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What is a commonly used method by multinationals for entering foreign markets besides establishing wholly owned affiliates?
What is a commonly used method by multinationals for entering foreign markets besides establishing wholly owned affiliates?
What type of market entry mode involves a partnership with a local firm?
What type of market entry mode involves a partnership with a local firm?
Which factor does NOT influence the mode of entry for multinationals into foreign markets?
Which factor does NOT influence the mode of entry for multinationals into foreign markets?
What often triggers the transition from one market entry mode to another for multinationals?
What often triggers the transition from one market entry mode to another for multinationals?
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Which of the following is a characteristic of wholly owned affiliates?
Which of the following is a characteristic of wholly owned affiliates?
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What is a potential advantage of using franchising as a market entry strategy?
What is a potential advantage of using franchising as a market entry strategy?
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What distinguishes a Greenfield investment from an acquisition in market entry strategy?
What distinguishes a Greenfield investment from an acquisition in market entry strategy?
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Which market entry mode primarily utilizes contracts to allow foreign firms to produce buyer's goods?
Which market entry mode primarily utilizes contracts to allow foreign firms to produce buyer's goods?
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What was the significance of Vodaphone's acquisition of Mannesmann in 2000?
What was the significance of Vodaphone's acquisition of Mannesmann in 2000?
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Why are foreign acquirers often at a disadvantage in U.S. acquisitions?
Why are foreign acquirers often at a disadvantage in U.S. acquisitions?
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What common problem do foreign firms face after acquiring U.S. companies?
What common problem do foreign firms face after acquiring U.S. companies?
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What is one reason acquisitions can fail to create value?
What is one reason acquisitions can fail to create value?
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What characterizes the organizational challenges in cross-border acquisitions?
What characterizes the organizational challenges in cross-border acquisitions?
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What factor contributes to foreign acquirers potentially overpaying in U.S. acquisitions?
What factor contributes to foreign acquirers potentially overpaying in U.S. acquisitions?
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What aspect of the U.S. job market complicates acquisitions for foreign firms?
What aspect of the U.S. job market complicates acquisitions for foreign firms?
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How do managers' objectives during acquisitions sometimes conflict with shareholder value?
How do managers' objectives during acquisitions sometimes conflict with shareholder value?
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What is a greenfield investment?
What is a greenfield investment?
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Why might firms prefer acquisitions over greenfield investments in certain situations?
Why might firms prefer acquisitions over greenfield investments in certain situations?
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Which type of firm is likely to engage more in acquisition rather than greenfield investments?
Which type of firm is likely to engage more in acquisition rather than greenfield investments?
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In which market scenario might a firm prefer to use acquisitions as an entry strategy?
In which market scenario might a firm prefer to use acquisitions as an entry strategy?
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What factor is a major determinant of entry modes in foreign markets according to the internal dynamics?
What factor is a major determinant of entry modes in foreign markets according to the internal dynamics?
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What is a possible reason for late entrants into oligopolistic markets to prefer acquisitions?
What is a possible reason for late entrants into oligopolistic markets to prefer acquisitions?
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Which of the following describes a situation where greenfield investment might be favored?
Which of the following describes a situation where greenfield investment might be favored?
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What trend is observed regarding acquisition rates in faster-growing markets?
What trend is observed regarding acquisition rates in faster-growing markets?
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What was a primary reason that drove the collaboration between Standard Oil of California and Texaco?
What was a primary reason that drove the collaboration between Standard Oil of California and Texaco?
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Which company utilized equity stakes to re-establish its market position after World War I?
Which company utilized equity stakes to re-establish its market position after World War I?
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What strategic advantage did IG Farben utilize in its collaborations?
What strategic advantage did IG Farben utilize in its collaborations?
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How did Océ van der Grinten expand its operations in foreign markets?
How did Océ van der Grinten expand its operations in foreign markets?
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What was one benefit Océ van der Grinten gained from licensing agreements?
What was one benefit Océ van der Grinten gained from licensing agreements?
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When did Océ begin to establish its own factories instead of relying on licensing agreements?
When did Océ begin to establish its own factories instead of relying on licensing agreements?
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Which of the following statements about IG Farben's ownership approach is accurate?
Which of the following statements about IG Farben's ownership approach is accurate?
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What characterizes the nature of partnerships formed by Océ during its expansion?
What characterizes the nature of partnerships formed by Océ during its expansion?
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What is a key consequence of fully integrating an acquired firm into the parent company's systems?
What is a key consequence of fully integrating an acquired firm into the parent company's systems?
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What does the term 'Unileverization' refer to?
What does the term 'Unileverization' refer to?
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How did Unilever manage its acquisitions during the late 20th century?
How did Unilever manage its acquisitions during the late 20th century?
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What was the fate of the staff following Unilever's acquisition of Cheseborough Ponds?
What was the fate of the staff following Unilever's acquisition of Cheseborough Ponds?
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What was a primary reason for the use of joint ventures during the interwar years?
What was a primary reason for the use of joint ventures during the interwar years?
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Which industry frequently used joint ventures during the 1930s?
Which industry frequently used joint ventures during the 1930s?
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What was a concern for the British authorities regarding the Kuwait Oil Company formation?
What was a concern for the British authorities regarding the Kuwait Oil Company formation?
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What was the impact of selling unwanted assets on Unilever's acquisition cost of Cheseborough Ponds?
What was the impact of selling unwanted assets on Unilever's acquisition cost of Cheseborough Ponds?
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What was a significant effect of acquisitions on US manufacturing firms post-World War II?
What was a significant effect of acquisitions on US manufacturing firms post-World War II?
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How did Unilever expand its ice cream business in the late 1950s?
How did Unilever expand its ice cream business in the late 1950s?
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What defines a fragmented market?
What defines a fragmented market?
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What was typically a challenge in acquiring companies in developing countries?
What was typically a challenge in acquiring companies in developing countries?
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Which company did Unilever acquire in Brazil to strengthen its position in the soap and detergents market?
Which company did Unilever acquire in Brazil to strengthen its position in the soap and detergents market?
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What strategy became established in the British and US business systems from the mid-1950s?
What strategy became established in the British and US business systems from the mid-1950s?
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What percentage of the European ice cream market did Unilever control by the 1980s?
What percentage of the European ice cream market did Unilever control by the 1980s?
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What was a consequence of successful acquisitions by firms in fragmented industries?
What was a consequence of successful acquisitions by firms in fragmented industries?
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Study Notes
Chapter 6: Crossing Borders
- The chapter covers entering and existing markets, multinational evolution, greenfield vs acquisition, divestments, alliances and constellations, and subsidiaries and hybrids.
Topic and Structure of the Lesson
-
Entering and Existing Markets: Multinational companies follow an incremental process when entering foreign markets. Methods include:
- Exporting: selling through agents
- Establishing a distribution company
- Local production: develop local capabilities and market knowledge.
- Multinational investment: using resources. Not all multinational firms follow this process; some use acquisition for entering foreign markets.
- The evolution of multinationals: The methods of entering a foreign market depend on factors like firm, industry, location, and time-specific factors.
- Greenfield vs acquisition: Greenfield investment involves establishing a new firm, whereas acquisition involves the purchase of an existing firm. Companies with new technologies often opt for greenfield, while larger established multinationals may choose greenfield to lower uncertainty.
- Divestments
- Alliances and constellations Joint ventures and collaboration between firms.
- Subsidiaries and hybrids Types of business structures
- Risk of acquisition: Acquisitions involve risks from the process itself (seller information asymmetry) and post-acquisition issues. Factors include: value added mostly to shareholder of acquired firms, cross-border differences in cultures, legal environments, and accounting standards. Foreign acquirers often overpay. Post-acquisition issues for foreign firms include difficulty retaining senior managers. Senior US executives are often uncomfortable with foreign firms. Cross-border issues include organizational issues from differing corporate cultures and routines.
- Common for foreign firms to experience post-acquisition management problems, including difficulties retaining senior management. US executives are frequently not comfortable with foreign firms. Cultural issues are prevalent.
- Cross-border acquisitions pose organizational complexities. The process involves integrating firms with different cultures and routines based on national management systems, issues with language, losing distinctive attributes, and impacts on knowledge transfer and efficiency.
- Acquisitions Post-acquisition management inside large multinationals is typically increasingly routinized. A strategy called Unileverisation was used by Unilever to help integrate acquired companies. Techniques included the introduction of corporate accounting systems and changes to salaries and pensions.
Acquisition
- The use of acquisition strategies accelerated after World War II for US manufacturing firms. It was used for consolidating fragmented industries such as ice cream.
- Fragmentation: A marketplace with no one company having enough influence to heavily impact the market, with multiple competing small to medium sized companies.
- Post-WWII, the acquisition method was less frequent for developing countries while family owned businesses were common.
- Hostile takeovers in the 1950's to the present day
- Acquisitions often involved problematic negotiations with family owners and political sensitivity.
Alliances and Constellations (Joint Ventures)
- Joint ventures were prevalent during the interwar years (pre-WWII, pre-1939) due to financial pressures and the need to share risk.
- The formation of the Kuwait Oil Company in 1934 exemplifies risk-sharing.
- Risk-sharing drove joint ventures in politically risky regions and markets.
Collaborative Arrangements
- Capital shortages drove firms towards collaborative arrangements.
- The predecessors of the IG Farben company lost US investments and trademarks due to World War I. Using technological advantage as a bargaining tool, they re-established their presence in this market.
- Companies acquired equity stakes in US firms. This enabled the German company to reclaim market position without massive capital investment.
Licensing
- Licensing was used to gain access to foreign markets without significant financial or managerial commitment.
- Small family firms often engaged in licensing agreements. This was common during the interwar years (pre-World War II).
- This strategy aided the generation of income and exports.
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Description
This quiz covers Chapter 6, focusing on the various strategies multinational companies use to enter and exit markets. Key topics include greenfield versus acquisition investments, the evolution of multinationals, and the establishment of subsidiaries. Test your knowledge of these essential concepts related to global business operations.
