Chapter 13: Entering Developed and Emerging Markets (International Business)

Wholly Owned Subsidiary (Disadvantages):

- Host countries' concerns may limit or prohibit fully owned subsidiaries (China)

Licensing & Franchising (Disadvantages):

- May create new competitors (licensees become competitors after a few years) -Dependence on licensees during the contract -Concerns about trademark protection -Difficult to maintain quality control

Exporting and Importing (Advantages):

- Only available choices for small and new firms wanting to go international - Exporting and importing can provide easy access to overseas markets

Exporting and Importing (Disadvantages):

- Transport Costs can be high -Reliance on foreign distributors -This strategy usually is transitional -Tariff barriers can make it uneconomical. -Foreign agents fail to act in the exporter's best interest. -Problems with local marketing agents (right price, right channel, right consumer).

Entry modes:

-Acquisitions -Greenfield -"JVs"

Licensing & Franchising (Advantages):

-Allows small firms that lack financial and managerial resources to avoid entry costs -Allows firms to enter markets withoutmaking a direct investment

When may licensing be attractive?:

-If a technological advantage is only transitory or the firm can establish its technology as the dominant design in the industry

Greenfield Venture or Acquisition?

-If there are already well-established incumbent enterprises or interest from global competitors, an acquisition is best.• Greenfield may be too slow to establish a presence in a foreign market. -If there are no incumbents or the firm's competitive advantage is based on the transfer of organizationally embedded competencies, skills, routines, and culture, greenfield might be the best option.• Things such as skills and organizational culture are much easier to embed in a new venture than in an acquired entity

Wholly Owned Subsidiary (Advantages):

-Need/Desire for total control. -A belief that managerial efficiency is better without outside partners. -When the market becomes really attractive(GE O&G in Colombia)

Ownership modes:

-Wholly-Owned Subsidiary -Partnerships

The scale of Entry and Strategic Commitments (on a small-scale):

-allows the firm to learn about a foreign market • May be more difficult to build market share.

Mergers and Acquisitions (Advantages):

-each company contributes its strategic strengths to increase the global competitiveness of the firm

Greenfield Ventures (Disadvantages):

-slower to establish -Can be problematic if a competitor enters via acquisition andquickly builds market share.

Pro's of early entry:

-the gaining of first-movers advantages -• Ability to preempt rivals and capture demand by establishing a strong brand name.• Ability to build up sales volume in that country and ride down the experience curve ahead of rivals and gain a cost advantage over later entrants.• Ability to create switching costs that tie customers into their products or services

When should firms avoid licensing and joint venture arrangements?:

-when competitive advantage is based on proprietary technological know-how in order to minimize the risk of losing control over the technology.

Modes to Enter Foreign Markets:

1. Exporting. 2. Licensing. 3. Franchising. 4. Joint ventures. 5. Wholly owned subsidiaries.

Timing of Entry:

After a firm identifies which market to enter, it must determine the timing of entry.

Pressures for Cost Reductions and Entry Mode:

Firms facing strong pressures for cost reductions are likely to pursue some combination of exporting and wholly owned subsidiaries. (Intra-company export: HQ exports to the subsidiary)

Greenfield Ventures (Advantages):

Greenfield ventures are attractive because they allow the firm to build the kind of subsidiary company it wants.

Ways to enter a foreign market

exporting, joint venturing, direct investment, acquiring an establish enterprise in the host country

Examples of different market conditions:

institutional voids, market size, competitors, resources, constraints, etc., are different

First-mover disadvantages:

the disadvantages associated when entering a foreign market before other international businesses. -may result in pioneering costs- costs that an early entrant bears that a later entrant can avoid (ie costs of business failure or costs of promoting and establishing a product offering)

Late entry:

when a firm enters after other firms have already established themselves in the market

Early entry:

when the firm enters a foreign market before other foreign firms

What do firms pursuing transnational strategies (global integration) tend to establish

wholly owned subsidiaries (difficult to fully integrate when one has a JV)

Mergers and Acquisitions (Disadvantages):

• Challenges of post-merger integration

Alliances and Joint Ventures (Disadvantages):

• High switching costs • Concerns to protect IP (intellectual property) rights (Nike in China)

Alliances and Joint Ventures (Advantages):

• Improve efficiency, pool assets • Increased access to market knowledge • Reduced political risk.

The scale of Entry and Strategic Commitments (on a significant scale):

• Involves decisions that have a long-term impact and (sometimes) are difficult to reverse • Examples: Large manufacturing facilities, mining projects, foreign expansions that involve large constructions

Advantages and Disadvantages of Entry Modes:

• Transportation costs.• Trade barriers.• Political risks.• Economic risks.• Business risks.• Costs.• Firm strategy.