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Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,14-,*,International Business,7e,by Charles W.L.Hill,McGraw-Hill/Irwin Copyright 2021 by The McGraw-Hill Companies,Inc.All rights reserved.,Chapter 14,Entry Strategy and,Strategic Alliances,Introduction,Firms expanding internationally must decide:,which markets to enter,when to enter them and on what scale,which entry mode to use,Entry modes include:,exporting,licensing or franchising to a company in the host nation,establishing a joint venture with a local company,establishing a new wholly owned subsidiary,acquiring an established enterprise,Introduction,Several factors affect the choice of entry mode including:,transport costs,trade barriers,political risks,economic risks,costs,firm strategy,The optimal mode varies by situation what makes sense for one company might not make sense for another,Basic Entry Decisions,Firms entering foreign markets make three basic decisions:,1.,which markets to enter,2.,when to enter those markets,3.,on what scale to enter those markets,Which Foreign Markets?,The choice of foreign markets will depend on their long run profit potential,Favorable markets are politically stable developed and developing nations with free market systems and relatively low inflation rates and private sector debt,Less desirable markets are politically unstable developing nations with mixed or command economies,or developing nations with excessive levels of borrowing,Markets are also more attractive when the product in question is not widely available and satisfies an unmet need,Timing Of Entry,Once attractive markets are identified,the firm must consider the,timing of entry,Entry is early when the firm enters a foreign market before other foreign firms,Entry is late when the firm enters the market after firms have already established themselves in the market,Timing Of Entry,First mover advantages,are the advantages associated with entering a market early,First mover advantages include:,the ability to pre-empt rivals and capture demand by establishing a strong brand name,the ability to build up sales volume in that country and ride down the experience curve ahead of rivals and gain a cost advantage over later entrants,the ability to create switching costs that tie customers into products or services making it difficult for later entrants to win business,Timing Of Entry,First mover disadvantages,are disadvantages associated with entering a foreign market before other international businesses,First mover disadvantages include:,pioneering costs,-arise when the foreign business system is so different from that in a firms home market that the firm must devote considerable time,effort and expense to learning the rules of the game,Pioneering costs include:,the costs of business failure if the firm,due to its ignorance of the foreign environment,makes some major mistakes,the costs of promoting and establishing a product offering,including the cost of educating customers,Classroom Performance System,_ refers to the time and effort spent learning the rules of a new market.,a)First mover advantages,b)Strategic commitments,c)Pioneering costs,d)Market entry costs,Scale Of Entry And Strategic Commitments,After choosing which market to enter and the timing of entry,firms need to decide on the,scale of market entry,Entering a foreign market on a significant scale is a major strategic commitment that changes the competitive playing field,Firms that enter a market on a significant scale make a,strategic commitment,to the market(the decision has a long term impact and is difficult to reverse),Small-scale entry has the advantage of allowing a firm to learn about a foreign market while simultaneously limiting the firms exposure to that market,Summary,There are no“right decisions when deciding which markets to enter,and the timing and scale of entry,just decisions that are associated with different levels of risk and reward,Entry Modes,These are six different ways to enter a foreign market:,1.,exporting,2.,turnkey projects,3.,licensing,4.,franchising,5.,establishing joint ventures with a host country firm,6.,setting up a new wholly owned subsidiary in the host country,Managers need to consider the advantages and disadvantages of each entry mode,Exporting,Exporting,is a common first step in the international expansion process for many manufacturing firms,Later,many firms switch to another mode to serve the foreign market,Exporting,Exporting is attractive because:,it avoids the costs of establishing local manufacturing operations,it helps the firm achieve experience curve and location economies,Exporting is unattractive because:,there may be lower-cost manufacturing locations,high transport costs and tariffs can make it uneconomical,agents in a foreign country may not act in exporters best interest,Turnkey Projects,In a,turnkey project,the contractor agrees to handle every detail of the project for a foreign c
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