Chapter 8: Entry Strategy ( study entry modes )

Overview of International Business

  • Globalization influences international business decisions.

  • Differences in political economy and culture impact market entry.

  • Ethics is crucial in navigating international business.

  • The global trade and investment environment shapes strategy and operations.

Learning Objectives

  • Explain three basic decisions:

  • Which markets to enter

  • When to enter

  • On what scale to enter

  • Compare various modes of entry into foreign markets.

  • Identify factors influencing entry mode choices.

  • Recognize pros and cons of acquisitions vs. greenfield ventures.

Basic Entry Decisions

1. Which Foreign Market to Enter

  • Assessment Factors:

  • Long-term profit potential

  • Political stability and economic conditions

  • Favorable market dynamics (free-market systems, low inflation)

Most Favored Markets:

  • Politically stable developed and developing nations: Examples include Canada, Australia, Germany (developed), and Singapore, Chile, Botswana (developing).

  • Low private sector debt: Nations like Norway and Switzerland exemplify low private sector debt conditions that favor investment.

Less Desirable Markets:

  • Politically unstable developing nations: Examples include Venezuela and Sudan, which face political turmoil that can deter foreign investment.

  • Command economies and bubble markets: North Korea is an example of a command economy, while countries like China have faced instances of bubble market phenomena in real estate.

  • Successful firms identify unmet needs and introduce novel products: An example is Airbnb, which addressed the need for affordable lodging options in the hospitality market.

2. Timing of Entry

  • Early Entry: Before other firms, gaining first-mover advantages (e.g. brand establishment, volume sales).

  • Late Entry: After competitors have entered; risks include missing out on market share and established customer loyalty.

  • Debate on Timing: Class debate on early entry vs. late entry advantages and disadvantages.

  • First-Mover Advantages:

  • Capturing demand and establishing a brand.

  • Cost advantages through experience over future entrants.

3. Scale of Entry

  • Small Scale: Risks are lower; firms can learn about the market.

  • Significant Scale: Involves heavy strategic commitment; long-term impact on competitive landscape.

  • Decision Trade-offs: No 'right' entry decision; each has varied risks and rewards.

Entry Modes

  • Different modes for entering foreign markets:

  1. Exporting

  2. Turnkey Projects

  3. Licensing

  4. Franchising

  5. Joint Ventures

  6. Wholly Owned Subsidiaries

  • Choosing an Entry Mode: Each mode has its pros and cons depending on the market and firm capabilities.

1. Exporting (Xuất khẩu)

  • Advantages (Lợi thế): Low cost, opportunity to achieve scale economies. (Chi phí thấp, cơ hội đạt được quy mô kinh tế.)

  • Disadvantages (Nhược điểm): High transport costs, tariff barriers, and difficulties with foreign agents. (Chi phí vận chuyển cao, rào cản thuế quan và khó khăn với các đại lý nước ngoài.)

  1. Turnkey Projects (Dự án giao thầu)

  • Definition (Định nghĩa): Contractors manage all details of a project until operational. (Các nhà thầu quản lý tất cả các chi tiết của một dự án cho đến khi hoạt động.)

  • Advantages (Lợi thế): Returns from technological processes, lower political risk. (Lợi nhuận từ các quy trình công nghệ, rủi ro chính trị thấp hơn.)

  • Disadvantages (Nhược điểm): No long-term benefits; risk of technological leakage. (Không có lợi ích lâu dài; rủi ro rò rỉ công nghệ.)

  • Example (Ví dụ): A construction firm contracts to build a power plant, managing everything from design to staff training until the plant is fully operational. (Một công ty xây dựng ký hợp đồng để xây dựng một nhà máy điện, quản lý mọi thứ từ thiết kế đến đào tạo nhân viên cho đến khi nhà máy hoạt động hoàn toàn.)

3. Licensing (Cấp phép)

  • Definition (Định nghĩa): Licensor permits use of its intangible assets in return for royalties. (Người cấp phép cho phép sử dụng tài sản vô hình của họ để đổi lấy tiền bản quyền.)

  • Advantages (Lợi thế): No development costs; capitalizes on market opportunities. (Không có chi phí phát triển; tận dụng cơ hội thị trường.)

  • Disadvantages (Nhược điểm): Lack of control over the use of intellectual property. (Thiếu kiểm soát đối với việc sử dụng quyền sở hữu trí tuệ.)

4. Franchising (Nhượng quyền thương mại)

  • Definition (Định nghĩa): A form of licensing with strict operational rules for franchisees. (Một hình thức cấp phép với các quy tắc vận hành nghiêm ngặt cho các nhượng quyền thương mại.)

  • Advantages (Lợi thế): Reduces risks of entering foreign markets. (Giảm rủi ro khi gia nhập các thị trường nước ngoài.)

  • Disadvantages (Nhược điểm): Quality control can be challenging; profit repatriation restrictions. (Kiểm soát chất lượng có thể gặp khó khăn; hạn chế việc hồi hương lợi nhuận.)

5. Joint Ventures (Liên doanh)

  • Definition (Định nghĩa): Independent firms collaboratively set up a new entity. (Các công ty độc lập hợp tác thành lập một thực thể mới.)

  • Advantages (Lợi thế): Shared risks and benefits from local knowledge. (Chia sẻ rủi ro và lợi ích từ kiến thức địa phương.)

  • Disadvantages (Nhược điểm): Potential control loss and conflict among partners. (Có thể mất kiểm soát và xung đột giữa các đối tác.)

6. Wholly Owned Subsidiaries (Công ty con hoàn toàn thuộc sở hữu)

  • Definition (Định nghĩa): Full ownership of a local subsidiary. (Sở hữu hoàn toàn một công ty con địa phương.)

  • Advantages (Lợi thế): Tight control over operations; required for competitive strategies. (Kiểm soát chặt chẽ các hoạt động; cần thiết cho các chiến lược cạnh tranh.)

  • Disadvantages (Nhược điểm): High costs and risks associated with setting up operations. (Chi phí cao và rủi ro liên quan đến việc thiết lập hoạt động.)

Selecting an Entry Mode

  • Trade-offs: Every mode has specific advantages and disadvantages; optimal choice requires a careful balancing of these aspects.

  • Core Competencies: The entry mode can depend on management and technological know-how; firms should align mode with their strengths to minimize risks.

Greenfield vs. Acquisition

Current Trends

  • Increase in cross-border acquisitions (50%-80% of FDI).

Pros of Acquisitions

  • Quick execution, preemptive benefits, lower risks than greenfields.

  • Cons: High failure rate if integration challenges arise, cultural clashes, and overpayment issues.

Greenfield Ventures

  • Advantages: Build a customized subsidiary, direct control.

  • Disadvantages: Higher time and risks; slow to establish.

Summary

  • Choices in foreign market entry are influenced by risk appetite, core competencies, and market conditions.

  • Effective strategies involve adapting to the unique characteristics of each market while managing fears and uncertainties of international expansion.