Case 7 Flashcards
What is entry mode?
It is an institutional arrangement for the entry of a company’s products and services to a new foreign market.
Which types of entry modes do we have? Explain them
There are 3 types of entry modes: Exports, intermediate and hierarchical
Export: The product is produced in the company’s home country or in the third country and transferred either indirect or direct to be sold in another country.
Involves low control, low risk and high flexibility
Intermediate: There are several types of intermediate entry modes (Licensing, franchising, and joint venture). This type of entry mode in somewhere in the middle between export and hierarchical the control and risk is shared and it is the less flexible in a short run.
Hierarchical: With this type entry mode the firm owns and controls the foreign entry mode/ Organization
This type of strategy involves high risk, control and low flexibility.
Which are the 3 entry mode rules? Explain them
The 3 types are Naive rule, pragmatic rule and strategic rule.
Naive rule: The company ignores the heterogeneity of the markets and uses one entry mode strategy for the foreign markets.
Pragmatic rule: The company uses a workable entry strategy for each foreign market. Starts with the export mode, but if this entry mode is not profitable the company changes for another one. They normally do not investigate which entry mode suits that particular market.
Strategic rule: The company compares and evaluates each entry mode, choose the one that makes the most profit strategic planning period subject to the availability of the company resources, risk, and non-profit objectives.
Which are the 4 factors that influence the entry mode decision? Give some examples.
Internal factors: Firm size, international experience, and product
External factors: Sociocultural distance between the home country and the foreign country, market size and growth, direct and indirect trade barriers, the intensity of competition, a small number of intermediaries available.
Desired mode characteristics: Risk averse, control, flexible
Transection-specific behavior: Behavioristic behavior and tacit know-how
What are opportunistic behavior and tacit of know how?
Opportunistic behavior: when a company takes advantage of its superior knowledge, in order to further its interest by failing to disclose such information to the other party.
Tacit to know how: knowledge of how to do something smoothly and efficiently
Which types of export mode do we have? Explain how they differ from each other.
Export entry mode is divided into 3 categories: Indirect, direct and cooperative.
Indirect: the company doesn’t take care of the exporting activities. Instead, another domestic company, like exporting house or trading company does that for the firm. Such as, export buying agent, broker, trade company.
Direct: The manufacturer sells directly to a distributor, agent or importer located in a foreign target market. In this case, the company takes care of all the exporting activities
Cooperative: Firms get together and settle an export cooperative
Which types of intermediate modes do we have? Explain how they differ from each other.
The intermediate entry mode is divided in: Contract manufacturing, licensing, franchising, joint venture and management contracting.
Contract manufacturing: A company outsources part of its business to a third party, specialized in production technology.
Licensing: A right against payment
Franchising: A right against payment
Joint venture: Is an equity partnership typically between two parties, it involves two parent company joint together to form a child company.
Management contracting: Manufacturing is outsources to an external party.
Which types of hierarchical modes do we have? Explain how they differ from each other.
The firm owns and controls the foreign mode/organization. There are 5 types of hierarchical mode entry strategies. Domestic based sales representative, resident sales representatives, foreign sales subsidiary, sales and production and regions centers.
