Global Strategic Management

1. Global Strategic Management Session: Global Strategy and Foreign Market Entry (EuroDisney)

2. EuroDisney Case Summary EuroDisney illustrates: • The importance of the location decision (e.g., the sequence of where to take your product/service first). With a global strategy you need to select new locations that are most similar to where you have been successful in the past. • Successful companies can get into trouble basing future success too heavily on past performance without making appropriate adjustments for the new country and culture. • The importance of mode of entry: each mode may be more appropriate under different circumstances; the choice regarding mode of entry can strongly influence the success of international expansion.

3. Advantages Minimizes risk, investment Speed in entering market Maximizes scale, utilization of existing facilities Disadvantages Trade barriers, tariffs (5%+) Transportation costs Limits access to local information Company viewed as outsider Market Entry MechanismsExporting • Conditions favoring exporting • Limited sales potential in target country; little product adaptation required • Good available distribution channels; close to existing production plants • High target country production costs • Liberal import policies; high political risk

4. Advantages Minimizes risk, investment Speed in entering market Able to circumvent trade barriers High return on investment Disadvantages Lack control over use of assets Licensee may become competitor Potential for knowledge spillovers Return is for limited period Market Entry MechanismsLicensing/Contracting • Conditions favoring licensing/contracting • Import and investment barriers that increase cost, limit FDI • Institutional environment that secures legal protection • Tangible or intangible assets can be fairly priced • Low sales potential in target country; large cultural distance • Licensee lacks ability/resources to become competitor

5. Market Entry MechanismsJoint Ventures/Alliances • Conditions favoring joint ventures/alliances • Similar to sole ownership plus: cultural distance is large • Government restrictions on foreign ownership • Local company can provide complementary skills • Local knowledge, resources, distribution, brand name, etc. • Advantages • Overcome ownership restrictions and cultural distance • Combines resources of two companies, potential for learning • Viewed as insider • Reduces investment • Disadvantages • Difficulties in managing j/v • Dilution of management control • Greater risk (than export, license) • Partner may become competitor; potential for knowledge spillovers

6. Advantages Greater knowledge on local market and customer Increases ability to appropriate specialized skills Minimizes knowledge transfers Can be viewed as insider Disadvantages Most risky and expensive way to enter a market (investment, resources, commitment) Inability to manage in local resources in local market Market Entry MechanismsInvestment/Sole Ownership • Conditions favoring investment, sole ownership • Import barriers that increase import costs • Tangible or intangible assets can’t be fairly priced • Cultural distance between home/host countries is small • High sales potential in target country