M.B.A.

– 1
TRIMESTER - II
GROUP – 7
Project 1

ENTRY STATEGIES OF MARKET

Submitted to:

Prof. Sonu gupta

DATE: 23/1/2009.
Friday

Submitted by:-

Gurjar pankaj(34)
Jadav Akshay(38)
Kharpate swapnil(47)
Modi Dhara(59)

ENTRY SRATEGIES OF MARKET 1

 Index
S.R.No. Contents Page
n
o
.

1 Acknowledgement 03

2 Preface 04

3 Foreign market analysis 05

4 Modes of entry 06

5
07

6 Working capital 08

7 Investing 09

8 Finance 11

9 Dividend 13

10. Suggestions 15

11` Conclusions 16

ENTRY SRATEGIES OF MARKET 2

International market provides a wide range of opportunities
compared to the domestic market, But global business is
inherently more risky than domestic business. However , the firm
prefers to go international, if the perceived benefit outweigh the
anticipated risks. Companies going global would like ti gain from
the perceived benefits and minimize the risks or threats to which
they are exposed. Firms going overseas can be both reactive and
proactive to the environment.

FOREIGN MARKET ANALYSIS

International business firms, have the fundamental

goals of expanding market share,sales revenue and
increase in profit. Expanding markets in overseas
countries is one of the strategies to achieve these
fundamental goals. The firms have alternative foreign
markets to enter .in order to achieve these goals
successfully, the firms have to (1)analyze alternative
foreign markets (2)evaluate the respective costs,
benefits and risks and select the foreign market that
hold the most potential for entry.

(1) Analyze Alternatives Foreign Markets

The firm has to analyze the alternative foreign markets by the

following factors into consideration:

Current and potential size of the alternative market.

Level of competition the firm will face in each of these
alternative markets .
Legal and political environments.
Socio-cultural environment.

Market potential :

ENTRY SRATEGIES OF MARKET 3

 The firm has to assess the market potential based on the
following factors:

Size of the population of the country/market

GDP of the country and per capita GDP.
Urban areas
Purchasing power

The concentration of the population in urban areas with high

purchasing power provides marketing opportunities for the
consumer durable like automobiles, washing machines,
refrigerators, vacuum cleaning machines etc.
Contrary to this , the spread of the population I rural areas with low
purchasing power provides marketing opportunities for low cost
consumer goods, farm equipment etc.
Companies producing high quality and high price goods find richer
markets like Taiwan rather than peoples’ republic of china due to
high per capita income. In contrast companies producing low
quality and low priced goods find poorer markets like peoples’
republic of India quite attractive.
Companies have to collect relevant data specific to the product.For
example , a tire manufacturing company, seeking to export tires
should collect the data like transportation infrastructure, alternative
modes of transportation , petro prices , increase in vehicle
ownership, production of vehicles in the prospective foreign
markets. Sometimes the companies use the proxy data for example,
whirlpool used the data of other household appliances while
deciding to introduce dishwasher in south Korean market.
Companies should also use data regarding prospects for growth of
the market. Based on such data , Procter & Gamble and Unilever
entered central and eastern European counties immediately after
the collapse of communism in these countries. These firms
established production facilities, distribution channel etc. in these
countries in order to get first mover advantages.

ENTRY SRATEGIES OF MARKET 4

 Level of Competition:

The companies must consider both present and likely future levels
of competition while selecting the foreign markets. The company
should consider:

Number of size of existing firms in the market.

Relative strength and weaknesses of the existing firms.
Product, price and distribution strategies of these companies
Actual market condition s.

For example
Honda could offer superior quality car at low cost during1970s
owing to manufacture of poor quality cars by General motors, Ford
and Chrysler in USA . however ,Japanese cars could successfully
enter us market due to their cost, convenience and product
design .At present, the level of competition is less for
telecommunication industry in most of the liberalized economies.

Legal and Political Environment:

The companies planning to enter global market should know

the trade policies, general legal and political environment of the
foreign markets. Company may establish manufacturing facilities
in foreign countries rather than exporting owing to high tariffs and
restriction in foreign countries .
In order to avoid high tariffs, General motors,Ford,Audi and
Mercedes-benz have established manufacturing facilities, i.e., auto
factories in brazil. They also export from brazil to other nearby
countries.

Another factor is that some of the countries impose a legal

condition that the foreign companies can enter the country only by
operating as a joint-venture with a local company

ENTRY SRATEGIES OF MARKET 5

For example :Eritrea – a newly born Africa countries imposed this
condition.
If we see the tax policies of various countries, some countries
impose high tax rates in case of foreign companies, while others
provide incentives.

France offered economic incentives of Toyota. Hence , Toyota

located its $668 million assembly plant in Northern France. This
plant provided employment to 2000 persons. The state of
Alabama,USA provided incentives worth of $253 million to
Mercedes-benz and the latter established its factory in Tuscaloosa.
Companies should asses the legal and political environment
carefully. Russia’s political factor creates risk while the economic
factors provide tremendous opportunities. Mars entered the market
carefully through low cost facilities.

Socio-cultural Influences:

Companies must also consider socio-cultural factors carefully

while deciding to go abroad. For example, Americans are are
interested in function of a product rather than its design and as
much they are more willing to pay more for new technology than
for interesting appearance.

Companies often focus their initial internationalization efforts in

countries culturally similar to their domestic markets in order to
minimize the sociocultural risks.

(2) Assessing costs, Benefits and Risks

The next step in entering foreign market is the
assessment costs, benefits and risk associated with
carrying out business in a particular country.
Cost:

ENTRY SRATEGIES OF MARKET 6

Companies have to consider direct costs and
opportunity costs. Direct costs are those which the
company incur in entering and setting up of operations
in the global market. Opportunity cost are the profits
that the company would have earned by entering the
alternative market.
Benefits:
Benefits are the opportunities that the company get by
entering a foreign market . these benefits include;
High sale, profit
Lower-acquisition and manufacturing costs
Foreclosing of markets to competitors
Competitive advantage
Access to new and other resources in the host
country
Opportunity to achieve synergy (synergy means
the action of two or more substances or organizations-
corporations-to achieve an effect of which each is
individually incapable.)
Risks:
The risks in entering a new market include:
Exchange rate fluctuations
Operation complexity
Direct financial losses due ti misassessment of
market potential
Government seizure of property.

ENTRY SRATEGIES OF MARKET 7

 For example, recently Zimbabwe nationalized the
property of foreign firm.

Size and sales Assessing new market opportunities

Topic of Appraisal items to be considered
Product market dimensions How big is the
product market in team in terms
of unit size and sales volume?
Major product market differenceswhat are the major differences
relative to the firm’s experience
elsewhere in terms of customer
profiles,pricelevels,national
purchase patterns and product
technology?
How will these differences affect the transferability of the
firm’s capabilities to the new
business environment and their
effectiveness?
Structural characteristics of
national product market what links and association exist
between potential customers and
established national competitors
currently supplying these
customers?
Competitor analysis what are major competitor
characteristics(size, capacity
utilization,strenghs and
weaknesses, technology ,supply
sources, preferential market

ENTRY SRATEGIES OF MARKET 8

 arrangements, and relations with
the government)?
Potential target market what are the characteristics of
major product market segments?
Which segment are potential target upon entry?
What changes have occurred in total size of product market?
Relevant trends(historic and Projected) what changes have occurred
in competitor
performance(marketshare,sales,a
ndprofit)?
What is the nature of competition (e.g,.national or
international)?

Explanation of changes why are some firms gaining and

others losing?
Are foreign firms already operating hare gaining or losing?
What is future outlook?
Success factors what are the key factors behind
success in this business
environment, the pressure points
that can shift market share from
one to another
How are these different from those we have experienced in
other countries?
How do these success factor relate to out firm?

ENTRY SRATEGIES OF MARKET 9

Strategic option what elements emerge from the
above analysis that point to
possible strategies for this
country?
What additional information is required to identify our option
more precisely?

Proactive reasons for international business

Advantage/opportunities Explanation of action

Additional resources various inputs,

including natural resources ,
technologies, skilled
perdonnel,and materiaks may be
obtained more readily outside the
home country.
Lower costs various costs, including labor,
material, transport and financing
may be lower outside the home
country.
Incentives various incentives may be
available from the host
government to encourage foreign
investment in specific locations.

ENTRY SRATEGIES OF MARKET 10

New expanded markets New and different markets may
be available outside the home
country.
Exploitation of firm’s specific strength technologies, brand
and recognized name are
advantage that can provided
opportunities in foreign market.
Taxes differing corporate tax rate and
tax system in different location
provide opportunities for
companies o maximize their after
ax world wide profits.
Economies of scale national markets may be too
small to support efficient
production. while sales from
several , combined ,allow for
larger scale production.
Synergy operation in more than one
national environment provide
opportunities to combine benefits
from one location with another
which is impossible without both
of them.

Reactive reasons for expanding business internationally

ENTRY SRATEGIES OF MARKET 11

Outside occurrence explanation of reaction
Trade business restrictive
trade practices, can make exports
to foreign markets less attractive,
local operations in foreign
locations ,thus become more
attractive.
International customer International customer
International competition if a
company’s competitors become
international and the company
wants to remain competitive,
foreign operations may be
necessary.
Regulations regulations and restrictions
imposed by the home
government may increase the
cost of operating at home, it may
be possible to avoid these by
establishing foreign operations
Chance unexpected events can prompt a company to enter
foreign locations.

Different modes of Entry In the foreign

Market

ENTRY SRATEGIES OF MARKET 12

1.Exporting
2.Licensing
3.Franchising
4. Special Modess

5.FDI without Alliances

6.FDI with Alliances

Types of Exports

Exporting

Indirect Direct Exporting Intracorporate

Exporting Transfers

• Exporting: exporting is the simplest and

widely used mode of entering foreign
markets.

Indirect exports

ENTRY SRATEGIES OF MARKET 13

• Indirect exporting is exporting the
products either in their original form or
in the modified form to a foreign country
through domestic company.
• For e.g.: The Himalayan Publishing

House sells the products of UBS

publishers in India and also exports
them.
Advantages
• Less complicated and less expensive
than direct exporting methods
• Quickly provide access and wide
coverage of foreign markets

Disadvantages
• Little or no control over foreign market
decisions
• Lower profit margins
• Little experience/knowledge/foreign

contacts gained
• Often involves an unsolicited purchase

request from a foreign buy

Direct Exporting
ENTRY SRATEGIES OF MARKET 14
 • The exporting is selling the products in a
foreign country directly through its
distribution arrangements or through a host
country’s company.
• For e.g. :The Baskin Robbins initially
exported the ice-cream to Russia and later it
opened its out-let

Types of Direct Exporting

• Agents
– Cheaper
– Lower risk
– Quicker
• Distributors
– Larger cost – exclusivity
– Long term relationship
– More specialised
Management Contracts
– Internationalisation of Services
– System installation and training

ENTRY SRATEGIES OF MARKET 15

Franchising
– Less risky – more favourable laws
– Less costly – significant investment in
training needed
– More control
– Transfer of skills, knowledge,
competences and systems
– Standardisation v/s adaptation

• Direct Marketing
– Database Marketing Tools
• telemarketing, media marketing,
direct mail and the internet
– Transferability across boundaries
– Customisation is essential for success

ENTRY SRATEGIES OF MARKET 16

 Intracorporate Transfers
• The selling of products by a company to its
affiliated company in host country or
another.
• For e.g. : Maruti Suzuki exporting cars to
Japan, Jaguar and Land rover models
exported to India.

Factors to be considered
• Govt. policies like export and import
policies, export financing, foreign exchange
etc.
• Marketing factors like image, distribution
networks, responsiveness to the customer,
customer awareness and customer
preferences
• Logistical consideration: These factors
include physical distribution costs,
warehousing costs, packaging, transporting,
inventory carrying costs etc.
• Distribution Issues: These include own
distribution networks, networks of host
country’s companies.
• Also other ways like countertrade,
piggybacking
ENTRY SRATEGIES OF MARKET 17
 Export Intermediaries
• Export management companies act as export
dept. of the exporting firm, the act as the
exporting agents
• Co-operative society: they undertake the
exporting activities for the small domestic
companies.
• International trading company
• Manufacturer’s export agents
• Export and Import Brokers
• Freight Forwarders
Export Tasks
• Transportation
– Negotiation
– Coordination between modes and
shippers
• Export licenses and permissions
• Customs clearing
• Warehousing
• Financing
• Quotes
• Point of transfer (FOB)
• Credit
• Risk assessment/letters of credit

ENTRY SRATEGIES OF MARKET 18

• Exchange rate risk
Export Problems
• Price escalation
• Dumping regulations
• Finding local distribution
– Screening
– Negotiation
• After sales support
• Imitation by importer/failure to learn local
market
Graphical representation
Foreign Market Entry Strategies

ENTRY SRATEGIES OF MARKET 19

 Direct ExportingManufacturing
Own Subsidiary
Cooperative Distributors Acquisition
Strategies Agents Assembly
Joint Direct
C
O
Indirect Ventur Marketing
Exporting Franchising
N
Piggybacking
es
T
Strategic Management
R Trading
O Companies Allianc Contracts
L Export es
Managemen
t Companies
Domestic
Purchasing

RISK

Risk

Exporting

• Advantages:
Need for limited finance: selection of a host
company, use of the logistics and the
distribution channels
Less Risk: Enough time to learn the culture,
customer and the market of host country,
and can enter later in full-fledged way.

• Disadvantages:

ENTRY SRATEGIES OF MARKET 20

1) Vulnerable to tariffs and NTB’s
2) Logistical complexities
3) Potential conflicts with distributors

Licensing
• International Licensing
• Is the mode in which domestic manufacturer
leases the right to use its intellectual
property,
• Like technology, working patterns, copy
rights, brand names, trade marks etc for a
fee.
• The manufacturer in domestic country is
called a ‘licensor’ and those in foreign
country is called a ‘licensee’

ENTRY SRATEGIES OF MARKET 21

 Basic Issues In International Licensing

• Boundaries of the agreements: The

companies should clearly define the
boundaries of agreements. The privileges
and rights are to be specified.
• Pepsi-cola granted license to Heineken of
Netherlands for producing and selling cola
in Netherlands.
• Under the condition : Heineken should not
export pepsi-cola to any other country
• Pepsi will supply concentrated cola syrup
and the other company will add carbonated
water to produce beverage
• Pepsi can grant license to other companies in
the same state to produce other products of
Pepsi like Potato chips.
• Determination of Royalty: Is necessary for

implementing contract more successfully.

• Determining Rights, Privileges and

Constraints:
• Disputes settlement Mechanisms
• Agreement Duration

Advantages
ENTRY SRATEGIES OF MARKET 22
• Licensing mode carries relatively low
investment on the part of licensor
• Licensing mode carries low financial risk to
the licensor.
• Licensor can investigate the foreign market
without much efforts n his part
• Licensee escapes himself from the failure of
the product

Disadvantages

• Licensing agreements reduce the market

opportunities for both the parties
• Both the parties have the responsibilities to
maintain the product quality and promoting
the product.
• Costly and tedious litigation may hurt both
parties
• The threat of leakage of the trade secrets of
the licensor.

ENTRY SRATEGIES OF MARKET 23

 • The licensee may develop his reputation

Franchising
Franchising is “a form of licensing (the franchiser) grants another
independent entity (the franchisee) the right to do business in a
prescribed manner.
 The franchisor can exercise more control over the franchised
compared to that in licensing.
 International franchising is growing at a fast rate
 Under this agreement the franchisee pays a fees to the
franchisor
 The franchisor provides the following services to the
franchisee:
1. Trade marks
2. Patents
3. Copyrights
4. Technology

ENTRY SRATEGIES OF MARKET 24

 5. Technical know-how
6. Marketing skill
7. Operating systems
8. Product reputations
9. Continuous support systems like advertising, employee
training, reservation services, quality assurance
programs etc.
Basics issues in franchising:
 The franchisor has been successful in his home country.
McDonald was successful in USA due to the popular menu
and fast and efficient services. The factors for the success of
McDonald are later transferred to other countries.
 The franchiser may have the experience in franchising in the
home country before going for international franchising.
 Foreign investors should come forward for introducing the
product on franchising basis.
Franchising agreements:
 Franchisee has to pay a fixed amount of royalty or fees based
on the sales to the franchisor.
 Franchisee should agree to follow the franchisor’s
requirement like appearance, financial reporting, operating
procedures, customer service etc.
 Franchisor helps the franchisee in establishing the
manufacturing facilities, services facilities, provides
expertise, advertising, corporate image etc.
 Franchisor allows the franchisee some degree of flexibility
in order to meet the local tastes and preferences.
For example McDonald in Germany sells beer also and
McDonald in France sells wine also
 Franchising is more popular in USA
 Fast food companies like McDonald, dairy queen,
Domino’s pizza hut have franchised restaurants
worldwide.

ENTRY SRATEGIES OF MARKET 25

Advantages:
1. Franchisors can never global markets with low investment
and low risks.
2. Franchisor can get the information regarding the markets.
Culture, customs and environments of the host country.
3. Franchisor learns more lessons from the experiences of the
franchisees, which he could not experience from the home
country’s markets.
4. Franchisee can early start a business with low risk as he
selects an established and proven product and operating
system.
5. Franchise gets the benefits of R & D with low cost.
6. Franchisee escapes form the risk of product failure.

Disadvantages:
1. International franchising may be more complicated than
domestic franchising.
2. It is difficult to control the international franchisee.
3. Franchising agents reduce the market opportunities for both
the franchisor and franchisee.
4. Both the parties have the responsibilities to maintain product
quality and product promotion.
5. There is scope for misunderstanding between the parties.
6. There is a problem of leakage of trade secretes.

Special Modes
Contract Manufacturing

ENTRY SRATEGIES OF MARKET 26

 Under contract manufacturing, a company doing international
marketing enters into contracts with firms in foreign countries
to manufacture the products while retailing the responsibility
of marketing the product. This is a common practice in
international business. The practice is called contract
manufacturing.
 There are a number of multinationals which employee this
strategy in India for some of the products they markets
example Hindustan lever, ponds etc.
For example: Bata has contracted with a number cobbler in
India to produce its footwear and concentrate on marketing.

Advantages of contract manufacturing

1. The international company gets the location advantages
generated by the host country’s production.
2. If idle production capacity is readily available in the
foreign country it enables the marketer to get started
immediately.
3. The cost of product obtained by contract manufacturing is
lower than if it were manufactured by the international
firm. For example the product cost in the small scale sector
is much lower than in the large scale sector for many
products because of the lower wages, lower overheads and
tax concessions.
4. Small and medium industrial units in the host country can
also develop as most of the production activities take in
these units.
5. Contract manufacturing may enable the international firm
to enlist national support.

Disadvantages
1. In some cases, there will be the loss of potential profit from
manufacturing.
2. Less control over the manufacturing process.

ENTRY SRATEGIES OF MARKET 27

 3. Host country’s companies may take up the marketing
activities also, hindering the interest of the international
company.
4. The poor working countries in the host country’s companies
affect the company image

Management contracting

• A flat fee or
• Percentage over sales and
• Performance bonus based on profitability, sales growth,
production or quality measures.

Advantages:
1. Foreign company earns additional income without any
additional investments, risks and obligations.
2. This additional income allows the company to enhance its
image in the investors and mobilize the funds for expansion.
3. Management contract helps the companies to enter other
business area in the last country.
4. The companies can act as dealer for the business of the host
country’s business in the home country.

Disadvantages:
1. The host country’s companies may leak the secrets of
technology.
2. Sometimes the companies allow the companies in the host
countries in the host country even to use their trade marks
and brand name. The host country’s companies spoil the
brand name, if they do not keep up the quality of product
service.

ENTRY SRATEGIES OF MARKET 28

 TURNKEY PROJECT
• HISTORY
Indonesian Government during 1974 invited global tenders
for construction of a sugar factory in the country. Indonesia
Government received the tenders from the companies of USA,
UK, France, Germany and Japan. One of the Japanese company
quoted highest price compared to all other companies.
Indonesian Government studies the quotation of this Japanese
company. This quotation includes the following item:
development of the fields for growing sugarcane,
development of seedling, construction of sugar factory, roads,
communication, power, water etc., connecting the factory, train
the local people, development of the distribution channels in
Indonesia, production of by-products and their markets, plans
for the export of surplus sugar etc. It also made a provision for
the transfer of the factory along with the total package to the
Indonesian government and follow up the activities after it is
transferred to the Indonesian governments.
Indonesian governments were very much satisfied with the
total package and invited the Japanese company to implement he
project. The Japanese company and Indonesian governments
entered an agreement for the implantation of this project by the
Japanese company for a price. This project is called “turnkey
project.”
A turnkey project is a contract under which a firm agrees to
fully design, construct and equip a manufacturing facility and
turn the project over to the purchaser when it is ready for
operation for remuneration. The form of remuneration includes:
• A fixed price
• Payment on cost plus basis
This form of pricing allows the company to shift the risk of
inflation costs to the purchaser.

ENTRY SRATEGIES OF MARKET 29

 International turnkey projects include nuclear power plants,
air ports, oil refinery, national highways, railways lines etc.
hence they are huge large and multiyear projects. International
companies involves in such projects include: Bechtel, Brown
and Root, Hyundai group, kennengen, friedrich krupp gmb h.
etc.
The companies normally approach the host country’s
governments or international finance corporation, export-import
bank of USA and the like for financial assistance as the turnkey
projects require huge finances.
The recent approach of turnkey projects is build, operate and
transfer (B-O-T). The company builds the manufacturing /
services facility, operates it for some time and then transfers it to
the host country’s governments. In this approach, the
contractors will not be paid the remuneration.

ENTRY SRATEGIES OF MARKET 30

 FOREIGN DIRECT INVESTMENT
WITHOUT ALLIANCES

Some companies enter in the foreign markets through exporting,

licensing, franchising etc., get the knowledge and awareness of foreign
markets, culture of country, customer’s preference, political situation of
country etc., and then manufacturing facilities by ownership in the foreign
countries. In contrast, some other companies enter the foreign market
through ownership and control of assets in host countries.

Companies which enter the international markets through foreign

direct investment, invest their money , establish manufacturing and
marketing facilities through ownership and control.

Foreign firm needs a control the operation when:-

ENTRY SRATEGIES OF MARKET 31

• It has foreign firm’s need to control the operations when it has
subsidiaries to achieve strategic synergies.

• The technology, manufacturing expertise, intellectual property rights

have potentialities and their full utilization needs planned exploitation.

The US companies transferred their managerial expertise and

technological skills to their subsidiaries operating in UK and hence these
subsidiaries have become successful competitors to the UK companies.

ADVANTAGES OF FOREIGN DIRECT

INVESTMENT

• Mostly, the customer on host country prefer the products produced

in their country like ‘be American, buy American’. In such cases
FDI helps the company to gain market through this mode rather than
other modes.

• Purchase managers of most of the companies prefer to buy local

production in order to ensure certainty of supply, faster services,
quality dependability, and better communication with the suppliers.

• The company can produce based on the local environment and

changing preference of the customers.

ENTRY SRATEGIES OF MARKET 32

 DISADVANTAGES OF FOREIGN DIRECT
INVESTMENT

• FDI expose the company to the host country’s political, and

economical risk.

• FDI expose the company to the exchange rate fluctuation.

• Some countries discourage the entry of foreign companies though

FDI in order to protect the domestic industry.

• Changing government policies of the host country may create

uncertainty to the company.

ENTRY SRATEGIES OF MARKET 33

 • Host country government sometimes ban the acquisition of local
companies by foreign companies, impose restriction on repatriation
of dividends and capital. India has allowed 100% convertibility.

GREENFIELD STRATEGY

GREENFIELD STRATEGY is the mode of foreign direct

investment without alliances.

The term Greenfield refers to starting with a virgin green site and
then building on it. Thus, Greenfield strategy is starting of a company from
scratch in a foreign market. The company conducts the market survey, select
the location, buys or leases land, creates the new facilities, erect the
machinery, remits or transfer the human resources and starts the operations
and marketing activities. This strategy is followed by Fuji in locating its
manufacturing facilities in south corolina , by Marcedies Benz in locating
automobile assembly plant in ALABAMA and by Nissan in locating its
factory in Sunderland, England.

ENTRY SRATEGIES OF MARKET 34

 ADVANTAGES AND DISADVANTAGES OF
GREENFIELD STRATEGY

ADVANTAGES;-

• The company selects the best location from all viewpoint.

• The company can avail the incentives, rebates and concessions

offered y the host governments including local government.

• The company can have latest model of the buildings, machinery and
equipment technology.

• The company can have its own policies and styles of human
resources management.

• The company can have its gestation period to understand and adjust
to the new culture of the host country. Thus, it can avoid the cultural
shock.

DISADVANTAGES;-

• This strategy result in a longer gestation period as the successful

implementation takes times and patience.

ENTRY SRATEGIES OF MARKET 35

 • Some companies may not get the land in the location of his choice.

• The company has to follows the rules and regulation imposed by the
host country’s government in case of construction of the factory
buildings.

• Host county’s government may impose conditions that the company

should recruit local people and train them, if necessary, to meet the
company’s requirements.

FOREIGN DIRECT INVESTMENT

WITH STRATEGIC ALLIANCES

Innovation, creations, productivity, growth, expansions and

diversifications in the recent years, are mostly accomplished by the strategic
alliances adopted by various companies like mergers, acquisitions and joint
ventures.

Strategic alliance is co-operative and collaborative approach to

achieve the larger goals strategic alliance takes different forms like licensing,
contracts manufacturing, joint ventures etc. alliance is a strategy to explore a
new market which the company individually cannot do.

Two companies join hands in order to align their distinctive and

different strengths. Dunlop and Pirelli-=the two tyre making companies

ENTRY SRATEGIES OF MARKET 36

joined together in order to synergies the strength of marketing capabilities of
Dunlop and R & d capabilities of Pirelli.

BENEFITS OF STRATEGIC ALLIANCE

• Decreasing R&D Costs

• Shortening Product Life Cycles

• Decreasing Barriers to Market Entry

• Increasing Need for Global Scale Economies

• Expanding Importance of Global Standards

• Forms the basis of Building and Sustaining Competitive Advantage

in Industries undergoing major Transitions

KEY ISSUES IN MANAGING INTERNATIONAL

ALLIANCE

• Selecting Partners

– Knowing how to maximize benefits and minimize risks of

partnerships
– Complementary needs and asset

• Structuring Alliances

– Choosing organizational forms that provide incentives for

success
– Contracts vs. Equity Relationships

ENTRY SRATEGIES OF MARKET 37

 • Building Alliance Networks
– Creating a system of reinforcing alliances, and avoiding chaos
– Network Design: Is the whole greater than the sum of the parts?
– Who controls the network? & Where is competitive advantage
created?

• Alliance Dynamics

– Managing with an eye to the forces for change in a relationship

• Limits to Alliances

– Recognizing the constraints on collaborative strategies

– Organizational Constraints; Strategic Gridlock; Dependence

MODES OF FOREIGN DIRECT INVESTMENT

THROUGH ALLIANCE

There are two modes of FDI with alliance.

(1) MERGERS AND ACQUISITIONS.

(2) JOINT VENTURE.

MERGERS AND ACQUISITIONS

Domestic companies enter international business through mergers

and acquisitions. A domestic company select a foreign company and merges

ENTRY SRATEGIES OF MARKET 38

itself with the foreign company in order to enter international business it’s
call merger.

Alternatively , the domestic company may purchase the foreign

company and acquiring its ownership and control than its called acquisition.

Domestic business selects this mode of entering international

business as it provides immediate access to international manufacturing
facilities and marketing network. Otherwise, the domestic company faces
serious problems in gaining access to international market. For example coca
cola entered Indian market instantly by acquiring the Parle and its bottling
units.and the domestic company through this strategy of mergers and
acquisitions may get access to new technology or a patent right.

ADVANTAGES AND DISADVANTAGES OF

MERGERS AND ACQUISITIONS

ADVANTAGES;-

• Access to target’s local knowledge

• Control over foreign operations

• Control over own technology

• The company immediately gets the ownership and control over the
acquired firm’s factories, employees, technology, brand names and
distribution network.

ENTRY SRATEGIES OF MARKET 39

 • The company can formulate international strategy and generate more
revenue.

DISADVANTAGES;-

• Uncertainty about target’s value

• Difficulty in “absorbing” acquired assets

• Infeasible if local market for corporate control is underdeveloped

• This strategy adds no capacity to the industry

• Labour problems of the host country’s company are also transferred

to the acquired company.

India's Top Mergers and Acquisitions of 2007-08

ENTRY SRATEGIES OF MARKET 40

 May 9 - India's top mobile operator Bharti Airtel Ltd is in
exploratory talks to acquire 51 percent in South Africa's MTN Group at a
value of around US$19 billion, creating the world’s sixth-largest mobile
company with 130 million subscribers across 21 countries. If the deal does
go though, it would make it India's biggest foreign deal.

Reuters reported Tata Steel Ltd. last year engineered India's biggest
takeover to date, a US$13 billion purchase of Anglo-Dutch steelmaker
Corus Group Plc, which was more than double the size of the next biggest
deal, Hindalco Industries purchase of Canada's Novelis.

Dr. Reddy's Labs acquired Betapharm through a deal worth of $597

million. Ranbaxy Labs acquired Terapia SA. The deal amounted to $324
million. Suzlon Energy acquired Hansen Group through a deal of $565
million. The acquisition of Daewoo Electronics Corp. by Videocon
involved transaction of $729 million. HPCL acquired Kenya Petroleum
Refinery Ltd. The deal amounted to $500 million. VSNL acquired
Teleglobe through a deal of $239 million.

Indian firms have announced deals worth $6.8 billion so far in 2008,
down 39 percent from the same period last year.

Indian firms completed deals worth a record $31.4 billion in 2007.

The top deal so far this year is the US$2.3 billion pending acquisition of
Ford Motor Co's. Jaguar and Land Rover brands by Tata Motors Ltd.

JOINT VENTURE.

Two or more companies join together to create a new business entity

that is legally separate and distinct from its parents. Joint ventures are
established as corporation and owned by the funding partners in the
predetermined proportions. Joint venture involves shared ownership. Joint
ventures are common in international market. Various environmental factors
like social, technological, economic and political encourage the formation of
joint ventures.

ENTRY SRATEGIES OF MARKET 41

 Joint venture involves the local companies. This act improves the
local image in the host country and also satisfied the governmental
requirements regarding joint ventures. In fact, support of the host country’s
government is essential for the success of joint venture.

ADVANTAGES;-

• Access to partner’s local knowledge

• Reduction of concern about overpayment

• Both parties have some performance incentives

• Significant control over operation

DISADVANTAGES;-

• Potential loss of proprietary knowledge

• Potential conflicts between partners

• Neither partner has full performance incentive

• Neither partner has full control

MODES OF ENTRY ,RISK AND RETURN

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 Modes of entry

Exporting Contractual Joint Acquisition Greenfield

Agreement Venture Investment

Risk Low Low Moderate High High

Return Low Low Moderate High High

Control Moderate Low Moderate High High

Integration Negligible Negligible Low Moderate High

Referencces
1) Business Environment Text &Cases By Francis Cherunilam
2) www.icfai/papers.html
3) www.nwikipedia.com
4) www.finmin.gov.in
5) www.indiatimes.com
6) www.economictimes.com

ENTRY SRATEGIES OF MARKET 43

7) www.pagulguy/mbaforum/entry statagies in global market.pdf
8) www.economywatch

ENTRY SRATEGIES OF MARKET 44