entry startegies
TRANSCRIPT
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Chapter 10: International Entry Strategies
Topic
International Entry Strategies
International Business
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Chapter 10: International Entry Strategies
Do You Know?
The factors that managers must consider inchoosing locations for foreign directinvestment projects?
How company goals and experience play intothe international location decision?
What first mover and second moveradvantages and liabilities are?
The variety of entry modes that are availableto companies who are interested in operatingin a host country environment?
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Chapter 10: International Entry Strategies
DuPonts Entry Strategies
into China
Dupont has a great deal of internationalexperience and expertise, and have a varietyof entry strategies they use.
In china, they used a partnership withShanghai Photomask Precision Company,and established another with ChinaWorldbest Development to produce
photomasks and Spandex, respectively. They also established joint ventures with
companies like BASF to overcome tradebarriers and establish distribution.
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Chapter 10: International Entry Strategies
Duponts Entry Strategies into China
Finally, they also established whollyowned subsidiaries to make productsthat require proprietary technologies
they cannot share with others. No company has only one entry
strategy. Most choose entry strategies
depending upon the necessary goalrequirements.
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Chapter 10: International Entry Strategies
International Location Selection, overall
Location selection is an importantdecision. Essentially it boils down todeciding where, when, and howto
enter, and then implementing that plan.
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Chapter 10: International Entry Strategies
International Location Selection (Where)
Where,
that is country and location withincountry depends upon a number of factors.Among them are:
Cost/Tax Factors (transportation, wage,
availability of land and its costs, constructioncost, materials cost, financing costs, taxrates, investment incentives, profit
repatriation costs) Demand Factors (market size and growth,
customer presence, local competition)
/
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International Location Selection (Where)
Strategic Factors (Investment infrastructure,industrial concentration, supply/distributionlinkages, workforce productivity,complementary industries)
Regulatory/Economic Factors (Industrialpolicies, foreign direct investment policies,availability of economic zones)
Sociopolitical Factors (political risk andinstability, cultural barriers and openness,local practices, government efficiency andcorruption, attitudes toward foreign business,
community characteristics, pollution control)
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International Location Selection (Where)
Not only must the above factors beconsidered, but also strategic objectives,global integration, and market orientationobjectives must be met.
Strategic objectives are related to growth andcompetitive factors; integration factors arerelated to access to trading blocs and
integrated economies; market orientationfactors are related to whether primary targetmarkets are available from the host location.
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International Location Selection (Where)
Exhibit 10-1: Locational determinants
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International Location Timing (When)
This relates to timing of market entry incomparison to other enterprises.
Timing is important because it
determines the risks and potentialreturns from the investment.
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International Location Timing (When)
Early Mover Advantages include factorslike market power, more preemptive
opportunities, and strategic advantagesover late movers.
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International Location Timing (When)
Early Mover, however, face environmentaland operational risk that can come from hostgovernments experience, underdeveloped
investment laws and regulations,
protectionism, difficulty in overcoming earlygrowth stages, shortages of workers,underdeveloped support services, lack offinancing, uncertain foreign exchange,consulting cost burdens, poor infrastructuresystems, and unstable market structures.
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Chapter 10: International Entry Strategies
International Location Timing (When)
Exhibit 10-3: Advantages and disadvantages ofearly movers
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Chapter 10: International Entry Strategies
International Entry Mode Selection (How)
Entry Modes are specific forms or waysof entering a target country to achievethe strategic goals related to presence
in that country. These can be trade related, transfer
related, and foreign direct investment
related.
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Chapter 10: International Entry Strategies
International Location Selection (How)
Trade related modes include: Export, using intermediaries to export
products to market through an exportingcompany while negotiating letters of credit
and terms of trade that are favorable. Subcontracting, includes contracting with a
local manufacturer to process goods intofinished goods that will distribute into the local
market. Countertrade, where merchandise is traded
in a barter-like system. Barter,counterpurchase, buybacks, and offsets and
used in this method.
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Chapter 10: International Entry Strategies
International Location Selection (How)
Transfer related entry modes include: International Leasing
International Licensing
International Franchising
Build-Operate-Transfer (a.k.a turn-keyoperation)
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Chapter 10: International Entry Strategies
International Location Selection (How)
Foreign direct investment related entrymodes include:
Branch Office
Cooperative Joint Venture Equity Joint Venture
Wholly Owned Subsidiary
Umbrella Holding Company
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Chapter 10: International Entry Strategies
International Location Selection (How)
Exhibit 10-4: International entry modes
I i l S l i
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Chapter 10: International Entry Strategies
International Selection:Decision Framework
Companies look for favorable country, industry, firm,and project factors.
Country, favorable policies, infrastructure, propertyrights, risks, cultural distance.
Industry, favorable entry barriers, industrialuncertainty and complexity, availability of supplyand distribution.
Firm, favorable resource possession, minimal
proprietary resource leakage, favorable strategicgoal achievement, favorable experience with host.
Project factors like size, financial orientation, andavailability of partners.
I i l S l i
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Chapter 10: International Entry Strategies
International Selection:Decision Framework
In essence, the more experience a firmhas, and the more complex the project,the more likely the entry mode will be
foreign direct investment related. This can be a Greenfield Investment,
an Acquisition, or a Merger.
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Chapter 10: International Entry Strategies
FDI Options
A Greenfield Investment is an initialestablishment of fully owned facilities andoperations.
An Acquisition is a cross border transaction
in which an acquiring firm buys anestablished local firm.
An international merger shares the logic of
equity joint ventures and is a cross bordertransaction in which two firms merge theiroperations.