Entry Strategy

1. Entry Strategy Chapter 12

3. Any firm contemplating foreign expansion must struggle with several decisions Which foreign market(s) to enter choose based on long-run profit potential Market size Growth rate Political stability Competition When On what scale Which mode of entry Key issues of entry strategy

4. Advantages associated with entering early are “first-mover advantages” Ability to preempt rivals, establishing a strong brand name quickly Ability to build sales volume Ability of early entrants to create switching costs Disadvantages are “first-mover disadvantages” Pioneering costs - costs only an early entrant has to bear Possibility that regulations may change When to enter?

5. Large scale entry Strategic Commitments - decisions that have long-term impact and are difficult to reverse Local distributors, partners will take you seriously May cause rivals to rethink market entry But may lead local firms to attack aggressively Small scale entry Time to learn about market Reduces exposure risk But fast-moving competitor may beat you Scale of Entry

7. Firms can use six different methods to enter a market Exporting Wholly Owned Subsidiaries (the most common kind of foreign direct investment) Licensing Franchising Joint Ventures Turnkey Projects Entry Modes

9. Advantages: No risk of losing technical competence to a competitor Tight control of operations Realize learning curve and location economies Disadvantage: Very expensive Bear full cost and risk Subsidiaries could be greenfield investments or acquisitions Wholly Owned Subsidiary (i.e., Foreign Direct Investment)

10. Advantages: Avoids cost of establishing manufacturing operations May help achieve experience curve and location economies Disadvantages: Possible high transportation costs Tariff barriers Possible lack of control over marketing reps Exporting

11. Licensing Reduces development costs and risks Works in unfamiliar or politically volatile market Overcomes investment barriers Others can develop business applications of your know-how Franchising Reduces costs and risk May prohibit movement of profits from one country to support operations in another Quality control Licensing and franchising Agreement where licensor grants rights to intangible property to another entity for a specified period of time in return for royalties. Franchiser sells intagible property and insists on rules for operating business

12. Advantages: Benefit from local partner’s knowledge Shared costs/risks with partner Reduced political risk Disadvantages: Riskgiving control of technology to partner May not realize experience curve or location economies Shared ownership can lead to conflict Joint Ventures

13. Advantages: Can earn a return on knowledge asset Less risky than conventional FDI Disadvantages: No long-term interest in the foreign country May create a competitor Selling process technology may be selling competitive advantage as well Turnkey projects Contractor agrees to handle every detail of project for foreign client

14. Technological Know-How Avoid licensing and joint-venture arrangements Probably use a wholly owned subsidiary Exception: If the technological advantage is only transitory Management Know-How The firm’s valuable assets include a brand name Either franchising or wholly owned subsidiaries may work well Often times a joint venture is politically more acceptable Core Competencies and Entry Mode If what you are good at is…