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GP Chapter 14
Terms in this set (25)
"modes for serving foreign markets"
"exporting, licensing or franchising to host-country firms, establishing joint ventures with a host-country firm, setting up a new wholly owned subsidiary in a host country to serve its market, and acquiring an established enterprise in the host nation to serve that market"
advantages and disadvantages of different mods of entering foreign markets
"transport costs, trade barriers, political risks, economic risks, business risks, costs, and firm strategy"
"cooperative agreements between potential or actual competitors"
foreign expansion must make the following considerations
"which markets to enter, when to enter those markets, and on what scale"
timing of entry
"Entry is early when an international business enters a foreign market before other foreign firms and late when it enters after other international businesses have already es- tablished themselves"
"costs that an early entrant has to bear that a later entrant can avoid."
scale of entry
"Entering a market on a large scale involves the commitment of significant resources. Entering a market on a large scale implies rapid entry. Small-scale entry allows a firm to learn about a foreign market while limiting the firm's exposure to that market. Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale and how best to enter."
First, it avoids the often substantial costs of establishing manufacturing operations in the host country.
Second, exporting may help a firm achieve experience curve and location economies
"may not be appropriate if lower-cost locations for manufacturing the product can be found abroad
"high transport costs can make exporting uneconomical, particularly for bulk products."
"tariff barriers can make exporting uneconomical"
"when a firm delegates its marketing, sales, and service in each country where it does business to another company"
" contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnel."
"at completion of the contract, the foreign client is handed the "key" to a plant that is ready for full operation—hence, the term turnkey"
"The know-how required to assemble and run a technologically complex process, such as refining petroleum or steel, is a valuable asset"
"Turnkey projects are a way of earning great economic returns from that asset"
"The strategy is particularly useful where foreign direct investment (FDI) is limited by host-government regulations."
"less risky than conventional FDI."
"the firm that enters into a turnkey deal will have no long-term interest in the foreign country."
"may inadvertently create a competitor."
"if the firm's process technology is a source of competitive advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors."
"an arrangement whereby a licensor grants the rights to intangible property to another entity (the licensee) for a specified period, and in return, the licensor receives a royalty fee from the licensee.15 Intangible property includes patents, inventions, formulas, processes, designs, copyrights, and trademarks."
licensing agreement advantages
"the firm does not have to bear the development costs and risks associated with opening a foreign market"
"licensing can be attractive when a firm is unwilling to commit sub- stantial financial resources to an unfamiliar or politically volatile foreign market"
" licensing is frequently used when a firm possesses some intangible property that might have business applications, but it does not want to develop those applications itself"
licensing agreement disadvantages
"it does not give a firm the tight control over manufacturing, marketing, and strategy that is required for realizing experience curve and location economies"
" competing in a global market may require a firm to coordinate strategic moves across countries by using profits earned in one country to support competitive attacks in another. By its very nature, licensing limits a firm's ability to do this."
"Most firms wish to maintain control over how their know-how is used, and a firm can quickly lose control over its technology by licensing it. Many firms have made the mistake of thinking they could maintain control over their know-how within the framework of a licensing agreement."
"a specialized form of licensing in which the franchiser not only sells intangible property (normally a trademark) to the fran- chisee but also insists that the franchisee agree to abide by strict rules as to how it does business"
"The firm is relieved of many of the costs and risks of opening a foreign market on its own. Instead, the franchisee typically assumes those costs and risks"
"may inhibit the firm's ability to take profits out of one country to support competitive attacks in another. "
"establishing a firm that is jointly owned by two or more other- wise independent firms"
joint venture advantages
"a firm benefits from a local partner's knowledge of the host country's competitive conditions, culture, language, political systems, and business."
"when the development costs and/or risks of opening a foreign market are high, a firm might gain by sharing these costs and or risks with a local partner."
"in many countries, political considerations make joint ventures the only feasible entry mode"
joint venture disadvantages
" a firm that enters into a joint venture risks giving control of its technology to its partner"
" a joint venture does not give a firm the tight control over subsidiaries that it might need to realize experience curve or location economies. Nor does it give a firm the tight control over a foreign subsidiary that it might need for engaging in coordinated global attacks against its rivals."
"he shared ownership arrangement can lead to conflicts and battles for control between the investing firms if their goals and objectives change or if they take different views as to what the strategy should be"
wholly owned subsidiary
"firm owns 100 percent of the stock. Establishing a wholly owned subsidiary in a foreign market can be done two ways. The firm either can set up a new operation in that country, often referred to as a greenfield venture, or it can acquire an established firm in that host nation and use that firm to promote its products"
wholly owned subsidiary advantages
"when a firm's competitive advantage is based on technological competence, a wholly owned subsid- iary will often be the preferred entry mode because it reduces the risk of losing control over that competence"
"gives a firm tight control over operations in different countries"
" may be required if a firm is trying to realize location and experience curve economies "
wholly owned subsidiary disadvantages
"High costs and risks"
"Advantages and Disadvantages of Entry Modes"
see table 15.1