Business Strategy

Lecture 4 entry strategy and strategic alliances

* Introduction

1. Firms expanding internationally must decide:

* which markets to enter

* when to enter them and on what scale

* which entry mode to use

2. 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

3. 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

1. Firms entering foreign markets make three basic decisions:

1) Which Foreign Markets? (which markets to enter)

* 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

2) Timing Of Entry (when to enter those markets)

* 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

* First mover advantages are the advantages associated with entering a market early; advantages include:

a) the ability to pre-empt rivals and capture demand by establishing a strong brand name

b) the ability to build up...