Kwame Nkrumah University of Science Technology Kumasi Ghana

Kwame Nkrumah University of Science & Technology, Kumasi, Ghana Introduction to International Business Name: Enya Ameza-Xemalordzo (Ph. D, LLM, MBA, MSc, Gdip, BSc) Department: Marketing & Corporate Strategy Faculty & College: Business School

Kwame Nkrumah University of Science & Technology, Kumasi, Ghana MODULE 12 Entering Foreign Markets

Timing of Entry • Entry is early when a firm enters a foreign market before other foreign firms and late when a firm enters after other international businesses have established themselves First-Mover Advantage • Advantages accruing to the first to enter a market First-Mover Disadvantage • Disadvantages associated with entering a foreign market before other international businesses Pioneering Costs • Costs an early entrant bears that later entrants avoid, such as the time and effort in learning the rules, failure due to ignorance, and liability of being a foreigner Strategic Commitment • A decision that has a long-term impact and is difficult to reverse, such as entering a foreign market on a large scale www. knust. edu. gh 10/2/2020 Enya Ameza-Xemalordzo 3

Turnkey Project • A 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 Licensing Agreement • Arrangement in which a licensor grants the rights to intangible property to the licensee for a specified period and receives a royalty fee in return Cross-Licensing Agreement • An arrangement in which a company licenses valuable intangible property to a foreign partner and receives a licence for the partner’s valuable knowledge; reduces risk of licensing Franchising • A specialized form of licensing in which the franchiser sells intangible property to the franchisee and insists on rules to conduct the business www. knust. edu. gh 10/2/2020 Enya Ameza-Xemalordzo 4

Joint Venture • A cooperative undertaking between two or more firms Wholly Owned Subsidiary • A subsidiary in which the firm owns 100% of the stoke www. knust. edu. gh 10/2/2020 Enya Ameza-Xemalordzo 5

1) Basic entry decisions include identifying which markets to enter, when to enter those markets, and on what scale 2) The most attractive foreign markets tend to be found in politically stable developed and developing nations that have free market systems and where there is not a dramatic upsurge in either inflation rates or private-sector debt 3) There are several advantages associated with entering a national market early, before other international businesses have established themselves. These advantages must be balanced against the pioneering costs that early entrants often have to bear, including the greater risk of business failure. 4) Large-scale entry into a national market constitutes a major strategic commitment that is likely to change the nature of competition in the market and limit the entrant’s future strategic flexibility. The firm needs to think through the implications of such commitments before embarking on a largescale entry. Although making major strategic commitments can yield many benefits, risks also are associated with such a strategy www. knust. edu. gh 10/2/2020 Enya Ameza-Xemalordzo 6

5) The main advantage of licensing is that the licensee bears the costs and risks of opening a foreign market. Disadvantages include the risk of losing technological knowhow to the licensee and a lack of tight control over licensees 6) Joint ventures have the advantages of sharing the costs and risks of opening a foreign market and of gaining local knowledge and political influence. Disadvantages include the risk of losing control over technology and a lack of tight control 7) The advantages of wholly owned subsidiaries include tight control over technological know-how. The main disadvantage is that the firm must bear all the costs and risks of opening a foreign market 8) The optimal choice of entry mode depends on the firm’s strategy 9) When technological know-how constitutes a firm’s core competence, wholly owned subsidiaries are preferred, since they best control technology www. knust. edu. gh 10/2/2020 Enya Ameza-Xemalordzo 7

10) When management know-how constitutes a firm’s core competence, foreign franchises controlled by joint ventures seem to be optimal. This gives the firm the cost and risk benefits associated with the franchising, while enabling it to monitor and control franchisee quality effectively 11) When the firm is pursuing a global or transnational strategy, the need for tight control over operations to realize location and experience curve economies suggests wholly owned subsidiaries are the best entry mode 12) When establishing a wholly owned subsidiary in a country, a firm must decide whether to do so by building a subsidiary from the ground up, the socalled greenfield venture strategy, or by acquiring an established enterprise in the target market 13) Relative to greenfield ventures, acquisitions are quick to execute, may enable a firm to pre-empt its global competitors, and involve buying a known revenue and profit stream www. knust. edu. gh 10/2/2020 Enya Ameza-Xemalordzo 8

14) Acquisitions may fail when the acquiring firm overpays for the target, when the culture of the acquiring and acquired firms clash, when there is a high level of management attrition after the acquisition, and when there is a failure to integrate the operations of the acquiring and acquired firm 15) The Big advantage of establishing a greenfield venture in a foreign country is that it gives the firm a much greater ability to build the kind of subsidiary company that wants. • Ex: it is much easier to build an organization culture from scratch than it is to change the culture of an acquired unit www. knust. edu. gh 10/2/2020 Enya Ameza-Xemalordzo 9