CHAPTER 9 GLOBAL MARKET ENTRY STRATEGIES: LICENSING, INVESTMENT, AND STRATEGIC ALLIANCES SUMMARY Companies that wish to move

beyond exporting and importing can avail themselves of a wide range of alternative market entr !trate"#e!. Each alternative has distinct advantages and disadvantages associated with it; the alternatives can be ranked on a continuum representing increasing levels of investment, commitment, and risk. L#$en!#n" can generate revenue flow with little new investment; it can be a good choice for a company that possesses advanced technology, a strong brand image, or valuable intellectual property. C%ntra$t man&'a$t&r#n" and 'ran$(#!#n" are two specialized forms of licensing that are widely used in global marketing. A higher level of involvement outside the home country may involve '%re#"n )#re$t #n*e!tment. his can take many forms. +%#nt *ent&re! offer two or more companies the opportunity to share risk and combine value chain strengths. Companies considering !oint ventures must plan carefully and communicate with partners to avoid "divorce.# $oreign direct investment can also be used to establish company operations outside the home country through "reen'#e,) #n*e!tment, ac%uisition of an minority or ma!ority e-&#t !take in a foreign business, or taking '&,, %.ner!(#/ of an existing business entity through merger or outright ac%uisition. Cooperative alliances known as !trate"#$ a,,#an$e!, !trate"#$ #nternat#%na, a,,#an$e!, and ",%0a, !trate"#$ /artner!(#/! 1GSP!2 represent an important market entry strategy in the twenty&first century. '()s are ambitious, reciprocal, cross&border alliances that may involve business partners in a number of different country markets. '()s are particularly well suited to emerging markets in Central and Eastern Europe, Asia, and *atin America. +estern businesspeople should also be aware of two special forms of cooperation found in Asia, namely ,apan-s keiretsu and (outh .orea-s chaebol3 o assist managers in thinking through the various alternatives, market e4/an!#%n !trate"#e! can be represented in matrix form/ $%&ntr an) market $%n$entrat#%n, $%&ntr $%n$entrat#%n an) market )#*er!#'#$at#%n, $%&ntr )#*er!#'#$at#%n an) market $%n$entrat#%n, and $%&ntr an) market )#*er!#'#$at#%n. he preferred expansion strategy will be a reflection of a company-s stage of development 0i.e. whether it is international, multinational, global, or transnational1. he (tage 2 transnational combines the strengths of these three stages into an integrated network to leverage worldwide learning. OVERVIE5 he various entry mode options form a continuum, 0$igure 3&41, the level of involvement, risk and financial reward increases as a company moves from market entry strategies such as licensing to !oint ventures and ultimately, various forms of investment.
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+hen a global company seeks to enter a developing country market, there is an additional strategy issue to address/ whether to replicate the strategy that served the company well in developed markets without significant adaptation. his is the issue that (tarbucks is facing. o the extent that the ob!ective of entering the market is to achieve penetration, executives at global companies are well advised to consider embracing a mass&market mindset. his may well mandate an adaptation strategy. H%. )% e4e$&t#*e! $(%%!e a market entr !trate" 6

$ormulating a market entr !trate" means that management must decide which option or options to use in pursuing opportunities outside the home country. he particular market entry strategy company executives choose will depend on their vision, attitude toward risk, how much investment capital is available, and how much control is sought. ANNOTATED LECTURE7OUTLINE LICENSING 5(at #! ,#$en!#n"6

L#$en!#n" is as a contractual arrangement whereby one company 0the licensor1 makes an asset available to another company 0the licensee1 in exchange for royalties, license fees, or some other form of compensation. he licensed asset may be a brand name, company name, patent, trade secret, or product formulation. *icensing is widely used in the fashion industry. *icensing is a global entry and expansion strategy, with considerable appeal. 8t can offer an attractive return on investment, provided that the necessary performance clauses are included in the contract. he only cost is signing the agreement and policing its implementation. 5(at are t(e ma8%r a)*anta"e! an) )#!a)*anta"e! a!!%$#ate) .#t( ,#$en!#n"6

here are two key advantages associated with licensing as a market entry mode. 4. ;ecause the licensee is typically a local business that will produce and market the goods on a local or regional basis, licensing enables companies to circumvent tariffs, %uotas, or similar export barriers. 6. *icensees are granted considerable autonomy and are free to adapt the licensed goods to local tastes. *icensing is associated with several disadvantages and opportunity costs. 4. *icensing agreements offer limited market control. 6. he agreement may have a short life if the licensee develops its own know&how and begins to innovate in the licensed product or technology area.

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8n a worst&case scenario, licensees < especially those working with process technologies < can develop into strong competitors in the local market and, eventually, into industry leaders. o prevent a licensor&competitor from gaining unilateral benefit, licensing agreements should provide for a cross&technology exchange between all parties. =verall, the licensing strategy must ensure ongoing competitive advantage. S/e$#a, L#$en!#n" Arran"ement! Companies that use $%ntra$t man&'a$t&r#n" provides technical specifications to a subcontractor or local manufacturer. he subcontractor then oversees production. 5(at are t(e a)*anta"e! %' $%ntra$t man&'a$t&r#n"6

(uch arrangements offer several advantages. 4. he licensing firm can specialize in product design and marketing, while transferring responsibility for ownership of manufacturing facilities to others. 6. he licensing firm has limited commitment of financial and managerial resources. >. he licensing firm has %uick entry into target countries, especially when the target market is too small to !ustify significant investment. =ne disadvantage/ Companies may open themselves to public criticism if workers in contract factories are poorly paid or labor in inhumane circumstances. 9ran$(#!#n" is another variation of licensing strategy. A franchise is a contract between a parent company&franchiser and a franchisee that allows the franchisee to operate a business developed by the franchiser in return for a fee and adherence to policies and practices. 0 able 3&41. $ranchising has great appeal to local entrepreneurs anxious to learn and apply +estern& style marketing techni%ues. he following %uestions should be asked of would&be franchisers before expanding overseas/ ? +ill local consumers buy your product@ ? 9ow tough is the local competition@ ? Aoes the government respect trademark and franchiser rights@ ? Can your profits be easily repatriated@ ? Can you buy all the supplies you need locally@ ? 8s commercial space available and are rents affordable@ ? Are your local partners financially sound and do they understand the basics of franchising@ he specialty retailing industry favors franchising as a market entry mode. 0 he ;ody (hop is an example.1
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$ranchising is a cornerstone of growth in the fast&food industry; CcAonald-s reliance on franchising to expand globally is a case in point. INVESTMENT 5(en )% $%m/an#e! m%*e 'r%m e4/%rt#n" %r ,#$en!#n" t% #n*e!t#n"6

After companies gain experience outside the home country via exporting or licensing, the time often comes when executives desire a more extensive form of participation. 8D particular, the desire to have partial or full ownership of operations outside the home country can drive the decision to invest. 9%re#"n )#re$t #n*e!tment 19DI2 figures reflect investment flows out of the home country as companies invest in or ac%uire plants, e%uipment, or other assets. $oreign direct investment allows companies to produce, sell, and compete locally in key markets. he final years of the 67th century, the top three countries for E.(. investment were the Enited .ingdom, Canada, and the Detherlands. he Enited .ingdom, ,apan, and the Detherlands were the top three investors in the E.(. during the same period. $oreign investments may take t he form of minority or ma!ority shares in !oint ventures, minority or ma!ority e%uity stakes in another company, or outright ac%uisition. +%#nt Vent&re! A !oint venture with a local partner represents a more extensive form of participation in foreign markets than either exporting or licensing. A 8%#nt *ent&re #! an entry strategy for a single target country in which the partners share ownership of a newly created business entity. 5(at are t(e ma8%r a)*anta"e! an) )#!a)*anta"e! %' t(e 8%#nt *ent&re6

;y pursuing a !oint venture entry strategy, a company can limit its financial risk as well as its exposure to political uncertainty. A company can use the !oint venture experience to learn about a new market environment. ,oint ventures allow partners to achieve synergy by combining different value chain strengths. A !oint venture may be the only way to enter a country or region if government bid award practices routinely favor local companies, if import tariffs are high, or if laws prohibit foreign control but permit !oint ventures. he disadvantages of !oint venturing can be significant.
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,oint venture partners must share rewards as well as risks. here is the potential for conflict between partners. A dynamic !oint venture partner can evolve into a stronger competitor.

In*e!tment *#a O.ner!(#/ %r E-&#t Stake he most extensive form of participation in global markets is investment that results in either an e%uity stake or full ownership. An e-&#t stake is simply an investment. 9&,, %.ner!(#/, means that the investor has 477 percent control. his may be achieved by a start&up of new operations, known as, greenfield operations or greenfield investment, or by merger or ac%uisition 0CGA1 of an existing enterprise. 8f government restrictions prevent foreign ma!ority or 477 percent ownership, by foreign companies, the investing company will have to settle for a minority e%uity stake. 8n Hussia, for example, the government restricts foreign ownership to :3 percent. An investing company may start with a minority stake and then increase its share 0e.g., Iolkswagen started with a >4 percent share in the Czech auto industry and then increased to F7 percent1. *arge&scale direct expansion by means of new facilities can be expensive and re%uire a ma!or commitment of managerial time and energy. 9owever, political or other environmental factors may dictate this approach. 0 ables 3 &> and 3&:1 Ac%uisition is an instantaneous<and even less expensive<approach to market entry or expansion. $ull ownership avoids communication issues and conflict, whereas ac%uisitions must integrate the ac%uired company and coordinate activities. +hat is the driving force behind many of these ac%uisitions@ 8t is globalization and the realization that globalization cannot be undertaken independently. (everal advantages of !oint ventures also apply to ownership, including access to markets and avoidance of tariff or %uota barriers. =wnership permits technology transfer and access to manufacturing techni%ues 0e.g., (tanley +orks, a tool maker ac%uired companies such as a aiwanese socket wrench manufacturer1. he alternatives <licensing, !oint ventures, minority or ma!ority e%uity stake, and ownership<are, points along a continuum of strategies for global market entry and expansion. A global strategy may call for a combination of strategies. (ometimes competitors within a given industry pursue different strategies.
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8t can also be the case that competitors within a given industry pursue different strategies. GLOBAL STRATEGIC PARTNERSHIPS 5( .%&,) an '#rm !eek t% $%,,a0%rate .#t( an%t(er '#rm, 0e #t ,%$a, %r '%re#"n6

Hecent changes in the political, economic, sociocultural, and technological environments have combined to change the relative importance of those strategies. rade barriers have fallen, markets have globalized, consumer needs and wants have converged, product life cycles have shortened, and new communications technologies and trends have emerged. Although these developments provide unprecedented market opportunities, there are strong strategic implications for the global organization and new challenges for the global marketer. oday-s competitive environment is characterized by unprecedented degrees of turbulence, dynamism, and unpredictability; global firms must respond and adapt %uickly. THE NATURE O9 GLOBAL STRATEGIC PARTNERSHIPS he terminology used to describe the new forms of cooperation strategies varies widely. he phrases $%,,a0%rat#*e a"reement!, !trate"#$ a,,#an$e!, !trate"#$ #nternat#%na, a,,#an$e!, and ",%0a, !trate"#$ /artner!(#/! 0'()s1 are fre%uently used to refer to linkages between companies from different countries to !ointly pursue a common goal. 5(at are t(e ma#n $(ara$ter#!t#$! %' !trate"#$ a,,#an$e!6

he strategic alliances discussed here exhibit three characteristics 0see $igure 3&61. 4. he participants remain independent subse%uent to the formation of the alliance. 6. he participants share the benefits of the alliance as well as control over the performance of assigned tasks. >. he participants make ongoing contributions in technology, products, and other key strategic areas. he number of strategic alliances has been growing at the rate of 67 to >7 percent since the mid&43J7s. he upward trend for '()s comes in part at the expsense of traditional cross&border mergers and ac%uisitions. A key driving force is the realization that globalization and the 8nternet will re%uire new inter&corporate configurations. 0 able 3 K B1. '()s are attractive for several reasons/
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9igh product development costs in the face of resource constraints may force a company to seek one or more partners. he technology re%uirements of many contemporary products mean that an individual company may lack the skills, capital, or know&how to go it alone. )artnerships may be the best means of securing access to national and regional markets. )artnerships provide important learning opportunities.

;ecause licensing agreements do not call for continuous transfer of technology or skills among partners, such agreements are not strategic alliances. raditional !oint ventures are basically alliances focusing on a single national market or a specific problem. A tr&e ",%0a, !trate"#$ /artner!(#/ #! kn%.n 0 '#*e attr#0&te!3 5(at are t(e 6

'()s differ significantly from the market entry modes discussed earlier. A true global strategic partnership is different; it is distinguished by five attributes. 4. Two or more companies develop a joint long-term strategy aimed at achieving world leadership by pursuing cost-leadership, differentiation, or a combination of the two. 6. The relationship is reciprocal. Each partner possesses specific strengths that it shares with the other; learning must take place on both sides. >. The partners vision and efforts are truly global, e tending beyond home countries and the home regions to the rest of the world. :. The relationship is organi!ed along hori!ontal, not vertical, lines. "ontinual transfer of resources laterally between partners is re#uired, with technology sharing and resource pooling representing norms. 2. $hen competing in markets e cluded from the partnership, the participants retain their national and ideological identities. SUCCESS 9ACTORS Assuming that a proposed alliance has the above five attributes, it is necessary to consider six basic factors deemed to have significant impact on the success of '()s/ mission, strategy, governance, culture, organization, and management. 4. %ission. (uccessful '()s create win&win situations, where participants pursue ob!ectives on the basis of mutual need or advantage. 6. &trategy. A company may establish separate '()s with different partners; strategy must be thought out up front to avoid conflicts. >. 'overnance. Aiscussion and consensus must be the norms. )artners must be viewed as e%uals. :. "ulture. )ersonal chemistry is important, as is the successful development of a shared set of values.

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2. (rgani!ation. 8nnovative structures and designs may be needed to offset the complexity of multicountry management. B. %anagement. '()s invariably involve a different type of decision making. )otentially divisive issues must be identified in advance and clear, unitary lines of authority established that will result in commitment by all partners. 5(at are t(e "&#)#n" /r#n$#/,e! %' !&$$e!!'&, $%,,a0%rat#%n!6

Companies forming '()s must keep these factors in mind. Coreover, the following four principles will guide successful collaborators/ 4. )artners must remember that they are competitors in other areas. 6. 9armony is not the most important measure of success K some conflict is to be expected. >. All employees, engineers, and managers must understand where cooperation ends and competitive compromise begins. :. *earning from partners is critically important. A,,#an$e! .#t( A!#an C%m/et#t%r! +estern companies may find themselves at a disadvantage in '()s with an Asian competitor; especially if the latter-s manufacturing skills are the attractive %uality. Canufacturing excellence represents a competence that is not easily transferred. o limit transparency, some companies involved in '()s establish a "collaboration section# Kthis department is designed to serve as a gatekeeper through which re%uests for access to people and information must be channeled. he most attractive partner in the short run is likely to be a company that is already established and competent in the business. he best long&term partner, however, is likely to be a less competent player or even one from outside the industry. Another common cause of problems is "frictional loss,# caused by differences in management philosophy, expectations, and approaches. (hort&term goals can result in the foreign partner limiting the number of people allocated to the !oint venture. C9M Internat#%na,, GE, an) SNECMA: A S&$$e!! St%r Commercial $an Coteur 0C$C1 8nternational, a partnership between 'E-s !et engine division and (necma, a government&owned $rench aerospace company is a fre%uently cited example of a successful '().
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B%e#n" an) +a/an: A C%ntr%*er! 8n some circle, '()s have been the target of criticism. Critic warn that employees of a company that becomes reliant on outside suppliers for critical components will lose expertise and experience erosion like engineering skills. (uch criticism is often directed at '()s involving E.(. and ,apanese firms. =ne team of researchers has developed a framework outlining the stages that a company can go through as it becomes increasingly dependent on partnerships/ Ste/ : =utsourcing of assembly for inexpensive labor Ste/ ; =utsourcing of low&value components to reduce product price Ste/ < 'rowing levels of value&added components move abroad Ste/ = Canufacturing skills, designs, and functionally related technologies move abroad Ste/ > Aisciplines related to %uality, precision manufacturing, testing, and future avenues of product derivatives move abroad Ste/ ? Core skills surrounding components, miniaturization, and complex systems integration move abroad Ste/ @ Competitor learns the entire spectrum of skills related to the underlying core competence INTERNATIONAL PARTNERSHIPS IN DEVELOPING COUNTRIES Central and Eastern Europe, Asia, 8ndia, and Cexico offer opportunities to enter gigantic and largely untapped markets. An obvious strategic alternative for entering these markets is the strategic alliance. )otential partners trade market access for expertise. Assuming that risks can be minimized and problems overcome, !oint ventures in the transition economies of Central and Eastern Europe could evolve at a more accelerated pace than past !oint ventures with Asian partners. Hussia is an excellent location for an alliance because the workforce is well&educated workforce, and %uality is important to consumers. Aisadvantages include organized crime, supply shortages, and outdated regulatory and legal systems.

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9ungary has the most liberal financial and commercial system in the region plus investment incentives to +esterners, especially in high&tech industries. COOPERATIVE STRATEGIES IN +APAN: KEIRETSU 5(at #! a keiretsu an) .( #! #t !% #m/%rtant #n ",%0a, market#n"6

,apan-s keiretsu represent a special category of cooperative strategy. A ke#ret!& is an inter&business alliance or enterprise group that, in the words of one observer, "resembles a fighting clan in which business families !oin together to vie for market share.# )eiretsu exist in a broad spectrumof markets, including the capital, primary goods, and component parts markets. )eiretsu relationships are often cemented by bank ownership of large blocks of stock and by cross&ownership of stock between a company and its buyers and nonfinancial suppliers. $urther, keiretsu executives can legally sit on each other-s boards, share information, and coordinate prices in closed&door meetings of "presidents- councils.# hus, keiretsu are essentially cartels that have the government-s blessing. +hile not a market entry strategy per se, keiretsu played an integral role in the international success of ,apanese companies as they sought new markets. (ome observers have disputed charges that keiretsu have an impact on market relationships in ,apan and claim instead that the groups primarily serve a social function. =thers acknowledge the past significance of preferential trading patterns associated with keiretsu but assert that the latter-s influence is now weakening. *ertical 0i.e., supply and distribution1 keiretsu are hierarchical alliances between manufacturers and retailers. $or example, Catsushita controls a chain of 62,777 Dational stores in ,apan through which it sells its )anasonic, echnics, and Luasar brands. Another type of manufacturing keiretsu consists of vertical hierarchical alliances between automakers and suppliers and component manufacturers. (uppliers do not work exclusively for oyota, they have an incentive to be flexible and adaptable. he keiretsu system ensured that high&%uality parts were delivered on a !ust&in&time basis, a key factor in the high %uality for which ,apan-s auto industry is well known (ome observers have %uestioned whether keiretsu violate antitrust laws. COOPERATIVE STRATEGIES IN SOUTH KOREA: CHAE !" (outh .orea has its own type of corporate alliance groups, known as chaebol.

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*ike the ,apanese keiretsu, chaebol are composed of dozens of companies, centered around a central bank or holding company, and dominated by a founding family. 9owever, chaebol are a more recent phenomenon, dating from the early 43B7s. he chaebol were a driving force behind (outh .orea-s economic miracle; 'D) increased from M4.3 billion in 43B7 to M6>J billion in 4337. T5ENTYA9IRST CENTURY COOPERATIVE STRATEGIES: TARGETING THE DIGITAL 9UTURE 8ncreasing numbers of companies in all parts of the world are entering into alliances that resemble keiretsu. he phrase digital keiretsu is fre%uently used to describe alliances between companies in several industries<computers, communications, consumer electronics, and entertainment<that are undergoing transformation and convergence. hese processes are the result of tremendous advances in the ability to transmit and manipulate vast %uantities of audio, video, and data and the rapidly approaching era of a global electronic "superhighway# composed of fiber optic cable and digital switching e%uipment. Companies in all parts of the world are entering into alliances that resemble keiretsu. Be %n) Strate"#$ A,,#an$e! he "relationship enterprise# is said to be the next stage of evolution of the strategic alliance. Helationship enterprises are groupings of firms in different industries and countries that will be held together by common goals that encourage them to act almost as a single firm. Core than the simple strategic alliances we know today, relationship enterprises will be super&alliances among global giants, with revenues approaching M4 trillion. +ith home bases in all ma!or markets, en!oy the political advantage of being a "local# firm almost anywhere. he virtual corporation will seem to be a single entity with vast capabilities but will really be the result of numerous collaborations assembled only when they-re needed. he virtual corporation would combine the twin competencies of cost effectiveness and responsiveness; thus, it could pursue the "think globally, act locally# philosophy with ease. his reflects the trend toward "mass customization.#

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MARKET EBPANSION STRATEGIES 5(at market e4/an!#%n !trate"#e! )% U3S3 $%m/an#e! t /#$a,, /&r!&e6

Companies must decide whether to expand by seeking new markets in existing countries or, alternatively, seeking new country markets for already identified and served market segments. hese two dimensions in combination produce four market e4/an!#%n !trate" options, as shown in able 3&F. (trategy 4, $%&ntr an) market $%n$entrat#%n, involves targeting a limited number of customer segments in a few countries. his is typically a starting point for most companies. 8n (trategy 6, $%&ntr $%n$entrat#%n an) market )#*er!#'#$at#%n, a company serves many markets in a few countries. his strategy was implemented by many European companies that remained in Europe and sought growth by expanding into new markets. 8t is also the approach of the American companies that decide to diversify in the E.(. market as opposed to going international with existing products or creating new global products. According to the E.(. Aepartment of Commerce, the ma!ority of E.(. companies that export limit their sales to five or fewer markets. his means that E.(. companies typically pursue (trategies 4 or 6. (trategy >, $%&ntr )#*er!#'#$at#%n an) market $%n$entrat#%n, is the classic global strategy whereby a company seeks out the world market for a product. he appeal of this strategy is that, by serving the world customer, a company can achieve a greater accumulated volume and lower costs than any competitor and therefore have an unassailable competitive advantage. his is the strategy of the well&managed business that serves a distinct need and customer category. (trategy :, $%&ntr an) market )#*er!#'#$at#%n, is the corporate strategy of a global, multi&business company such as Catsushita. =verall, Catsushita is multi&country in scope and its various business units and groups serve multiple segments. hus, at the level of corporate strategy, Catsushita may be said to be pursuing (trategy :. At the operating business level, however, managers of individual units must focus on the needs of the world customer in their particular global market. 8n able 3&F, this is (trategy >< country diversification and market concentration. An increasing number of companies all over the world are beginning to see the importance of market share not only in the home or domestic market but also in the world market. (uccess in overseas markets can boost a company-s total volume and lower its cost position.

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DISCUSSION CUESTIONS 4. +hat are the advantages and disadvantages or using licensing as a market entry tool@ 'ive examples of companies from different countries that use licensing as a global marketing strategy. L#$en!#n": A)*anta"e!: *ow cost entry alternative Allows licensor to circumvent tariffs, %uotas, or similar export barriers *imits political risk and risk of expropriation D#!a)*anta"e!: A limited form of participation; licensor generally has no control on marketing program associated with product produced under license. $inancial upside limited by royalty rate. *icensees can become competitors. 6. he president of NOP Canufacturing Company of ;uffalo, Dew Oork, comes to you with a license offer from a company in =saka. 8n return for sharing the companyQs patents and know&how, the ,apanese company will pay a license fee of 2 percent of the ex&factory price of all products sold based on the E.(. company-s license. he president wants your advice. +hat would you tell him@ Assuming NOP is a small manufacturer with limited international experience, and if the picture for both market and sales 0market share1 potential are promising, licensing can be an attractive entry mode. )ossibly entry into the ,apanese market could be expedited by following this approach, especially if distribution would be a problem. 9owever, NOP must carefully study the geographic scope of the agreement. (hould licensed product be marketed only in ,apan@ Another concern for NOP is that the licensee will become a stronger competitor once it has absorbed NOP-s know&how. NOP may wish to investigate other potential licensees before making a final decision. NOP must also ensure that its patents are protected in ,apan. =verall, as Hoot 0433:, 4431 notes, "managers can rationally choose licensing as a primary entry mode only when they compare the expected profitability of a proposed licensing venture with the expected profitability of alternative entry modes.# Hoot suggests profit contribution analysis based on pro!ections of incremental revenues and incremental costs associated with the licensing agreement. 8ncremental revenues 0excluding royalty revenues1 for life of agreement/ *ump&sum royalties
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echnical&assistance fees EngineeringRconstruction fees E%uity shares in licensee Aividends on e%uity shares

8ncremental costs for life of agreement/ =pportunity costs *oss of current export revenues 0if company currently exports1 (tart&Ep Costs arget market research Ac%uisition of local patentRtrademark protection Degotiation of licensing agreement raining licensee-s employees =ngoing Costs )eriodic trainingRupdating of licensee Caintaining local patentRtrademark protection Luality supervision and tests (ource/ Adapted from $ranklin H. Hoot, Entry &trategies for +nternational %arkets 0Dew Oork/ *exington ;ooks1, 433:. >. +hat is foreign direct investment 0$A81@ +hat forms can $A8 take@ +%#nt Vent&re!: A)*anta"e!: Allows for sharing of risk and combining complementary strengths, especially local market knowledge of target market partner. Cay be the entry mode most strongly supported by target market government. D#!a)*anta"e!: Corporate cultures and other interests of foreign partner and local partner may clash. *ack of mutual understanding fre%uently leads to "divorce.# (haring means less control than in 477 percent ownership. D#re$t In*e!tment7A$-&#!#t#%n7O.ner!(#/: A)*anta"e!: Ac%uisition can profit instant market access.
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)rovides opportunities for technology transfer to parent.

D#!a)*anta"e!: )roblems may arise from efforts to integrate ac%uisitions into parent company. He%uires greatest commitment of capital and managerial effort. 8nvestment and ownership may evoke suspicion about foreign company exploitation. American companies in particular may be targets of accusations about "cultural imperialism.# )olitical risk is higher compared with other entry modes. :. +hat is meant by the phrase global strategic partnership@ 8n what ways does this form of market entry strategy differ from more traditional forms such as !oint ventures@ he three key characteristics are independence subse%uent to the formation of the alliance, a sharing of benefits as well as control over task performance, and ongoing contributions by both participants to technology&to&technology and other key strategic areas. he type of !oint ventures described in the chapter represents market entry strategies for a particular country market. $or example, a great deal of the foreign direct investment in !oint ventures in emerging markets such as 8ndia and China is for the purpose of gaining market access and serving the local market. '()s such as (necma are designed to serve world markets. he partners pool information, technology, and resources. According to )erlmutter and 9eenan, in a true '()/ wo or more companies develop long&term strategies for achieving world leadership. he relationship is reciprocal. Iision and efforts are truly e%ual. *ateral transfer of resources is essential. )articipants continue to compete as distinct entities in markets not included in the agreement. he success factors discussed in the chapter include the following/ Cission that crates win&win situation =ne company may form different '()s with various partners; strategy must be thought out in advance )artners must be on e%ual footing in matters of governance. Aifferences in corporate cultures must be explicitly recognized and managed accordingly. (ome conflict is to be expected. 8nnovative designs 0matrix etc.1 may be re%uired Appropriate decision&making processes must be adopted.
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2. +hat are keiretsu@ 9ow does this form of industrial structure affect companies that compete with ,apan or that are trying to enter the ,apanese market@ 8n its most general sense, the word keiretsu refers to connections between different companies. ,apanese )eiretsu consists of a group of large companies with ties to a powerful bank, such as Citsubishi 'roup. 8n ,apan-s automobile industry, keiretsu take the form of vertical hierarchical relationships between the automakers and various component&manufacturing groups. oyota is cited as an example in the chapter; other keiretsu include Dissan and 9onda. 8n the consumer electronics industry, keiretsu alliances are forged between manufacturers and retailers. Catsushita is a case in point; other keiretsu in the electronics industry are the 9itachi 'roup, the oshiba 'roup, and the (ony 'roup. he presence of keiretsu can make it difficult for foreign companies to gain access to the ,apanese market. B. +hich strategic options for market entry or expansion would a small company be likely to pursue@ A large company@ Companies must address issues of marketing and value chain management before deciding to enter or expand their share of global markets by means of licensing or some form of direct investment. he particular market entry strategy company executives choose depends on their vision, attitude toward risk, how much investment capital is available, and how much control is sought.

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CASES Ca!e 9A:: Star0&$kD! G,%0a, E4/an!#%n: T(e A!!#"nment O*er*#e.: $rom modest beginnings in (eattle-s )ike (treet Carket, (tarbucks Corporation has become a global marketing phenomenon. oday, (tarbucks is the world-s leading specialty coffee retailer, with 677J sales of M47.J billion. (tarbucks founder and chairman 9oward (chultz and his management team have used a variety of market entry approaches<including direct ownership as well as licensing and franchising <to create an empire of more than 46,777 coffee cafSs in >2 countries. 8n addition, (chultz has licensed the (tarbucks brand name to marketers of noncoffee products such as ice cream. he company is also diversifying into movies and recorded music. 9owever, coffee remains (tarbucks core business; to reach the ambitious goal of :7,777 shops worldwide, (tarbucks is expanding aggressively in key countries. Starbucks has also been successful in other European countries, including the Enited .ingdom and 8reland. 'reater China<including the mainland, 9ong .ong, and aiwan<represents another strategic growth market for (tarbucks. 4. 8n the Enited (tates, about two&thirds of (tarbucks outlets are company owned; the remaining one&third are operated by licensees. =utside the Enited (tates, the proportions are reversed/ about two&thirds are run by licensees or partnerships in which (tarbucks has e%uity stakes. +hat is the explanation for the two different market expansion strategies@ (tarbucks- relentless pursuit of new market opportunities illustrates the fact that most firms face a broad range of strategy alternatives. for (tarbucks and other companies whose business models include a service component or store experience, exporting 0in the conventional sense1 is not the best way to "go global.# +hen a global company seeks to enter a developing country market, there is an additional strategy issue to address/ whether to replicate the strategy that served the company well in developed markets without significant adaptation. his is the issue that (tarbucks is facing. o the extent that the ob!ective of entering the market is to achieve penetration, executives at global companies are well advised to consider embracing a mass&market mind&set. his may well mandate an adaptation strategy. $ormulating a market entry strategy means that management must decide which option or options to use in pursuing opportunities outside the home country. he particular market entry strategy company executives choose will depend on their vision, attitude toward risk, how much investment capital is available, and how much control is sought. 6. 8n response to the economic downturn, (tarbucks recently launched a new line of instant coffee called I8A Heady ;rew. he company also developed a breakfast value meal that costs less than M:. Ao you agree with these decisions@ (tudent answer will tend to vary, but good students will cite key marketing mix criteria such as positioning, target markets, pricing, promotion and the "(tarbuck-s experience# in their opinion. Also, students will R should cite wage
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income disparity across parts of the E.(. and other countries in their analysis of the M :.77 meal. he key %uestion that needs to be asked, although only time can answer, is will I8A and the M:.77 erode the brand image for its target consumers faster than these two additions will add additional consumers@ >. 8n the long run, which company is more likely to win the global "coffee wars,# (tarbucks or CcAonald-s@ )ure con!ecture on everyone-s part in trying to answer this %uestion, although, the "depth# of resources available to CcAonald-s gives them a decisive advantage. 9%r) Bet! B#,,#%n! %n +a"&ar O*er*#e.: In 677J, ata Cotors paid the $ord Cotor Company M6.> billion for E...& based automakers *and Hover and ,aguar. ,aguar-s new owners face challenges of their own. (ome have criticized the ac%uisition on the grounds that the brands are not compatible with the low&cost cars, trucks, and commercial vehicles that have long been ata-s mainstays. 4. Assess $ord-s decision to introduce the N& ype to broaden ,aguar-s appeal from niche player to ma!or competitor in the luxury segment. 8n 6774, the long&awaited "baby ,aguar,# the M>7,777 N& ype compact sport sedan, was unveiled. Company executives hoped to attract a new generation of drivers and capture a significant share of the entry level luxury market dominated by the ;C+ >&series and the Cercedes C&Class. he N& ype was built on the same platform as the $ord Contour. ,aguar-s (&type represented the venerable automaker-s bid to become a mainstream luxury nameplate and double its Dorth American sales to J7,777 cars each year. 8n terms of styling, the M:2,777 (& ype recalls the classic ,aguar designs of the 4327s and 43B7s. +orldwide, ,aguar executives hoped to %uadruple sales from 27,777 units to 677,777 by 677>. Enfortunately, that goal proved to be unrealistic. he strategy used for the distribution of the N& ype was not the one that needed to be used for the distribution of luxury cars. $ord-s management used the strategy of low&cost and public availability for the car that was supposed to compete with exclusive and expensive cars. 8nvolvement of the general $ord strategy 0the one used for American cars1 to the distribution of the luxury cars could even worsen the public attitude toward ,aguars and make them less attractive for financially secure individuals, the potential buyers of the brand. 6. ata Cotors recently introduced the Dano, the world-s least expensive car. he Dano fits ataQs strategic goal of building a low&cost car for the 8ndian market. Can ata succeed in targeting both the very low end of the auto market as well as the high end@
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Oes, as long as ata Cotors understands the concepts of international marketing and producing products for niche markets and not try to "become everything to everyone#. >. Ao you think ,aguar and *and Hover will prosper under the ownership of ata Cotors@ ata Cotors must leverage its distribution system to allow it to use both the ,aguar and *and Hover networks around the world to even attempt at prosperity. *ikewise, ,aguar and *and Hover need to pursue the strategy of "tying# into the strengths of ata Cotors in 8ndia buy increasing their dealer network and capitalizing on the growing middle and upper middle class 8ndian population.

TEACHING TOOLS AND EBERCISES A))#t#%na, Ca!e!: "(amsung Electronic Co./ 'lobal Carketing =perations#. ,ohn A. Luelch; anna 9arrington/ ,-& 27:724. A$t#*#t#e!: (tudents should be preparing or presenting their Cultural&Economic Analysis and Carketing )lan for their country and product as outlined in Chapter 4. (tudents will find an example of company that has been R has altered its marketing and investment strategy0s1 to compete in the global market. (tudents will explain why the strategy is being changed. O&tAO'AC,a!! Rea)#n": ;amford, ,ames, Aavid Ernst, and Aavid '. $ubini. "*aunching a +orld&Class ,oint Ienture,# ,arvard -usiness .eview J6, no. 6 0$ebruary 677:1 pp. 34&477. De0ate/ he Cerits of the )eiretsu. Aivide the class into two teams. eam A/ he keiretsu violates anti&trust laws because it is anti&competitive. eam ;/ American companies should increase alliances patterned after the ,apanese keiretsu because of ,apanese success in the auto and electronics industries. Each team has 47 minutes to prepare, 2 minutes to present its arguments, and 2 minutes to refute the opposing team. SUGGESTED READINGS B%%k! ;leeke, ,oel, and Aavid Ernst. "ollaborating to "ompete. (omerset, Dew ,ersey/ ,ohn +iley G (ons, 4334.
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Contractor, $arok, and )eter *orange. "ooperative &trategies in +nternational -usiness. Cambridge, CA/ ;allinger, 43JF. A-Aveni, Hichard. ,ypercompetition. Dew Oork/ $ree )ress, 433:. Aoz, Oves *., and 'ary 9amel. /lliance /dvantage0 The /rt of "reating *alue Through 1artnering. Cambridge/ 9arvard ;usiness (chool )ress, 433J. Aoorley, homas *. 888. Teaming 2p for the 345s0 / 'uide to +nternational 6oint *entures and &trategic /lliances. Dew Oork/ ;usiness =ne 8rwin, 4334. 9arbison, ,ohn H. and )eter )ekar. &mart /lliances0 / 1ractical 'uide to .epeatable &uccess. (an $rancisco/ ,ossey&;ass, 433J. Ciyashita .enichi, and Aavid Hussell. )eiretsu0 +nside the ,idden 6apanese "onglomerates. Dew Oork/ Cc'raw&9ill, 433B. =ster, (haron. %odern "ompetitive /nalysis. Dew Oork/ =xford Eniversity )ress, 4337. )restowitz, Clyde I. ,r. Trading 1laces0 ,ow $e /re 'iving (ur 7uture to 6apan and ,ow to .eclaim +t. Dew Oork/ ;asic ;ooks, 43J3. Hoot, $ranklin H. Entry &trategies for +nternational %arkets. Dew Oork/ *exington ;ooks, 433:. Hugman, Alan. The End of 'lobali!ation. Dew Oork/ Amacom, 6774. Ooshino, Cichael O., and E. (rinivasa Hangan. &trategic /lliances0 /n Entrepreneurial /pproach to 'lobali!ation. ;oston/ 9arvard ;usiness (chool )ress, 4332. Art#$,e! Agarwal, (an!eev. "(ocio&Cultural Aistance and the Choice of ,oint Ienture/ A Contingency )erspective.# 6ournal of +nternational %arketing 6, no. 6 0433:1, pp. B>&J7. ;eamish, )aul +. " he Characteristics of ,oint Ientures in the )eople-s Hepublic of China.# 6ournal of +nternational %arketing 4, no. 6 0433>1, pp.63&:J. Chang, (ea&,in and )hilip C. Hosenzweig. " he Choice of Entry Code in $oreign Airect 8nvestment.# &trategic %anagement 6ournal 66, no. J 0August 67741, pp. F::F&FFB, $ey, Carl $., and )aul +. ;eamish. "(trategies for Canaging Hussian 8nternational ,oint Ienture Conflict.# European %anagement 6ournal 4F, no. 4 0$ebruary 43331, pp. 33& 47B.

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.im, +. Chan and )eter 9wang. "'lobal (trategy and Cultinationals- Entry Code Choice.# 6ournal of +nternational -usiness &tudies 6>, no. 4 043361, pp. 63&2:. *amming, Hichard. ",apanese (upply Chain Helationships in Hecession.# 8ong .ange 1lanning >>, no. B 0Aecember 67771, pp. F2F&FFJ. *in, Niaohua, and Hichard 'ermain. "(ustaining (atisfactory ,oint Ienture Helationships/ he Hole of Conflict Hesolution (trategy.# 6ournal of +nternational -usiness &tudies 63, no. 4 0433J1, pp. 4F3&43B. CcAougall, )atricia. "Dew Ienture (trategies/ An Empirical 8dentification of Eight TArchetypes- of Competitive (trategies for Entry.# &trategic %anagement 6ournal 44, no. B 0=ctober 43371, pp. ::F&:BF. Dair, A!it (., and Edwin H. (tafford. "(trategic alliances in China/ Degotiating the ;arriers.# 8ong .ange 1lanning >4, no. 4 0$ebruary 433J1, pp. 4>3&4:B. Heuer, ,effrey. " he Aynamics and Effectiveness of 8nternational ,oint Ientures.# European %anagement 6ournal 4B, no. 6 0April 433J1, pp. 4B7&4BJ. (argent, ,ohn. "'etting to .now the Deighbors/ 'rupos in Cexico.# -usiness ,ori!ons 0Dovember&Aecember 67741, pp.4B&6:. (hama, Avraham. "Entry (trategies of E.(. firms to the Dewly 8ndependent (tates, ;altic (tates, and Eastern European Countries.# "alifornia %anagement .eview >F 0(pring 43321 pp. 37&473. (teensma, 9. .evin, and Car!orie A. *yles. "Explaining 8,I (urvival in a ransitional Economy hrough (ocial Exchange and .nowledge&based )erspectives.# &trategic %anagement 6ournal 64, no. J 0August 67771, pp. J>4&J24. Oavas, Egur, Aogan Eroglu, and (evgin Eroglu. "(ources and Canagement of Conflict/ he Case of (audi&E.(. ,oint Ientures.# 6ournal of +nternational %arketing 6, no. > 0433:1, pp. B4&J6.

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