Entry Startegies

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Chapter 10: International Entry Strategies

Topic

International Entry Strategies

International Business


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Do You Know?

The factors that managers must consider inchoosing locations for foreign directinvestment projects?

How company goals and experience play intothe international location decision?

What first mover and second moveradvantages and liabilities are?

The variety of entry modes that are availableto companies who are interested in operatingin a host country environment?


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DuPonts Entry Strategies

into China

Dupont has a great deal of internationalexperience and expertise, and have a varietyof entry strategies they use.

In china, they used a partnership withShanghai Photomask Precision Company,and established another with ChinaWorldbest Development to produce

photomasks and Spandex, respectively. They also established joint ventures with

companies like BASF to overcome tradebarriers and establish distribution.


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Duponts Entry Strategies into China

Finally, they also established whollyowned subsidiaries to make productsthat require proprietary technologies

they cannot share with others. No company has only one entry

strategy. Most choose entry strategies

depending upon the necessary goalrequirements.


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International Location Selection, overall

Location selection is an importantdecision. Essentially it boils down todeciding where, when, and howto

enter, and then implementing that plan.


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International Location Selection (Where)

Where,

that is country and location withincountry depends upon a number of factors.Among them are:

Cost/Tax Factors (transportation, wage,

availability of land and its costs, constructioncost, materials cost, financing costs, taxrates, investment incentives, profit

repatriation costs) Demand Factors (market size and growth,

customer presence, local competition)

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Strategic Factors (Investment infrastructure,industrial concentration, supply/distributionlinkages, workforce productivity,complementary industries)

Regulatory/Economic Factors (Industrialpolicies, foreign direct investment policies,availability of economic zones)

Sociopolitical Factors (political risk andinstability, cultural barriers and openness,local practices, government efficiency andcorruption, attitudes toward foreign business,

community characteristics, pollution control)




Not only must the above factors beconsidered, but also strategic objectives,global integration, and market orientationobjectives must be met.

Strategic objectives are related to growth andcompetitive factors; integration factors arerelated to access to trading blocs and

integrated economies; market orientationfactors are related to whether primary targetmarkets are available from the host location.




Exhibit 10-1: Locational determinants



International Location Timing (When)

This relates to timing of market entry incomparison to other enterprises.

Timing is important because it

determines the risks and potentialreturns from the investment.




Early Mover Advantages include factorslike market power, more preemptive

opportunities, and strategic advantagesover late movers.




Early Mover, however, face environmentaland operational risk that can come from hostgovernments experience, underdeveloped

investment laws and regulations,

protectionism, difficulty in overcoming earlygrowth stages, shortages of workers,underdeveloped support services, lack offinancing, uncertain foreign exchange,consulting cost burdens, poor infrastructuresystems, and unstable market structures.


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Exhibit 10-3: Advantages and disadvantages ofearly movers


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International Entry Mode Selection (How)

Entry Modes are specific forms or waysof entering a target country to achievethe strategic goals related to presence

in that country. These can be trade related, transfer

related, and foreign direct investment

related.


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International Location Selection (How)

Trade related modes include: Export, using intermediaries to export

products to market through an exportingcompany while negotiating letters of credit

and terms of trade that are favorable. Subcontracting, includes contracting with a

local manufacturer to process goods intofinished goods that will distribute into the local

market. Countertrade, where merchandise is traded

in a barter-like system. Barter,counterpurchase, buybacks, and offsets and

used in this method.


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Transfer related entry modes include: International Leasing

International Licensing

International Franchising

Build-Operate-Transfer (a.k.a turn-keyoperation)


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Foreign direct investment related entrymodes include:

Branch Office

Cooperative Joint Venture Equity Joint Venture

Wholly Owned Subsidiary

Umbrella Holding Company


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Exhibit 10-4: International entry modes

I i l S l i


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International Selection:Decision Framework

Companies look for favorable country, industry, firm,and project factors.

Country, favorable policies, infrastructure, propertyrights, risks, cultural distance.

Industry, favorable entry barriers, industrialuncertainty and complexity, availability of supplyand distribution.

Firm, favorable resource possession, minimal

proprietary resource leakage, favorable strategicgoal achievement, favorable experience with host.

Project factors like size, financial orientation, andavailability of partners.

I i l S l i


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International Selection:Decision Framework

In essence, the more experience a firmhas, and the more complex the project,the more likely the entry mode will be

foreign direct investment related. This can be a Greenfield Investment,

an Acquisition, or a Merger.


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FDI Options

A Greenfield Investment is an initialestablishment of fully owned facilities andoperations.

An Acquisition is a cross border transaction

in which an acquiring firm buys anestablished local firm.

An international merger shares the logic of

equity joint ventures and is a cross bordertransaction in which two firms merge theiroperations.

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