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International Business Chapter 12

Timing of entry
entry is early when a firm enters a foreign market before other foreign firms and late is vice versa
First Mover Advantages
advantages from being first to a market
First Mover Disadvantages
problems with entering a foreign market before other businesses
Pioneering costs
costs that an early entrant must bear that later people can avoid. Learning curve
sale of products produced in one country to residents of another country
Turnkey project
project in which a firm agrees to set up an operating plant for a foreign client and hand over the “key” when the plant is fully operational
when a firm licenses therights to produce its product, or brand
2 advantages of exporting
1. avoids costs of establishing manufacturing in other countries 2. exporting helps a firm achieve experience curve and location economies
3 disadvantages of exporting
1. might not be appropriate in the case of lower cost production being available abroad 2. High transport costs 3. Tariff barriers
An Advantage of Turnkey projects
less risky than conventional FDI
3 Main disadvantages
the firm that enters into a turnkey deal has no long term interest in a country 2. the firm that enters may inadvertently create a competitor 3. if a firm’s technology is a source of competitive advantage than the deal may expose that advantage
3 Advantages of Licensing
1. firm does not have to bear the development costs and risks associated with opening a foreign market 2. when a firm is prohibited by barriers or risk 3. whena firm possesses some intangible property that might ahve business aplications
3 disadvantages of Licensing
1. Does not give the firm tight control over manufacturing, marketing and strategy 2. may require a firm to coordinate strategic moves across countries by using profits in one country to support competitive attacks in another country 3.licensing technology to foreign companies
2 ways to reduce Licensing risk
1. enter into a cross licensing agreement (both companies license tech to each other) 2.Link an agreement to license know-how with the formation of a joint venture
specialized form of licensing in which the franchiser sells property to the franchisee and insists on rules
Joint Venture
Establishing a firm that is jointly owned by two or more otherwise independent films
An Advantage of a Franchise
firm is relieved of many of the costs and risks of opening a foreign market on its own
2 disadvantages of Franchising
1. inhibition of a firm to take profits out of one nation to support competitive attacks 2. Quality Control
Joint Venture
Establishing a firm that is jointly owned by two or more otherwise independent firms
3 advantages of a joint venture
1. firm benefits from local partner’s knowledge 2. When the development costs of opening a foreign market are high, firm gains by sharing these costs 3. political considerations make joint ventures the only feasible way in some nations
3 disadvantages of joint ventures
1. a firm that enters into a joint venture risks giving control of its technology to its partner 2. a joint venture does not give a firm the tight control over subsidiaries that it might need to realize experience curves 3. can lead to conflicts for control
Wholly Owned Subsidiaries
a subsidiary a firm owns 100%
4 Advantages of Wholly Owned Subsidiaries
1. reduces risk of losing control 2. control over operations 3. may be required if a firm is realizing location and experience curve economies 4. 100% share in profits
2 disadvantages of Wholly Owned Subsidiaries
1. Most costly method of serving a foreign market 2. Difficulties in trying to marry divergent corporate culture
Greenfield strategy
establish a wholly owned subsidiary in a country from the ground up
3 major advantages of acquisitions
1. quick to execute 2.acquisitions can preempt competitors 3. acquisitions may be less risk than greenfield ventures
4 reasons acquisitions fail
1. acquiring firm overpays for the assets of the acquired 2. clash between the two cultures 3. roadblocks in integrating operations 4. inadequate pre-acquisition screening
Big Advantage of Greenfield Venture
allows a company much greater ability to build the kind of subsidiary it wants
3 disadvantages of Green Field Ventures
1.slow to establish 2. Risky 3. possibility of being preempted by more aggressive competitors

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