Chapter 4
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Questions and Answers

What is one reason companies might avoid market transactions according to the OLI model?

  • To maximize profit from external partners
  • To increase market competition
  • To reduce the cost of internal actions (correct)
  • To enhance customer engagement through third-party collaborations

    • When did Starbucks first enter the Chinese market?

  • 1998 (correct)
  • 2000
  • 1995
  • 2010

    • What model assesses the international production stages as referenced in the content?

  • Porter's Five Forces Model
  • Value Chain Analysis
  • OLI Eclectic Paradigm (correct)
  • SWOT Analysis

    • What was a method Starbucks used to expand its presence in China?

    <p>Forming joint ventures (B)</p> Signup and view all the answers

    What significant change occurred in global FDI flows in Q1 2023?

    <p>They increased significantly compared to previous quarters (D)</p> Signup and view all the answers

    What is a primary advantage of acquisitions when entering a new market?

    <p>Immediate access to local established resources (D)</p> Signup and view all the answers

    Which strategy does Starbucks utilize when it possesses extensive market knowledge?

    <p>Fully-owned subsidiaries (A)</p> Signup and view all the answers

    What is a challenge associated with establishing wholly-owned subsidiaries in a market?

    <p>High risk and slower development (C)</p> Signup and view all the answers

    In what situation would Starbucks most likely use a licensing strategy?

    <p>To rapidly expand in a specific country (D)</p> Signup and view all the answers

    What is one of the incentives local governments provide for multinational corporations (MNCs) establishing new subsidiaries?

    <p>Employment generation in the local market (B)</p> Signup and view all the answers

    What defines a joint venture as a market entry strategy for Starbucks?

    <p>When Starbucks collaborates with local businesses (D)</p> Signup and view all the answers

    Which market entry strategy allows for sharing specific advantages that are hard to transfer?

    <p>Wholly-owned subsidiaries (D)</p> Signup and view all the answers

    What characteristic defines franchising models in comparison to other market entry strategies?

    <p>Requires less capital investment (C)</p> Signup and view all the answers

    What is a primary characteristic of management contracts?

    <p>They transfer operational control to an independent company. (D)</p> Signup and view all the answers

    Which of the following best defines a manufacturing contract?

    <p>The licensee can market the product under the licensor's trademark. (D)</p> Signup and view all the answers

    What type of agreement involves providing franchisees with services such as training and advertising?

    <p>Franchise agreement (C)</p> Signup and view all the answers

    In a franchising model, which option allows for a foreign company to operate as a franchisor in a different market?

    <p>Global franchise grant (C)</p> Signup and view all the answers

    Which of the following best describes the relationship between the licensor and licensee in a patent licensing agreement?

    <p>There is little to no interference from the licensor. (B)</p> Signup and view all the answers

    What financial investment is typically required to open a McDonald's franchise in Spain?

    <p>900,000 euros (B)</p> Signup and view all the answers

    What is often a goal of using a manufacturing contract in new markets?

    <p>To test market potential and product acceptance. (C)</p> Signup and view all the answers

    Which statement about licensing agreements is correct?

    <p>They often involve strict quality and design controls. (D)</p> Signup and view all the answers

    Flashcards

    Starbucks' China Entry

    Starbucks entered China in 1998 through a licensing agreement with Beijing Mei Da Coffee Co.Ltd.

    FDI in Q1 2023

    Global FDI flows in Q1 2023 were USD 440 billion, tripling from Q4 2022, but 25% below Q1 2022.

    OLI Paradigm

    A model by Dunning (1979) explaining international production, suggesting companies avoid market transactions if internal actions are cheaper.

    Sequential Internationalization

    A process of international expansion, focusing on gradual expansion from Johanson & Valhne (1977) (Uppsala University School).

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    Japanese Subsidiary Acquisition

    Starbucks acquired its Japanese subsidiary in 2014 for $914M.

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    Management Contracts

    A contract where operational control of a company is transferred to an independent international company.

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    Manufacturing Contracts

    Licensor authorizes licensee to produce and market goods under the licensor's trademark.

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    Franchising

    A retail distribution agreement where the franchisor provides support to the franchisee.

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    Patents (Licensing)

    Granting the licensee the right to use a patented product or process without direct licensor interference.

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    International Hotel Chains and Management Contract

    International hotel chains frequently use management contract to outsource operational controls of their properties.

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    Public Services and Management Contract

    Management contracts have been used in the provision of public services.

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    Real Madrid and Adidas (Manufacturing Contract)

    Real Madrid, as a club, licensed the right to use its brand to Adidas for marketing and distribution.

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    McDonald's (Franchise)

    McDonald's uses a franchise model for its international expansion offering a high cost of investment.

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    Acquisition

    Purchasing an existing company in a new market.

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    Wholly-Owned Subsidiary

    Setting up a new company in a new market by yourself.

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    Foreign Direct Investment

    Entering a new market directly through various methods like setting up your own company.

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    Joint Venture

    Entry method involving collaboration with a local company.

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    Licensing

    Allowing a local partner to use your brand/products in a new market.

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    Starbucks market entry strategy

    Starbucks uses wholly-owned subsidiaries, joint ventures, and licensing.

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    Starbucks Japan Partnership

    Starbucks partnered with Sazaby League to expand in Japan.

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    Market Entry Advantages (Acquisitions)

    Fast, easier due to assuming local knowledge, brands, networks, R&D, avoiding obstacles.

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    Study Notes

    Section 2: Unit 4: Choice of Foreign Market Entry Modes

    • This unit discusses different strategies for entering foreign markets.
    • Three basic groups of entry mechanisms are: Control, Commitment, and Risk.
    • Export modes include indirect and direct exporting, using agents, etc.
    • Contractual modes include licensing, franchising, and contract manufacturing.
    • Investment equity entry (e.g.) joint ventures, wholly-owned subsidiaries.
    • The choice depends on internationalization strategic plans and goals, in order to enter a foreign market best.

    Teaching Blocks

    • The presentation outlines a course structure, including different units.

    • Section I covers the global business environment.

    • Section II outlines the beginning of internationalization, including deciding to enter a new market and the influence of cultural distance.

    • Section III focuses on multinational companies, covering their strategies, subsidiary strategies, and human resources/talent teams.

    • Section IV covers specific approaches for new multinational companies.

    Contents

    • The slides present the topics of entry strategies, influential factors when selecting them, and models for assessing and selecting appropriate entry modes and strategies.

    Entry Strategies and Influential Factors

    • There are three main groups of entry mechanisms: Control, Commitment, and Risk.

    • Export methods: Direct and Indirect.

    • Indirect exporting involves using intermediaries, leading to less control but lower risk.

    • Direct exporting involves direct contact, increasing control but potentially higher risk.

    • Contractual methods: Licensing, Franchises, Distribution agreements, Management contracts, and Patents.

    • Licensing involves granting rights to use assets like trademarks or patents to a partner.

    • Manufacturing involves authorizing the licensee to manufacture and market products.

    • Franchises typically involve agreements for retail distribution and support by the franchiser.

    • Investment Equity Methods: Joint Ventures and Wholly-Owned Subsidiaries.

    • Joint ventures involve merging capital to form a new organization.

    • Wholly-owned subsidiaries involves full foreign ownership.

    Models to Assess and Select Entry Mode and Strategy

    • Johanson and Vahlne’s Sequential, or Progressive Internationalization Process:
      • This model demonstrates the progression from exporting to foreign direct investment, based on a company's level of experience and resources.
    • Dunning's OLI (Ownership, Location, Internalization) Paradigm
      • This model assesses the advantages a company has in ownership, location, and internalization advantages to determine the best internationalization strategy.

    Starbucks Market Entry Strategy

    • Starbucks uses three main strategies for entering markets: wholly-owned subsidiaries, joint ventures, and licensing.
    • Wholly-owned subsidiaries are best used when thorough market knowledge exists.
    • Joint ventures are utilized for entering new markets.
    • Licensing is used for quicker market expansion.

    FDI in the First Quarter of 2023

    There has been a sharp increase in global FDI flows in the first quarter of 2023 compared to previous quarters and years, reaching USD 440 billion. This was a significant increase from very low levels observed in the previous fourth quarter. However, on a year-over-year basis global FDI flows remained 25% below the level observed in Q1 2022.

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    T4 Choice of Foreign Market Entry Modes PDF

    Description

    This quiz explores different foreign market entry modes, focusing on strategies such as export, contractual, and investment equity. Participants will assess the control, commitment, and risk associated with each method. Dive into the strategic plans that influence how companies choose their market entry approaches.

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