Unit 2 part 2

Question 1

Different entry modes:

Answer 1

Acquisition (brownfield)
Greenfield
Exporting (not really an entry mode)
Licensing/Franchising
Joint Venture
Service contract
Management Agreements

Question 2

When to use exporting? pros and cons

Answer 2

Positives:

• keep control over quality
• cheaper than setting up operation abroad

negatives:

• high trade costs (transport, tariffs)
• lack of knowledge of local consumer tastes

ex: chanel, belgian chocolate, harley davidson

Used for global strategy companies
When?
Use when the trade costs are low, and low need to adapt to local market

Question 3

Brownfield: when and pros and cons

Answer 3

Used when:

• the foreign market is developed (less room for us to enter),
• there is a real strategic fit between the two firms (culture wise).
• strong financial resources and ability to manage the new company

We buy a supermarket chain in the new market,

• we gain local knowledge and access existing base suppliers and relationships.
• we use existing business practices in new market

negatives,

• may encounter clash of cultural and social issues,
• local workers may lose motivation when being controlled by the MNC
• Expensive to acquire new chain
• May require deep reconstructing and massive integration in a short time to adapt

Question 4

Greenfield, when, pros and cons

Answer 4

Used when:

• we have knowledge of new market
• we have string brand awareness ( so customers in the new market will already know us)
• strong financial resources and operational ability

pros:

• we maintain direct control of operation, apply our own policies and processes
• no integration problems

cons:

• high risk
• costly
• if we underestimate the new market it can lead to long delays and costly mistakes

Question 5

Licensing and franchising, when, pros and cons

Answer 5

When:

• there is strong copyright protection
• local knowledge is important (work with local partners)
• we need to adapt product/service to local conditions (and local franchises will know how to do it better)

pros:

• can be cheap as no direct investment in country is required
• high returns with little input
• takes advantage of local knowledge

Cons:

• more beneficial to the local franchise than the large
• risk of creating new competitors as we are “selling knowledge”
• risk of damaging brand image

Question 6

Joint Venture (with a local company)

Answer 6

When:
large gains are expected from both sides
each has something of similar value to offer
trade secrets can be protected
cultural differences are not too high

pros:

• gain partners local knowledge
• maintain significant control
• increase economies of scale by expanding distribution

cons:

• conflict over investment level and ownership of outputs
• Mixed incentives
• problems of ending the relationship

Question 7

Service contracts, when and pros and cons

Answer 7

When:
product is mass marketed
Suitable quality local partners are available

pros:

• cheap as little direct investment in country is required
• enables us to expand out service

cons

• requires high training investments for new partners and supervision
• brand can face reputational risk of local partners don’t comply with company standards

Question 8

Management agreements with local company

Answer 8

When:
need to grow product offering
local company has a good and strong
systems and cultures are compatible

pros:
easy access to local resources,
low cost
maintain strategic control

cons:
- you don’t really know service abilities of local operation, incentive levels which can affect reputation

Question 9

management agreements for LOCAL company

Answer 9

when to use:

• when you need more customers
• when you can work well with global competencies

Pros
gives them access to global resources, maintain operational control

cons:
- problems with reputation and quality in the global operation

Question 10

Waterfall strategy

Answer 10

a product it launched in one country at a time, and new markets are entered only certain targets are reached in the previous market

well suited for risk-averse companies with little international experience and want to preserve their resources

waterfall is useful if there are important difference between exisitng markets and proposed new market (needs high local adaption)

works best for multinational strategy

Question 11

Sprinkler strategy

Answer 11

Enter as many countries as possible as quickly as possible

best for when you are dealing with a lot of competition in the domestic market or a high degree of globalization in the industry

high risk, but one can capture a large market share if successful

often used in industries with short production or technological life (mobiles, computers, etc)

best for global strategy