This document discusses market entry strategies and subsidiaries. It begins by outlining reasons for entering foreign markets and various forms of market entry, including franchising, joint ventures, and establishing a subsidiary. The document then focuses on subsidiaries, defining them as legally independent foreign entities controlled by a parent company. Advantages and disadvantages of the subsidiary form are presented. Finally, the document discusses different types of subsidiaries including those established through greenfield investment or acquisition, and compares the advantages and disadvantages of each.

1. Market Entry Strategies
Subsidiaries
Gloria Armesto, Alina Sachapow

2. Market Entry Strategies
Subsidiaries
Outline
1. Introduction
2. Entering a foreign country
1. Reasons
2. Forms of entry
3. considerations
3. Subsidiary
1. Definitions and Characteristics
2. Advantages and Disadvantages
3. Forms of Subsidiaries
4. Example: Petrobras in Colombia
5. Conclusion
6. Bibliography
Gloria Armesto, Alina Sachapow

3. Introduction
Gloria Armesto, Alina Sachapow

4. Entering a Foreign Country
Reasons
• New geographic markets for existing products
• By entering a new market
– increased sales
– diversified sales
– higher brand awareness
– business stability and avoiding crisis
– gain experience
Gloria Armesto, Alina Sachapow

5. Entering a Foreign Country
Forms of Entry
• Franchising
• Contract manufacturing
• Joint venture
• Strategic alliance
• Minority stake
• Subsidiary
– Greenfield investment
– Acquisition
• Merger
• Export
– Direct
– Indirect
• Licensing
Gloria Armesto, Alina Sachapow

6. Entering a Foreign Country
Considerations
• Market size and profitability
• Legal barriers
• Limitations to trade (high tariffs and quotas)
• Incentives offered by government
• Environmental factors
• Cultural environment
Gloria Armesto, Alina Sachapow

7. Entering a Foreign Country
• Analysis of potential competitors, customers, suppliers
• required level of knowledge and training in exporting procedures
• Positioning of product
• Competitive advantages
• Market entry strategy:
– resource consumption
– reversibility
– flexibility
– speed
– possibilities for control
– timing (pioneer or follower)
– Acceptance in the foreign market
– Possibility of economies of scale and scope
Gloria Armesto, Alina Sachapow

8. Subsidiaries
Definitions and Characteristics
• Legally independent foreign entities
• Control by more than 50%
• All profits to parent company
• Investment entry
• Adherence to the foreign country’s laws
• Consolidation
• Own processes and tasks in marketing, production, logistics and
sourcing decisions
• Complete value chain and specialized subsidiaries
• Centers of competence or centers of excellence
• High risk and high control
Gloria Armesto, Alina Sachapow

9. Subsidiaries
Advantages Disadvantages
- Resources, capabilities and competences - Integration with company
- Interaction with and knowledge about local - Expensive
markets
- Different perspectives and ideas - High amount of resources
- Full control - Political, social, economic risks and
uncertainties
- Parent company receives all profits
- Better coverage of regions
- Improvement of competitiveness
- Avoiding currency risks
- Tax incentives
- Less negotiations than for other modes of
entry
Gloria Armesto, Alina Sachapow

10. Subsidiaries
Forms of Subsidiaries
• Ownership
– Majority stake = 50.1% to 99.9 % of stock or voting right
– Wholly owned subsidiary = entirely owned and controlled by parent
company
• Structure
– Greenfield = start-ups
– Acquisition = takeovers
Gloria Armesto, Alina Sachapow

11. Subsidiaries
• Greenfield
– Establishment of new production facilities such as offices, buildings,
plants and factories
– Movement of intangible capital
– Greenfield FDI directly adds to production capacity in the host country,
contributes to capital formation and employment generation
Gloria Armesto, Alina Sachapow

12. Subsidiaries
• Cross border Mergers and Acquisitions
– Merger: Merging of capital, assets and liabilities of existing enterprises
– Acquisition: Partial or full takeover of an existing company
– FDI through M&A does not directly add to capital stock of host country
• Horizontal
– same industry
• Vertical
– client-supplier or buyer-seller relationships
Gloria Armesto, Alina Sachapow

13. Subsidiaries
• Greenfield
– For production of high-tech products
– Internal diversification
• Acquisition
– Marketing
– Valuable trade mark, brand name or process technology
– Diversified and large firm, high entry barriers in markets, industries
with slow growth
– External diversification
Gloria Armesto, Alina Sachapow

14. Subsidiaries
http://dealbook.nytimes.com/2011/01/03/confident-deal-makers-pulled-out-checkbooks-in-2010/
Gloria Armesto, Alina Sachapow

15. Subsidiaries
http://www.unctad.org/en/docs/webdiaeia20111_en.pdf
Gloria Armesto, Alina Sachapow

16. Subsidiaries
Greenfield
Advantages Disadvantages
No restructuring or adaptation costs Much time, money and resources
necessary
Full control over technology, No direct local knowledge, networks
employees etc. etc.
More flexibility in human resources,
suppliers, logistics, plant layout,
manufacturing technology
Government incentives
Gloria Armesto, Alina Sachapow

17. Subsidiaries
Acquisition
Advantages Disadvantages
Existing knowledge, local networks and Restructuring might require many
distribution channels resources
Production can start right away Integration is costly and time intensive,
might not be supported by employees
Less competitors Hard to consolidate different values
and norms
Faster access to market Outdated equipment, plants, brand
names, unmotivated workforce
Better adapted equipment to local
conditions
Gloria Armesto, Alina Sachapow

18. Bibliography
Internet Sources
• http://www.mybusiness.co.uk/YTeT-jBone4LcQ.html
accessed on 10.11.2011, 20.00
• http://www.wright.edu/~tdung/entry.pdf
accessed on 10.11.2011, 20.15
• http://macabacus.com/accounting/subsidiary-accounting
accessed on 10.11.2011, 21.00
• http://www.investopedia.com/terms/s/subsidiary.asp#axzz1dhvAiCRv
accessed on 12.11.2011, 19.30
• http://moneyterms.co.uk/subsidiary/
accessed on 12.11.2011, 20.35
• http://www.kelley.indiana.edu/rugman/Papersbooks/Web%20Papers/SubsidiarySpecificAdvantagesinMN
Es.pdf
accessed on 18.11.2011, 20.00
• http://dealbook.nytimes.com/2011/01/03/confident-deal-makers-pulled-out-checkbooks-in-2010/
accessed on 22.11.2011, 22.30
• http://www.unctad.org/en/docs/webdiaeia20111_en.pdf
accessed on 22.11.2011, 22.35
Gloria Armesto, Alina Sachapow

19. Bibliography
Literature
• Global Marketing Management, Masaaki Kotabe, Kristiaan Helsen, John Wiley and Sons Inc., 2010
• Strategies of Internationalization – an Overview, Stefan Schmid, ESCP-EAP, 2009
• International Business, the challenges of globalization, John Wild, Kenneth Wild, Jerry Han, Pearson
Prentice Hall, 2008
• Handbuch International Business, Strategie, Praxis, Fallbeispiele, Susanne Czech-Winkelmann, Anke
Kopsch, Erich Schmidt Verlag, 2008
• Produktmanagement, Grundlagen, Methoden, Beispiele, Andreas Hermann, Frank Huber, Gabler, 2009
• World Investment Report 2006, FDI from Developing and Transition Economies: Implications for
Development, United Nations Conference on Trade and Development, United Nations, New York, 2006
• Bachelorarbeit: Comparative Analysis on Different Impacts of Greenfield Investment and
Merger&Acquisitions in Selected Foreign Markets, Audrey Indovina Juanda, Berlin, 2007
Gloria Armesto, Alina Sachapow