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Market Entry Strategies
     Subsidiaries
       Gloria Armesto, Alina Sachapow
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
Introduction




 Gloria Armesto, Alina Sachapow
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
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
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
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
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
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
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
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
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
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
Subsidiaries




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




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

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Market entry strategies by Alina Sachapow and Gloria Armesto

  • 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
  • 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
  • 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