TOPIC 3: Entering in Foreign Markets Flashcards
(24 cards)
Why do firms become international businesses ?
Growth
Efficiency
Learning
How the firms Benefit from Internalization?
Economies of Scale
Efficiency in costs
Better control in foreign operations
Overcome the effects of exchange rate fluctuations
Risk Diversification
Market intelligence
Reputation effect
Exporting is the simples strategy of Internalisation. In what depends on ?
Cost of production
Existence of some image effects
Types of exports
EXPORTS with NO vertical integration towards the market:
- Distributor
- Broker
EXPORTS with vertical integration towards the market:
- Investment in own activities of distribution, sales and post- sale services
What is Freixenet? Which is their strategy ?
Is the biggest firm in the world in sparkling wines
The main strategy is → EXPORTS → the company exports 75% of its production
It invest in greenfield and acquisitions
It has very important intangible assets:
brand
reputation
technology
Which are the resources and capacities of Freixenet ?
Marketing adapted to every market segment in every country
Efficient methods of production
Advantages in cost derived from access to raw materials
Management of Strategic alliances
Integration of acquisition
WAYS OF ENTERING FOREING MARKETS: Explain the concept of distance
The concept of distance is a metaphor → bc of course the distance is the meters and centimeters but also refers to the differences.
So, the distance is a metaphor of the difficulties of entering foreign markets.
Entering in a faraway country is more difficult than doing it in a mear one
Due to those facts, the firm needs:
1. To define the sequence of entering foreign markets.
2. To select the way of entering foreign markets
3. To decide the types of products and services offered in each market.
WAYS OF ENTERING FOREING MARKETS: Which are the 2 main axes ?
The Control
The degree of commitment
WAYS OF ENTERING FOREING MARKETS: Which are the main ways of entering foreign markets ?
- Licence transfer (the degree of control is very low.)
- Franchises → (low degree of control)
- Joint-Venture (We are increasing the degree of commitment. ) A joint-Venture is a commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities.
- Export → the degree of commitment decreases because you are not selling the products directly to the consumers.
- Export with own channel
- 100% Investment
What are the subsidiaries ?
A subsidiary is a company controlled by another company, called the parent or holding company.
They can be either greenfield or acquisitions.
What are alliances? Give examples
Agreements that allow the firm to gain access to non-tradable resources under the control of other companies, without merging with it.
Examples:
Long term contracts
Cross-shareholdings
Joint-ventures
Consortiums
Why are alliances so important ?
- To enter a new market
- To gain access to know-how and technology
- To share cost and risk
- To reach economies of scale
- To compete in a concourse or an auction (subasta)
- To increase the power of negotiation
- Suppliers
- Customers
- Regulators
- To collaborate when a merger is not possible
- To quickly perform an operation
Types of Partenership
- CONTRACTUAL RELATIONSHIP:
Traditional –> Purchase agreement, Franchaise, License Transfer.
Non Traditional –> Long term contract. - PARTICIPATION IN CAPITAL:
Without creating a new company –> Minority stake, Cross Shareholding
Creating a new company –> Joint venture
Merges and acquisitions
Choosing the way of entry: Explain the characteristics to Consider
Country destination
Country of origin
The firm itself
The growth of the firm
Sequence of ways of entry
Describe the multidomestic strategy
The multidomestic strategy is used in international business that is based on customizing products, services for every country; subsidiaries work together.
Describe the case of Danone
Danone is a spanish company, first expanded to Paris (they were only selling yoghurts at the beginning), and after they succeeded in France, they decided to expand across the Atlantic ocean to the United States of America, later to the rest of Europe.
They used a multidomestic strategy of internalization, customizing their products from every country. For example, in Russia they opened a factory in 1992, and started to expand their product range by adapting to the Russian culture.
Their main vision was to bring health through food to as many people as possible and they succeed.
Describe the mega national strategy and the cases of General Motors, Ford, Toyota and Volkswagen
Meganational strategy sees the world as one huge market, using different countries to lower the cost and improve quality- for example, labor force is cheaper in India and technology is better in Japan.
Ford, Toyota and Volkswagen adopted this strategy to make the cost lower, by producing parts of the car in one country and putting it together in another place.
Describe the transnational strategy and the case of Starbucks
Transnational strategy combines and balances global and local strategies, using trade-offs and subsidiaries, but also customizing their goods locally.
Starbucks uses the transnational strategy- they sell pretty similar products all over the world, slightly adapting to different cultures. For instance, in the chinese starbucks you can consume green tea latte, which is a common drink for the country.
What is the Ansoff matrix and which are its 4 strategies ?
The Ansoff matrix, also called the product/market expansion grid , is a tool used by firms to analyze and plan their strategies for growth.
The matrix shows four strategies that can be used to help a firm grow and also analyzes the risk associated with each strategy.
The four strategies of the Ansoff Matrix
- Market Penetration → This focuses on increasing sales of existing products to an existing market.
- Product Development → Focuses on introducing new products to an existing market.
- Market Development → This strategy focuses on entering a new market using existing products.
- Diversification → Focuses on entering a new market with the introduction of new products.
Explain the needs of External Information
What product?
Which market?
How to do it?
What about the procedures to be followed?
Information at the International Level
Identify relevant data on the international economic/political/social situation that may affect our import/export project
The most important information of the biggest economies in the world because that is going to affect our business ( ex → USA, China and so on )
Another important fact is inflation → the increase of prices is going to have an impact on your business.
Information at the country level
- Macroeconomic information → the economic risk of the country
- Legal framework; technical, environmental legislation, taxation policy, local professional certification, …
- Import/Export and investments regulation, foreign exchange control
- Trade barriers
- Logistics and Transport
- Public policies supporting exports and internationalization activities (financial aids)
Information at the industry level
Specific sectoral information
Market trends
Identifying clients, competitors, suppliers and more
Information to adopt our product for foreign markets
