are cooperative agreements between potential or actual competitors. Includes: - cross-shareholding deals - licensing agreements - formal joint ventures - and informal cooperative arrangements
Timing of Entry
1. Entry is early when the firm enters a foreign market before other foreign firms. 2. Entry is late when the firm enters the market after firms have already established themselves in the market.
1. the ability to pre-empt rivals by establishing a strong brand name. 2. the ability to build up sales volume and ride down the experience curve ahead of rivals and gain a cost advantage over later entrants. 3. the ability to create switching costs that tie customers into products or services making it difficult for later entrants to win business.
- pioneering costs
arise when the foreign business system is so different frim that in the home market that the firm must devote considerable time, effort, and expense to learning the rules of the game. - the costs of business failure if the firm, due to it's ignorance of the foreign environment, makes some major mistakes. - the costs of promoting and establishing a product offering, including the cost of educating customers.
Scale of Market Entry
- Firms that enter a market on a significant scale make a strategic commitment to the market. - Small-scale entry has the advantage of allowing a firm to learn about a foreign market that simultaneously limiting the firm's exposure to that market.
the decision has a long term impact and is difficult to reverse.
a common first step for many manufacturing firms - later, firms may switch to another mode.
the contractor handles every detail of the project for a foreign client, including the training of operating personnel. - at completion of the contract, the foreign client is handed the "key" to a plant that is ready for full operation.
a licensor grants the rights to intangible property to the licensee for a specified time period, and in return, receives a royalty fee from the licensee. - patents, inventions, formulas, processes, designs, copyrights, trademarks.
a specialized form of licensing in which the franchisor not only sells intangible property to the franchisee, but also insists that the franchisee agrees to abide by strict rules as to how it does business. - used primarily by service firms.
Join Ventures w/ a host country firm
a firm that is jointly owned by two or more otherwise independent firms. - most joint ventures are 50/50 partnerships
Wholly Owned Subsidiary
the firm owns 100% of the stock - set up a new operation - acquire an established firm
avoid licensing and joint ventures unless the technological advantage is only transitory, or can be established as the dominant design.
the risk of losing control over the management skills in not high, and the benefits from getting greater use of brand names is significant.
build a subsidiary from the ground up - a greenfield venture may be better when the firm needs to transfer organizationally embedded competencies, skills, routines, and culture.
acquire an existing company - acquisitions my be better when there are well-established competitors of global competitors interested in expanding
A good partner: - helps the firm achieve its strategic goals and has the capabilities the firm lacks and that it values. - shares the firm's vision for the purpose of the alliance. - will not exploit the alliance for its own ends.
The alliance should: - make it difficult to transfer technology not meant to be transferred. - have contractual safeguards to guard against the risk of opportunism by a partner. - allow for skills and technology swaps with equitable gains. - minimize the risk of opportunism by an alliance partner.
The manner in which a strategic alliance managed requires:
1. Interpersonal relationships between managers - cultural sensitivity is important. 2. Learning from alliance partners - knowledge must then be diffused through the organization. 3. Trustful reputation - more companies will be willing to work with the firm - reputation is built over time and ability to close deals would be damaged until rep is rebuilt.
Which Entry Mode Is Best?
Advantages and Disadvantages of Entry Modes: