2. 2 factors to consider :
The decision of :
• Which foreign
markets to enter
• When to enter them
• On what scale to
enter
(1)
The choice of entry mode:
• Exporting
• Turnkey Projects
• Licensing
• Franchising
• Joint Ventures
• Wholly Owned
Subsidiaries
(2)
3. Basic Entry Decisions
Which Foreign Markets To Enter:
o The choice must be based on an assessment of a nations long run profit potential .
o This Potential is a function of several factors
Political Economical Social Technological
Environmental Legal
4. o The value an international business can create in a foreign market.
o Suitability of product offering to that market
o Nature of Indegenious competition
5. Timings Of Entry:
First mover advantages:
o The ability to capture demand by
establishing a strong brand name.
o Ability to build sales volume and have a high
experience ahead of rivals.
o Ability of early entrants to create switching costs
that tie the customers into their products or services.
6. First mover disadvantages:
o This can give rise to pioneering costs.
o This includes the costs of business failure if the firm, due to its ignorance
of the foreign environment makes some major mistakes.
o This includes the costs of promoting including the costs of educating
customers.
Research shows that the probability of survival increases
if the international business enters the market after
other firms have already entered.
7. Scale of Entry
Entering a market on a large scale involves commitment of
significant resources and it implies rapid entry.
o It involves strategic commitment and it is difficult to reverse
Advantage of large scale entry:
It pauses the entry of other competitors who are trying to enter the foreign market.
Disadvantage of large scale entry:
It will have fewer resources available to support expansion in other desirable markets.
8. Entry Modes
Exporting:
o Advantages
o It avoids substantial costs of establishing manufacturing operations in the host
country.
o It may help the firm achieve experience curve and location economies.
o Disadvantages
o Exporting from the firm’s home base may not be appropriate if lower –cost
locations for
manufacturing the product can be found abroad.
o High transport costs can make exporting uneconomical, particularly for bulk
products.
o High tariff barriers.
9. Turnkey Projects:
o Advantages
o It is useful when FDI is limited by host government regulations.
o A turnkey strategy is also less risky than conventional FDI.
o Disadvantages
o If a firm enters into a turnkey projects with a foreign enterprise it may create a
competitor.
o If the firms process technology is a source of competitive advantage, then
selling this technology through a turnkey project is also selling competitive
advantage to potential/actual competitors
10. Licensing:
o Advantages
o The firm does not have to bear the development costs and risks associated
with opening a foreign market.
o It is useful when a firm wishes to participate in the foreign market but is prohibited
from doing so by barriers to investments.
o Disadvantages
o It does not give a firm the tight control over manufacturing, marketing and strategy
that is required for experience.
o There is a risk associated with licensing technological know how to foreign
companies.
11. Franchising:
o Advantages
o The firm is relieved of many costs and risks of opening a foreign market on its own.
o Disadvantages
o Quality Control
12. Joint Ventures:
o Advantages
o A firm benefits from the local partners knowledge of the host countries competitive
conditions, culture, language, political system etc.
o Sharing of development and operating costs.
o Disadvantages
o A firm that enters joint venture risks giving control of its technology to its partner.
o A shared ownership arrangements can lead to conflicts if their goals and objectives
change
13. Wholly Owned Subsidiaries:
o Advantages
o It reduces the risk of loosing control over the technological competitive advantage.
o It gives the firm tight control over the operations in different countries.
o It gives the firm 100% share in the profits generated in a foreign market
o Disadvantages
o Establishing this is the most costly method from a capital standpoint as well as risk
standpoint.
