Entering Foreign Markets Global Strategy Mike W. Peng 6

Entering Foreign Markets Global Strategy Mike W. Peng 6 www.phwiki.com

Entering Foreign Markets Global Strategy Mike W. Peng 6

Tutor, Laura, Metro and Features Editor has reference to this Academic Journal, PHwiki organized this Journal Entering Foreign Markets Part II: Business-Level Strategies Global Strategy Mike W. Peng chapter 6 Outline Overcoming the liability of as long as eignness Underst in addition to ing the propensity to internationalize A comprehensive model of as long as eign market entries Where to enter When to enter How to enter Debates in addition to extensions The savvy strategist Overcoming the Liability of Foreignness The Liability of Foreignness – the inherent disadvantage as long as eign firms experience in host countries because of their non-native status Differences in as long as mal in addition to in as long as mal institutions govern the rules of the game in different countries Foreign firms are often discriminated against Foreign firms deploy overwhelming resources in addition to capabilities to offset the liability of as long as eignness

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Underst in addition to ing the Propensity to Internationalize The underlying factors The size of the firm The size of the domestic market The propensity Enthusiastic internationalizer Follower internationalizer Slow internationalizer Occasional internationalizer Firm Size, Domestic Market Size, in addition to Propensity to Internationalize Figure 6.1 A Comprehensive Model of Foreign Market Entries Figure 6.2

A Comprehensive Model of Foreign Market Entries (cont’d) Industry-based considerations Rivalry Entry barriers Bargaining power of suppliers Bargaining power of buyers Substitute products Resource-based considerations Value of firm-specific resources in addition to capabilities The rarity of firm-specific assets Transaction costs Methods of organizing firm-specific resources in addition to capabilities A Comprehensive Model of Foreign Market Entries (cont’d) Institution-Based Considerations Regulatory risks: Obsolescing bargain Trade barriers: Tariff barriers Nontariff barriers (safety inspections, local content requirements, entry modes restrictions) Currency risks: Speculation in addition to hedging Synthesis – Different considerations may pull the as long as eign entrant in different directions Where to Enter Location-Specific Advantages Location Specific Advantages Geographical advantages Agglomeration – clustering of economic activities Strategic Goals: Seeking natural resources, markets, efficiency in addition to innovation Cultural/Institutional Distances in addition to Foreign Entry Locations Cultural distance – the difference between two cultures Institutional distance – comparing the regulatory, normative, in addition to cognitive institutions Two schools of thought: stage models vs strategic goals

Where to Enter Location-Specific Advantages (cont’d) Table 6.1 Source: First two columns adapted from J. Dunning, 1993, Multinational Enterprises in addition to the Global Economy (pp. 82–83), Reading, MA: Addison-Wesley. STRATEGIC GOALS LOCATION-SPECIFIC ADVANTAGES ILLUSTRAVTIVE LOCATIONS MENTIONED IN THE TEXT Natural Resource Seeking Possession of natural resources in addition to related Transport in addition to communication infrastructure Oil in the Middle East, Russia, in addition to Venezuela Market Seeking Abundance of strong market dem in addition to in addition to customers willing to pay Seafood in Japan Efficiency Seeking Economies of scale in addition to abundance of low-cost factors Manufacturing in China Innovation Seeking Abundance of innovative individuals, firms, in addition to universities IT in Silicon Valley in addition to Bangalore, financial services in New York in addition to London in addition to aerospace in Russia STRATEGIC GOALS LOCATION-SPECIFIC ADVANTAGES ILLUSTRAVTIVE LOCATIONS MENTIONED IN THE TEXT Natural Resource Seeking Possession of natural resources in addition to related Transport in addition to communication infrastructure Oil in the Middle East, Russia, in addition to Venezuela Market Seeking Abundance of strong market dem in addition to in addition to customers willing to pay Seafood in Japan Efficiency Seeking Economies of scale in addition to abundance of low-cost factors Manufacturing in China Innovation Seeking Abundance of innovative individuals, firms, in addition to universities IT in Silicon Valley in addition to Bangalore, financial services in New York in addition to London in addition to aerospace in Russia First Mover Advantages in addition to Late Mover Advantages Table 6.2 FIRST MOVER ADVANTAGES LATE MOVER ADVANTAGES (OR FIRST MOVER DISADVANTAGES) Proprietary, technological leadership Opportunity as long as free ride on first mover investments Resolution of technological in addition to market uncertainty Preemption of scarce resources Establishment of entry barriers as long as late entrants First mover’s difficulty to adapt to market changes Avoidance of clash with dominant firms at home Relationships in addition to connections with key stakeholders Such as customers in addition to governments When to Enter First mover advantages Developing proprietary, technological leadership Preempting scarce assets Establishing entry barriers Becomes the dominant firm Opportunity as long as relationships with key stakeholders Late mover advantages: benefit from first mover investments, experience, in addition to inflexibility

How to Enter Scale of Entry: Commitment in addition to Experience Large-Scale Entries Benefit from a strategic commitment Drawbacks of large-scale entries: Limited strategic flexibility in addition to potential huge losses Small-scale entries Focus on accumulating experience “Learning by doing” Drawbacks of small-scale entries A lack of strong strategic commitment Difficulties in building market share How To Enter Modes of Entry: Two Steps First step Strategists must prioritize variables A decision model is helpful Non-equity vs equity modes Level of commitment Contractual in addition to ownership alternatives Foreign direct investment advantages Ownership Location Internalization How To Enter The second step: See the following four slides

The Choice of Entry Modes: A Decision Model Figure 6.3 Source: Adapted from Y. Pan & D. Tse, 2000, The hierarchical model of market entry modes (p. 538), Journal of International Business Studies, 31: 535–554. Modes of Entry: Advantages in addition to Disadvantages Table 6.3 ENTRY MODES ADVANTAGES DISADVANTAGES High transportation costs as long as bulky products Economies of scale in production concentrated in home country Direct Exports Better control over distribution (relative to indirect export) Marketing distance from customers Trade barriers Indirect Exports Concentration of resources on production Less control over distribution (relative to direct export) Inability to learn how to operate overseas No need to directly h in addition to le export processes 1. Non-equity modes: Exports Modes of Entry: Advantages in addition to Disadvantages Table 6.3 (cont’d) ENTRY MODES ADVANTAGES DISADVANTAGES 2. NON-EQUITY MODES: CONTRACTUAL AGREEMENTS Licensing/Franchising Low development costs Little control over technology in addition to marketing Low risk in overseas expansion May create competitors Inability to engage in global coordination Turnkey projects Ability to earn returns from process technology in countries where FDI is restricted May create efficient competitors Lack of long-term presence R&D contracts Ability to tap into the best locations as long as certain innovations at low costs Difficult to negotiate in addition to en as long as ce contracts May nurture innovative competitors May lose core innovation capabilities Limited coordination Ability to reach more customers Comarketing

Modes of Entry: Advantages in addition to Disadvantages Table 6.3(cont’d) ENTRY MODES ADVANTAGES DISADVANTAGES 3. Equity modes: Joint ventures Sharing costs in addition to risks Divergent goals in addition to interests of partners Access to partners’ knowledge in addition to assets Limited equity in addition to operational control Politically acceptable Difficult to coordinate globally 4. Equity modes: Wholly owned subsidiaries Green-field projects Complete equity in addition to operational control Potential political problems in addition to risks Protection of technology in addition to know-how High development costs Ability to coordinate globally Slow entry speed (relative to acquisitions) Same as green-field (above), except slow speed Same as green-field (above) Acquisitions Fast entry speed Post-acquisition integration problems Debates in addition to Extensions Liability versus Asset of Foreignness Some as long as eignness can be an asset (“cool”): the “country of origin” effect Global versus Regional Triad Concentration Geographic Diversification Should MNEs truly globalize Cyberspace Entries versus Conventional Entries Whose “rules of the game” should e-commerce follow Is the Internet borderless or subject to specific governments The Savvy Strategist Consider industry, resource, in addition to institution views Match entries with specific goals Consider the four fundamental questions in strategy

Tutor, Laura Anniston Star Metro and Features Editor www.phwiki.com

Tutor, Laura Metro and Features Editor

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