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Going Global - Decisions

Should I Go
Abroad?

Which Markets
Should I Enter?

How Should I
Enter Them?

How Should I
Market My Product?
Learning Objectives:

To understand the determinants on which entry mode


depends.
To explain various entry modes for international markets
To explain different theories of internationalization.
To evaluate selection criteria for entry mode decisions
Determinants of International Entry Modes

Industry-specific factors
Industrys degree of internationalisation
Choice of entry mode by key competitors

Many Unknown; task is not only to maximize return but


also to minimize risk
Home-country factors
Target Market Factors
Government policies Policies on investment abroad
Availability of local Entry Mode Bilateral agreements
distributors Domestic market size and
Local infrastructure competition

Firm-Specific factors
Firms degree of internationalisation
Marketing objectives
Nature of product
Availability of resources
Different modes of entry possible

Export mode Intermediate mode Investment


Contractual
Indirect Acquisition
Direct Licensing Create new
Franchising subsidiary
Strategic Alliances
Joint Ventures


Shared risk, High risk,
Low risk, Shared control, High control,
Low control, Split Ownership
High flexibility Low flexibility
The Choice of Entry Modes: A Hierarchical Model

Source: Adapted from Y. Pan & D. Tse, 2000, The hierarchical model of market
entry modes (p. 538), Journal of International Business Studies, 31: 535554.
Strategic Decisions
On
Risk vs. Control
Exporting

High

Risk

Exporting

Low Control High

Definition: a mode of entry involving production of a product


in one country and shipping it to another country for sale.
Contractual
Intermediate Modes of Entry
Licensing

High

Risk
Licensing

Exporting

Low Control High

Definition: an agreement in which an organization grants another


organization the right to use a trademark, a patented product or a process.
Advantages of Licensing

Financing international expansion

Reducing expansion risks

Minimizing the black market

Upgrading production technologies

Transportation cost is high


Disadvantages of Licensing

Restricting future activities


Reducing quality and consistency
Hindering marketing efforts
Assisting competitors

NEED CAREFUL NEGOTIATION


Franchising
Franchising

Advantages Disadvantages

Low-cost, low-risk Hard to manage a


mode of entry large number of
Rapid expansion franchises
Knowledge of local Loss of flexibility in
managers franchising
Advantages Disadvantages

Focus on Politics over


Core Competencies Know-How

Obtain Designs Future


for Infrastructure Competition
Strategic Alliances
Strategic Alliances
Tap Into a
Share
Competitors
Investment Cost
Strengths

Advantages of
Strategic Alliances

Gain Access to
Reduce
Distribution
Risk Exposure
Channels
Disadvantages of Strategic Alliances

Conflict Future
with Partners Competition
Joint Ventures

High

Joint Ventures
Risk
Licensing

Exporting

Low Control High

Definition: a business agreement in which two or more organizations


share management of an enterprise.
Penetrate
Reduce Risk International
Local every where Markets

Advantages
of Joint Ventures

International
Defensive
Distribution
Reasons
Network
Disadvantages
of Joint Ventures

Conflict Loss of
with Partners Control
Investment
Modes of Entry
Direct Ownership

High

Direct Ownership

Joint Ventures
Risk
Licensing

Exporting

Low Control High

definition: A mode of entry involving an organization setting


new facilities or acquiring a foreign firm in the same line of business.
Wholly Owned Subsidiaries

Advantages Disadvantages

Complete Expensive to
Managerial Control Start and Maintain

Compatible with High Risk


Global Strategies Exposure