Chapter 15: Entry Strategy and Strategic Alliance
1. Exporting means “producing goods in one country
Three basic decisions that a firm contemplating foreign
expansion must make:
 Which markets to enter
 When to enter those markets
 On what scale
Which foreign markets?
Long run benefits of doing business in a country
depends on following factors: Size of market, the
present wealth of consumer markets, and nature of
competition.
Timing of Entry
First-mover advantage- the benefits when firms enter
early in the foreign markets:
The ability to prevent rivals and capture demand by
establishing a strong brand name, ability to build sales
volume in that country, ability to create customer
relationship.
Disadvantages:
Firm has to devote effort, time and expense to learning
the rules of the country.
Risk is high for business failure
Scale of Entry and Strategic Commitments
The consequences of entering a market on a significant
scale are associated with the value of the resulting
strategic commitments.
Small-scale entry has the advantage of allowing a firm
to learn about a foreign market while simultaneously
limiting the firm’s exposure to that market.
ENTRY MODES
and selling them in another country”.
2. Turnkey Projects- contractor agrees to handle every
detail of the project for a foreign client, including the
training of operating personnel.
3. Licensing- It is an agreement whereby a licensor
grants the rights to intangible property to another
entity for a specified time period, and in return the
licensor receives a royalty fee from the license.
4 .Franchising- it is a business strategy for getting and
keeping customers.
5 .Joint Venture- it is the establishment of a firm that is
jointly owned by two or more otherwise independent
firms.
6. Wholly Owned Subsidiaries- the firm owns 100
percent of the stock.
Core Competencies and Entry Mode
The optimal entry mode for firms depends to some
degree on the nature of their core competencies.
A distinction can be drawn between firms whose core
competency is in technological know-how and those in
management know-how.
Technological Know-how- to profit from a core
competency in technological know-how, firm will do so
through a wholly owned subsidiary.
Licensing and joint-venture arrangements should be
avoided to minimize the risk of losing control over that
technology.
Management Know-How

The competitive advantage of many service firms is

based on management know-how

PRESSURES FOR COST REDUCTIONS AND ENTRY MODE

The greater the pressures for cost reductions are, the

more likely a firm will want to pursue some combination
of exporting and wholly owned subsidiaries.

GREENFIELD VENTURE OR ACQUISITION?

Pros of Acquisitions

First, they are quick to execute

Second, in many cases firms make acquisitions to

preempt their competitors

Third, managers may believe acquisitions to be less risky

than Greenfield venture

Cons of Acquisitions

First, the acquiring firms often overpay for the assets of

the acquired firm

Second, there is a clash between the cultures of the

acquiring and acquired firms

Third, attempts to realize synergies by integrating the

operations of the acquired and acquiring entities often
run into roadblocks and take much longer than forecast

Finally, there is inadequate pre-acquisition screening.

STRATEGIC ALLIANCES- refer to cooperative agreements

between potential or actual competitors

Managing the Alliance

Involve building trust between partners and learning

from partners