Chapter 11
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Questions and Answers

What critical challenge arises when multinational enterprises (MNEs) overly rely on local distributors without nurturing long-term collaborative relationships?

  • Increased alignment of marketing strategies between the MNE and the distributor, leading to synergistic market penetration.
  • A diminished risk of demand uncertainty as local distributors absorb market fluctuations.
  • The emergence of a vicious cycle driven by mutual expectations of unreliability, hindering investment and growth. (correct)
  • Enhanced strategic control over key customers due to the distributor's local expertise.

    • An MNE is considering entering a new foreign market. Which approach best balances the need for strategic control, leveraging local expertise, and mitigating demand uncertainty?

  • Granting the local distributor full autonomy over marketing strategies to capitalize on their market knowledge.
  • Selecting a distributor based solely on current market share to ensure immediate market penetration.
  • Implementing a phased approach, starting with a beachhead strategy, while proactively managing and supporting the distributor as a long-term partner. (correct)
  • Immediately establishing a fully-owned subsidiary to exert maximum control from the outset.

    • When an MNE transitions from a 'beachhead' strategy utilizing a foreign distributor to vertically integrating its distribution channel, what adverse consequence is most likely to occur?

  • An increase in innovative marketing strategies because of the MNE's greater insights.
  • An improvement in the distributor's performance due to increased competitive pressure.
  • A reduction in investment from both the MNE and the distributor for long-term growth. (correct)
  • A decrease in market responsiveness due to the MNE's direct control.

    • What inherent limitation of a licensing entry mode poses the greatest strategic challenge for a firm aiming to establish a strong global presence?

    <p>The risk of opportunistic behavior by the licensee, potentially leading to the creation of a future competitor. (B)</p> Signup and view all the answers

    Compared to greenfield ventures and acquisitions, what is the MOST significant disadvantage of utilizing licensing as an entry mode regarding long-term strategic control?

    <p>Lower ability to protect proprietary knowledge and technology. (B)</p> Signup and view all the answers

    When a firm transitions from using a foreign distributor to establishing a self-owned distribution channel, which critical aspect often suffers due to the change?

    <p>Understanding of, and responsiveness to, local market nuances and customer preferences. (D)</p> Signup and view all the answers

    In the context of international market entry, what is the MOST compelling reason for an MNE to initially partner with a local distributor?

    <p>To leverage the distributor's established network and understanding of the local market. (A)</p> Signup and view all the answers

    Which of the following practices is LEAST likely to foster a successful long-term relationship between an MNE and a foreign distributor?

    <p>Granting the distributor complete autonomy over marketing strategy to leverage their local insights. (C)</p> Signup and view all the answers

    Why might a distributor in a 'beachhead' relationship with an MNE become unreliable regarding investment in the business's growth?

    <p>Distributors may fear the MNE will eventually internalize distribution, making their investment worthless. (A)</p> Signup and view all the answers

    When considering market entry strategies, what is the primary trade-off between an acquisition and a greenfield venture?

    <p>Acquisitions offer faster market entry but pose integration and valuation challenges, while greenfield ventures allow for greater customization but require more time. (C)</p> Signup and view all the answers

    Flashcards

    Entry Modes

    Different strategies firms use to enter foreign markets, including equity and non-equity modes.

    Licensing

    A contract allowing Firm B to use Firm A's technology or trademark for a fee.

    Franchising

    A business model where the franchisee uses the franchisor's brand and support for a fee.

    Greenfield

    Establishing a new firm from scratch in a foreign country, fully owned by the parent company.

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    Acquisition

    Buying shares of an existing firm in a foreign market, either fully or partially.

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    Joint Venture (JV)

    A partnership where two firms create a new entity in a foreign market together.

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    Beachhead Strategy

    A minimal commitment approach using a local distributor to enter a market.

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    Strategic Control

    Maintaining oversight over crucial customer relationships in foreign markets.

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    Resource Commitment

    The level of investment and resources dedicated to entering a new market.

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    Vicious Cycle of Reliability

    A situation where uncertainty leads to unreliability between an MNE and local distributors.

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    Study Notes

    Foreign Distributor Entry Mode

    • MNEs initially build relationships with foreign distributors due to local knowledge and access to potential customers
    • Foreign distributors act as a "beachhead" in initial internationalization stages, offering minimal risk and low investment
    • Key objectives for the MNE include maintaining customer control, leveraging local market knowledge, and managing risk in uncertain markets
    • Proactive location selection is crucial, focusing on distributor capabilities
    • Distributors are viewed as long-term partners; resources are allocated for support
    • Critical information is not delegated, and national distributors are networked

    Entry Mode Dynamics

    • Different entry modes exist: equity-based (greenfield, acquisition, joint venture) and non-equity-based (licensing, franchising, alliances)
    • Licensing: Firm A licenses technology or trademarks to firm B in another country for a fee
    • Franchising: Firm B utilizes Firm A's business model and assistance for local success; the franchisee uses the franchisor's brand and methods
    • Greenfield: Establishment of a newly-formed subsidiary in a foreign market
    • Acquisition: Buying shares (partial or full) of an existing foreign firm
    • Joint Venture (JV): Two or more firms pool resources and create a new entity in a new or foreign location

    Factors Influencing Entry Mode

    • Hill, Hwang, and Kim (1990) identified factors influencing optimal entry modes
    • Control degree: Highest in Greenfield and acquisitions, lowest with licensing
    • Resource commitment: Highest in Greenfield and acquisitions, lowest in licensing
    • Dissemination risk: Lowest in Greenfield and full acquisitions; highest with licensing

    Verbeke's Entry Modes

    • Verbeke proposed three ways to enter foreign markets (Foreign distributors, Strategic alliances, Mergers and Acquisitions)
    • The level of commitment increases from 1 to 3 with these approaches

    Time-Based Patterns in Foreign Distribution

    • Initial success is common (Stage 1), but can often level off or decline (Stage 2)
    • The MNE sometimes questions the local partners (Stage 3) often opting to either take control of the distribution channel or build their own independent distribution channel
    • This may lead to a lack of mutual benefit between the local partner and the MNE leading to a failure to continue the business relationship.
    • Success can turn into a vicious cycle of unreliability if the MNE fails to maintain consistent reliable support for the distributor

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    Description

    MNEs collaborate with foreign distributors for local expertise and market access. Distributors serve as initial entry points, minimizing risk. Effective strategies involve proactive distributor selection, resource allocation, and information control to build lasting partnerships and manage market uncertainties.

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