International Business

BT-360
HILL CHAPTER 11
ENTRY STRATEGY AND STRATEGIC ALLIANCES
Required for today

 Hill edition 11, Chapter 11, Entry Strategy and Strategic

Alliances
 Core material, critical reading for comprehension
 Read through end of chapter

 Case Study: Dabur India Ltd. - Globalization

 Look for Dabur’s criteria for entry in foreign markets
 3
Learning Objectives

 Explain 3 decisions firms considering foreign expansion must make:

which markets, when, what scale
 Compare and contrast the different modes that firms use to enter foreign
markets
 Identify the factors that influence a firm's choice of entry mode
(advantages/disadvantages in Table 15.1)
 Recognize the pros and cons of acquisitions versus greenfield ventures as
an entry strategy
 Evaluate the pros and cons of entering into strategic alliances
Wholly Owned Subsidiary
Greenfield or Acquisition?

LO15-4
The choice depends on the situation confronting the firm
 Greenfield – build subsidiary from the ground up
 a greenfield venture may be better when the firm needs to transfer
organizationally embedded competencies, skills, routines, and culture
 Acquisition– acquire an existing company
 acquisition may be better when there are well-established competitors or
global competitors interested in expanding

 Volume of acquisitions has been rising for last two decades

Wholly Owned Subsidiary
Greenfield

 The main advantage of a greenfield venture is that it gives the firm a

greater ability to build the kind of subsidiary company that it wants.
But…
 Greenfield ventures take longer to establish
 Greenfield ventures are also risky
Wholly Owned Subsidiary
Acquisition (or Brownfield)

 Acquisitions are attractive because:

 they are quick to execute
 they enable firms to preempt their competitors
 they may be less risky than greenfield ventures
 Acquisitions can fail when”
 the acquiring firm overpays for the acquired firm
 the cultures of the acquiring and acquired firm clash
 anticipated synergies are slow and difficult to achieve
 there is inadequate pre-acquisition screening
Wholly Owned Subsidiary
Acquisition (or Brownfield)

 To avoid problems, firms should:

 carefully screen the firm to be acquired
 move rapidly to implement an integration plan
 Despite the advantages, many acquisitions are disappointing
 Mercer Management Consulting
 50% eroded shareholder value
 33% produced marginal returns
 Only 17% were successful
 McKinsey
 70% failed to achieve expected revenue synergy
Strategic Alliances

LO15-5
 Strategic alliances refer to cooperative agreements between potential
or actual competitors
 range from formal joint ventures to short-term contractual agreements
 the number of strategic alliances has exploded in recent decades
Strategic Alliances
Why?

 Attractive because they:

1. facilitate entry into a foreign market
2. allow firms to share the fixed costs and risks of developing new products or
processes
3. bring together complementary skills and assets that neither partner could
easily develop on its own
4. help establish technological standards for the industry that will benefit the
firm
 But, be careful not to give away more than received
Strategic Alliances
Successful Factors

 The alliance should

 make it difficult to transfer technology not meant to be transferred
 have contracts to guard against risk of opportunism by a partner
 allow for skills and technology swaps with equitable gains
 minimize the risk of opportunism by an alliance partner
Strategic Alliances
Successful Factors

 The success of an alliance is a function of Partner selection

 A good partner:
 helps the firm achieve its strategic goals and has the capabilities the firm
lacks and that it values
 shares the firm’s vision for the purpose of the alliance
 will not exploit the alliance for its own ends
 Extreme research is required to confirm these factors
Strategic Alliances
Successful Factors

 The manner in which the alliance is managed requires:

 Relational capital - interpersonal relationships between managers
 cultural sensitivity is important
 learning from alliance partners
 knowledge must then be diffused through the organization
Required for Next Class

 Next 2 classes are presentations

After presentations:
 Hill edition 11, Chapter 5, Ethics, Corporate Social Responsibility, and
Sustainability
 Core material, critical reading for comprehension
 Read through LO5-4, p147
 Supplemental Reading: The Milgram Experiment
 Core material, critical reading for comprehension

 Quiz will be from Hill Chapter 5 and Milgram