6
Chapter 6
Entering
chapter
Foreign
Markets
Global Strategy
Global Strategy
Mike W. Peng
Mike W. Peng
Copyright
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© 2014
2014 Cengage
Cengage Learning.
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or duplicated,
duplicated, or
or posted
posted to
to aa publicly
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whole or
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in part.
part.
Outline
• Overcoming the liability of foreignness
• A comprehensive model of foreign market
entries
• Where to enter?
• When to enter?
• How to enter?
• Debates and extensions
• The savvy strategist
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Overcoming the Liability of Foreignness
• The Liability of Foreignness - the inherent disadv
antage foreign firms experience in host countries
because of their non-native status
• Differences in formal and informal institutions
govern the rules of the game in different
countries
• Foreign firms are often discriminated against
• Foreign firms deploy overwhelming resources
and capabilities to offset the liability of
foreignness
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copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Understanding 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
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Firm Size, Domestic Market Size, and
Propensity to Internationalize
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publicly accessible website, in whole or in part.
A Comprehensive Model of Foreign Market Entries
6
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 and capabilities
The rarity of firm-specific assets
Transaction costs
Methods of organizing firm-specific resources and capabilities
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
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 and hedging
• Synthesis - Different considerations may pull the
foreign entrant in different directions
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Where to Enter?
Location-Specific Advantages
• Location Specific Advantages
Geographical advantages
Agglomeration - clustering of economic activities
• Strategic Goals: Seeking natural resources, markets,
efficiency and innovation
• Cultural/Institutional Distances and Foreign Entry
Locations
Cultural distance - the difference between two cultures
Institutional distance - comparing the regulatory, normative, and
cognitive institutions
Two schools of thought: stage models vs strategic goals
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Where to Enter?
Matching Strategic Goals with Locations
STRATEGIC GOALS
STRATEGIC GOALS LOCATION-SPECIFIC ADVANTAGES
LOCATION-SPECIFIC ADVANTAGES EXAMPLES IN THE TEXT
ILLUSTRAVTIVE LOCATIONS MENTIONED IN THE TEXT
Natural Resource
Natural Seeking
Resource Seeking Possession of natural
Possession resources
of natural andand
resources related
related Oil inOil
theinMiddle East,East,
the Middle Russia, and Venezuela
Russia, and Venezuela
Transport andand
Transport communication infrastructure
communication infrastructure
Market Seeking
Market Seeking Abundance of strong
Abundance market
of strong demand
market andand
demand GM Seafood
in China in Japan
customers willing
customers to pay
willing to pay
Efficiency Seeking
Efficiency Seeking Economies
Economiesof scale andand
of scale abundance of of
abundance Manufacturing in China
Manufacturing (especially in Shanghai)
in China
low-cost factors
low-cost factors
Innovation Seeking
Innovation Seeking Abundance of innovative
Abundance individuals,
of innovative firms,
individuals, firms, IT inIT
Silicon Valley
in Silicon and and
Valley Bangalore, telecom
Bangalore, in Dallas,
financial services
andand
universities
universities and in
aerospace
New Yorkinand
Russia
London and aerospace in Russia
Source: First two columns adapted from J. Dunning, 1993, Multinational Enterprises
and the Global Economy (pp. 82–83), Reading, MA: Addison-Wesley. Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in
part.
CULTURAL/INSTITUTIONAL DISTANCES AND
FOREIGN ENTRY LOCATIONS
Institutional
Institutionaldistance
distance––
Cultural the
theextent
extentofofsimilarity
Culturaldistance
distance-- similarity
difference or
ordissimilarity
dissimilaritybetween
differencebetween
betweentwo
two between
cultures along regulatory,
regulatory,normative
normative
cultures along
identifiable and
andcognitive
identifiabledimensions.
dimensions. cognitive
Ex: individualism. institutions
institutionsofoftwo
two
Ex: individualism.
countries.
countries.
Stage model – suggests that firms enter culturally similar
countries first.
Alternative model – highlights the importance of strategic goals
rather than cultures and institutions.
11
12
When to Enter?
• First mover advantages
Developing proprietary, technological leadership
Preempting scarce assets
Establishing entry barriers
Becomes the dominant firm
Opportunity for relationships with key stakeholders
• Late mover advantages: benefit from first mover
investments, experience, and inflexibility
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copied or duplicated, or posted to a publicly accessible website, in whole or in part.
How to Enter?
Scale of Entry: Commitment and Experience
• Large-Scale Entries
Benefit from a strategic commitment
Drawbacks of large-scale entries: Limited strategic
flexibility and 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
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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 and ownership alternatives
• Foreign direct investment advantages
Ownership
Location
Internalization
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
16
How To Enter?
• The second step: See the following three slides
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copied or duplicated, or posted to a publicly accessible website, in whole or in part.
18
Modes of Entry: Advantages and Disadvantages
Table 6.3
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publicly accessible website, in whole or in part.
Modes of Entry: Advantages and Disadvantages
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
Table 6.3 (cont’d)
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Debates and Extensions
• Liability versus Asset of Foreignness
Some foreignness can be an asset (“cool”): the
“country of origin” effect
• Global versus Regional Triad Concentration
Geographic Diversification
Should MNEs truly globalize?
• Old-line versus emerging multinationals: OLI
versus LLL
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Savvy Strategist
• Thoroughly understand the dynamism
underlying the industry in a foreign market you
are looking into
• Develop overwhelming capabilities to offset the
liability of foreignness
• Understand the rules of the game
• Match entries with specific goals
Copyright © 2014 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in whole or in part.
