Global Policy and Strategy

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Global Policy and Strategy

• Week 6

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Intended Learning Outcomes

• Identify strategic initiatives for global growth
• Key Questions in Advance of Foreign Expansion
• List Foreign Market Entry and Development Methods
• Export Entry Modes
• Contractual Entry Modes
• Investment Entry Modes
• Understand the basis for Strategic Alliances

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Foreign Market Analysis, Methods of Entry and
Strategic Alliances

• Key Strategic Questions
• Which foreign Markets to enter?
• Which mode of entry?
• Whether to form a strategic alliance, and if so,
  which type?

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Foreign Market Analysis

• Timing of entry
• First mover advantages
• BUT Pioneering costs (Amway example)
• Scale of entry
• Large scale entry represents a major strategic
  commitment
• Can deter competitors but prevents use of
  resources for other ventures

• Which Foreign Markets?
• Balancing costs, benefits and risks
• Size and wealth of market
• Political and economic risk analysis
• Likely future economic growth rates

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Assessing New Market Opportunities
Leontiades Multinational Corporate Strategy
Planning for World Markets (1985)
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Foreign market entry and development

• Export entry modes
• Contractual entry modes
• Investment entry modes

Increasing commitment of resources
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Export entry modes

• Indirect export (using intermediaries)
• Direct agent/distributor
• Direct export (using the firms own management
  team)
• Direct branch or subsidiary (located in the
  foreign market)

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Export entry modes

• DISADVANTAGES
• High transport costs
• Trade barriers
• Control of local marketing agents

• ADVANTAGES
• Experience curve economies
• Avoidance of manufacturing set-up costs

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Contractual entry modes

• Licensing
• Franchising
• Technical Agreements
• Service Contracts

• Management contracts
• Construction/turnkey contracts
• Contract manufacture
• Counter-trade arrangements

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Contractual entry modes

• ADVANTAGES
• The licensee and franchisee bear the costs and
  risks
• Turnkey projects allow export of know-how, where
  FDI is not allowed

• DISADVANTAGES
• Control!

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Investment entry modes

• Sole venture (new establishment)
• Sole venture (acquisition)
• Joint venture (new establishment/acquisition)

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Investment entry modes

• ADVANTAGES
• Joint ventures share the costs and risks
• Joint ventures provide local knowledge and
  political influence

• DISADVANTAGES
• Risk of losing some control with joint ventures

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Choice of foreign market entry mode

• External factors
• Size and growth rate of market
• Competitive intensity
• Country risk
• Geographical distance

• Internal factors
• Product characteristics
• Services
• Product differentiation
• Technology and dissemination risk
• Resource factors

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Entry Modes Adv. Disadv.
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Entry Modes Adv. Disadv.
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Characteristics of entry modes
Hill, Hwang and Kim (1990) as cited in John
Chapter 9
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Implications for strategy
Core competence Technological know-how Management
know-how Corporate strategy Global or
transnational
Preferred strategy Wholly-owned
subsidiary Franchises / joint ventures
Wholly-owned subsidiary
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Strategic Alliances
Strategic Alliance
Joint Venture
Acquisition or merger
Increasing formalisation and hierarchy
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Motivations for joint ventures and strategic
alliances

• Learning (technology, organisation and geography)
• Minimising costs and risks
• Market positioning and market seeking

Wolf (1992) as cited in John Chapter 9
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Strategic alliances

• Strategic alliances are co-operative links
  between firms that may be competitors in other
  respects
• Advantages facilitation of foreign market
  entry, sharing of costs, risks and skills
• Disadvantages possible loss of technological
  know-how and market access
• Communication and trust between partners is
  essential

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Acquisitions

• Much quicker than a green-field venture
• Should guarantee a revenue and profit stream
• Dangers overpaying, culture clashes, loss of
  experienced managers