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BA 510 International Management Doha 2011 Class 5

BA 510 International Management Doha 2011 Class 5. Today. Review of Entry Modes Selecting an Entry Mode International Manufacturing Strategy Case Study Discussion: Canada Solar Pitch preparation; 7 minute Pitches. Entry Modes. HOME COUNTRY. HOST COUNTRY. Licensing. Acquisition. MNC.

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BA 510 International Management Doha 2011 Class 5

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  1. BA 510 International Management Doha 2011 Class 5

  2. Today • Review of Entry Modes • Selecting an Entry Mode • International Manufacturing Strategy • Case Study Discussion: Canada Solar • Pitch preparation; 7 minute Pitches

  3. Entry Modes HOME COUNTRY HOST COUNTRY Licensing Acquisition MNC Local Firm Export Joint Venturing Joint Venture Company “Green Field” Entry New Subsidiary Company

  4. Entry Modes: Exporting • Ship to another country for sale or exchange • Advantages: • Avoid cost of establishing manufacturing operations • Help achieve experience curve and location economies • Disadvantages: • May compete with low-cost location manufacturers • Possible high transportation costs • Tariff barriers • Possible lack of control over marketing reps

  5. Entry Modes: Licensing • Licensor grants rights to intangible property to another entity for a specified period of time in return • Advantages: • Reduces development costs and risks of establishing foreign enterprise • Lack capital for venture; Unfamiliar/volatile market • Overcomes restrictive investment barriers • Others can develop business applications of intangible property • Disadvantages: • Lack of control • Cross-border licensing may be difficult • Creating a competitor

  6. Entry Modes: Franchising • A franchiser sells intangible property and provides guidelines for operating the business. • Advantages: • Reduces costs and risk of establishing enterprise • Disadvantages: • May prohibit movement of profits from one country to support operations in another country • Quality control

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

  8. Entry Modes: Wholly Owned Subsidiary Acquisition Greenfield • Pro: • Quick to execute • Preempt competitors • Possibly less risky • Con: • Often produce disappointing results • Overpay for firm • Too optimistic about value creation (hubris) • Culture clash • Problems with proposed synergies • Pro: • Can build subsidiary it wants • Easy to establish operating routines • Con: • Slow to establish • Risky • Preemption by aggressive competitors

  9. Selecting an Entry Mode Basisfor Competition Entry Mode Wholly owned subsidiary unless1. Venture is structured to reduce risk of loss of technology2. Technology advantage transitory Then licensing or joint venture OK TechnologicalKnow-How ManagementKnow-How Franchising, subsidiaries (wholly owned or joint venture) Pressure forCost Reduction Combination of exporting and wholly owned subsidiary

  10. Selecting an entry mode • SolarWorld • Bonn HQ • Qatar • Polysilicon processing • JV with Qatar Foundation (70%), Qatar Development Bank (1%) and SolarWorld (29%) • “..a forward integration along the entire solar value chain all the way to the finished solar power module could be implemented.” • Portland • Wafers, Cells, and Modules manufacturing • Wholly owned subsidiary, US HQ

  11. Selecting an entry mode • Interface Engineering • Portland HQ • Building engineering and design • General administrative • Sacramento, San Francisco, Seattle and Abu Dhabi • Building engineering and design

  12. Selecting an entry mode High Pressures for Global Efficiency Export Strategy Low Low High Pressures for Local Responsiveness

  13. Selecting an entry mode Export Strategy Germany U.S. Mexico Malaysia

  14. Selecting an entry mode High Pressures for Global Efficiency Multi-domestic Strategy Export Strategy Low Low High Pressures for Local Responsiveness

  15. Selecting an entry mode Multi-domestic Strategy Germany U.S. Mexico Malaysia

  16. Selecting an entry mode High Global Strategy Pressures for Global Efficiency Export Strategy ?? Multidomestic Strategy Low Low High Pressures for Local Responsiveness

  17. Selecting an entry mode Global Strategy Germany U.S. Mexico Malaysia

  18. Selecting an entry mode High Global Strategy Transnational Strategy Pressures for Global Efficiency Export Strategy ?? Multidomestic Strategy Low Low High Pressures for Local Responsiveness

  19. Selecting an entry mode Transnational Strategy Germany U.S. Mexico Malaysia

  20. Selecting an entry mode Decision Matrix Hi Strategic Importance of Country Lo Hi Resources, Control, Risk Lo Lo Hi Attractiveness of Country/Region

  21. Selecting an entry mode Germany JV U.S. H.Q. Mexico WOS-G Malaysia Export

  22. InternationalManufacturingStrategy

  23. International Manufacturing Strategy • First-mover advantage. • Preempt rivals and capture demand • Build sales volume • Move down experience curve before rivals and achieve cost advantage • Create switching costs • Disadvantages: • First mover disadvantage - pioneering costs • Changes in government policy Costs early entrant bears that later entrant can avoid.

  24. International Manufacturing Strategy • Key factors • Country: Factor costs, location externalities, infrastructure • Technological: Economies of scale, manufacturing flexibility • Product: Value to weight ratio, universality of needs

  25. International Manufacturing Strategy Determining the Optimal Location of Value Chain Activities Where is the optimal location of X in terms of the cost and availability of inputs? The optimal location of activity X considered independently What government incentives/ penalties affect the location decision? What internal resources and capabilities does the firm possess in particular locations? Economic Cluster Considerations WHERE TO LOCATE ACTIVITY X? What is the firm’s business strategy (e.g. cost vs. differentiation advantage)? The importance of links between activity X and other activities of the firm How great are the coordination benefits from co-locating activities?

  26. Favored Manufactured Strategy Concentrated Decentralized Country Factors Differences in political economy Substantial Few Differences in culture Substantial Few Differences in factor costs Substantial Few Trade barriers Few Many Technological Factors Fixed costs High Low Minimum efficient scale High Low Flexible manufacturing technology Available Not Available Product Factors Value-to-weight ratio High Low Serves universal needs Yes No International Manufacturing Strategy

  27. Case Discussion: Canada Solar

  28. Case Discussion: Canada Solar • What is the structure of its existing value chain, both domestic and international? • What options for international market entry may exist, including but not limited to manufacturing in China? • What are the possible modes of entry for expanding its international presence? • If it enters China, what mode(s) of entry should it consider?What are the pros and cons of one or more entry modes?

  29. Pitch

  30. Pitch • Cluster Assessment + “Fit-1” (Solar PV Mfg and Qatar) + “Fit-2” (The Company + Qatar Industrial Policy • 7 minutes • 2 page outline

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