Beruflich Dokumente
Kultur Dokumente
Modes of Entry
Ownership
Relatedness
Host Country
New Entity
MNE
Partial Acquisition (e.g., 50%) Ownership = s%
Local Firm
Ownership = (1 - s)%
Joint Venture
Entry Decision Making Under Uncertainty: Trade-off Between Flexibility and Commitment
Potential gain from waiting Cost of delay Small scale: Establish a foothold to learn Large scale: Acquire first mover advantage
Scale of entry
Mode
Some modes have more flexibility embedded Some modes reduce resource requirements
Innovative Capabilities
Organization, Coordination & HRM What additional resources may the MNE need to enter a foreign market? Local expertise: marketing, government relations, etc.
Imitative Capabilities
Organization, Coordination & HRM What may the MNE desire from a local firm? Complementary resources Not necessarily strength in every area
Complementarity of Resources
MNEs Resources
Innovative capabilities Advanced technology and know-how Industry-specific marketing expertise Organization structure and systems
Imitating capabilities Older technology and know-how Country-specific marketing expertise Country specific organization skills
MNE
Customers
Export of Goods
Advantages Low initial investment Reach customers quickly Complete control over production Benefit of learning for future expansion
When Is Export Appropriate? Low trade barriers Home location has cost advantage Customization not crucial
Licensing Agreement
HOME COUNTRY HOST COUNTRY Licensing of Technology
MNE
Local Firm
Fees and Royalties
Licensing Agreement
Advantages Low initial investment Avoids trade barriers Potential for utilizing location economies Access to local knowledge Easier to respond to customer needs
When Is Licensing Appropriate? Well codified knowledge Strong property rights regime Location advantage
Foreign Acquisition
HOME COUNTRY HOST COUNTRY
Investment
MNE
Profit
Local Firm
Foreign Acquisition
Advantages Access to targets local knowledge Control over foreign operations Control over own technology
Disadvantages Uncertainty about targets value Difficulty in absorbing acquired assets Infeasible if local market for corporate control is underdeveloped
When Is Acquisition Appropriate? Developed market for corporate control Acquirer has high absorptive capacity High synergy
MNE
Profit
Investment
Advantages Normally feasible Avoids risk of overpayment Avoids problem of integration Still retains full control
Disadvantages Slower startup Requires knowledge of foreign management High risk and high commitment
When Is Green Field Entry Appropriate? Lack of proper acquisition target In-house local expertise Embedded competitive advantage
Management Contract
HOME COUNTRY HOST COUNTRY Management Fees
MNE
Profit
Local Firm
Managerial Service
Technological Inputs
Wholly-Owned Subsidiary
Management Contract
Advantages Access to local management skills Avoids buying unwanted assets Retains strategic control
Joint Venture
HOME COUNTRY HOST COUNTRY
MNE
Inputs
Local Firm
Inputs
Share of Profit
Joint Venture
Advantages Access to partners 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
When Is a Joint Venture Appropriate? Both partners contribute hard-to-measure inputs Large expected mutual gains in the long-run Trade secrets can be walled off
Licensing
Acquisition
MNE
Export Joint Venturing Green Field Entry
Local Firm
Joint Venture Company New Subsidiary Company
Turnkey Project
Contract under which a firm agrees to fully design, construct and equip a manufacturing/ business/services facility and turn the project over to the purchase when it is ready for operation Generally used in big infrastructure developments like Airports, oil refineries, Nuclear power plants, etc.
Kumar & Subramaniam (1997) A Contingency Framework for the Mode of Entry Decision
Modes of entry
Exporting Contractual Agreeme nt Risk Return Control Integration Low Low Moderate Negligible Low Low Low Negligible Joint Venture Moderate Moderate Moderate Low Acquisition Greenfield Investm ent High High High High