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Lecture 5
Lecture 5
Lecture 5
Entry mode strategies
What effect: impact of MNE on home and host country economy and
society (competition effects, spillover effects)
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Entry modes
Non-equity: Equity:
Exporting Greenfield
Licensing Acquisition
Franchising Joint venture
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Licensing:
a form of contracting where firm A licenses to firm B in another country the
right to use firm A’s technology or trademark for a certain fee
Franchising:
firm B in a host country uses the business model developed by firm A, and
firm A provides assistance in making the local activity a success. The
franchisee has the right to use the franchisor’s logo, trademark, way of
working, etc. for which the franchisor receives a fee.
Greenfield:
a firm expands to a foreign country by establishing a completely new firm
from scratch (e.g. by building a new factory) that it fully owns.
Acquisition:
a firm buys shares of a firm established in a foreign country this is called an
acquisition. Full acquisitions implies buying all shares, while partial
acquisitions occur when a firm only buys part of the shares of the foreign
firm.
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Many factors determine optimal entry mode, Hill, Hwang and Kim (1990):
Verbeke:
1. Foreign distributors
2. Strategic alliances
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Their FSA is location bound and helps overcome the distance that
the internationalizing firm has to deal with.
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Result: local partner and MNE will not invest in each other.
But: successful firms go from a beachhead strategy to
developing a long term relationship with the local partner
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“Costs” of an alliance:
2. If the MNE has too many SAs, this reduces coherence and
increases management problems.
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Verbeke lists six sources of biases why managers like M&A (p. 342)
Mergers and Acquisitions come and go: see M&A over time next slide
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SA versus M&A
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