Global Business Strategy

WHERE
GREAT
Lecture 10 MINDS
International Market Entry (2) DO
BUSINESS

Dr. Weiting Zheng

weiting.zheng@unsw.edu.au
Key decisions in international expansion

Distant Geographic Market (Where) Close

Early Timing of Entry (When) Late

Non-equity Entry Mode (How) Equity

A firm wants to make enter a foreign market,
Wholly owned subsidiary (WOS): Collaborate with a local partner:
• Greater control • Access to partners’ resources/capabilities
• Protect proprietary technology • Greater speed to market
• Keep all the profits • Share the cost and risks
But, But,
• Bear all the costs and risks • Give up some control
Strategic Alliances:

Firm A Firm B
Resources Resources
Capabilities Capabilities

Combined
Resources
Capabilities

Mutual interests in designing, manufacturing,

or distributing goods or services
BMW partnered with Louis Vuitton to create the ideal travel companions for
the plug-in hybrid BMW i8. The collaboration resulted in an exclusive collection
of suitcases and bags (i.e., a marketing alliance)
Types of Strategic Alliances

1. Non-Equity Strategic Alliance

• (Longer term) Contractual relationship to share resources/capabilities
• Firms tend to share explicit knowledge that is codified

2. Equity Strategic Alliance

• % Ownership and shared profits
• Partners exchange personnel to acquire tacit knowledge

3. Joint Venture
• Create a new legally independent firm and combine resources
• Longer-term commitment
The “Make or Buy” decision

Identify resource gap

Develop
yes Can the firm develop
resources
Internally
the resources & competence
(MAKE) Effectively?

no Alliances Offer Flexibility!

Buy resources Are resources &

from the firm competencies available
yes
(BUY) in other firms?

yes yes

Ally with firm Buy firm that

That has resources Has resources
(Alliance) (Acquisition)
Strategic alliances: “ Try before you buy”

• An alliances can serve as a

vehicle to match two parties’
competencies and eventually
lead to an acquisition
How Alliances Create Value

+ 

+ 

+ 
How Alliances Create Value: Video
Entry Mode: Int’l Strategic Alliances
Advantages:
• Sharing cost and risk
• Access to partner’s assets
• Politically favoured in IB (particularly joint ventures)

Disadvantages:
• Limited ownership and control
• Divergent goals and interests
• Difficult to coordinate globally
• Risk of creating competitors (learning race)
Choosing alliances partners:
- Complementary (or value-adding) resources/capabilities?
- Common goals for the collaboration?
- Compatible in culture & organization? (esp. cross-border alliances)
- How would the above change during the collaboration?
Realistically…

• Alliances are temporary by

nature

• A key capability of managing

an alliance is the ability to
manage the exit strategy
Summary: Advantages and Disadvantages for Entry Modes
International Entry Modes depend on

High

Wholly owned subsidiary

control

Alliances /
Joint ventures
Licensing

Export
Low
Low Competencies in int’l market High
Summary: Entry Mode

All entry modes have advantages and disadvantages

• The optimal choice of entry mode involves trade-offs

The optimal entry mode depends to a great extent on

• Desired level of control and core competencies

Firms may choose different entry modes at different

stages of internationalization
 Entry modes are dynamic!
Summary: Strategy as Bridge
who STRATEGY
where you
you are compete
how you
compete: “3C” EXTERNAL ENVIRONMENT
FIRM

Intent INDUSTRY
& values
Suppliers Political
Resources STRATEGY
& competencies Entrants
• Generic strategy Economic
• Corporate strategy (growth)
Structure Substitutes Social
- Diversification
& systems
- Vertical integration
Competitors Technological
- Internationalization

Customers
 THE END

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