International

Business (INE 2028)

Instructor: MA. Nguyen Thi Phuong Linh

Email: [email protected]
Phone: 0967257858
Address: Room 407, E4, University of
Economics and Business – VNU.
 Course calendar
Part 1: Introduction and
Part 2: Country difference
Overview
Chapter 1: Globalisation Chapter 2: National difference in Political Economy
Chapter 3: Differences in Culture
Chapter 4: Ethics in International Business

Part 3: Competing in a Global marketplace

Chapter 5: The strategy of IB Chapter 8: Global production, outsourcing &

Chapter 6: Entry strategy and Strategic Logistics
Alliances Chapter 9: Global marketing and R&D
Chapter 7: Exporting, Importing and Chapter 10: Global human resources management
Countertrade
Chapter 6: Entry
strategy and
Strategic Alliances
 Chapter Objectives
Firms expanding internationally must decide

Which markets to enter

When to enter the market

What scale to enter

Which entry mode to use

 Which markets to enter?

❖ Based on assessments of a country's long-term

potential profits. This potential is a combination of
factors.
✓ Political factors
✓ Economic factors (economic system, future
economic growth rate, ...)
✓ Demographic factors (market size)
✓ Current wealth factor (purchasing power of the
market)
✓ ...
Which markets to enter?

Benefits
Risk Costs

Overall
attraction
 When Should A Firm Enter A Foreign Market?
Once attractive markets are identified, the firm must consider the timing of entry
1. First mover – when an international business enters a foreign market before other foreign
firms
Advantages of the first mover:
❖ the ability to pre-empt rivals by establishing a strong brand name and connection with
customers
❖ the ability to create switching costs that tie customers into products or services, making it
difficult for later entrants to win business
Disadvantages of the first mover:
❖ pioneering costs - (the cost of a business failure)
❖ Expenses to learning the rules of the game (cost of advertising, setting up product delivery -
cost to guide customers)

2. Later Entrant - Enterprise joins a market when other companies have established their positions in that
market
Advantages of later entrant: Benefit from observing and learning from mistakes made by predecessors
(minimizing pioneering costs, mining costs)
Disadvantages of later entrant: not winning a large share of the market.
On What Scale Should A Firm
Enter Foreign Markets?

After choosing which market to enter and the

timing of entry, firms need to decide on the
scale of market entry.
❖ Significant-scale entry: Firms make a
strategic commitment to the market - the
decision has a long-term impact and is
difficult to reverse
❖ Small-scale entry: Allowing a firm to learn
about a foreign market while
simultaneously limiting the firm’s exposure
to that market

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Is There A “Right” Way To
Enter Foreign Markets?

 No, there are no “right” decisions when

deciding which markets to enter, and
the timing and scale of entry - just
decisions that are associated with
different levels of risk and reward

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 Which entry mode to use?
6 Methods to entry foreign market

Turnkey
Exporting Licensing
Projects

Wholly owned
Franchising Joint Venture
subsidiaries
 Exporting
Sale of products produced in one country to residents of another country.

Advantages Disadvantages

• it avoids the costs of establishing local • there may be lower-cost manufacturing

manufacturing operations locations that firms can not take advantages of
• it helps the firm achieve an experience • high transport costs and tariffs can make
curve exporting becoming uneconomical
• agents in a foreign country may not fully support
for exporter
 Turnkey Projects

❖ Project in which a foreign enterprise agrees to build an

operating base for a host country partner and hands it over
when it is ready to operate
❖ The party performing this contract is usually businesses in the
fields of construction, design, and architecture.
❖ Turnkey projects are most common in the chemical,
pharmaceutical, petrochemical, metal refining, and
industries that use complex and expensive manufacturing
technologies.
❖ Example: Video: “Turnkey Construction Projects
Introduction”
https://www.youtube.com/watch?v=iuSnkd7vtMM
 Turnkey Projects

• Advantages • Disadvantages
• This is a way of earning huge economic • the firm has no long-term interest in the
returns from the know-how required to foreign country
assemble and run a technologically • if the firm's process technology is their
complex process competitive advantage, then selling this
• they can be less risky than long-term technology through a turnkey project is
investment like FDI also selling competitive advantage to
potential and/or actual competitors →
the firm may create a competitor
 Licensing

❖ Licensing: A licensing agreement is an

arrangement whereby a licensor grants the
rights to intangible property to another entity
(the licensee) for a specified period, and in
return, the licensor receives a royalty fee
from the licensee
❖ Intangible property includes: patents,
inventions, formulas, processes, designs,
copyrights, trademarks
 Licensing

Advantages Disadvantages

• the firm avoids development costs and risks • the firm doesn’t have the tight control required
associated with operating business in the for realizing experience curve and location
foreign market economies
• Licensing can be attractive for firms lacking the • the firm’s ability to coordinate strategic moves
capital to develop operations overseas across countries is limited
• the firm can capitalize on market opportunities • proprietary (or intangible) assets could be lost
without developing the operation itself
 Franchising

❖ Franchising - a specialized form of licensing

in which the franchisor not only sells the
intangible property to the franchisee but also
insists that the franchisee agree to abide by
strict rules as to how it does business:
✓ Regularly assisting the franchisee in running
the business.
✓ Used primarily by service businesses
✓ The franchisor receives a fee, a certain
percentage of the franchisee's profits
 Franchising

Advantages Disadvantages

• it avoids the costs and risks of opening up • it inhibits the firm's ability to take profits
a foreign market out of one country to support
• firms can quickly build a global presence competitive attacks in another
• the geographic distance of the firm from
franchisees can make it difficult to
detect poor quality
 Joint Venture

❖ Joint ventures with a host country firm - a

firm that is jointly owned by two or more
otherwise independent firms

❖ most joint ventures are 50:50 partnerships

 Joint Venture

Advantages Disadvantages
• firms benefit from a local partner's knowledge • the firm risks giving control of its technology
of local conditions, culture, language, political to its partner
systems, and business systems • the firm may not have the tight control to
• the costs and risks of opening a foreign realize experience curve or location
market are shared economies
• they satisfy political considerations for market • shared ownership can lead to conflicts and
entry battles for control if goals and objectives
differ or change over time
 Wholly Owned Advantages Disadvantages
Subsidiary • they reduce the risk of losing control • the firm bears the
over core competencies full cost and risk of
• they give a firm the tight control over setting up overseas
operations in different countries that operations
is necessary for engaging in global
❖ Wholly owned subsidiary - the
strategic coordination
firm owns 100% of the stock
• they may be required in order to
✓ set up a new operation
realize location economies and
✓ acquire an established experience curve
firm
Which Entry
Mode Is Best?
Case study: JCB in India
  The optimal entry mode depends to some
degree on the nature of a firm’s core
competencies
 When competitive advantage is based on

How Do Core proprietary technological know-how

➢ avoid licensing and joint ventures unless
Competencies the technological advantage is only
transitory or can be established as the
Influence Entry dominant design
 When competitive advantage is based on
Mode? management know-how
➢ the risk of losing control over the
management skills is not high, and the
benefits from getting greater use of
brand names are significant
 What Are Strategic Alliances?

❖ Strategic alliances refer to

cooperative agreements between
potential or actual competitors
✓ range from formal joint ventures to
short-term contractual agreements
✓ the number of strategic alliances
has exploded in recent decades
 What Makes Strategic Alliances Successful?
1. Partner selection: A good partner:
❖ helps the firm achieve its strategic goals and has the capabilities the firm lacks and that it
values
❖ shares the firm’s vision for the purpose of the alliance
❖ will not exploit the alliance for its own ends

2. Alliance structure: The alliance should

❖ make it difficult to transfer technology not meant to be transferred
❖ have contractual safeguards to guard against the risk of opportunism by a partner
❖ allow for skills and technology swaps with equitable gains
❖ minimize the risk of opportunism by an alliance partner

3. The manner in which the alliance is managed: Requires:

❖ interpersonal relationships between managers
❖ learning from alliance partners
Review Question

_______ refers to the time and effort spent

learning the rules of a new market

a) First-mover advantages
b) Strategic commitments
c) Pioneering costs
d) Market entry costs

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Review Question
What is the main disadvantage of wholly
owned subsidiaries?

a) they make it difficult to realize location and

experience curve economies
b) the firm bears the full cost and risk of setting
up overseas operations
c) they may inhibit the firm's ability to take
profits out of one country to support
competitive attacks in another
d) high transport costs and tariffs can make it
uneconomical

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Review Question

If a firm wants the option of global strategic

coordination, the firm should choose

a) franchising
b) joint ventures
c) licensing
d) a wholly owned subsidiary

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Review Question
All of the following are advantages of
Joint venture except

a) they are quicker to execute

b) it is easy to realize synergies by
integrating the operations of the acquired
entities
c) they enable firms to preempt their
competitors
d) they may be less risky
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