Business Strategies Chapter 6: Crossing Borders

Chapter 6: Crossing Borders

• Entering existing markets: Multinational companies use an incremental approach to enter and develop in foreign markets.
• Incremental process: Companies often use methods like exporting, selling through agents, establishing distribution channels, or local production. Companies may also use acquisitions or other forms of multinational investment. This approach allows them to build up their market knowledge and resources gradually.
• Market transition: Factors such as imposed tariffs, competitive industry dynamics, and internal decision-making processes might prompt market shifts.
• Greenfield vs. Acquisition: Greenfield investments focus on new technology and are often used by large multinational corporations to minimize risk by only investing in certain parts of the company. Acquisitions involve buying a whole company for quicker expansion into a target market, particularly helpful in fast-growing, high-demand areas, or for entering oligopolistic markets.

Acquisition

• Used increasingly after World War II to consolidate fragmented industries.
• Methodology: Uniliver's example in Europe and Australia shows acquiring already existing smaller companies, enabling rapid expansion in a specific sector.
• Risks of Acquisitions: Due to lack of existing knowledge, cross-border acquisitions can present management and organizational challenges. Value often goes to shareholders rather than company growth.
• Fragmented Market: In a fragmented market, no single company has significant enough influence to drive a whole industry in a specific direction. Many small and medium-sized companies operate in the market.

Alliances & Constellations

• Joint Ventures: Used especially in financially pressured times to consolidate risk among multiple partners. The risk is spread across ventures, increasing the likelihood of success. Arise due to high risk in entering new foreign markets.
• Collaboration Agreements: These agreements allow companies to access specific foreign sectors or markets without full managerial or financial commitments. For instance, a patent may be licensed.
• Collaborative agreements allow firms to enter markets without high financial/managerial commitments. Companies often exploit licensing agreements or trade agreements to enter new markets. One example given is the use of licensing agreements by Oce (Dutch) to expand internationally.

This quiz covers Chapter 6 on 'Crossing Borders' from business strategy literature. Explore how multinational companies navigate foreign markets through incremental approaches, including exporting, acquisitions, and greenfield investments. Understand the influence of tariffs and competitive dynamics on market transitions.