MG4031 week 4 lecture 2

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Questions and Answers

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?

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?

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?

Direct exporting Signup and view all the answers

What is a significant disadvantage of being a first mover in a new market?

Significant environmental uncertainty Signup and view all the answers

What kind of arrangement is licensing considered as an entry mode?

Non-equity mode Signup and view all the answers

What is a potential risk associated with indirect exporting?

Loss of brand integrity Signup and view all the answers

What is a compensation typically involved in franchising?

Regular royalty fees based on sales Signup and view all the answers

Which option best describes an Equity Joint-Venture?

A partnership sharing costs and resources while retaining legal identities. Signup and view all the answers

What is a primary risk associated with international business investment?

Expropriation risk from host governments. Signup and view all the answers

Which legal system relies on case precedents?

Common Law. Signup and view all the answers

What major risk stems from changes in laws or regulations by a host government?

Policy risk. Signup and view all the answers

Which strategy seeks to lower costs to gain a competitive advantage?

Cost Leadership Strategy. Signup and view all the answers

Which of the following contexts does not impact how businesses operate?

Artistic Context. Signup and view all the answers

What is the focus of a Focus Strategy in business?

Targeting specific niche markets. Signup and view all the answers

Which of the following factors is not part of a PEST analysis?

Operational factors. Signup and view all the answers

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

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).
Economic: Overall state of the national economy (recession/boom), government policies (inflation, wages, interest rates).
Technological: This sector impacts product/service innovation, production strategies, communication.
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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Description

Test your knowledge on the complexities of international business expansion. This quiz explores key factors such as location, timing, and entry modes like exporting, franchising, and licensing. Understand the strategic considerations necessary for navigating foreign markets.