global strategy mike w. peng c h a p t e r 66 copyright © 2014 cengage learning. all rights...
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Global StrategyGlobal StrategyMike W. PengMike W. Peng
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Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Global Strategic ManagementGlobal Strategic ManagementMike W. PengMike W. Peng
Chapter 5
Foreign Market Entries
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Overcoming the Liability of Foreignness
• The Liability of Foreignness - the inherent disadvantage foreign firms experience in host countries because of their non-native status
• Differences in formal and informal institutions govern the rules of the game in different countries
• Foreign firms are often discriminated against
• Foreign firms deploy overwhelming resources and capabilities to offset the liability of foreignness
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Firm Size, Domestic Market Size, and Propensity to Internationalize
Figure 5.1
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A Comprehensive Model of Foreign Market Entries
Figure 5.2
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Where to Enter?Matching Strategic Goals with
Locations
Source: First two columns adapted from J. Dunning, 1993, Multinational Enterprises and the Global Economy (pp. 82–83), Reading, MA: Addison-Wesley.
STRATEGIC GOALS LOCATION-SPECIFIC ADVANTAGES ILLUSTRAVTIVE LOCATIONS MENTIONED IN THE TEXT
Natural Resource Seeking Possession of natural resources and relatedTransport and communication infrastructure
Oil in the Middle East, Russia, and Venezuela
Market Seeking Abundance of strong market demand andcustomers willing to pay
Seafood in Japan
Efficiency Seeking Economies of scale and abundance of low-cost factors
Manufacturing in China
Innovation Seeking Abundance of innovative individuals, firms, and universities
IT in Silicon Valley and Bangalore, financial servicesin New York and London and aerospace in Russia
STRATEGIC GOALS LOCATION-SPECIFIC ADVANTAGES EXAMPLES IN THE TEXT
Natural Resource Seeking Possession of natural resources and relatedTransport and communication infrastructure
Oil in the Middle East, Russia, and Venezuela
Market Seeking Abundance of strong market demand andcustomers willing to pay
GM in China
Efficiency Seeking Economies of scale and abundance of low-cost factors
Manufacturing in China (especially in Shanghai)
Innovation Seeking Abundance of innovative individuals, firms, and universities
IT in Silicon Valley and Bangalore, telecom in Dallas, and aerospace in Russia
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First Mover Advantages and Late Mover Advantages
Table 5.2
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How to Enter?Scale of Entry: Commitment and
Experience• Large-Scale Entries
Benefit from a strategic commitmentDrawbacks of large-scale entries: Limited
strategic flexibility and potential huge losses
• Small-scale entriesFocus on accumulating experience“Learning by doing”Drawbacks of small-scale entries
A lack of strong strategic commitmentDifficulties in building market share
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How To Enter?Modes of Entry: Two Steps
• First step Strategists must prioritize variables
A decision model is helpful
Non-equity vs equity modes Level of commitment
Contractual and ownership alternatives
• Foreign direct investment advantages Ownership
Location
Internalization
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How To Enter?
• The second step: See the following four slides
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The Choice of Entry Modes: A Decision Model
Source: Adapted from Y. Pan & D. Tse, 2000, The hierarchical model of market entry modes (p. 538), Journal of International Business Studies, 31: 535–554. Figure 5.3
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Modes of Entry: Advantages and Disadvantages
Table 5.3
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Modes of Entry: Advantages and Disadvantages
Table 5.3 (cont’d)