12. Entry Strategy and Strategic Alliances

basic decisions firm make for global expansion

which market to enter, when to enter them and on what scale, which entry mode to use

first-mover advantages

pre-emption of rivals, ability to build sales volume, buyer switching costs

first-mover disadvantages

pioneering costs, shifts in technology or customer needs

choice of scale depends on…

strategic commitment and flexibility

exporting

international sale of domestic products

exporting is attractive because…

avoids the costs of FDI and helps the firm achieve experience curve and location economies

exporting is unattractive because…

may be lower-cost manufacturing locations, high transport costs, tariffs, foreign country working against you

turnkey projects

where the contractor handles every detail of the project for a foreign client and hand the “key” over when the plant is fully operational

turnkey projects are attractive because…

earn economic returns from the knowledge required to run a complex process and less risky then FDI

turnkey projects are unattractive because…

no long-term interest in the foreign country, may create a competitor, if technology is a competitive advantage than you’re selling this to potential competitors

a licensor grants the rights to…

intangible property to the licensee for a specified time period receiving a royalty fee in return

licensing is attractive because…

avoids development costs, barriers to investment, can capitalise on market opportunities

licensing is unattractive because…

does not have tight control required, ability to coordinate strategic moves is limit, assets could be lost

franchising

form of licensing where the franchisor sells intangible property but insists the franchisee also abide by strict rules on how to do business

franchising is attractive because…

avoids the costs of FDI and can quickly build a global presence

franchising is unattractive because…

takes profits out of one country to support competitive attacks in another, difficult to detect poor quality

joint venture (JV)

when a firm is jointly owned by two or more otherwise independent firms

joint ventures are attractive because…

benefit from partners knowledge, culture, political and business systems; risk is shared and minimal political interference

joint ventures are unattractive because…

risk giving control to partner, might not have control to realise experience curves or location conflicts, conflicts between partners

wholly owned subsidiary

setting up a new operation (greenfield) or M&A

wholly owned subsidiaries are attractive because…

reduce risk of losing control, give tight control for global strategic coordination, may be required to realise location and experience curve economies

wholly owned subsidiaries are unattractive because…

the firm bears the full costs and risks

based on proprietary technological know-how avoid…

licensing or joint ventures

based on management know-how…

risks of losing control is low

when pressures for cost reductions are high firms are likely to pursue a combination of…

exporting and wholly owned subsidiaries

strategic alliances are…

co-operative agreements between potential or actual competitors; usually short term

advantages of strategic alliances…

facilitates entry into foreign market, share costs and risks, bring together skills and assets, help establish technological standards

disadvantages of strategic alliances…

can give competitors low-cost routes to new tech and markets, give away more than it receives

what makes strategic alliances successful

partner selection, alliance structure, manner in which alliance is managed