Chapter 13 international

Basic Entry Decisions

The Three Questions: Firms must decide: 1. Which markets to enter, 2. When to enter them (timing), and 3. On what scale (commitment).

Favorable Market Characteristics

Nations that are politically stable, have free market systems, low inflation rates, and low private sector debt.

First-Mover Advantages

Benefits gained by being the first to enter a market, such as pre-empting rivals, capturing demand, and building sales volume ahead of others.

First-Mover Disadvantages (Pioneering Costs)

The costs a transitioner must bear that a later entrant can avoid, such as the time and expense of learning the local "rules of the game" or educating consumers.

Large-Scale Entry

Entering a market with significant resources; it signals a major strategic commitment and can scare off competitors, but it limits the firm's future flexibility.

Small-Scale Entry

Entering with limited resources to learn about the market. It limits risk but makes it harder to capture market share or first-mover advantages.

Exporting

Producing goods at home and shipping them to the target country. It avoids the costs of setting up local manufacturing but can be hurt by high transport costs and tariffs.

Turnkey Project

A contract where a firm handles every detail of a project for a foreign client (like building a power plant) and hands over the "key" once it is ready for operation.

Licensing

A licensor grants rights to intangible property (patents, designs) to a licensee for a specified period in exchange for a royalty fee.

Franchising

A specialized form of licensing used mainly by service firms; the franchiser sells intangible property and insists the franchisee follow strict rules of operation.

Joint Venture

A firm that is jointly owned by two or more otherwise independent firms. This allows for shared costs and local knowledge but risks shared control.

Wholly Owned Subsidiary

A foreign office or factory where the parent firm owns 100 percent of the stock. It provides maximum control but carries 100 percent of the risk.

Greenfield Venture

Building a subsidiary from the ground up in a foreign country. It allows the firm to establish its own culture and systems perfectly from day one.

Acquisition

Buying an existing company in the target country. It is much faster than greenfield entry and can quickly eliminate a competitor.

Technological Know-How Risk

If a firm's advantage is its technology, it should avoid licensing or joint ventures to prevent its secrets from being stolen or "leaked" to competitors.

Management Know-How Strategy

For service firms (like Hilton or Starbucks), the risk of losing "secrets" is low, so they often use franchising or joint ventures to expand quickly.

Pros of Acquisitions

They are quick to execute, allow a firm to pre-empt rivals, and are often seen as less risky because the acquired firm already has assets and customers.

Why Acquisitions Fail

The firm overpays for the assets, there is a clash between the cultures of the two companies, or they fail to achieve the expected "synergies."

Pros of Greenfield Ventures

No "baggage" from an old company; the firm has total control over the technology, physical layout, and organizational culture.

Strategic Alliance

Cooperative agreements between potential or actual competitors, ranging from short-term contracts to formal joint ventures.

Cross-Licensing Agreement

An arrangement where each partner licenses its technology to the other, which helps ensure that neither party "cheats" the other in an alliance.

Relational Capital

The interpersonal relationships and trust that develop between managers from different companies in an alliance, which helps the partnership succeed.

Liability of Foreignness

The disadvantage that foreign firms face because they lack local knowledge, networks, and cultural understanding compared to local firms.

Master Franchise Agreement

A contract where a "master" franchisee is given the right to build and manage multiple franchise locations within a specific region or country.

Partner Selection

A good alliance partner must have capabilities the firm lacks, share the firm's vision for the future, and not try to act opportunistically (steal secrets).