1. Entry Strategy and Strategic Alliances in International Business11/20/2013

2. MAR ATHANASIOS COLLEGE FOR ADVANCED STUDIES MACFAST,THIRUVALLA Group members : Anu Prasannan Aparna Lal Nyju Eapen Anand Jose Ajith Jacob11/20/2013 3. Case: Diebold Began to sell ATM machines in foreign markets in 1980s 1980s Distribution agreement with Philips 1990 Diebold establishes joint venture with IBM 1997 foreign sales 20% of Diebolds total revenues Diebold decides to go it alone with local manufacturing presence for local customization Through acquisitions joint ventures 11/20/2013 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 11/20/2013 5. Which foreign markets Favorable Politically stable developed and developing nations Free market systems No dramatic upsurge in inflation or private-sector debtUnfavorable Politically unstable developing nations with a mixed or command economy or where speculative financial bubbles have led to excess borrowing 11/20/2013 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. 11/20/2013 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 11/20/2013 8. Entry modes Exporting Licensing Franchising Joint Ventures Wholly Owned Subsidiaries 11/20/2013 9. Exporting Advantages: Avoids cost of establishing manufacturing operations May help achieve experience curve and location economiesDisadvantages: May compete with low-cost location manufacturers Possible high transportation costs Tariff barriers Possible lack of control over marketing reps Local Agent Problems 11/20/2013 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. 11/20/2013 11. Franchising Franchiser sells intangible property and insists on rules for operating business. Advantages: Reduces costs and risk of establishing enterpriseDisadvantages: May prohibit movement of profits from one country to support operations in another country Quality control 11/20/2013 12. Joint Ventures Advantages: Benefit from local partners 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 11/20/2013 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 11/20/2013 14. Advantages and disadvantages of entry modes11/20/2013 15. Selecting an entry mode Technological Know-HowWholly owned subsidiary, except: 1. Venture is structured to reduce risk of loss of technology. 2. Technology advantage is transitory.Management Know-HowPressure for Cost ReductionThen licensing or joint venture OK Franchising, subsidiaries (wholly owned or joint venture)Combination of exporting and wholly owned subsidiary11/20/2013 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 synergiesPro: Can build subsidiary it wants Easy to establish operating routines Con: Slow to establish Risky Preemption by aggressive competitors11/20/2013 17. Acquisition or Green-field? Well-established, incumbent firms. Competitors interested in entry.Acquisitionembedded skills, routines, culture. Green-fieldNo competitors11/20/2013 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 11/20/2013 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 11/20/2013 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 11/20/2013 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 11/20/2013 22. Structuring the alliance to reduce opportunism11/20/2013 23. Characteristics of a strategic allianceBenefitsIndependence of ParticipantsTechnologyProductsControlShared BenefitsOngoing ContributionsMarkets 14-23 11/20/2013 24. Managing the alliance Build trust Relational capitalLearning from partners Diffusion of knowledge