Foreign Market Entry Modes

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Questions and Answers

What is a disadvantage of licensing as an entry mode?

Possible circumvention of import barriers
Low development costs and risks
Inability to engage in global strategic coordination (correct)
Access to local partner’s knowledge

What is an advantage of franchising as an entry mode?

Protection of technology
Low development costs and risks
Strong sales potential (correct)
Politically acceptable

What is a disadvantage of joint ventures as an entry mode?

Ability to realize location and experience economies
Politically acceptable
High costs and risks (correct)
Access to local partner’s knowledge

What is a disadvantage of wholly owned subsidiaries as an entry mode?

Ability to engage in global strategic coordination (A) Signup and view all the answers

What is a pro of acquisitions as an entry mode?

Quick to execute (C) Signup and view all the answers

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. (D) Signup and view all the answers

What is an advantage of strategic alliances?

Allows firms to share the fixed costs of developing new products or processes. (B) Signup and view all the answers

How can a firm make alliances work?

Reduce the risk of giving away too much to the partner. (B) Signup and view all the answers

What may reduce unwanted management attrition in acquisitions?

Detailed audit of operations, financial position, and management culture. (D) Signup and view all the answers

When should a firm choose greenfield venture as an entry mode?

There are no incumbent competitors to be acquired. (C) Signup and view all the answers

What are the basic entry decisions that international firms must consider?

The foreign markets to enter, when to enter them, and on what scale (D) Signup and view all the answers

What are examples of strategic alliances mentioned in the text?

Cross-shareholding deals (C) Signup and view all the answers

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 (A) Signup and view all the answers

What are some first-mover advantages mentioned in the text?

Preempt rivals and capture demand by establishing a strong brand name (C) Signup and view all the answers

What are some first-mover disadvantages mentioned in the text?

Pioneering costs and costs of business failure (C) Signup and view all the answers

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 (D) Signup and view all the answers

What is one of the roles of strategic alliances in international business?

Formal joint ventures (C) Signup and view all the answers

What is an example of an informal cooperative arrangement mentioned in the text?

Mutual assistance pacts between non-competing businesses in a foreign market (A) Signup and view all the answers

What are some factors affecting the choice of entry mode for international firms?

Regulatory environment and cultural compatibility (D) Signup and view all the answers

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 (D) Signup and view all the answers

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 (B) Signup and view all the answers

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 (A) Signup and view all the answers

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 (B) Signup and view all the answers

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 (C) Signup and view all the answers

Which mode of foreign market entry should align with core competencies, technological and management know-how, and pressures for cost reductions?

Strategic commitments (D) Signup and view all the answers

What foreign market entry mode allows firms to learn about a foreign market while limiting exposure?

Small-scale entry (B) Signup and view all the answers

What is a disadvantage of turnkey projects as a foreign market entry mode?

Lack of long-term interest in the foreign country (B) Signup and view all the answers

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 (D) Signup and view all the answers

Why do businesses in developing nations also need to enter foreign markets according to the text?

To become global players (C) Signup and view all the answers

What is the impact of strategic commitments as a mode of foreign market entry according to the text?

Long-term impact on competition dynamics (B) Signup and view all the answers

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.

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Description

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.