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Basic foreign expansion entry decisions • A firm contemplating foreign expansion must make three decisions • Which markets to enter? • When to enter these markets? • What is the scale of entry? .

Which foreign markets • Favorable • Politically stable developed and developing nations • Free market systems • No dramatic upsurge in inflation or privatesector debt • Unfavorable • Politically unstable developing nations with a mixed or command economy or where speculative financial bubbles have led to excess borrowing 14-3 .

• Move down experience curve and achieve cost advantage. • Create switching costs. • Tie customers to your product.Timing of entry • Advantages in early market entry: • First-mover advantage. • Changes in government policy. • Build sales volume.pioneering costs. 14-4 . • Disadvantages: • First mover disadvantage .

• Lack of Commitment problems 14-5 . • May lead to indigenous competitive response • Jollibee Example • ? Good or Bad? . • Small scale entry: • Time to learn about market. • Reduces exposure risk. • May cause rivals to rethink market entry.a decision that has a longterm impact and is difficult to reverse.Scale of entry • Large scale entry • Strategic Commitments .

Entry modes • Exporting • Turnkey Projects • Licensing • Franchising • Joint Ventures • Wholly Owned Subsidiaries 14-6 .

Exporting • 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 • Local Agent Problems 14-7 .

• Earn $ on Know How 14-8 • Can earn a return on knowledge asset .Turnkey projects • Advantages: Contractor agrees to handle every • Less risky than conventional FDI detail of project for foreign client • Disadvantages: • No long-term interest in the foreign country • May create a competitor • Selling process technology may be selling competitive advantage as well • An example would be the creation of a "turnkey hospital" which would be building a complete medical center with installed high-tech medical equipment.

• Unfamiliar or politically volatile market. • Lack capital for venture.Licensing: Advantages • Reduces development costs and risks of establishing foreign enterprise. . 14-9 Agreement where licensor grants rights to intangible property to another entity for a specified period of time in return for royalties. • Others can develop business applications of intangible property. • Overcomes restrictive investment barriers.

Franchising • Advantages: • Reduces costs and risk of establishing enterprise • Disadvantages: • May prohibit movement of profits from one country to support operations in another country Franchiser sells intangible property • Quality control and insists on rules for operating business 14-10 .

• Reduced political risk.Joint Ventures • Advantages: • Benefit from local partner’s knowledge. Shared ownership can lead to conflict Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. Both companies have stopped making their own mobile phones. 14-11 • Disadvantages: . • Shared costs/risks with partner. • • • • Risk giving control of technology to partner. May not realize experience curve or location economies. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector.

• Realize learning curve and location economies. • Disadvantage: • Bear full cost and risk • For example.Wholly owned subsidiary • Subsidiaries could be Greenfield investments or acquisitions • Advantages: • No risk of losing technical competence to a competitor • Tight control of operations. American Broadcasting Company (better known as ABC TV) is a wholly owned subsidiary of The Walt Disney Company since Walt Disney is the sole 14-12 owner of ABC .

except: Wholly Technological Know-How 1. subsidiaries (wholly owned or joint venture) Combination of exporting and wholly owned subsidiary 14-13 Pressure for Cost Reduction .Selecting an entry modeowned subsidiary. Then licensing or joint venture OK Management Know-How Franchising. Venture is structured to reduce risk of loss of technology. 2. Technology advantage is transitory.

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