30 Questions
What is a disadvantage of licensing as an entry mode?
Inability to engage in global strategic coordination
What is an advantage of franchising as an entry mode?
Strong sales potential
What is a disadvantage of joint ventures as an entry mode?
High costs and risks
What is a disadvantage of wholly owned subsidiaries as an entry mode?
Ability to engage in global strategic coordination
What is a pro of acquisitions as an entry mode?
Quick to execute
When should a firm choose acquisition as an entry mode?
The firm is seeking to enter a market where there are already well-established incumbent enterprises.
What is an advantage of strategic alliances?
Allows firms to share the fixed costs of developing new products or processes.
How can a firm make alliances work?
Reduce the risk of giving away too much to the partner.
What may reduce unwanted management attrition in acquisitions?
Detailed audit of operations, financial position, and management culture.
When should a firm choose greenfield venture as an entry mode?
There are no incumbent competitors to be acquired.
What are the basic entry decisions that international firms must consider?
The foreign markets to enter, when to enter them, and on what scale
What are examples of strategic alliances mentioned in the text?
Cross-shareholding deals
What factors should an international business consider when assessing a nation’s long-run profit potential?
Size of the market and present and likely future wealth of consumers
What are some first-mover advantages mentioned in the text?
Preempt rivals and capture demand by establishing a strong brand name
What are some first-mover disadvantages mentioned in the text?
Pioneering costs and costs of business failure
What does the value an international business can create in a foreign market depend on?
Suitability of its products to that market and the nature of indigenous competition
What is one of the roles of strategic alliances in international business?
Formal joint ventures
What is an example of an informal cooperative arrangement mentioned in the text?
Mutual assistance pacts between non-competing businesses in a foreign market
What are some factors affecting the choice of entry mode for international firms?
Regulatory environment and cultural compatibility
What are some potential costs associated with being a first mover in a foreign market?
Costs of promoting and establishing a product offering, including educating customers
Which foreign market entry mode offers lower costs and risks than opening a foreign market but may inhibit profit movement between countries and quality control?
Franchising
What foreign market entry mode provides firms with knowledge of the host country, shared costs and risks, but can lead to conflicts and loss of control?
Joint ventures
Which mode of foreign market entry allows firms to participate in foreign markets without development costs and risks, but limits control over manufacturing, marketing, and strategy?
Licensing
What mode of foreign market entry offers tight control and location and experience curve economies, but bears full cost and risk of establishing new markets?
Wholly owned subsidiaries
Which mode of foreign market entry should align with core competencies, technological and management know-how, and pressures for cost reductions?
Strategic commitments
What foreign market entry mode allows firms to learn about a foreign market while limiting exposure?
Small-scale entry
What is a disadvantage of turnkey projects as a foreign market entry mode?
Lack of long-term interest in the foreign country
What is a disadvantage of exporting as a foreign market entry mode when lower-cost manufacturing locations can be found abroad?
High transport costs and tariff barriers
Why do businesses in developing nations also need to enter foreign markets according to the text?
To become global players
What is the impact of strategic commitments as a mode of foreign market entry according to the text?
Long-term impact on competition dynamics
Study Notes
Modes of Foreign Market Entry
- Strategic commitments have a long-term impact and are difficult to reverse, influencing the nature of competition.
- Rapid large-scale market entry can significantly impact competition but comes with risks and lack of flexibility.
- Small-scale entry allows firms to learn about a foreign market while limiting exposure.
- Businesses in developing nations also need to enter foreign markets and become global players.
- Exporting helps avoid substantial costs of establishing manufacturing operations in a host country and achieve experience curve and location economies.
- Exporting may not be appropriate if lower-cost manufacturing locations can be found abroad, due to high transport costs and tariff barriers.
- Turnkey projects can earn great economic returns but may inadvertently create competitors and lack long-term interest in the foreign country.
- Licensing allows firms to participate in foreign markets without development costs and risks, but limits control over manufacturing, marketing, and strategy.
- Franchising offers lower costs and risks than opening a foreign market, but may inhibit profit movement between countries and quality control.
- Joint ventures provide knowledge of the host country, shared costs and risks, but can lead to conflicts and loss of control.
- Wholly owned subsidiaries offer tight control and location and experience curve economies, but bear full cost and risk of establishing new markets.
- Entry mode should align with core competencies, technological and management know-how, and pressures for cost reductions.
Test your knowledge on the various modes of entry into foreign markets, including strategic commitments, exporting, turnkey projects, licensing, franchising, joint ventures, and wholly owned subsidiaries. Understand the impact of each mode on competition, costs, risks, and control in the global market.
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