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Entering Foreign Markets

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Andrea Gwen Arapoc
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21 views10 pages

Entering Foreign Markets

Uploaded by

Andrea Gwen Arapoc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as KEY, PDF, TXT or read online on Scribd
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Chapter 12

Entering Foreign
Markets
Introduction

Question: How can firms enter foreign markets?


Firms can enter foreign markets through
exporting
licensing or franchising to host country firms
a joint venture with a host country firm
a wholly owned subsidiary in the host country
The advantages and disadvantages of each entry
mode is determined by
transport costs and trade barriers
political and economic risks
firm strategy
Basic Entry Decisions

Question: What are the basic entry decisions for


firms expanding internationally?

A firm expanding internationally must decide


which markets to enter
when to enter them and on what scale
how to enter them - the choice of entry mode
Entry Modes

Question: What is the best way to enter a foreign


market?

Firms can enter foreign market through


1. Exporting

2. Turnkey projects

3. Licensing

4. Franchising

5. Joint ventures

6. Wholly owned subsidiaries

Each mode has advantages and disadvantages


Selecting an Entry Mode

Question: How should a firm choose a specific


entry mode?

All entry modes have advantages and


disadvantages
The optimal entry mode depends to some degree
on the nature of a firm’s core competencies
Core competencies can involve
1. Technological know-how

2. Management know-how
Selecting an Entry Mode

Firms facing strong pressures for cost reductions


are likely to pursue some combination of
exporting and wholly owned subsidiaries
this will allow the firms to achieve location and
scale economies as well as retain some degree
of control over worldwide product
manufacturing and distribution
Greenfield or Acquisition?

Question: Should a firm establish a wholly


owned subsidiary in a country by building a
subsidiary from the ground up (greenfield
strategy) or by acquiring an established
enterprise in the target market (acquisition
strategy)?

The number of cross border acquisitions are


increasing
Over the last decade, 50-80 percent of all FDI
inflows have been mergers and acquisitions
Greenfield or Acquisition?
Acquisitions
are quick to execute
enable firms to preempt their competitors
can be less risky than green-field ventures
Acquisitions fail when
the firm overpays for the assets of the acquired
firm
there is a clash between the cultures of the
acquiring and acquired firm
attempts to realize synergies by integrating the
operations of the acquired and acquiring entities
run into roadblocks and take much longer than
forecast
there is inadequate pre-acquisition screening
Greenfield or Acquisition?

Question: How can firms reduce the problems


associated with acquisitions?

Firms can reduce the problems associated with


acquisitions
through careful screening of the firm to be
acquired
by moving rapidly once the firm is acquired to
implement an integration plan
Greenfield or Acquisition?

Question: Why are greenfield ventures attractive?

Greenfield ventures are attractive because they


allow the firm to build the kind of subsidiary
company that it wants
However, greenfield ventures
are slower to establish
are risky because they have no proven track
record
can be problematic if a competitor enters via
acquisition and quickly builds market share

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