C 1 3 1 Market Entry Strategies 1

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C. 1. 3. 1. Market Entry Strategies 1. Introduction to Market Entry 2. Dunning’s

C. 1. 3. 1. Market Entry Strategies 1. Introduction to Market Entry 2. Dunning’s Eclectic Paradigm 3. Market Entry Modes 1

Topic Overview: Market Entry Strategy • Internationalisation patterns • Scale, scope & timing of

Topic Overview: Market Entry Strategy • Internationalisation patterns • Scale, scope & timing of internationalisation • Uppsala model • Born globals • Born-again globals • Developing a market • Market entry modes entry strategy • Trade, transfer, and FDI • Why, where and related modes of entry how to expand • Dunning’s Eclectic Paradigm • Choosing the optimal market entry mode

Review: Internationalisation Process • Internationalisation patterns • Scale, scope & timing of internationalisation •

Review: Internationalisation Process • Internationalisation patterns • Scale, scope & timing of internationalisation • Uppsala model • Born globals • Born-again globals Chapter 1 + see interactive online presentation • Developing a market • Market entry modes entry strategy • Trade, transfer, and FDI • Where and how to related modes of entry expand • Dunning’s Eclectic Paradigm • Choosing the optimal market entry mode 3

Review: Internationalisation Process • Internationalisation patterns • Scale, scope & timing of internationalisation •

Review: Internationalisation Process • Internationalisation patterns • Scale, scope & timing of internationalisation • Uppsala model • Born globals • Born-again globals Chapter 1 + see interactive online presentation • Developing a market • Market entry modes entry strategy • Trade, transfer, and FDI • Where and how to related modes of entry expand • Dunning’s Eclectic Chapter 2 + see review video Paradigm • Choosing the optimal market entry mode 4

Core Questions • How far do the internationalisation patterns of SMEs differ? • What

Core Questions • How far do the internationalisation patterns of SMEs differ? • What is a market entry strategy and which fundamental questions do SMEs need to find answers to before entering a foreign market? • Which market entry modes exist and what are their advantages/ disadvantages? • Which factors determine the choice of market entry mode of SMEs?

Learning Objectives • Students can recall the components of a market entry strategy and

Learning Objectives • Students can recall the components of a market entry strategy and know how to develop a market entry strategy by working on the case study • Students can recall the most prominent modes of market entry and can explain the advantages and disadvantages of different market entry modes • Students can analyse factors that determine a firm’s choice of entry mode • Students train their research, analytical skills, and problem-solving skills by completing a case study

Requirements • Interactive video: watch the video and answer the questions https: //www. playposit.

Requirements • Interactive video: watch the video and answer the questions https: //www. playposit. com/public/293792/608926/international-strategy

Open Brainstorm Think of an international company (e. g. one you have worked in)

Open Brainstorm Think of an international company (e. g. one you have worked in) • In which countries does it operate? • Which types of international activities is this firm engaged in? • When did this firm internationalise? • How did it internationalise? "Dieses Foto" von Unbekannter Autor ist lizenziert gemäß CC BY 8

Looking Back: Why internationalise? Supply Factors 1. 2. 3. 4. Demand Factors Production costs

Looking Back: Why internationalise? Supply Factors 1. 2. 3. 4. Demand Factors Production costs Logistics Availability of natural resources Access to key technologies 1. 2. 3. 4. Customer access Marketing advantages Exploiting competitive advantages Customer mobility Political Factors Avoiding trade barriers Hill (2012) Economic development incentives

What is a market entry strategy? • The method a company uses to enter

What is a market entry strategy? • The method a company uses to enter a new target market A market entry strategy must address the following questions: a. Which foreign market(s) to enter (market assessment)? b. When to enter a foreign market (timing)? c. On what scale to enter a foreign market? d. How to enter a foreign market (market entry mode)? e. How to market the product in the foreign market (international marketing strategy)?

Market Entry Decisions Video

Market Entry Decisions Video

A. Which market(s) to enter? I. The Target Country’s Long Run Profit Potential •

A. Which market(s) to enter? I. The Target Country’s Long Run Profit Potential • Market size demographics • Wealth of consumers purchasing power • Future wealth of consumers economic growth rates Market vs. Growth Rates • Large market size • BUT: low growth rates Hill (2012) Current vs. Future Purchasing Power • Low living standards & high poverty rates • BUT: high growth rates

A. Which market to enter? II. Attractiveness of the Target Country • Assessing the

A. Which market to enter? II. Attractiveness of the Target Country • Assessing the benefits, costs, and risks associated with doing business in a country • Financial & economic considerations inflation rates, interest rates, access to credit, buying habits, expected returns on investment market size, market intensity, market growth, analysis of future demand • Political & legal forces import restrictions, limits on local ownership, production restrictions, political stability Hill (2012)

A. Which market to enter? • Socio-cultural forces language, work habits, customs, religion, values

A. Which market to enter? • Socio-cultural forces language, work habits, customs, religion, values • Competitive environment III. Potential for Value Creation • Suitability of product offering: Does the product satisfy an unmet need? • Check current imports from abroad and import policies, local production, demographic changes • Size and level of indigenous competitors

B. When to enter a foreign market? Early Entry: First Mover Hill (2012) Advantages

B. When to enter a foreign market? Early Entry: First Mover Hill (2012) Advantages Disadvantages a. Pre-empt rivals by establishing reputation (strong brand name) b. Secure prices vis-à-vis later entrants c. Cost advantage based on the experience curve d. The ability to create switching costs that tie customers to products/ services of first-movers (e. g. Nespresso, SAP) a. Pioneering costs (infrastructure, suppliers, employee-training, market knowledge): learning the ‘rules of the game’ b. Increased risk of business failure c. Costs of promoting and establishing a product: ‘liability of foreignness’ d. Cost of educating customers

B. When to enter a foreign market? Examples Successful First Mover Follower Ferrero (Kinder

B. When to enter a foreign market? Examples Successful First Mover Follower Ferrero (Kinder Surprise) IBM (Personal Computer) Nintendo (Game Boy) Intel (Microprocessor) Sony (Compact Disk) Matsushita (Video) Procter & Gamble (Pampers) Royal Crown (sugar free drink) Unsuccessful Inse (Computer) Philips (Video) Kodak (Instant Photography) DEC (Personal Computer) Sega (Computer Games)

C. On what scale to enter foreign markets? I. Large Scale Entry • High

C. On what scale to enter foreign markets? I. Large Scale Entry • High strategic commitment: a decision that has a long-term impact and is difficult to reverse • Commitment of significant resources & rapid entry reduces resources available for expansion in other interesting markets • Has an impact on the nature of competition within a market • E. g. may cause rivals to rethink market entry • E. g. may lead to an indigenous competitive response

C. On what scale to enter foreign markets? II. Small Scale Entry • Time

C. On what scale to enter foreign markets? II. Small Scale Entry • Time to learn about foreign market • Limits exposure to foreign market • More difficult to build a market share and to capture early-mover advantages

Streamflicks case • So why did Streamflicks originally decide not to enter the German

Streamflicks case • So why did Streamflicks originally decide not to enter the German market? • And why did they change their mind? • Why this timing? • Why this scope?

Market Entry Modes 1. Introduction to Market Entry 2. Dunning`s Eclectic Paradigm 3. Market

Market Entry Modes 1. Introduction to Market Entry 2. Dunning`s Eclectic Paradigm 3. Market Entry Modes 20

Exercise: Mind Map • What is a market entry mode? • Which modes do

Exercise: Mind Map • What is a market entry mode? • Which modes do you know? • What do you know about them? "Dieses Foto" von Unbekannter Autor ist lizenziert gemäß CC BYSA 21

Dunning’s Eclectic Paradigm Ownership Advantage Location Specific Advantage Internalisation Advantage - - Economies of

Dunning’s Eclectic Paradigm Ownership Advantage Location Specific Advantage Internalisation Advantage - - Economies of scale Brand Know how Technology Resources the ownership-specific competitive advantages > liability of foreignness? Production factors - Internalisation vs. Marked size Externalisation Transportation costs - Transaction cost Infrastructure Cultural factors Institutional environment Trade barriers Are transaction costs lower when internalising relative attractiveness for the foreign activities? undertaking value-adding Dunning, John H. (2000): The Eclectic Paradigm as an activities? Envelope for Economic and Business Theories of MNE Activity. International Business Review 9, pp. 163 -190. 9 22

Dunning’s Eclectic Paradigm Internalisation advantage - Internalisation vs. Externalisation - Transaction cost Make Buy

Dunning’s Eclectic Paradigm Internalisation advantage - Internalisation vs. Externalisation - Transaction cost Make Buy Are transaction costs lower when internalising the foreign activities? 23

Dunning’s Eclectic Paradigm Which OLI advantages are existent and how strong? • BMW AG

Dunning’s Eclectic Paradigm Which OLI advantages are existent and how strong? • BMW AG operates the BMW U. S. Manufacturing Company in South Carolina, where it assembles X-series SUVs. These SUVs are sold in the United States and other countries. • Coca-Cola Co. owns a secret formula for its sodas and supports Coca. Cola brands. Coca-Cola Co. produces drink syrups, which it sells to licensed bottlers around the world. 24

Dunning’s Eclectic Paradigm Ownership Advantage No Do not internationalise No Export Yes Location Advantage

Dunning’s Eclectic Paradigm Ownership Advantage No Do not internationalise No Export Yes Location Advantage Yes Internalisation Advantage NO Licensing/other contractual modes Yes FDI Dunning, John H. (2000): The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity. International Business Review 9, pp. 163 -190. 25

Categorisation of Market Entry Modes 26

Categorisation of Market Entry Modes 26

Market Entry Modes 1. Introduction to Market Entry 2. Dunning’s Eclectic Paradigm 3. Market

Market Entry Modes 1. Introduction to Market Entry 2. Dunning’s Eclectic Paradigm 3. Market Entry Modes 27

Market Entry Mode: Export Ownership Advantage No Do not internationalise No Export Yes Location

Market Entry Mode: Export Ownership Advantage No Do not internationalise No Export Yes Location Advantage Dunning, John H. (2000): The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity. International Business Review 9, pp. 163 -190. 28

Market Entry Mode: Export Forms of Export • Indirect export Country 1 Company A

Market Entry Mode: Export Forms of Export • Indirect export Country 1 Company A Sells to home market client Company B Country 2 Sells to foreign client Company C • Direct export Company A Sells to foreign client Company C • Transfer within companies Company A Sells to foreign subsidiary Company A 29

Market Entry Mode: Export Motivations: Limited knowledge/experience of the foreign market Limited financial capital

Market Entry Mode: Export Motivations: Limited knowledge/experience of the foreign market Limited financial capital available Preference of gradual market entry (e. g. due to necessary product adaptions) Avoiding FDI restrictions Preference for low logistical complexity Expecting low tariffs and exchange rate fluctuations 30

Market Entry Mode: Export Problem: Transnational Arbitrage Production Facility Country A Authorised Export Country

Market Entry Mode: Export Problem: Transnational Arbitrage Production Facility Country A Authorised Export Country B Re-Import Parallel Import Lateral Grey Import Authorised Export Country C Quelle: Simon/Wiese 1992, S. 250, in: Homburg/Krohmer, S. 916 31

Market Entry Mode: Export Governmental instruments to support exports: § Subsidies for home-country producers

Market Entry Mode: Export Governmental instruments to support exports: § Subsidies for home-country producers § Special governmental support programs for home-country producers § Fairs § Risk securities § Finance support § Cooperation support Source: http: //www. bmwa. bund. de and Hill, 2003, p. 174 32

Market Entry Mode: Export Governmental Instruments to support imports: § Import tariffs § Import

Market Entry Mode: Export Governmental Instruments to support imports: § Import tariffs § Import quotas § Voluntary export restrictions from the foreign country § Antidumping politics § Administrative procedures (bureaucracy): 33

Remember? Principal Agent Risks Risk Adverse Selection Moral Hazard Hold Up Attributes Background of

Remember? Principal Agent Risks Risk Adverse Selection Moral Hazard Hold Up Attributes Background of the risk Asymmetrical information (characteristics of product) Asymmetrical information (monitoring of action) One-sided specific investment Time of occurrence in relation to contract signing Ex ante Ex post Contractual approach to solve problem Selection mechanisms (signaling/screening) Incentive systems Vertical integration or mutual dependencies 34

Market Entry Mode: Export Example: VW sells cars to Brazilian car dealer A: VW;

Market Entry Mode: Export Example: VW sells cars to Brazilian car dealer A: VW; B: Brazilian car dealer Which Principal-Agent Risks will be present? Adverse Moral Selection Hazard T 0 A and B sign contract Which transaction costs will occur? Search and information costs T 1 A produces Negotiation and decision making costs T 2 B sells T 3 B gains $ and pays A Monitoring and Enforcement Costs 35

Summary - Market Entry Mode: Export Advantages Disadvantages ? ? 36

Summary - Market Entry Mode: Export Advantages Disadvantages ? ? 36

Market Entry Mode: Licensing/Franchising Ownership Advantage No Do not internationalise No Export Yes Location

Market Entry Mode: Licensing/Franchising Ownership Advantage No Do not internationalise No Export Yes Location Advantage Yes Internalisation Advantage NO Licensing/other contractual Modes Dunning, John H. (2000): The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity. International Business Review 9, pp. 163 -190. 37

Market Entry Mode: Licensing/Franchising Licensing Contractual arrangement that grants a company the rights to

Market Entry Mode: Licensing/Franchising Licensing Contractual arrangement that grants a company the rights to use an intellectual property of another company in exchange for a fee Licensor Rents out the right to use its intellectual property Generates profit Licensee Uses intellectual property Pays a fee Lower investment efforts 38

Market Entry Mode: Licensing/Franchising Motivation Preference of low financial risks Cost efficient supply to

Market Entry Mode: Licensing/Franchising Motivation Preference of low financial risks Cost efficient supply to the target market Low conflict potential with licensee Avoiding tariffs trade barriers and exchange rate fluctuations Licensee prefers no/limited R&D costs 39

Market Entry Mode: Licensing/Franchising Characteristics of Licensing • Specification of usage rights • Fee

Market Entry Mode: Licensing/Franchising Characteristics of Licensing • Specification of usage rights • Fee • Lump sum • Fixed per quantity • Percentual (usually 3 -5%) • Agreement of exclusion of copying after contract termination • Duration of contract • Technological differences between Licensor and Licensee Remember? Property Rights Theory The right to use an asset (= usus) The right to change an asset (= abusus) The right to take earnings from an asset (= usus fructus) The right to sell an asset Coordination rights Value generating rights Coase (1960), Furubotn/Richter (2005). 40

Market Entry Mode: Licensing/Franchising • Negotiation Issues: • Territorial restrictions • Timely restrictions •

Market Entry Mode: Licensing/Franchising • Negotiation Issues: • Territorial restrictions • Timely restrictions • Content/Usage restrictions • Restrictions on the number of licensees 41

Streamflicks case • Which licencing components did in the end hurt Streamflicks?

Streamflicks case • Which licencing components did in the end hurt Streamflicks?

Market Entry Mode: Licensing/Franchising Special form of licensing, in which complete business models are

Market Entry Mode: Licensing/Franchising Special form of licensing, in which complete business models are licensed against a fee • Combination of market incentive benefits (independent business) with the possibilities to intervene as in a hierarchy mode Characteristics • Is there a differentiated ownership advantage in the home market? • Can this advantage be transferred to a foreign market? • Was franchising already successful in the home market? 43

Market Entry Mode: Licensing/Franchising Example: Mc. Donald’s Franchise in Brazil A: Mc. Donald's; B:

Market Entry Mode: Licensing/Franchising Example: Mc. Donald’s Franchise in Brazil A: Mc. Donald's; B: Brazilian businesswomen Adverse Moral Selection Hazard T 0 A and B make contract Which transaction costs will occur? Which Principal-Agent Risks will be present? T 1 T 2 A delivers concept B produces and sells Search and information Negotiation and decision costs making costs T 3 B generates $ and pays A a percentage Monitoring and Enforcement Costs 44

Summary - Market Entry Mode: Licensing/Franchising Advantages Disadvantages ? ? 45

Summary - Market Entry Mode: Licensing/Franchising Advantages Disadvantages ? ? 45

Market Entry Mode: Further Contractual Arrangements Contract Manufacturing • Small financial risk • Increase

Market Entry Mode: Further Contractual Arrangements Contract Manufacturing • Small financial risk • Increase overall efficiency of company resources • Low control and low learning potential Management Contract • Concentration on core competences • Low local knowledge • Principal-agent risks Turnkey Projects • Concentration on core competences • Long-term consequences • Financial and construction risks Hill (2012) 46

Market Entry Mode: Further Contractual Arrangements Example Turnkey Project: Siemens builds an airport in

Market Entry Mode: Further Contractual Arrangements Example Turnkey Project: Siemens builds an airport in Bangalore and sells it to the Indian operator Which Principal-Agent Risks will be present? A: Siemens; B: Indian Operator Hold–up (initial investment) Adverse Selection T 0 A and B sign contract T 1 Moral Hazard T 2 A builds T 3 B takes over and pays $ A 47 47

Market Entry Mode: FDI Ownership Advantage No Do not internationalise No Export Yes Location

Market Entry Mode: FDI Ownership Advantage No Do not internationalise No Export Yes Location Advantage Yes Internalisation Advantage NO Licensing/other contractual modes Yes FDI Dunning, John H. (2000): The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity. International Business Review 9, pp. 163 -190. 48

Market Entry Mode: FDI Foreign investments Foreign direct investment Portfolio investment Type of market

Market Entry Mode: FDI Foreign investments Foreign direct investment Portfolio investment Type of market entry Establishing a new company Acquisition Ownership relations Greenfield Joint Venture Acquisition Merger 49

Market Entry Mode: FDI Main Characteristics of Portfolio investment Long-term interest by the investor

Market Entry Mode: FDI Main Characteristics of Portfolio investment Long-term interest by the investor on the investment Short-term and profit-oriented investment in financial assets Motivation is the entrepreneurial activity Direct entrepreneurial influence is not expected 50

Market Entry Mode: FDI Motivations Control over business process wanted/needed Existent knowledge about the

Market Entry Mode: FDI Motivations Control over business process wanted/needed Existent knowledge about the markets High initial investments are realisable Avoiding tariffs and exchange rate fluctuations Low political risks 51

Market Entry Mode: FDI Non-Cooperative FDI Foreign investments Foreign direct investment Portfolio investment Type

Market Entry Mode: FDI Non-Cooperative FDI Foreign investments Foreign direct investment Portfolio investment Type of market entry Establishing a new company Acquisition Ownership relations Greenfield Joint Venture Acquisition 52 Merger

Market Entry Mode: FDI Non-Cooperative FDI Why do companies aim at full control? •

Market Entry Mode: FDI Non-Cooperative FDI Why do companies aim at full control? • Internalisation • Reduce costs through hierarchy instead of market • Ownership • No transfer of critical resources • Keep you competitive advantage • Potential benefit of a global strategy 53

Market Entry Mode: FDI Non-Cooperative FDI Mergers vs Acquisitions • Merger Company AB Company

Market Entry Mode: FDI Non-Cooperative FDI Mergers vs Acquisitions • Merger Company AB Company B • Acquisition Company A Company B 54

Market Entry Mode: FDI Non-Cooperative FDI • Greenfield "Dieses Foto" von Unbekannter Autor ist

Market Entry Mode: FDI Non-Cooperative FDI • Greenfield "Dieses Foto" von Unbekannter Autor ist lizenziert gemäß CC BY-SA 55

Market Entry Mode: FDI Non-Cooperative FDIGreenfield Which Principal-Agent Risks will be present? VW opens

Market Entry Mode: FDI Non-Cooperative FDIGreenfield Which Principal-Agent Risks will be present? VW opens VW Brazil A: VW; A’ : VW Brazil Hold–up (initial Hold–up (may not be investment) allowed to transfer $) T 0 A creates A’ T 1 T 2 A’ gains profits and transfers them to A A’ produces and sells 56

Summary: Non-Cooperative FDI Advantages Disadvantages ? ? 57

Summary: Non-Cooperative FDI Advantages Disadvantages ? ? 57

Market Entry Mode: FDI Cooperative FDI – Joint Venture • Definition • Legally independent

Market Entry Mode: FDI Cooperative FDI – Joint Venture • Definition • Legally independent company of 2 or more parent companies from 2 or more countries Company A, Country 1 Company B Country 2 Company A+B

Market Entry Mode: FDI – Joint Venture Classifications Criteria Forms Number of cooperating partners

Market Entry Mode: FDI – Joint Venture Classifications Criteria Forms Number of cooperating partners § Joint Venture (JV) with one partner § JV with several partners Legal entity § Own legal entity (Equity of JV) § No own legal entity (Contractual JV or Cooperative JV) Content of cooperation § JV in one value chain activity § JV in several value chain activities § Cross function/complete value chain JV Location § JV in the home country of the foreign partner § JV in a third country Source: Lengler, p. 15 ff und Kutschker/Schmid, p. . 854

Market Entry Mode: FDI – Joint Venture Classifications Criteria Forms Geographic sphere § Local

Market Entry Mode: FDI – Joint Venture Classifications Criteria Forms Geographic sphere § Local JV for a certain host country § JV for a specific region/world market Cooperation direction § Horizontal JV § Vertical JV § Concentric JV § Conglomerate JV Capital and voting rights § Equal shares for all partners § Unequal shares of partners Time horizont § JV for a fixed time § JV without time restriction Source: Lengler, p. 15 ff und Kutschker/Schmid, p. 854

Market Entry Mode: FDI – Joint Ventures as Compromise • Motivation • Access to

Market Entry Mode: FDI – Joint Ventures as Compromise • Motivation • Access to complementary resources and capabilities • Increased usage of existing resources und capabilities • Intention • Realisation from “gains from trade” through comparative/absolute advantages • Implication • For partners that are in one or several issues better than your own company

Market Entry Mode: FDI – Joint Venture Management of Joint Ventures Companies share management

Market Entry Mode: FDI – Joint Venture Management of Joint Ventures Companies share management One partner assumes responsibility Independent manager Griffin, Pustay, (2013).

Market Entry Mode: FDI – Joint Venture: VW establishes a company with a Chinese

Market Entry Mode: FDI – Joint Venture: VW establishes a company with a Chinese partner A: VW; B: Chinese Partner Which Principal-Agent Risks will be present? Adverse Hold–up Hazard Selection T 0 A and B sign contract Moral T 1 AB invests T 2 AB produces and sells T 3 A+B share revenues of AB

Summary: Cooperative FDI – Joint Venture Advantages Disadvantages ? ? 64

Summary: Cooperative FDI – Joint Venture Advantages Disadvantages ? ? 64

Market Entry Mode: Strategic Alliances Cooperation Griffin, Pustay, (2013). Mutual Benefit

Market Entry Mode: Strategic Alliances Cooperation Griffin, Pustay, (2013). Mutual Benefit

Market Entry Mode: Strategic Alliances What is the motivation of the companies to join?

Market Entry Mode: Strategic Alliances What is the motivation of the companies to join? 66

Summary: Market Entry Modes Entry Mode Production in Foreign Country Production in Home Country

Summary: Market Entry Modes Entry Mode Production in Foreign Country Production in Home Country Export Direct Indirect Providing Offshore Services Contractual Mode Licensing Franchising Turnkey Project Contract Manufacturing Management Contract Strategic Alliance Investment Mode Joint Venture Overseas Assembly Wholly Owned Subsidiary

Summary: Market Entry Modes 100% Capital and management in home country Export Licensing Franchise

Summary: Market Entry Modes 100% Capital and management in home country Export Licensing Franchise Joint Venture Merger Acquisition Greenfield 100% Capital and management in the foreign country

Discussion: Why FDI? 1. Why do firms invest rather than use exporting or licensing

Discussion: Why FDI? 1. Why do firms invest rather than use exporting or licensing to enter foreign markets? 2. Why do firms choose acquisition versus greenfield investments?

Topic Overview: Market Entry Strategy Internationalisation Patterns • • Scale, scope & timing of

Topic Overview: Market Entry Strategy Internationalisation Patterns • • Scale, scope & timing of internationalisation Uppsala model Born globals Born-again globals Developing a market entry strategy • Why, where, when, and how to expand? Market entry modes • • • Trade, transfer, and FDI related modes of entry Dunning’s Eclectic Paradigm Choosing the optimal market entry mode

SMEs and Collaborative Ventures • International expansion is based on the capability of the

SMEs and Collaborative Ventures • International expansion is based on the capability of the firm to exploit its local advantages in foreign markets, the lack of strategic resources, the uncertainty and complexity of the process and smallness => international expansion difficult goal to achieve for SMEs. • Small businesses often do not have the inhouse resources to identify or go directly to foreign markets • Collaborative ventures may be an option • For an SME: Address competitive threats and concentrate on the core competences and strengths => cooperative internationalization increases the success chance of SMEs • International expansion of SMEs by cooperating experienced partner reduces risk and uncertainty in the market. SMEs should be careful about choosing the right and non-opportunistic partner that has relevant resources and capabilities, because they have limited opportunities to fail.

Market Entry Strategies of SME the typical stages of internationalization process for a small

Market Entry Strategies of SME the typical stages of internationalization process for a small business “ 1. Passive Exporting: The firm fills international orders but does not seek export business. 2. Export Management: The owner or a specific manager specifically seeks export sales. . 3. Export Department: The firm uses significant resources to seek increased sales from exporting. The key for most small firms is finding a good local partner for distribution. 4. Sales Branches: When demand for the product is high in a country, it justifies setting up local sales offices. Small firms must have the resources to transfer home managers to expatriate assignments or to hire and train local managers. 5. Production Abroad: Production moves a firm beyond downstream value-chain activities and allows them to gain local advantages. This is often a very difficult stage for small firms because the cost of a failed direct investment can put the whole firm at risk for survival. 6. The Transnational: Small size does not preclude a small business from developing a globally integrated network that characterizes the transnational corporation. Dolinger, M. (1995). Entrepreneurship. Burr Ridge, IL: Irwin

Summary Before being able to build a market entry strategy, companies need to clear

Summary Before being able to build a market entry strategy, companies need to clear several important questions on the where and why of market entry Dunning’s Eclectic Paradigm is a framework to analyse ownership advantages, location advantages, and internalisation advantages to determine a market entry mode There are different ways to classify market entry strategies, e. g. contractual and non-contractual modes Each market entry mode has its advantages and disadvantages also in regards to transaction costs and principal agent risks

Learning Objectives • Students can recall the components of a market entry strategy and

Learning Objectives • Students can recall the components of a market entry strategy and know how to develop a market entry strategy by working on the case study • Students can recall the most prominent modes of market entry and can explain the advantages and disadvantages of different market entry modes • Students can analyse factors that determine a firm’s choice of entry mode • Students train their research, analytical skills, and problem-solving skills by completing a case study

References • Brouthers, K. D. , Brouthers, L. E. , & Werner, S. (1996).

References • Brouthers, K. D. , Brouthers, L. E. , & Werner, S. (1996). Dunning's eclectic theory and the smaller firm: The impact of ownership and locational advantages on the choice of entry-modes in the computer software industry. International Business Review, 5(4), 377 -394. • Brouthers, K. D. , & Nakos, G. (2004). SME entry mode choice and performance: A transaction cost perspective. Entrepreneurship theory and practice, 28(3), 229 -247. • Coase, R. H. (1960). The problem of social cost. In Classic papers in natural resource economics (pp. 87 -137). Palgrave Macmillan, London. • Dolinger, M. (1995). Entrepreneurship. Burr Ridge, IL: Irwin • Dunning, John H. (2000): The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity. International Business Review 9, pp. 163 -190 • Furubotn, E. , & Richter, R. (2005). Institutions and economic theory: the contribution of the new institutional economics (economics, cognition, and society). • Griffin, R. W. & Pustay, M. W. (2013). International Business. Pearson: London, 7, Chapters 12 & 13. • Hill, Charles W. L. (2012): International Business: Competing in the Global Marketplace. Bell & Bain Ltd: Glasgow, 9, Chapter 15. • Root, F. R. (1994). Entry strategies for international markets(pp. 22 -44). New York: Lexington books. • Rugman, Alan M. & Collinson, S. (2012). International Business. Pearson: London, 6, Chapter 13. • Simon, H. , & Wiese, C. (1992). Europäisches Preismanagement. Marketing Zf. P, 14(4), 246 -256. • Wolff, B. (1995). Contractual problems in market relations. Principles of Justice and the European Union, 83 -95.