised Models? E.g. Turnkey Contracting, Management Contract

Answer 7

Pros:

• Focus on area of expertise
• Only way to extract value in certain industries
• Less risky than conventional FDI

Cons:
- No long-term interests (unless they take a minority stake)