Podcast
Questions and Answers
What legal system is characterized by relying on an independent judiciary and case precedents?
Which type of joint venture maintains separate legal identities for each partner?
What is not considered a significant political risk for businesses operating in foreign countries?
Which strategy involves targeting specific niche markets to gain a competitive advantage?
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In which economic condition is inflation likely to be a major concern for a business?
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What is a proactive reason for international expansion?
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Which of the following is an advantage of being a first mover in international markets?
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Which entry mode is characterized by a company producing domestically and selling internationally?
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What is a potential disadvantage of being a first mover in international markets?
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What aspect should NOT be considered when evaluating market conditions for international expansion?
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Study Notes
Entering Business Environments
- International expansion is complex, differing from replicating a national strategy. Expansions can be proactive (identifying opportunity) or reactive (firm's position deteriorating).
Location
- Legal/political environments, FDI receptiveness, market conditions, production costs, taxes, and labor markets (especially wages) are crucial considerations.
Timing
- Timing relative to competitor moves is significant. First movers often enjoy initial advantages but face higher environmental uncertainty.
Advantages of First Movers
- Potential for building a strong market share
- Opportunity to develop loyal customers
- Less international competition
- Economies of scale
- Creating barriers to entry for later competitors
- Better adaptability to later competition
Disadvantages of First Movers
- Very high risk with no guaranteed success.
- Significant environmental uncertainty
- Possible lack of protection for intellectual property
- Need for quick moves
- Free rider effects
Second Movers
- Can learn from the first movers' mistakes.
Entry Modes
- Divided into non-equity and equity modes.
Direct Exporting (Non-Equity)
- Producing a product domestically and selling it abroad.
- Can have high transport and taxation costs.
- Indirect exporting - outsourcing the exporting function to intermediaries.
Franchising (Non-Equity)
- Agreeing to produce a product/service under an existing organization's name, trademarks, and technology, while paying a fee.
Licensing (Non-Equity)
- Outsourcing production of goods subject to patent/brand rights to another firm, under agreed terms.
Equity Joint-Venture
- Sharing costs, resources, risks, and rewards, with each partner retaining its legal identity.
Wholly Owned Subsidiary (WOS)
- Creating a new facility, or acquiring another existing one. Preserves control.
Macroenvironment (PEST Analysis)
- Shaped by national and international governments.
- Affecting business through policies on industry development, tax incentives, and expansion schemes. International trade policies also matter.
Political/Legal Context Types
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Common Law: Independent judiciary, precedent-based.
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Civil Law: Consistent legal code applied universally.
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Theocratic Law: Based on religious codes.
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Political risks include expropriation (government seizure of assets) and policy risk (discriminatory changes to laws, regulations, or contracts).
Economic Context
- Shaped by overall economic conditions (recessions/booms) and government policies (inflation, wages, interest rates).
Technology Context
- New product/service creation, new production techniques, improved communication methods. Example: E-business.
Social/Ethical Context
- Demographics, attitudes, and behaviors affecting business operations.
- Ethical considerations and corporate social responsibility (CSR).
Competitive Environment
- Firms try to build competitive advantage through strategies like cost leadership or differentiation.
Porter's 5 Forces
- Forces affecting market competition include rivalry among existing competitors, threat of new entrants, threat of substitute products, bargaining power of buyers, and bargaining power of suppliers.
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Description
This quiz explores the complexities of entering international business environments, including location considerations and the timing of market entry. It highlights the advantages and disadvantages of being a first mover in global markets, offering insights into strategic decision-making for expansion. Test your understanding of these crucial business concepts!
