Foreign Entry Strategies

Question 1

What is strategy?

Answer 1

Planned set of actions that managers take to make best use of the firms resources and core competencies to gain a competitive advantage

Question 2

Why enter? Objectives of establishing foreign subsidiaries

Answer 2

Nature resource seeking

Market seeking

Efficiency seeking

Innovation seeking

Question 3

Nature resource seeking advantages

Answer 3

Quality and costs of nature resources

Question 4

Market seeking advantages

Answer 4

Strong market demand and customers willing to pay

Question 5

Efficiency seeking advantages

Answer 5

Economies of scale

Abundance of low-cost labour force and suppliers

Transport and communication infrastructure

Question 6

Innovation seeking advantages

Answer 6

Innovative individuals, firms and unis

Industry agglomeration (collection of things)

Question 7

First mover advantages

Answer 7

Experience curve benefits

Scale benefits

Reputation

Pre-emotion of scale resources

Buyer switching costs

Question 8

Late mover advantages

Answer 8

Free riding

Learning

Question 9

Foreign market entry strategies

Answer 9

Exporting

Contractual agreements, strategic alliances, licensing and franchising

Joint ventures and mergers and acquisition

Wholly owned subsidiary- FDI

Question 10

How to enter non-equity modes

Answer 10

Exporting

Licensing

Strategic alliances

• technological
• marketing

Question 11

How to enter- equity modes

Answer 11

Mergers and acquisitions

Joint venture

• scale
• link

Wholly owned subsidiaries

Question 12

Purpose of mergers and acquisition

Answer 12

Acquiring another business can fulfil several of a company’s needs

65/70% fail to deliver anticipated results

Finding an appropriate acquisition candidate

Question 13

The integration responsiveness framework

Answer 13

Global integration

Local responsiveness

Question 14

Global integration STANDARDISATION refers to

Answer 14

Coordination of firms activities across countries to achieve worldwide efficiency and synergy in order to take maximum advantage of similarities across countries

Emphasises efficiency/economies of scale

Question 15

Local responsiveness/adaptation refers to

Answer 15

Meeting specific needs of buyers in individual countries

Learning/differentiation

Question 16

How to organise your operation?

Answer 16

Standardisation/global strategy

Adaptation/multidomestic strategy

Glo-Cal/transnational strategy

Home replication strategy

Question 17

Standardisation (global) strategy

Answer 17

Take a product and transfer it

Start from a single case e.g flagship store and scale up

Standardise best practices and maximise efficiency

Why not make same product same way everywhere

Management emphasises central control and coordination to achieve max synergy, efficiency and integration

View world as one large market

Question 18

Advantages of standardisation strategy

Answer 18

Allows companies to liberate low cost advantage and achieve economies of scale

E.g McDonald’s

Question 19

Disadvantage of standardisation strategy

Answer 19

Low level of local responsiveness

Only works for very simple or complicated products

Question 20

Adaptation (Multidomestic) strategy

Answer 20

Need to understand customers need

Make them understand why product is important for them

Approach to internationalisation where high culture ensure autonomy towards each area allowing them to operate independently to pursue local responsiveness

E.g Nestle, often considered a local firm in each of its markets, varies the taste of coffee in different areas

Question 21

Advantage of adaptation/multi-domestic strategy

Answer 21

Maximum local responsiveness

Question 22

Disadvantage of adaptation/multi-domestic strategy

Answer 22

Cost of duplicating companies efforts to pursue local responsiveness

Question 23

Glocal (transnational) strategy

Answer 23

Think globally act locally

Identify best practices and transfer them

Centralise core functions and decentralise others

Strives to be responsive to local needs while retaining sufficient control to ensure efficiency

E.g Starbucks chai latte
Lenovo locate HQ China US, manufacturing low cost countries for economies of scale, basic computers are the same but software and keyboard adapted to accommodate differences in language

Question 24

Advantages of Glocal strategy

Answer 24

Has the benefits of global and multi-domestic strategy

Both global integration and local responsiveness

Question 25

Disadvantages of Glocal strategy

Answer 25

Difficulty to balance integration and local responsiveness Only works when the company does local exploration and creates local knowledge transfer mechanisms to capture learning Local unions have to be listened to Most find it difficult to implement

Question 26

Home replication strategy

Answer 26

Views international business as separate/secondary to its domestic business Emphasises international replication of home country based core competencies Opportunity to generate additional sales for domestic product lines Design with domestic market in mind but pursue international business to extend product life cycle and replicate home market success E.g Walmart American footballs in Brazil

Question 27

Advantages of home replication strategy

Answer 27

Relatively easy to use and implement Allows companies to leverage home country based advantage

Question 28

Disadvantages of home replication strategy

Answer 28

Little local responsiveness Failing to be mindful of local customers need and wants Foreign customers alienation

Question 29

Global indusry

Answer 29

Industry in which competition is on a regional or worldwide scale

Question 30

Multi-domestic industry

Answer 30

An industry in which competition takes place on a country by country basis

Question 31

Global industry have same competitors

Answer 31

Multi-domestic cater to specific needs of local buyers, usually adapt product according to local characteristics of each market Each country has a unique set of competitors.

Question 32

Institutional constraints on foreign entry strategies

Answer 32

Prohibit certain types of operations or transactions Create a need for local knowledge Change the relative costs of alternative strategies Motivate tariff jumping

Question 33

Firm response to prohibiting certain types of operations or transactions

Answer 33

Establish joint ventures where wholly owned subsidiaries are not permitted Locate where planning permissions are easier to obtain

Question 34

Firm response to need for local knowledge

Answer 34

Establish joint ventures to access local knowledge Locate in places that have agglomerations of foreign investors that help attain local knowledge

Question 35

Firms response to high transaction costs due to costly contact enforcement or lack of financial intermediaries

Answer 35

Avoid complex arms length contracts with unfamiliar partners Avoid joint ventures Avoid full or partial acquisitions of local firms Locate in areas where local uncertainty is lower

Question 36

Firms response to higher tariffs or other trade barriers

Answer 36

Locate production in the target market