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    Mcgraw-Hill/Irwin © 2004 The Mcgraw-Hill Companies, Inc., All Rights Reserved

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    Yagmyr

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    © All Rights Reserved
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    Mcgraw-Hill/Irwin © 2004 The Mcgraw-Hill Companies, Inc., All Rights Reserved

    Uploaded by

    Yagmyr
    20 views15 pages

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    Chap011

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    © All Rights Reserved
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    20 views15 pages

    Mcgraw-Hill/Irwin © 2004 The Mcgraw-Hill Companies, Inc., All Rights Reserved

    Uploaded by

    Yagmyr

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    © All Rights Reserved
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    You are on page 1of 15

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

    CHAPTER
    11
    Entering Foreign
    Markets

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    11-1

    Key Issues
    • Which markets to enter? When? What scale?
    • What ways (modes) do firms use to enter
    foreign markets? What are their
    advantages/disadvantages?
    • What is the relationship between strategy and
    the choice of entry mode?

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    11-2

    Enter Which Foreign Markets?

    • There are 191 member-nations of the UN… (11/02)


    – Switzerland joined last in 2002
    • Each one’s attractiveness to a particular firm as a
    particular market depends on:
    – The firm’s objectives
    – A balance of benefits, costs, and risks

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    11-3
    Timing of entry: First Mover
    Advantages
    • Preempt rivals; establish strong brand name;
    capture demand
    • Build sales volume; ride down experience
    curve ahead of competitors; cost advantage
    • Create switching costs for that tie customers to
    1st mover’s products
    • Establish social ties ahead of following foreign
    competitors
    – important in high-context cultures

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    11-4

    Timing of entry: First-mover


    disadvantages; pioneering costs

    • Time spent to learn dos-don’ts; competitors can


    learn from 1st mover
    • If 1st mover introducing a new industry, it builds
    infrastructure
    • 1st mover “trains” customers for followers
    • Break through host country’s adjustment to
    “foreignness” issues
    – Regulations may change as a result of 1st mover’s entry

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    11-5

    Scale of entry
    • What level of resources to commit?
    • What level of resources can firm afford to
    commit?
    • A strategic commitment is difficult to reverse
    – Has a long-term impact
    – Means that the resources cannot be used elsewhere
    • 1st mover advantages and large scale linked
    • Small scale entry allows learning at low risk
    • Entry in small or large potential market may
    require the same level of initial resources

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    11-6

    External or “arms-length” Modes


    of Entry
    • Firm does business overseas without investing
    in assets and human resources in target market

    • Exports
    – Sell “domestically” produced products into foreign markets
    through local independent agents or directly to customers
    – Eliminates costs of establishing manufacturing operations in a
    host country
    – Helps firm learn and achieve economies of scale
    – May not be economically sound if manufacturing location is
    not “lowest cost producing”
    – Transportation, tariffs may be problematic

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    11-7

    External or “arms-length” Modes of


    Entry (Cont.)
    – Turnkey projects
    • Special case of exporting for firms that set up
    production plants or build facilities for others
    • The “exporting firm” builds the facility overseas,
    starts it up, turns it over to the host country owner,
    and then departs
    • Oil firms, construction firms, manufacturers

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide

    External or “arms-length” Modes


    11-8

    (cont.)
    • Licensing
    – Licensor grants rights to licensee for use of
    intangible property over a specified period in return
    for a fee
    – Intangible property: patents, inventions, formulas,
    processes, designs, copyrights, trademarks
    – Licensing agreement likely allows licensor quality
    assurance rights over actual use of intangible asset
    – If licensee sells to consumers using the licensor’s
    brand name, the license may also give the licensor
    rights to strategic brand control
    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
    Slide
    11-9

    External or “arms-length” Modes


    (cont.)
    • Franchising
    – Franchisor, grants franchisee use of intangibles
    under the condition that franchisee follow strict
    rules of operating the business
    – Mode of operation is part of the brand image
    • International strategic alliances

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    11-10
    “Internal” Modes of Entry: FDI
    • Wholly owned subsidiaries
    – Firms owned 100% by a company in a foreign
    country
    • International joint ventures
    – Firms that are owned jointly by two or more
    otherwise independent firms; most IJVs are
    between two firms
    – One (or more) parent firms are non-resident in
    the host market
    – Ownership % may vary from majority foreign
    owned, to 50%-50% owned, to minority owned
    by the foreign firm
    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.
    Slide
    11-11

    Entry Mode Advantage Disadvantage


    Wholly  Enables global strategic  High costs and risks
    owned coordination  Requires overseas
    subsidiaries  Protects technology management skills
     Realizes (potentially) location  May be slower to implement
    and experience economies
    International  Gives access to local partner's  Loss of control over
    Joint knowledge technology and managerial
    Ventures  Allows sharing of development know-how
    costs and risks  May impede global
     May be more politically coordination
    acceptable than 100% foreign  May make realization of
    ownership location and experience
     Allows foreign parent do economies more difficult
    deploy resources across more  Sharing of profit "pie"
    national markets at once
    International  Similar to international joint  May be more difficult to
    Strategic ventures manage than international
    Alliances joint ventures

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    11-12

    Entry Mode Advantage Disadvantage


    Franchising  Low financial risk  Lack of direct control over quality
     Relatively low  Successful international franchising
    development costs requires considerable start-up and
    ongoing presence overseas (cost)
     Is likely to impede, make global
    coordination costlier than ownership
     Growth may be slower depending
    on franchisee's intentions
     Sharing of profit "pie"
     Possible loss of know-how to
    potential competitor
    Licensing  Similar to franchising  Similar to franchising
     Fewer "maintenance"
    costs than franchising
    Exporting  Ability to realize  Transport costs
    experience curve  Trade barriers
    economies  Motivation of local agents a
    challenge

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.


    Slide
    6-15

    Decision Framework for FDI


    No
    Are transportation Import No
    costs high? Barriers? Export

    Ye No Ye
    s s
    Is know-how easy
    FD
    to license?
    I
    Ye
    s Ye
    Tight control over s FD
    foreign ops
    I
    No
    required?
    Ye
    Is know-how valuable s FD
    and is protection I
    possible?
    No
    License

    McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

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