Chapitre 15 Flashcards
Explain the 3 basic decisions firms must make when
they decide on foreign expansion
which markets to enter?
when to enter those markets?
on what scale?
(can use Decision Matrix diagram to help compare)
on what factor do we choose which markets to enter?
Choice based on assessment of a nation’s long-run
profit potential.
* Size of the market.
* Present and likely future wealth of consumers. (econ growth rate)
* Costs and risks. (lower in economically/politicaly stable country)
-potential for suitability of its products and the nature of indigenous(local) competition.
on what factor do we choose when to enter those markets?
The advantages of entering a market early: first-mover advantages;
disadvantages of entering a foreign market before other international businesses : first-mover disadvantages.
Pioneering costs are those that arise when an early entrant has to bear a cost that a later entrant can avoid.
describe 3 first mover advantage
1) set the standard: establish a stong brand name + customer satisfaction.
2) lower cost than future comp: build sales volumes + ahead in the experience curve
3) leverage switching cost (cost linked to switching to a competitor)
describe some first mover disadvantage;
Pioneering costs: costs that early entrant has to bear that a later entrant can avoid such as:
1) when foreign market is different than home market; costly to adapt/learn
2) cost of failure (less chance of succeeding when first because can’t learn and observe competition)
3) risk of change in regulation
4) need to educate customer about product
name 2 strategic scales to enter? and concequences of commiting
conscequences : A strategic commitment has a long-term impact and is difficult to reverse
1) rapid large scale market entry
2) small scales entry
carracteristics of Rapid large-scale market entry
- can have an important influence on the nature of competition in a market. (attract workers/ gains confidence on market)
-Must be balanced against the resulting risks and lack of flexibility associated with significant commitments. (faillure and reputation)
lack of commitment associated with small-scale entry may make it more difficult for the small-scale entrant to build market share and to capture first-mover or early-mover advantages. The risk-averse firm that enters a foreign market on a small scale may limit its potential losses, but it may also miss the chance to capture first-mover advantages.
carracteristics of small-scale market entry
Small-scale entry allows a firm to learn about a foreign market while limiting the firm’s exposure to that market.
but more place for competition
Signals of Rapid Large-Scale Entry (3)
1) Signals commitment to the market and stakeholders.
2) Boosts confidence in the brand! It does not go away tomorrow!
3) Others who want to enter the market may pause and reconsider.
name all entry modes (6)
Exporting.
Turnkey projects.
Licensing.
Franchising.
Joint ventures.
Wholly Owned Subsidiaries
what is exporting
Sale of products produced in one country to residents of another country.
pros of exporting
pros;
1) avoids cost of establishing manufacturing operation in host contry
2) may help achieve experience curve + location economies
cons of exporting
cons;
1) not appropriate in lower cost location
2)high transport cost
3)tariff barriers
4)local agents for marketings/sales may not be loyal (creat future comp)
what is a turnkey projects
-turnkey p. : Contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel.
-Means of exporting technology to other countries.
-usually for capital extensive industry (pharma, minning…)
pros of turnkeys projects
pros;
1) potential for great economic return
2)potentialy less risky than fdi
cons of turnkeys projects
cons:
1)short term profit as firm has no long term interest
2)selling competitive advantage, loose it in the long run
what is licensing
Licensor grants rights to intangible property to another entity:
(patents, inventions, formulas, processes, designs, copyrights, and trademarks.)
pourcentage of sales in return
pros of licensing
pros:
1)no developpement cost and risk linked to entering
2) perfect when firms wishes to invest foreign but prohibited by barriers to invest
3) might allaws to waist no money on develloping application for intengible assets
cons of licensing
1) no tight control over licensed sub units: can’t leverage/benefits of experience curve / location economies
2) limits ability to coordinate strategic moves (invest profit of good places to attack bad places)
3)risk linked to the lost of competitive advantage over long run (when pattent ends). need do revel every secrets
what is franchising
Franchiser sells intangible property (normally a trademark) to the franchisee and insists that the franchisee agree to abide by strict rules as to how it does business.
more long therm than licensing
pros of franchising
1)lower cost and risk than fdi on its own
2) helps build global presence quickly
cons of franchisings
1) limits ability to coordinate strategic moves (invest profit of good places to attack bad places)
2) needs to impliment costly quality control
what are joint ventures
Cooperative undertaking between two or more firms.
50-50 ventures are most common.
pros of joint ventures
1) leverage local partner knoledge (culture, competitive condition, language)
2) shared cost and risk
3) political concideration
