Presentation on international business entry strategies ,various entry modes and strategic alliances.

1. Entry Strategy and Strategic Alliances in
International Business
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2. MAR ATHANASIOS COLLEGE
FOR ADVANCED STUDIES
MACFAST,THIRUVALLA
Group members :
Anu Prasannan
Aparna Lal
Nyju Eapen
Anand Jose
Ajith Jacob
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3. Case: Diebold





Began to sell ATM machines in foreign
markets in 1980’s
1980’s Distribution agreement with Philips
1990 Diebold establishes joint venture with
IBM
1997 foreign sales 20% of Diebold’s total
revenues
Diebold decides to go it alone with local
manufacturing presence for local
customization
◦ Through acquisitions
◦ joint ventures
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4. Basic foreign expansion entry
decisions
A firm contemplating foreign expansion must
make three decisions
Which markets to enter
 When to enter these markets
 What is the scale of entry

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5. Which foreign markets

Favorable
◦ Politically stable developed and
developing nations
◦ Free market systems
◦ No dramatic upsurge in inflation or
private-sector debt

Unfavorable
◦ Politically unstable developing nations
with a mixed or command economy or
where speculative financial bubbles have
led to excess borrowing
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6. Timing of entry

Advantages in early market entry:
◦ First-mover advantage.
◦ Build sales volume.
◦ Move down experience curve and achieve
cost advantage.
◦ Create switching costs.
 Tie customers to your product.

Disadvantages:
◦ First mover disadvantage - pioneering
costs.
◦ Changes in government policy.
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7. Scale of entry

Large scale entry
◦ Strategic Commitments - a decision that has
a long-term impact and is difficult to reverse.
◦ May cause rivals to rethink market entry.
◦ May lead to indigenous competitive response
 Jollibee Example
◦ ? Good or Bad? .

Small scale entry:
◦ Time to learn about market.
◦ Reduces exposure risk.
 Lack of Commitment problems
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8. Entry modes
Exporting
 Licensing
 Franchising
 Joint Ventures
 Wholly Owned Subsidiaries
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9. Exporting

Advantages:
◦ Avoids cost of establishing manufacturing
operations
◦ May help achieve experience curve and
location economies

Disadvantages:
◦ May compete with low-cost location
manufacturers
◦ Possible high transportation costs
◦ Tariff barriers
◦ Possible lack of control over marketing reps
 Local Agent Problems
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10. Licensing
Agreement where licensor grants rights to
intangible property to another entity for a
specified period
of time in return for
royalties.
Advantages
 Reduces development costs and risks of
establishing foreign enterprise.
 Lack capital for venture.
 Unfamiliar or politically volatile market.
 Others can develop business
applications of intangible
property.
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11. Franchising
Franchiser sells intangible property and
insists on rules for operating business.

Advantages:
◦ Reduces costs and risk of establishing
enterprise

Disadvantages:
◦ May prohibit movement of profits from one
country to support operations in another
country
◦ Quality control
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12. Joint Ventures

Advantages:
◦ Benefit from local partner’s knowledge.
◦ Shared costs/risks with partner.
◦ Reduced political risk.

Disadvantages:
◦ Risk giving control of technology to
partner.
◦ May not realize experience curve or
location economies.
◦ Shared ownership can lead to conflict
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13. Wholly owned subsidiary
Subsidiaries could be Greenfield
investments or acquisitions

Advantages:
◦ No risk of losing technical competence to a
competitor
◦ Tight control of operations.
◦ Realize learning curve and location economies.

Disadvantage:
◦ Bear full cost and risk
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14. Advantages and disadvantages of entry
modes
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15. Selecting an entry mode
Technological Know-How
Wholly owned subsidiary, except:
1. Venture is structured to reduce
risk of loss of technology.
2. Technology advantage is
transitory.
Management Know-How
Pressure for Cost
Reduction
Then licensing or joint venture OK
Franchising, subsidiaries
(wholly owned or joint venture)
Combination of exporting and
wholly owned subsidiary
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16. Acquisition and Green-field- pros &
Greenfield
cons Acquisition


Pro:
◦ Quick to execute
◦ Preempt competitors
◦ Possibly less risky
Con:
Disappointing results
Overpay for firm
optimism about value
creation (hubris)
Culture clash.
Problems with proposed
synergies


Pro:
◦ Can build subsidiary it
wants
◦ Easy to establish
operating routines
Con:
◦ Slow to establish
◦ Risky
◦ Preemption by
aggressive competitors
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17. Acquisition or Green-field?
Well-established,
incumbent firms.
Competitors
interested in
entry.
Acquisition
embedded skills,
routines, culture.
Green-field
No competitors
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18. Strategic Alliances
Cooperative agreements between potential
or actual competitors.
 Advantages:

◦ Facilitate entry into market
◦ Share fixed costs
◦ Bring together skills and assets that neither
company has or can develop
◦ Establish industry technology standards

Disadvantages:
◦ Competitors get low cost route to technology and
markets
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19. Alliances are popular
High cost of technology development
 Company may not have skill, money or
people to go it alone
 Good way to learn
 Good way to secure access to foreign
markets
 Host country may require some local
ownership

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20. Global Alliances, however, are
different
Firms join to attain world leadership
 Each partner has significant strength to
bring to the alliance
 A true global vision
 When competing in markets not part of
alliance, they retain their own identity

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21. Partner selection
Get as much information as possible
on the potential partner
 Collect data from informed third
parties

◦ Former partners
◦ Investment bankers
◦ Former employees

Get to know the potential partner
before committing
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22. Structuring the alliance to reduce opportunism
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23. Characteristics of a strategic
alliance
Benefits
Independence of
Participants
Technology
Products
Control
Shared
Benefits
Ongoing
Contributions
Markets
14-23
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24. Managing the alliance

Build trust
◦ Relational capital

Learning from partners
◦ Diffusion of knowledge