CHAPTER 5 : ENTRY STRATEGY IN INTERNATIONAL BUSINESS.

 The goal of this chapter :
To study decisions of entry strategy in international business such as : 

Which markets to enter.  Suitable time to enter.  Modes and scale of entry.  Several elements affect onto the decision of choosing entry strategies.
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I. BASIC DECISIONS OF ENTRY STRATEGY 1. Which markets to enter ? - Some criteria to base on when making decisions: ‡ Current growth rate of economy. ‡ Stability of politics and laws. ‡ Size of the market. ‡ Purchasing power of the market. ‡ Perspective of the market.
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2. Time to enter a new market : There are 2 ways : a. Pioneer: a.1 Advantages : - To win the market-share from the beginning. - Increase benefits due to taking the leading status. - Making changes which make followers difficult to adapt to .
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The followers : . b. Disadvantages: .Advantage and disadvantage : opposite to the pioneers. .2. Include : business failure. promoting and establishing a new products.Pioneer can not learn from experience as per followers do. training fees to customers.Pioneering costs: Cost that an early entrants has to bear that a later entrant can avoid. 4 .a.

Enter a new market with a small scale : ‡ Help to understand the market before making decisions of reasonable scale.share  Restrict the opportunities of taking advantages as a pioneer. b. Scale and entry strategy : a. ‡ Minimize risks in business.3.  Difficult to keep the market . 5 . Enter a new market with large scale : Opposite to the small one.

.Companies usually expand their business globally by the first mode: exporting.Use EMC ± Export Management Companies to handle their business when they export at the first time. ENTRY MODES IN INTERNATIONAL BUSINESS. There are 6 modes : 1. Exporting : .II. 6 .

Avoid the often substantial costs of establishing manufacturing operations in the host country.  Disadvantages : . . Exporting :  Advantages : . 7 .Not be appropriate if lower cost locations for manufacturing abroad.1.Realize experience curve and locations economies.

Tariff barriers of host countries can make exporting uneconomical. Disadvantages : . 8 .High transport costs can make exporting uneconomical .) Set up wholly owned subsidiaries oversea to handle those activities. sales and services in the country where it does business to another company ( it looses the control to these activities. . authorize its marketing. particularly for bulk products.Must delegate . .

Be a good means of exporting processes of technology to other countries. training employee for the project from the beginning and then transfer it to the host country.Used when the know-how of assembling . operating the technology too complicated : refine oil. 9 . metallurgy«. Turnkey projects : .Design. establish. operate . Advantages : .2. .

Selling competitive advantage to potential and/or actual competitors.Have no long terms interest in the foreign countries. 10 .Advantages : .Less risky than FDI .May create competitors .  Disadvantages : .Applied in countries with unstable political and economic environment or FDI is restricted. .

3.Intangible property includes : patents . Licensing : . . invention . formulas . 11 . and in return. trade mark  Advantages : . design .Not have to bear the development costs and risks associated with opening a foreign market.Be an arrangement whereby a licensor grants the rights to intangible property to another entity ( the licensee ) for a specified period . copy right. the licensor receives a royalty fee from the licensee.

 Advantages : . 12 .Used when a firm wishes to participate in a foreign market but is prohibited from doing so by barriers to investments. .Very attractive for firms lacking the capital to develop operations oversea. but it does not want to develop those applications it self. .Frequently used when a firm possesses some intangible property that might have business applications.

13 .Not give a firm the tight control over manufacturing. marketing and strategy at oversea. Disadvantages : 3 serious drawbacks : . .Limit a firm¶s ability to coordinate strategic moves across countries by using profits earn in one country to support competitive attacks in another to compete in a global market. .Risk of loosing control of know-how to foreign companies.

Enter into a cross-licensing agreement with a foreign firm. Ways of reducing the risk of loosing control know-how : .Forming a joint venture in which the licensor and licensee take important equity stakes. 14 . . Applied in high technology industries.

Franchising : Similar to Licensing : ‡The franchiser not only sells the intangible property ( normally a trade mark ) to the franchisee. Usually applied by services firms while licensing is applied by manufacturing firms. ‡ The franchiser also assist the franchisee to run the business on an ongoing basis. 15 . but also insist the franchisee to abide by strict rules as to how it does business.4.

The most significant disadvantages of franchising is quality control. 16 . Advantages : . .Similar to licensing  Disadvantages : . Should set up wholly owned subsidiaries or a a joint venture to avoid those disadvantages.Similar to licensing.

 Advantages : . . Joint Venture : .5.Benefits from local partner¶s knowledge of the host country¶s competitive conditions . languages.A popular mode to enter a new market.A firm that is jointly owned by two or more otherwise independent firms. 17 . political systems and business systems. culture.

Risk of giving control of technology to its partner. 18 . Advantages : . .Sharing the development costs and risks of opening a business in a foreign market with a local partner.Face a low risk of being subject to nationalization or other forms of adverse government interference.  Disadvantages : .

Not give a tight control over subsidiaries that need to realize experience curve or location economies .Can lead to conflicts and battles for controlling the business. . 19 . . To wall technology off from partner in running the business.Not easy to coordinate global attacks against its rivals. Disadvantages : Try to hold majority ownership in a joint venture.

Reduce the risk of losing control over the know-how or core competence at oversea.6. There are 2 ways : a.  Advantages : .Usually applied by high-tech firms. 20 . Acquisition or merging with local companies. .Be a firm which owns 100% of the stock. ) b. Wholly owned subsidiaries: . Set up a green-field venture ( 100% FDI Co.

Tight control over operations in different countries Help to coordinate in global strategy .Different culture between 2 companies in a merge or acquisition may cause conflicts.  Disadvantages : .Realize location and experience curve economies. . . Advantages : . 21 .The most costly method of entry a new market.

Problems with marketing agents.Trade barriers . 22 . economies. - Disadvantages High transport cost. agents. . Exporting Advanatges Ability to realize location and experience curve economies. cost. Entry mode 1.Advanatges and Disadvatages of entry modes.

Turnkey contract Advantages -Ability to earn returns from process technology skills in countries where FDI is restricted. restricted.Lack og longlongterms market presence. - ng Th c Disadvantages Creating efficient competitors. . 23 . Entry mode 2.Thu n L i Và B t L i C a Các Ph Thâm Nh p.

-Inability to engage in global strategic coordination.Lack of control development costs over technology . -Inability to realize location and experience curve economies.Advanatges and Disadvatages of entry modes. Licensing Advantages Disadvantages . and risks. 24 .Low . Entry Mode 3.

quality .Advanatges and Disadvatages of entry modes Entry mode Advantages Disadvantages 4.Lack of development control over costs and risks. . 25 .Inability to engage in global strategic coordination. Franchising. .Low .

and risks. knowledge . acceptable. coordination. Joint ventures Advantages .Access Disadvantages - Lack of control over partner¶s technology. economies.Advanatges and Disadvatages of entry modes Entry mode 5. economies.Politically location and experience acceptable. -Inability to engage in -Sharing global strategic development costs coordination. technology. 26 to local . -Inability to realize . risks.

coordination. 27 .High costs and subsidiaries technology. Wholly owned -Protection of . technology.Advanatges and Disadvatages of entry modes Entry mode Advantages Disadvantages 6. economies. risks. -Ability to engage in global strategic coordination. -Ability to realize location and experience economies.

Technological Know-how : . 28 .Joint venture and Licensing should not be used in case company has core competencies of technological know how..FDI should be used in this case.III. Core competencies and entry mode: a. . ELEMENTS AFFECT ONTO SELECTING AN ENTRY MODE: 1.

Presure for cost reduction and entry mode: . 29 .Firms pursuing global or transnational strategies tend to prefer establishing wholly owned subsidiaries. Joint venture or franchising are usually applied. 2. Management Know-how : .Risks of losing control over the management skills to franchisees or joint venture partners are not serious or acceptable.b.

30 . . Presure for cost reduction and entry mode: . then they may use export as an entry mode.Firms following international strategy means that pressure for cost reduction is not serious.2.Firms wants to expand their business at oversea but don¶t want to invest much abroad may chose franchising or licensing.

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