Css Class 05 06 - Foreign Country Entry 2009-12-16 Class

7/27/2019 Css Class 05 06 - Foreign Country Entry 2009-12-16 Class

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Class 05_06Pedro Coelhoso

Foreign Market Entry


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Thoughts for the Day

All our social problems arise from doing the wrong things righter. The more efficient you are at doing

the wrong thing, the wronger you become. It ismuch better to do the right thing wronger than thewrong thing righter. If you do the right thing wronger and correct it, you get better .

Russell Ackoff (1919-2009)


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Outline for Today

Administrative AnnouncementsMore on the link between strategy and institutions

Where are we in the course?Foreign Country Entry

Why go abroad?Why and Where to enter?

Why and Where and How to enter?Main Points and ImplicationsSet-up for next class


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Strategy and Institutions

Khanna T, Palepu K. 1997. Why focusedstrategies may be wrong for emerging markets.Harvard Business Review , 75 (4): 41-51.

They argue that focused strategies may be wrongfor emerging markets as the required institutions

may not be present to support this western-worldmindset. They suggest that companies mustadapt their strategies to fit their institutional context .


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Applying Perspectives onInternational Strategy

Industry-basedCompetition

Firm-specificResources & capabilities

InstitutionalConditions:

- Formal

- Informal

StrategicDecisions

Implementation/Performance

Entering Foreign MktsCountry Selection

Local CompetitionLocating activities across

countries

These impact howfirms behave.

InternationalStrategy

Structure

Acquisitions/Restructuring

Global Competitive Dynamics

Learning/Alliances


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Changes in National Regulations of Foreign Direct Investment (FDI), 1991

2002

WSJ: September 15, 2009 Update:

Sept 2009: 130 protectionist measures plannedFor 2009, 90% of goods affected by protectionist measuresRatio of discriminatory vs. liberalizing trade laws is 6:1.Most targeted countries: China, U.S., Japan

Source: United Nations, 2003, World Investment Report 2003 (p. 13), New York and Geneva: United Nations.


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Why Go Abroad? Answers traditionally include:

More customers:Economies of scale

Economies of scope.

Reduce the dependence on one country.

To replicate the success at home in new settings.

Possibly: The answer can be all of the above


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Why NOT go abroad:Overcoming the Liability of Foreignness

The Liability of Foreignness

The inherent disadvantage foreign firms experience in

host countries because of their non-native status.Liability can be seen in two dimensions:

Differences in formal and informal institutions in differentcountries (e.g., regulatory, language, and cultural differences).

Customers discriminate against foreign firms, sometimesformally and other times informally.


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Why NOT go abroad?Overcoming the Liability of Foreignness

To offset the liability of foreignness, foreign firms mustemploy overwhelming resources and capabilities:

Superior knowledge about institutions for that marketVolkswagen in China and CEE

Superior technologies for that market Australian warship named Joint Venture

Superior organizational, marketing, and financialcapabilities for that market

WARNING : Not every firm is ready for going abroad.


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INTERNATIONALIZATION:GO or NO GO

Figure 6.1


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A ComprehensiveModel of ForeignMarket Entries

Figure 6.2


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(Why and ) Where to Enter?Location-Specific Advantages

Location-Specific AdvantagesGeographical features difficult to match by others.

Singapore, Austria, Turkey, MiamiClustering of economic activities (agglomeration).

Knowledge spillover among closely located firms that attempt tohire individuals from competitors.

A regional skilled labor force available to work for different firms. A regional pool of specialized suppliers and buyers.


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Why and Where to Enter?Location- Specific Advantages (contd)

Table 6.2Source: First two columns adapted from J. Dunning, 1993, Multinational Enterprisesand the Global Economy (pp. 82 83), Reading, MA: Addison-Wesley.

Why Where


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Where to Enter? Cultural/Institutional

Distances and Foreign Entry Locations

Cultural DistanceThe difference between two cultures along some

identifiable dimensions (such as power distance).Institutional Distance (besides culture)

The extent of similarity or dissimilarity between theregulatory, normative, and cognitive institutions of two

countries.Firms from common-law countries are more likely to beinterested in other common-law countriesColony-colonizer links boost trade by 900%


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Why and Where to Enter?Cultural/Institutional Distances and

Foreign Entry Locations (contd)

Two schools of thought have emerged:

Stage models: Enter culturally similar countries

during the first stage of internationalization and, asthey gain confidence, enter culturally more distantcountries in later stages.

Strategic Model: Considerations of strategic goals

such as market and efficiency are more importantthan cultural/institutional considerations assuggested by stage models.


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The Choice of Entry Modes: A HierarchicalModel

Figure 6.3Source: Adapted from Y. Pan & D. Tse, 2000, The hierarchical model of market entry modes (p. 538), Journal of International Business Studies, 31: 535 554.


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How to Enter?Scale of Entry: Commitment and Experience

Copyright 2009Cengage. All rightsreserved.

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Large-Scale EntriesBenefit from a strategic commitmentDrawbacks of large-scale entries: Limited

strategic flexibility and potential huge lossesSmall-scale entries

Focus on accumulating experienceLearning by doing

Drawbacks of small-scale entries A lack of strong strategic commitmentDifficulties in building market share


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Exporting

Franchising

Wholly OwnedSubsidiary

Licensing

Joint Ventures

Risk / Return of InternationalMarket Entry Modes

RISK

RETURN


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Modes of Entry: Advantages andDisadvantages

Table 6.4


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Table 6.4 (contd)


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Table 6.4 (contd)


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Why and Where and How to Enter?Making Strategic Choices

A company may have a variety of entry choices for different countries and tasks.

Entry strategies may change over time.Starbucks: Franchising JV WOS

Chinas Haier in the United States: Direct exports FDI (green-field projects)

Liability versus Asset of Foreignness

Cyberspace Entry vs Conventional Entry: Rules to Use?

Global versus Regional Triad Concentration


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Main Points and Implications

Foreign entry is the foundation for international business.

Competing considerations: Industry level, Firm level, andInstitutional level.

Competing considerations for where to enter: naturalresource, market, efficiency, and innovation seeking.Selection between options (trade-offs) will depend ongoals and risk acceptance regarding mode of entry.

Entry strategies, even when successful, do notguarantee international success. They are just thebeginning . The challenge is to simplify and prioritize.


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Set-Up for Next Class (Dec 17)

Strategic Alliances and Acquisitions Reading: Peng Text, Chapters 7; FranchisingOther Preparation: Read series of articles on Danone inChina. Prepare a 4-5 page analysis of the situation usingthe questions provided.Learning Objectives: We will learn about an increasinglyimportant arrangement between firms that is more formalthan a contract but does not involve buying another firmwith some comparison to acquisitions.

Css Class 05 06 - Foreign Country Entry 2009-12-16 Class

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