Entry Strategy and

Strategic Alliances
 Learning Objectives
1.Explain basic decisions pertaining foreign expansion
2.Compose entry modes
3.Pros & Cons of Acquisitions
4.Pros & Cons of Strategic Alliances
Basic Decisions- Global Expansion

1. Which markets to enter

2. When to enter & on what scale
3. Which entry mode to use
 Location Choice
Favorable markets
-Politically stable
-Free market systems
-Relatively low inflation rates
-Low private sector debt
 Timing of Entry
First mover advantages:
-Pre-empt rivals
-Ride down the experience curve
-Create switching costs
 Timing of Entry
First mover advantages:
-Pre-empt rivals
-Ride down the experience curve
-Create switching costs
 Timing of Entry
First mover advantages:
-Pioneering costs
• Business failure
• Promoting a product offering
 Scale of Entry
Significant scale:
• Strategic commitment
• Long term impact

Small-scale:
• Learn about a foreign market
• Limiting exposure to new market
 Entry Modes
1. Exporting
2. Turnkey projects
3. Licensing
4. Franchising
5. Joint Venture
6. Wholly-owned subsidiary
 Exporting
Advantages & Disadvantages:
- Help achieve experience curve &
location economies
- High transport costs & tariffs
- Agents in a foreign country
Turnkey Arrangement
Advantages & Disadvantages:
- Economic returns from know-how
required to assemble & run a
technologically complex process
- No long-term interest in the foreign
country
- May create a competitor
 Licensing
Advantages & Disadvantages:
- Avoids barriers to Investment
- Capitalize on opportunities without
developing those applications
- The firm doesn’t have the tight
control
- Proprietary assets could be lost
• Cross-licensing agreements
 Franchising
Advantages & Disadvantages:
- Firms can quickly build a global
presence
- Inhibits the firm’s ability to take
profits out of one country
- Difficult to detect poor quality
 Franchising
Advantages & Disadvantages:
- Firms can quickly build a global
presence
- Inhibits the firm’s ability to take
profits out of one country
- Difficult to detect poor quality
 Joint Ventures
Advantages & Disadvantages:
- Benefit from a local partner’s
knowledge
- The costs & risks are shared
- Giving control of its technology to
partner
- Shared ownership can lead to
conflicts
International Joint Ventures
Sony-Ericsson is a joint venture
-Combined Sony’s consumer electronics
expertise with Ericsson’s technological
leadership in the communications sector
Wholly Owned Subsidiary (WOS)
Advantages & Disadvantages:
-No risk of losing control over core
competencies
-Tight control in different countries
-The firm bears all costs & risks
Core Competencies & Entry Mode
Competitive advantage based on:
-Proprietary technological know-how
-Management know-how
Cost Reduction Pressure & Entry
Mode
When pressure for cost reductions is
high:
-Firms pursue combination of exporting
& WOS
-Firms pursuing global standardization
or transnational strategies prefer WOS
Greenfield Vs. Acquisition
1. A greenfield strategy:
- The firm needs to transfer
organizationally embedded
competencies
2. An acquisition strategy:
-The are well-established competitors
 Acquisition
Acquisitions can fail when:
-The acquirer firm overpays
-The cultures clash
-Anticipated synergies are slow &
difficult
 Strategic Alliances
Pros & Cons:
-Facilitate entry into a foreign market
-Allow firms to share the fixed costs &
risks
-Bring together complementary skills &
assets
-May give away more than the firm
receives