Podcast
Questions and Answers
What is a proactive reason for a firm's international expansion?
What is a proactive reason for a firm's international expansion?
- A firm faces increased domestic competition
- The firm has reached a saturation point in its domestic market
- The economic situation in the home country deteriorates
- An opportunity is identified (correct)
Which of the following factors is LEAST likely to be considered when choosing a location for international expansion?
Which of the following factors is LEAST likely to be considered when choosing a location for international expansion?
- Cultural affinity with the home country (correct)
- Legal and political environments
- Local production costs
- Labour market conditions
What advantage do first movers enjoy in international markets?
What advantage do first movers enjoy in international markets?
- Potential to build and sustain a strong market share (correct)
- Reduced costs due to established supply chains
- Lower market entry fees
- Access to exclusive government contracts
Which entry mode involves producing a product domestically and selling it internationally?
Which entry mode involves producing a product domestically and selling it internationally?
What is a significant disadvantage of being a first mover in a new market?
What is a significant disadvantage of being a first mover in a new market?
What kind of arrangement is licensing considered as an entry mode?
What kind of arrangement is licensing considered as an entry mode?
What is a potential risk associated with indirect exporting?
What is a potential risk associated with indirect exporting?
What is a compensation typically involved in franchising?
What is a compensation typically involved in franchising?
Which option best describes an Equity Joint-Venture?
Which option best describes an Equity Joint-Venture?
What is a primary risk associated with international business investment?
What is a primary risk associated with international business investment?
Which legal system relies on case precedents?
Which legal system relies on case precedents?
What major risk stems from changes in laws or regulations by a host government?
What major risk stems from changes in laws or regulations by a host government?
Which strategy seeks to lower costs to gain a competitive advantage?
Which strategy seeks to lower costs to gain a competitive advantage?
Which of the following contexts does not impact how businesses operate?
Which of the following contexts does not impact how businesses operate?
What is the focus of a Focus Strategy in business?
What is the focus of a Focus Strategy in business?
Which of the following factors is not part of a PEST analysis?
Which of the following factors is not part of a PEST analysis?
Flashcards
International Expansion Complexity
International Expansion Complexity
Expanding internationally is more challenging than simply copying a domestic strategy. It involves analyzing various factors like location, timing, and entry modes.
Proactive Expansion
Proactive Expansion
Expanding into new markets/ countries to take advantage of an opportunity.
Reactive Expansion
Reactive Expansion
Expanding internationally to maintain a firm’s competitive position due to decline.
International Expansion Location Factors
International Expansion Location Factors
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First Mover Advantage
First Mover Advantage
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Direct Exporting
Direct Exporting
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Franchising
Franchising
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Licensing
Licensing
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Equity Joint Venture
Equity Joint Venture
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Wholly Owned Subsidiary (WOS)
Wholly Owned Subsidiary (WOS)
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Common Law System
Common Law System
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Civil Law System
Civil Law System
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Expropriation Risk
Expropriation Risk
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Policy Risk
Policy Risk
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Cost Leadership Strategy
Cost Leadership Strategy
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Differentiation Strategy
Differentiation Strategy
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Study Notes
Entering Business Environments
- International expansion is complex, often proactive (opportunity-driven) or reactive (competitive position deterioration).
Location
- Legal and political factors are crucial.
- Foreign direct investment (FDI) receptiveness is important.
- Market conditions, production costs, taxes, and labor markets (especially wages) must be considered.
Timing
- Timing often correlates with competitor moves.
- First movers may gain advantages, but also face significant environmental uncertainty.
Entry Modes
- Direct Exporting (Non-Equity): Producing domestically and selling internationally. Can involve high transportation and tax costs.
- Indirect exporting outsources the exporting function to an agent.
- Franchising (Non-Equity): Allows use of a brand/trademark under a special agreement. Franchisee pays fees.
- Licensing (Non-Equity): Outsourcing product/service production using patents/trademarks to another firm. Conditions agreed upon.
Advantages/Disadvantages of First Movers
- Advantages: Establishing market share, being imitated, customer loyalty, economies of scale.
- Disadvantages: High risks, environmental uncertainty, potential lack of IP protection, need for quick adaptation.
Equity Modes
- Joint Ventures: Sharing resources/risks, maintains individual legal identity.
- Wholly Owned Subsidiaries (WOS): Creating a new facility or acquiring an existing one.
Macroenvironment (PEST) Analysis
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Political/Legal: Shaped by national and international governments; includes policies on industry development, taxes, trade, and expansion. Three main types: common law, civil law, and theocratic law.
- Political Risks: Expropriation (seizure of assets) and policy risk (discriminatory law/regulation changes).
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Economic: Overall state of the national economy (recession/boom), government policies (inflation, wages, interest rates).
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Technological: This sector impacts product/service innovation, production strategies, communication.
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Social-Ethical: Demographics, behaviors, ethics in business practices.
Competitive Environment Factors
- Cost Leadership Strategy: Emphasis on lower costs in competitive advantage.
- Differentiation Strategy: Focus on superior product/service quality.
Porter's 5 Forces Affecting Market Competition
- Threat of New Entrants: Factors like barriers to entry, economies of scale, government policies.
- Rivalry Among Existing Competitors: Varies with industry's concentration level, firm diversity, growth rate.
- Bargaining Power of Suppliers: Supplier count, uniqueness of products, ability to substitute.
- Bargaining Power of Buyers: Customer count, order size, price sensitivity, ability of buyers to find substitutes.
- Threat of Substitute Products: Availability, price, performance and ease of substitute.
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