international business, 5th edition

chapter 14
Entry strategy and
Strategic Alliances
 Case1
GE joint venture
Opening case
• Case implications- evolution
1. Started in acquisition and Greenfield approach- why? for full
control.
2. Shift since Year 2000 to joint ventures- example, GE Money with
Hyundai to offer auto loans.
3. Acquisitions have been bid so high to discover later on hidden
problems in the acquired firm.
4. Economic, political, and cultural considerations make Joint
venture less risky than Greenfield approach. So the local partner
may take care of these issues.
5. Some countries like china for example prohibit other entry modes.

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 GE’s Joint Ventures

6. Joint ventures now GE’s preferred entry strategy.

7. And this is a very important point- GE has no problem in finding
international partners. Why?
8. Partners like GE Management competencies.
9. So it is a win-win situation- mgt Vs local market knowledge.
Different forms of partner ownership.
Minority partner – veto power.
Majority partner
50/50

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 Case2
Tesco’s international growth
strategy page 472
Tesco is the largest grocery store in the UK similar to Carrefour.
Tesco competencies: marketing, store site, logistics and inventory
mgt, private label product offerings.
Competencies lead to cash flow- lead to strategy of overseas
expansion.
To decide, would you go to established markets or to emerging
markets?
--they went to eastern Europe and Asia with few competitors and
underlying growth trends.
--huge investments in joint ventures and acquisitions in these
countries and in china.

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 Case2
Tesco’s international growth
strategy
• 2007 Tesco had over 800 stores outside its homeland, with 7.6 billion
Euros and 1,900 stores generating 30 billion Euros.
• Success factors for Tesco:
1- knowledge transfer internationally, transferring its core capabilities in
retailing.
2- hiring local managers and supporting them with Tesco Method.
3- teaming up with good companies- value added approach. Or synergy.
We got the retailing know how and financial strength and you got the
deep understanding of your local market. Joint venture rules for
success.
4-seeking markets with good growth potential but lack strong indigenous
(local) competitors.

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 Case2
Tesco’s international growth
strategy page
In March 2006 entered US. (contradiction, right?).
No.
Used Tesco Express Concept After its success in five countries.
Differentiate before you enter.
1- smaller stores
2-high quality prepared health food
3- unique idea in the US.

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 Case2
Tesco’s international growth
strategy page 472

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 Case 3
The Jollibee

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 Case 3
The Jollibee
• Jollibee is A Philippine Multinational store began
1975 as an ice cream store.
• Copy Mc by benchmarking
• Look for weaknesses while benchmarking
• Tailoring its menu to local taste with secret spices.
• It outperformed Mc in Philippine.

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 Case 3
The Jollibee
• 1n 1980 strong confidence to expand internationally.
• Follow countries with Pilipino people.
• In the US saturated but did well.
• The store started to receive Filipinos and ended up
having more non- Filipinos than Filipinos in the US.
Taco Bell has the same story.
• Now over 100 stores in china and in its way to India

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 Case 4
Cisco and Fujitsu

• 2004 Cisco and Fujitsu joint venture

• Purpose to develop high speed
internet routers in Japan and to
have better presence in Japan.

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 Case 4
Cisco and Fujitsu

Alliance goals:
1. Pool R&D efforts and share technology and
develop products more quickly.
2. Producing more reliable products via Cisco’s
proprietary leading edge router technology with
Fujitsu’s production expertise .
3. Fujitsu will give Cisco a stronger sales presence
in Japan. Connections and network

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 Case 4
Cisco and Fujitsu
Alliance goals:
4- Fujitsu sells many telecommunication products but lacks a
strong presence in routers, whereas Cisco is strong in
routers, but lacks strong offerings elsewhere.
This alliance will offer Japan’s telecommunications
companies end to end communication solutions- a
complete solution not a fragmented one, because many
companies like to purchase their equipment form a single
provider. This should drive sales.

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 Case 4
Cisco and Fujitsu

The consequences of this alliance:

1- development cost will be lower
2- Cisco will grow sales in Japan
3- Fujitsu can use cobranded routers to fill
out its product line and sell more
bundles of products to Japan’s
telecommunication companies.

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 JCB in India

• Very good closing case page 495

• Read this case with your partner.
• Answer any two questions
• check and confirm answers with
your partner.

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 Group home work

• Select a company of your own – make it a fun exercise

• Go global, step by step
• Make your own decision via chapter 14 in terms of
1- which foreign market to enter
2- time and scale
3- entry mode (why for example franchising, and then to joint
ventures?).
4-and how did you make your alliances work (effective).
Elect one of you to tell us your success story.

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 Chapter main elements

• Explain the three basic decisions that firms seeking foreign

expansion must make: which markets to enter, when to enter
those markets, and on what scale?
• List some of the advantages and disadvantages of the
different modes that firms use to enter foreign markets.
• Identify the factors that influence a firm’s choice of entry
mode.
• Evaluate the pros and cons of acquisitions versus Greenfield
ventures as an entry strategy.
• Evaluate the pros and cons of entering into strategic
alliances.

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 Entry Strategy and Strategic
Alliances

First check GE’s Joint ventures in the

opening case page 468-469. why
GE shifted to joint ventures?

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 1 Basic Entry Decisions

• First- which foreign market?

1- nation’s long run profit potential.
2- the value an international business
can create in a foreign market.
3- sustainable competitive advantage-
the case of Tesco case page 472-473.

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 Basic Entry Decisions

• The second decision: Timing of entry. It all

depends:
1- do you want to be first mover
Or
2- do you want to be late mover.
KFC was first to enter China but McDonalds has
capitalized on the market on China.

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 Basic Entry Decisions

• The third decision is:

the scale of entry and strategic commitment.
ING into the US insurance market in 1999
spending several billion dollars to acquire
its US operations----strategic commitment
But it affects the firm’s strategic flexibility

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 Basic Entry Decisions

• Large scale entry Vs Small scale entry.

Small scale entry allows a firm to learn about a
foreign market while limiting the firm’s
exposure to that market. Wait and see. Less
risky.
Miss the chance for first mover advantage
Benchmarking for late movers. Look at the
Jollibee case page 477.

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 1- which foreign market?
2- timing?
3- scale?

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 2 Entry Modes

• Exporting
• Trunkey Projects
• Licensing
• Franchising
• Joint ventures
• Wholly owned subsidiaries see table 14.1

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 Selecting an Entry Mode

• Core competencies and entry mode.

1- technological know how- avoid joint
ventures and licensing in such cases- why?
So it is better to go through wholly owned
subsidiary.
2- Mgmt Know how – is less risky in services.
• Pressure for cost reductions and entry mode

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 http://news.sky.com/story/956296/londons-tall
est-building-officially-unveiled

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 3 Greenfield Venture or
acquisition

Pros and cons of acquisitions:

1- quick to execute, the case of DaimlerChrysler.
2- competing over global presence, the case of
Vodafone in the USA 60 billion dollars
acquisition of Air Touch communication in
1998.
Zain and Fastlink Zain Vs STC

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 Greenfield Venture or
acquisition

• 3- managers believe acquisitions to

be less risky than Greenfield
ventures. Studies show declining
value after acquisitions by more
than 30 to 40 percent.

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 Why do acquisitions fail?

1. Overpay for the acquired firm’s assets.

2. Over estimate ability to create value and revenues.
3. Too optimistic top mgmt- the case of DaimlerChrysler.
4. Culture clash between the two cultures
5. Different mgmt philosophies
6. Premature decisions with inadequate pre-acquisition
screening.
So reversing the above will reduce the risks of failure

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 Pros and Cons of Greenfield
Ventures

• Start from scratch the culture, the

company, the system, the policies,
the operating procedures that you
want. The case of Lincoln Electric in
Europe failed in acquisition and
turned to Greenfield. You may build a
culture but you may not convert it or
change it easily.

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 Pros and Cons of Greenfield
Ventures

• But, they are slower to establish

• Risky.
• The possibility of being blocked or
interrupted by competitors who enter
via acquisitions and build a big market
presence that limits the market
potential for the Greenfield venture

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 Greenfield or Acquisition?

• It all depends on the circumstances

but if there is a global competition,
acquisition might be better.
• Greenfield is good with no
competitors to be acquired
• So competitive advantage is
important

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 4 Strategic Alliances

• SA refers to cooperative agreements

between potential or actual
competitors.
• Joint ventures – Fuji Xerox
• Short term contractual agreements –
such as developing a new product.

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 The advantages of Strategic
Alliances
• You need a local partner in China to facilitate
your entry. NYiT and JUST.
• SA allow firms to share the fixed costs and risk.
• A way to bring together complementary skills
and assets that neither company could easily
develop on its own. Sharing now-how and skill.
• To establish technological standards for the
industry.

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 The Disadvantages of
Strategic Alliances

• Steal the Know-How or technology

and use as a leverage for one firm
at the expense of the other.
• Alliance must be built around
shared and mutual gain and
benefits that can not be obtained
otherwise for both partners.

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 Strategic Alliances

• To avoid the disadvantages you need to

learn:
how to make it work
1. partner selection
2. alliance structure
3. managing the alliance.
End of chapter

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 • Next are just extra slides to
enhance your knowledge of
strategic alliances

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 Strategic Alliances

• Cooperation between international

firms can take different forms.
• A strategic alliance is a business
arrangement whereby two or more
firms choose to cooperate for their
mutual benefit.
• They may choose to pool R&D,
marketing..etc.
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 Joint Venture
• A joint venture (JV) is a special type of
strategic alliance in which two or more firms join
together to create a new business entity that is
legally separate and distinct from its parents.
• A joint venture can be managed in one of three
ways.
• The founding firms share management by
appointing personnel who report to the parent
company.
• One company assuming prime responsibility.
• Independent management team.
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 Figure 13.1 Benefits of
Strategic Alliances

Potential Benefits
of Strategic Alliances

Shared Synergy
Ease of
Shared Knowledge and
Market
Risk and Competitive
Entry
Expertise Advantage

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 international business, 5th edition
Ease of market entry

• Elimination of obstacles such

as government regulations and
strong competition.
• For instance, some government
may require foreign firms to
have local partners.
 international business, 5th edition
Shared Risk

•Much of the costs of some

products are paid on research
and development before even
assessing the market potential.
•Shared risk is important when
uncertainty and instability is high.
 Shared knowledge and

international business, 5th edition

expertise
• Companies may lack knowledge
and expertise.
• For instance, foreign company
may lack the knowledge of dealing
with suppliers, or how to deal with
government regulations.
 international business, 5th edition
Synergy and Competitive
advantage

• Such as creating brand

image which might be time
consuming and expensive.
• Pepsi cola and Lipton:Tea
 Scope of Strategic Alliances

• Scope of alliance could be

comprehensive or functional or
narrowly defined alliance.
• Degree of collaboration depends upon
basic goals of each partner.
• In comprehensive the partners agree
to perform together multiple stages
such as design,production..etc.

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 international business, 5th edition
Scope of Strategic Alliances 2
• Functional alliances: It usually involves
only a single area of the business.
• Production: A functional alliance in which
companies manufacture products in a
shared or common facility.
• Marketing alliance: Companies share
marketing resources. For instance, one
company introduces products into a
market the other company has presence
in. Or it may take the form of reciprocal
marketing in which they market each
 Figure 13.2 The Scope of
Strategic Alliances 3

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 international business, 5th edition
Scope of Strategic Alliances 4
• Financial alliance: For instance,
sharing equally the financial
resources to the project or one
partner may contribute the bulk of
financing while the other partner
provides special expertise.
• R & D: Agree to have joint
research to develop new
products.
 Types of
Functional Alliances

Production alliances

Marketing alliances

Financial alliances

R&D alliances

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 international business, 5th edition
implementation of Strategic
Alliances
1. Selection of the appropriate partner.
•The factors to consider in selection
• Compatibility: choosing partner that can be trusted. For
instance, if management style is inconsistent.
• Nature of the partner’s products. For instance, it is hard
to cooperate with a firm in one market and competing
with in another market.
• Safeness of the alliance based on success or failure of
previous alliances made by the partner.
• Potential for learning from the alliance
 Implementation of SA 2

Partner
Selection

Form of Joint
ownership management

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 Implementation of SA 3-
Factors Affecting Partner Selection

Compatibility Nature of
seeking skills and resources partner services
compatibility Should not have competitive
products in different area

Relative safeness Learning potential

Gather as much info about
In specific areas of ops
the potential partner

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 international business, 5th edition
Implementation of SA 4
2. Forms of Ownership
•Joint venture is more likely to take the form
of corporation, usually incorporated in the
country in which it will be doing business.
•The corporate form enables the partners to
have its own identity apart from the partners.
•Public-private venture in which the
government is involved and a privately
owned firm. Common in oil industry.
 international business, 5th edition
Implementation of SA 5 –
Joint Management Considerations

•There are different approaches.

• Shared management agreement: each partner is
involved. The managers pass the instructions to
the alliance managers. In other words, the alliance
managers have limited authority.
• Assigned management: One partner assumes
primary responsibility.
• Delegated arrangement: delegate management
control to the executives of the venture.
 Joint Management considerations

Shared
management
agreements

Assigned
arrangements

Delegated
arrangements

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 Figure 13.3a Shared
Management Agreement

Both parties are

Partner active participants Partner
1 2

Alliance

• Alliance mgrs have limited authority and must

refer to the parent firm for most decisions.
• Requires high level of coordination and most
prone to conflict.
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 Figure 13.3b Assigned
Arrangement

Partner Partner
1 2
One partner takes primary
responsibility

Alliance

Mgt of the alliance is greatly simplified

because of dominant power of one
partner

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 Figure 13.3c Delegated
Arrangement

Partner Partner
1 2

Joint venture

Delegate mgt control to the

executives of the JV.

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 Figure 13.4 Pitfalls of
Strategic Alliances

Changing Incompatibility
circumstances of partners

Pitfalls
Loss of
Access to
autonomy
information
Distribution
of earnings

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