INTERNATIONAL BUSINESS

ENTRY STRATEGIES

Prof Bharat Nadkarni

Business Entry Strategies

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Business Entry Strategy
1. Exporting
2. Licensing & Franchising
3. Contract Manufacturing
4. Management Contracts
5. Turnkey Contracts
6. Fully/ Partly owned manufacturing facilities
7. Assembly Operations
8. Third Country Locations
9. Counter Trade
10. Joint Venturing
11. Mergers & Acquisitions
12. Strategic Alliance

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Determinants of Business Entry Strategy

1. Cost of Logistics
2. Cost of Negotiation, Monitoring and Enforcement
3. Comparative Advantages of (Developing Nations)
a. Land
b. Minerals / Raw Materials/ Climatic conditions
c. Labour
d. Untapped Markets / Need in Markets
4. Comparative Advantage of (Developed Nations)
a. Capital
b. Technology
c. Technical know-how
d. Management expertise
e. Market expertise Segmentation, Niche etc

Strategies of Cooperation

Prof Bharat Nadkarni

Mergers & Acquisitions

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Mergers & Acquisitions

M & A involve the combination of two organisations.
The term merger refers to the integration of two previously
independent organisations into a completely new organisation;
Acquisition involves the purchase of one organisation by
another for integration into the acquiring organisation.
Organisations have a number of reasons for wanting to acquire
or merge with other firms, including horizontal
or vertical integration, diversification ; gaining access to global
markets, technology, or other resources; and achieving
operational efficiencies, improved innovation, or resource
sharing. As a result, M&A have become a preferred method for
rapid growth and strategic change.

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Types of Mergers & acquisitions

1. Horizontal mergers
ex. Tata Steel acquiring Corus, Bridgestone and Firestone
2. Verticle mergers Backward & Forward Engineering
ex. Tata Power acquiring Boomi coalmines and going for Retail in
Mumbai Suburbs.
3. Concentric mergers
ex. Footwear co merging with Hosiery co making socks.
4. Conglomerate mergers
ex. Reliance Textiles to petrochemicals or Mobile Telephony

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Domestic and Cross Border Mergers & acquisitions
M & A have been a very important market entry strategy as
well as expansion strategy. It may be noted that the major part
of the recent FDI has been driven by cross border M&As.
Between 1980 and 2000, the value of cross border M&As grew
at an average annual rate of over 40%. It continues to be a
powerful driver of international investment and globalisation.
Several industries, such as automobiles, pharmaceuticals,
banking, telecom, etc. have undergone a global restructuring
as a result of cross border M&As.
Advantages of M&As
1. Market entry
2. Possession of marketing infrastructure
3. Achieving economies of scale
4. Increasing the market power

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5. Diversification
6. Acquisition of technology
7. Use of surplus funds
8. Optimum utilization of resources and facilities
9. Product mix optimisation
10. Pre-emptive strategy (to block competitor from acquisition)
11. Horizontal or Vertical integration
12. Tax benefits
13. Logistical factors
14. Acquisition of brands
15. Minimisation of Risk
16. Regulatory factors
Ex. Asian Paints takeover of Singapore based Berger paints
entry to 11 countries incl China. Tata Steel Corus entry to
Europe and Latin America.

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Disadvantages of M&As
1. Indiscriminate acquisitions land several companies in financial
and other problems
2. When company is taken over, its problems are also often
inherited
3. If adequate homework was not done and the evaluation was not
right, the acquisition decision could be wrong.
4. Some of the units acquired would have problems such as old
plant, obsolete technology, surplus or demoralised labour
5. The company may not have the experience and expertise to
manage the unit taken over if it is in an entirely new field.

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Hostile takeovers
Where a takeover is resisted, or expected to be opposed, by
the existing management or professionals, follow a different
route. Here, the shares are picked up from open markets and
controlling interests obtained. With the tacit help of other
majority shareholders (usually one or more of the financial
institutions) , a bid is made to enter companys board and to
acquire control. Resistance is offered by the existing
management by refusing to register the transfer of shares, or
to forestall the moves by deals through court orders and
injunctions. It is believed that political support matters a lot in
the measure of success achieved in a bid to takeover a firm.
Arguments
That professionalism gets replaced by money power, that
takeovers do not create any real assets for the society and are
detrimental to the national economy, the interests of the
minority shareholders is not protected and avoidable stresses
and strains are created in the companies taken over or

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exposed to the threat of takeovers. Besides, takeovers reduce

competition and thereby facilitate monopolistic or oligopolistic
tendencies among firms, increase of price and job losses for
employees. Also, there could be difficulties in the cultural
integration of the merging firms and while dealing with the
hidden liabilities of the target firms.

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Joint Venture Strategies

A joint venture could be considered as an entity resulting from
a long term contractual agreement between two or more
parties, to undertake mutually beneficial economic activities,
exercise joint control and contribute equity and share in the
profits or losses of the entity.
The technical definition of Joint venture by the RBI is :
a foreign concern formed, registered or incorporated in
accordance with the laws and regulations of the host country in
which the Indian party makes a direct investment, whether
such investment amounts to a majority or minority
shareholding.

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Conditions for Joint ventures

Joint ventures may be useful to gain access to new business,
mainly under four conditions:

1. When an activity is uneconomical for an organisation to do alone.

2. When the risk of the business has to be shared and, therefore, is
reduced for the participating firms.

3. When the distinctive competence of two or more organisations

can be brought together.
4. When setting up an organisation requires surmounting hurdles
such as import quotas, tariffs, nationalistic-political interests and
cultural roadblocks.

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Triggers for Joint venture

Technology

Geography

Regulation

Sharing of risk and capital

Intellectual exchange

Benefits and drawbacks in Joint Ventures

Change of strategy by one partner

Regulatory changes
Success of Joint venture
Having partner, hampers growth
Lack of transparency

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Strategic alliances
Characteristics:
1. Two or more firms unite to pursue a set of agreed upon goals, but
remain independent subsequent to the formation of the alliance.
2. The partner firms share the benefits of the alliance and control
over the performance of assigned tasks perhaps the most
distinctive characteristic of alliances and the ones that makes
them so difficult to manage.
3. The partner firms contribute on a continuing basis, in one or more
key strategic areas, for example, technology, product and so
forth.

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Reasons for Strategic Alliances

Entering new markets

Reducing manufacturing costs

Developing and diffusing technology

Thank you