Lecture 12

Stage 4

Foreign Production

McDonalds

the og franchisor

Market Entry Considerations

- Cultural similarity with target market - Nature of information sought (varies with product and industry) - Possibly target a region

Equity Based Modes of Entry

- Greenfield - JV - Acquisition

Uncertainty in Global Operations

- Lack of Local Market Knowledge - Lack of International Experience - Perceptions of Risk in Dealing with Foreign Business Partners

Advantages of Licensing/Franchising

- Lower costs (vs. FDI) - Less transportation costs - Share resources from licensee/franchisee - Lower production costs (vs. export)

Disadvantages of Licensing/Franchising

- May lose control of IP - May lose control of product/service quality - May create potential competitor - Not realizing full benefit of sales (vs. FDI)

Entry Modes

- Nonequity (Exports, and Contracts, Licensing/Franchising, Turnkey) - Equity (JVs, Subsidiaries)

Overseas Regulatiosn

- Registration - Licensing - Taxation - Reporting - Inspections

Alliance Success

- When the environment is stable - When both partners transfer a lot of knowledge - When both partners have lots of alliance expiernece = "relational capabilities"

Benefits of Alliances

-Create value by reducing costs, risks, and uncertainty -Can help in the case of 'resource dependency', e.g. through connection to governments -Reduce transaction costs by establishing mutual tolerance -Enable knowledge transfer from both partners - combo of best 'complementary assets'

Global Market Opportunities

1) Decide which market to enter 2) Screen countries to identify target markets 3) Identify candidate countries by assessing each based on -Size and Growth rate - Market Intensity - Country's receptivity to imports - Economic freedoms and Country Risk

Joint Venture

A business partnership between two or more companies, typically from different countries, to jointly own and operate a business venture, sharing risks, costs, and profits. For example, Sony and Ericsson formed a joint venture called Sony Ericsson to develop and market mobile phones.

Delhi Metro Turnkey Project

A comprehensive transport infrastructure project in Delhi, India, where the Delhi Metro Rail Corporation (DMRC) awards a contract to a contractor for the entire process of designing, building, testing, and commissioning the Delhi Metro rail network system.

Enron's Energy Facility in Turkey

A contractual arrangement where Enron was responsible for the design, construction, and operation of an energy facility in Turkey for a specified period. Upon completion of the contract, ownership of the facility would be transferred to the Turkish government. During the contract period, Enron had the right to collect revenue from the facility's operations to recoup its investment and earn a profit.

Indirect Exports

A way to reach overseas customers by exporting through domestic-based export intermediaries

When to Export

Attractive because: - Relatively low cost - firms may not experience curve economies

Non Equity Modes of Entry

Contactual Agreements and Aliances - R&D contract - Turnkey Project - BOT - Licensing/Franchising

Stage 3

Direct Export

Greenfield

Establishing a new business operation in a foreign country from the ground up, often involving building facilities, hiring staff, and acquiring resources. For example, when Starbucks opened its first store in China, it built a new coffee shop from scratch, hired local staff, and sourced materials locally.

Stages Model

Expansion as a process of organizational learning Stage 1: Home market only Stage 2: Indirect export Stage 3: Direct export Stage 4: Foreign production

Nonequity Modes

Exports and contractural agreements that are less costly and hae the potential for gradual organizational learning.

Stage 1

Home Market Only

Born Global Strategies

If you wait too long, miss the window of opportunity ...Leaving you 'stuck' where you are

Stage 2

Indirect Export

Equity Mods

JVs and wholly owned subsidiaries. These demonstrate stategic committment to certain markets, local customers and suppliers, and can deter potential entrants.

Hello Kitty

Licensed by Sanrio

When to not export

Not attractive when - lower-cost manufacturing locations exist - transport costs are high - tariff barriers are high - foreign agents fail to work in the exporter's best interest.

Starbucks Intl. Strategy

Our development stratgy adapts to different markets addressing local needs and requirements. We currently use three business strategies: joint ventures, licenses, and company-owned operations.

R&D Contract

Outsourcing agreement in R&D between firms.

Gradual Internationalization

Step-by-step progress toward internationalization as risk and commitment increase and entrepreneurs acquire more knowledge through experience

Rapid Internationalization

Successful if: -Venture capital present -Strong ownership advantages can be exploited -First mover advantages exist

Positive CoO Effect

Swiss Chocolate

Direct Exports

Taking orders in home market and shipping them direct to customers in a new market

Country of Origin Effect

The positive or negative perception of firms and products from a certain country.

Acquisition

The process of one company purchasing another company, often to gain access to new markets, products, or technologies, and integrating the acquired company into its existing operations. For example, Facebook's acquisition of Instagram in 2012 for $1 billion was aimed at expanding Facebook's reach in the mobile photo-sharing market.

Negative CoO Effect

US Chocolate

Turnkey Project

foreign firm is paid to design and construct new facilities and train personnel.

Build Operate and Transfer (BOT)

like turnkey but foreign firm operates for a set period

Licensing/Franchising

producing/marketing on the licensor/franchisor's behalf