BMG215 Firm Internationalization Process 2024 Fall PDF

FIRM INTERNATIONALIZATION PROCESS 2024-Winter Dr. Cranmer Rutihinda BMG 215 INTERNATIONAL BUSINESS  Learning Objectives  Foreign market entry decisions  To discuss the different types of foreign market en...

FIRM INTERNATIONALIZATION PROCESS 2024-Winter Dr. Cranmer Rutihinda BMG 215 INTERNATIONAL BUSINESS  Learning Objectives  Foreign market entry decisions  To discuss the different types of foreign market entry modes/strategies  To discuss the factors influencing the choice of foreign market entry modes/strategies  To present the Uppsala Internationalization theory of foreign market entry decision  Born Global Internationalization  Foreign Market Entry Decisions Foreign Market Entry Decisions Where/ When?/ How?/Entry Which? Timing Mode. First Mover Late Mover  Factors Influencing Which Foreign Markets to Enter? Resourc Market Risks e Size Natural Political Risks Population Resources Economic Human Risks Purchasing Resources Power Legal Risks Technologi Cultural Growth cal Risks Potential Resources Common Frameworks for Assessing Foreign Markets? PESTL CAGE Political Environment Cultural distance Economic Environment Administrative Socioeconomic distance Environment Technological Geographic distance Environment Legal Environment Economic distance  How to Enter Foreign Markets Foreign Markets Entry Modes/Strategies Contract ual Entry Export Modes Equity Entry Entry Modes Modes Foreign Market Entry Strategi es The Uppsala Internationalization Theory International Experience (Learning) Wholly-Owned Subsidiary Acquisition Joint Venture Green-field Psychic Distance Contractual Entry Modes Returns Strategic alliances Control Franchising Risk Licensing Turnkey Projects Direct Exporting Distributors Agents Indirect Exporting Sales Subsidiary Piggybacking Export Trading companies Export management companies Domestic purchasing Resource Commitment in Foreign Market  Factors Influencing Foreign Market Entry Strategy Firm Specific Factors Home/Global Host Country Factors Entry Motive Specific Factors Resources and Home Industry Market Size Capabilities Structure Psychic Distance Key success factors Trade & Investment Trade & Investment International Policy Policy Experience Global Industry Industry Structure International Structure Market Risks Structure Foreign Market Entry Strategy Investment Risk Contractual Risk Speed of Entry Resource Commitment Control  Foreign Market Entry Mode Criteria Required Foreign Market Control Resource Entry Risk Strategic control Commitment Investment Risk Control of Financial resources Contractual Risk operations Capital resources Human resources Returns/Profits Speed of Entry Flexibility Return on Slow/Fast Sunk costs investment Resource Commitment  Direct and Indirect Export RT INDIRECT EXPO Intermediary Custome r ORT DIRECT EXP Foreign Country Manufacturer DIRECT EXPORT Home Country Intermedi ary Intermediary D I RE C T E XPORT IN  Export Entry Modes Indirect Direct Export Export Cooperative/ Foreign Subsidiary Piggyback exporter Foreign Purchase Foreign Distributor Agent Export Management Foreign Agent Company Export Trading Company Contractual/Non-Equity Entry Modes Franchising. Licensing Turnkey Projects Management Contracts Contract Manufacturing Strategic Alliance  Licensing Agreement A Company (licensor) grants another firm (licensee) located in a foreign country the right to use its intangible asset (e.g. technology) for a specified time under stipulated terms agreed by both parties. Advantages Disadvantages Restricts licensor’s future Less Resource Commitment Reduces global consistency Technology/know-how risk Reduced risk Less Control Reduced counterfeits Less Profit Technology upgrade  Franchising Agreement A company provides a company located in a foreign country with an intangible asset along with management knowledge for a specified time period. Export of business model Advantages Disadvantage s Low cost and low risk Cumbersome Rapid expansion Lost flexibility Knowhow risk Local knowledge Can create future competitor  Management Contract Refers to an international business agreement where an international firm supplies another foreign firm with managerial expertise for a specific period of time Advantages Disadvantages + Few assets risked – Personnel at risk + Client finance projects – Can Create competitor + Develops local workforce  Turnkey Project Refers to an international business agreement where an international firm designs, constructs and tests a production/service (e.g. BOT, BOO) facility for a client in a foreign country Advantages Disadvantages + Firms specialize in core – Politicized process competency – Create competitor + Nations obtain infrastructure projects  Strategic Alliance Refers to an international agreement between two or more enterprises to cooperate (but do not form a separate company) on a joint project towards desired strategic objectives. Advantages Disadvantages + Share project cost – Can Create competitor + Learning from partner – Can lead to Partner conflict + Tap competitors’ strengths + Gain channel access + Protect interests Equity-based Foreign Market Entry Modes Newness/ Ownership Novelty Internatio Green- nal Joint field Venture Wholly- Owned Acquisitio Subsidiar n  International Joint Venture A foreign firm creates a new local firm that becomes jointly owned by two or more independent firms Foreign Firm (Parent B) Any Local other Host Firm Firm (Parent A) (Parent C) Internatio nal Joint Venture  International Joint Venture A foreign company creates or buys a foreign company that becomes jointly owned by two or more independent firms Advantages Disadvantages + Foreign Market Access – Partner Conflict + Reduces market risk level – Loss of Control + Easier Penetration of – Sharing of returns foreign markets – Risk of Loss of Intellectual + Access to local channels Property + Protection from political risks  Wholly Owned Subsidiary Establishing a firm in a foreign country that is 100% owned and controlled by the parent company. Advantages Disadvantages + Greater control – Greater Resource Commitment + Strategic Coordination – High Risk + No sharing of Profits  Wholly Owned Green-Field Subsidiary Building a brand new foreign subsidiary from scratch. Advantages Disadvantages + Greater control – Slower than Acquisitions + Strategic Coordination – Takes time to build + No sharing of Profits + Latest Technology + Less Costly compared to Acquisitions + Better local market adaptation + Provides room to examine local market potential  Wholly Owned Foreign Acquisition Enter a foreign market by buying an existing firm. Advantages Disadvantages + Greater control – Most Expensive + Greater Strategic – Highly risky Coordination – Out-dated Technology + No sharing of Profits – Compatibility with other + Fast Market Entry subsidiaries + Access to Established – Synergy challenges local networks – Organizational culture conflicts Uppsala Internationalization Process Model/Theory (International Organic/Incremental Expansion) International Experience Increasing Geographic Diversification y i ar Learning international sid operations u b S ed w n -o ll y n ho io tsW at en l iz em o na re ti Ag rna al te t u In c n tr a Co r ts op Ex Increasing Resource Commitment in Foreign Markets  Network Internationalization Model High Psychic Distance Develop Network Most Difficult to Relationships to Overcome Enter Liability of Foreignness & Outsider-ship Ecosystem Developed Developed Industrial Highly Least Pioneer Greater Ease of Entry Low Psychic Born Global Internationalization