Description
The ppt explaining the different entry strategies.
Strategies for going global
• • • • Entry Decision Different Entry Modes Selecting an entry mode Strategic Alliances
Entry Decisions • Which market to enter ? • When to enter ? • Scale of entry ?
Entry Decisions : Which market to enter?
• Favourable Host country environment
– – – – Politically stable nations Developed and developing economies No dramatic upsurge in inflation or private sector debt Free market systems
• Unfavourable Host country environment
– Political unstable – Excess borrowing
Entry Decisions : When to enter?
• Advantages of early market entry:
– – – – First-mover advantage. Build sales volume. Move down experience curve and achieve cost advantage. Create switching costs.
• Disadvantages:
– First mover disadvantage - pioneering costs – Changes in government policy
Entry Decisions : Scale of entry?
• Large scale entry
– Strategic Commitments - a decision that has a long-term impact and is difficult to reverse. – May cause rivals to rethink market entry. – May lead to indigenous competitive response.
• Small scale entry:
– Time to learn about market. – Reduces exposure risk.
Different Entry Modes
• Export / Import • Collaborative Arrangements
– – – – Franchising Licensing Joint Ventures Turnkey Operations
• Wholly Owned Subsidiary • Mergers & Acquisitions
Entry Mode : Export / Import
• Export
– Selling products and services in other markets of the world – Direct Export – Indirect Export
• Import
– Buying products and services from other markets of the world – Direct Import – Indirect Import
Entry Mode : Export
• Appropriate when
– Volume of business not large – Cost of production in foreign market high – Political or other risk of investment in foreign market – Production bottlenecks in foreign market – Company has no permanent interest in foreign market – Foreign investment not favoured by the government
Entry Mode : Export
• Advantages:
– Avoids cost of establishing manufacturing operations – May help achieve experience curve and location economies
• Disadvantages:
– – – – May compete with low-cost location manufacturers Possible high transportation costs Tariff barriers Possible lack of control over marketing reps
Entry Mode : Franchising
• Franchisor sells intangible property and ‘insists on rules’ for operating business • Low risk mode of entry in international market • Franchise Agreement
– Responsibility of Franchisee
• payment of fee upfront and percentage of revenue • Gets time proven concept and products and services that can be brought to the market instantly
– Responsibility of Franchisor
• provides managerial and technical assistance, support and ongoing training to ensure same quality of goods and services worldwide • Has new stream of income
Entry Mode : Franchising
• Advantages:
– Reduces costs and risk of establishing enterprise
• Disadvantages:
– May prohibit movement of profits from one country to support operations in another country – Quality control
Entry Mode : Licensing
• Agreement where licensor grants rights to a firm (licensee) in host country to produce or sell a product for a specific period of time & receives ‘royalty’ • Low cost way to exploit foreign market • Licensing Arrangement
– Responsibility of Licensor
• Gives the license to use a patent, trademark or proprietary information
– Responsibility of Licensee
• Pays royalty
Entry Mode : Licensing
• Advantages
– Reduces development costs and risks of establishing foreign enterprise. – Lack capital for venture. – Unfamiliar or politically volatile market. – Overcomes restrictive investment barriers. – Others can develop business applications of intangible property.
Entry Mode : Joint Ventures
• Joint Venture: two or more partners own or control a business
– – – – Cross marketing arrangements Technology sharing agreements Production contracting deals Equity arrangements
• Types of Joint ventures
– Non equity venture : one group providing service for another – Equity Venture : financial investment by MNC in business of local partner
Entry Mode : Joint Ventures
• Advantages :
– Improvement of efficiency
• economies of scale • Spread the risk / cost
– Access to knowledge
• e.g pool financial and technological resources
– Political Factors
• Local partner can manage political risk better
– Collusion or restrictions in competition
• Partner with competitors • Face competition effectively
• Disadvantages:
– Risk giving control of technology to partner. – May not realize experience curve or location economies. – Shared ownership can lead to conflict
Entry Mode : Turnkey Operations
• Contractor agrees to handle every detail of project for foreign client and handover the ‘key • Advantages:
– Can earn a return on knowledge asset. – Less risky than conventional FDI.
• Disadvantages:
– No long-term interest in the foreign country. – May create a competitor. – Selling process technology may be selling competitive advantage as well.
Entry Mode : Wholly Owned Subsidiary
• Overseas operation that is owned and controlled by an MNC • Could be Greenfield investments or acquisitions
Entry Mode : Wholly Owned Subsidiary
• Advantages:
– No risk of losing technical competence to a competitor – Tight control of operations. – Realize learning curve and location economies.
• Disadvantage:
– Bear full cost and risk
Entry Mode : Mergers & Acquisitions
• Outright purchase of a running company abroad or an amalgamation with a running foreign company • Advantages
– Quick to execute – instant presence in foreign market – Preempt the competitors – Less risky than green field ventures
• Disadvantages
– Clash of interest
Selecting an Entry Mode
Core competency
•Technological Know-How
•Opt for wholly owned subsidiary •licensing or JV if supported by agreements or technology is transitory •Management Know-How •Franchising, subsidiary and turnkey operations
Pressure for Cost Reduction
•Exporting
•Wholly owned subsidiary
doc_851341665.ppt
The ppt explaining the different entry strategies.
Strategies for going global
• • • • Entry Decision Different Entry Modes Selecting an entry mode Strategic Alliances
Entry Decisions • Which market to enter ? • When to enter ? • Scale of entry ?
Entry Decisions : Which market to enter?
• Favourable Host country environment
– – – – Politically stable nations Developed and developing economies No dramatic upsurge in inflation or private sector debt Free market systems
• Unfavourable Host country environment
– Political unstable – Excess borrowing
Entry Decisions : When to enter?
• Advantages of early market entry:
– – – – First-mover advantage. Build sales volume. Move down experience curve and achieve cost advantage. Create switching costs.
• Disadvantages:
– First mover disadvantage - pioneering costs – Changes in government policy
Entry Decisions : Scale of entry?
• Large scale entry
– Strategic Commitments - a decision that has a long-term impact and is difficult to reverse. – May cause rivals to rethink market entry. – May lead to indigenous competitive response.
• Small scale entry:
– Time to learn about market. – Reduces exposure risk.
Different Entry Modes
• Export / Import • Collaborative Arrangements
– – – – Franchising Licensing Joint Ventures Turnkey Operations
• Wholly Owned Subsidiary • Mergers & Acquisitions
Entry Mode : Export / Import
• Export
– Selling products and services in other markets of the world – Direct Export – Indirect Export
• Import
– Buying products and services from other markets of the world – Direct Import – Indirect Import
Entry Mode : Export
• Appropriate when
– Volume of business not large – Cost of production in foreign market high – Political or other risk of investment in foreign market – Production bottlenecks in foreign market – Company has no permanent interest in foreign market – Foreign investment not favoured by the government
Entry Mode : Export
• Advantages:
– Avoids cost of establishing manufacturing operations – May help achieve experience curve and location economies
• Disadvantages:
– – – – May compete with low-cost location manufacturers Possible high transportation costs Tariff barriers Possible lack of control over marketing reps
Entry Mode : Franchising
• Franchisor sells intangible property and ‘insists on rules’ for operating business • Low risk mode of entry in international market • Franchise Agreement
– Responsibility of Franchisee
• payment of fee upfront and percentage of revenue • Gets time proven concept and products and services that can be brought to the market instantly
– Responsibility of Franchisor
• provides managerial and technical assistance, support and ongoing training to ensure same quality of goods and services worldwide • Has new stream of income
Entry Mode : Franchising
• Advantages:
– Reduces costs and risk of establishing enterprise
• Disadvantages:
– May prohibit movement of profits from one country to support operations in another country – Quality control
Entry Mode : Licensing
• Agreement where licensor grants rights to a firm (licensee) in host country to produce or sell a product for a specific period of time & receives ‘royalty’ • Low cost way to exploit foreign market • Licensing Arrangement
– Responsibility of Licensor
• Gives the license to use a patent, trademark or proprietary information
– Responsibility of Licensee
• Pays royalty
Entry Mode : Licensing
• Advantages
– Reduces development costs and risks of establishing foreign enterprise. – Lack capital for venture. – Unfamiliar or politically volatile market. – Overcomes restrictive investment barriers. – Others can develop business applications of intangible property.
Entry Mode : Joint Ventures
• Joint Venture: two or more partners own or control a business
– – – – Cross marketing arrangements Technology sharing agreements Production contracting deals Equity arrangements
• Types of Joint ventures
– Non equity venture : one group providing service for another – Equity Venture : financial investment by MNC in business of local partner
Entry Mode : Joint Ventures
• Advantages :
– Improvement of efficiency
• economies of scale • Spread the risk / cost
– Access to knowledge
• e.g pool financial and technological resources
– Political Factors
• Local partner can manage political risk better
– Collusion or restrictions in competition
• Partner with competitors • Face competition effectively
• Disadvantages:
– Risk giving control of technology to partner. – May not realize experience curve or location economies. – Shared ownership can lead to conflict
Entry Mode : Turnkey Operations
• Contractor agrees to handle every detail of project for foreign client and handover the ‘key • Advantages:
– Can earn a return on knowledge asset. – Less risky than conventional FDI.
• Disadvantages:
– No long-term interest in the foreign country. – May create a competitor. – Selling process technology may be selling competitive advantage as well.
Entry Mode : Wholly Owned Subsidiary
• Overseas operation that is owned and controlled by an MNC • Could be Greenfield investments or acquisitions
Entry Mode : Wholly Owned Subsidiary
• Advantages:
– No risk of losing technical competence to a competitor – Tight control of operations. – Realize learning curve and location economies.
• Disadvantage:
– Bear full cost and risk
Entry Mode : Mergers & Acquisitions
• Outright purchase of a running company abroad or an amalgamation with a running foreign company • Advantages
– Quick to execute – instant presence in foreign market – Preempt the competitors – Less risky than green field ventures
• Disadvantages
– Clash of interest
Selecting an Entry Mode
Core competency
•Technological Know-How
•Opt for wholly owned subsidiary •licensing or JV if supported by agreements or technology is transitory •Management Know-How •Franchising, subsidiary and turnkey operations
Pressure for Cost Reduction
•Exporting
•Wholly owned subsidiary
doc_851341665.ppt