Entry Strategies (With real world examples) | International Business | From A Business Professor

Summary

Dr. Yang explores six strategies for firms entering foreign markets: exporting, turnkey projects, licensing, franchising, joint ventures, and wholly-owned subsidiaries. Each method offers unique advantages and challenges, such as cost, control, and market adaptation. The video delves into real-world examples, like 3M's global manufacturing and McDonald's franchising, to illustrate these strategies' practical applications. Viewers are encouraged to consider resource commitment and desired control when choosing an entry mode.

Takeaways

• 🌐 Firms have six primary strategies to enter foreign markets: exporting, turnkey projects, licensing, franchising, joint ventures, and wholly owned subsidiaries.
• 📦 Exporting is a traditional method that involves selling and shipping goods to another country without needing local production facilities.
• 🏭 Turnkey projects are agreements where a contractor handles all aspects of a project, providing a complete operational plant to the client.
• 📜 Licensing involves granting rights to intangible property like patents or trademarks to a licensee in exchange for royalty fees.
• 🍔 Franchising is an extension of licensing but includes longer-term commitments and strict operational rules that the franchisee must follow.
• 🤝 Joint ventures are collaborative business arrangements where multiple parties pool resources to achieve specific business objectives.
• 🏢 Wholly owned subsidiaries allow a firm to have full control over its operations in a foreign market, either through greenfield investments or acquisitions.
• 💰 Exporting benefits from low costs as no foreign production facilities are required, and it can take advantage of favorable government policies like tax rebates.
• 🚧 Turnkey projects offer short-term revenue and less risk compared to traditional FDI, especially in politically unstable environments.
• 💡 Licensing provides income without overhead and can lead to better marketing through local firms' knowledge of their markets.
• 🔒 Franchising benefits from spreading costs and risks with the franchisee and can quickly establish a brand presence globally.
• 🌟 Joint ventures can leverage local partners' knowledge and reduce government intervention risks, providing market entry support.
• 💡 Wholly owned subsidiaries protect core technology and allow for tight control and global strategic coordination.
• 💸 Acquisitions can rapidly establish market presence and preempt competitors but may face challenges like overpayment and cultural clashes.
• 🏗️ Greenfield ventures offer the advantage of building operations from scratch according to the firm's vision but require significant capital and time.

Q & A

What are the six different modes for a firm to enter foreign markets discussed in the video?

The six modes are exporting, turnkey projects, licensing, franchising, establishing joint ventures with a host country firm, and setting up a new wholly owned subsidiary.

What are the three advantages of exporting as an entry strategy?

The advantages include low cost, high efficiency, and favorable government policies such as tax rebates and special loans.

How can exporting be expensive for a firm?

Exporting can be expensive if lower-cost manufacturing locations are available abroad, particularly when labor costs in the home country are high.

What are the benefits of using turnkey projects as an entry strategy?

Turnkey projects offer more revenue in the short term and less risk compared to conventional foreign direct investment, especially in countries with unstable political and economic environments.

What is the primary advantage of licensing as an entry mode?

Licensing allows a firm to generate income without taking on heavy overhead and production costs, essentially passing the burden onto the licensee while collecting royalties.

What are the potential risks associated with licensing agreements?

Risks include intellectual property theft, no guarantee of revenue, diminished reputation if the licensee conducts business unethically, and potential conflicts with licensees.

How does franchising differ from licensing?

Franchising involves longer-term commitments and requires the franchisee to abide by strict rules regarding business operations, unlike licensing which is a more general form of granting rights to intangible property.

What are the benefits of establishing a joint venture for entering a foreign market?

Joint ventures can provide local partner support, share risks and costs, and often face less government intervention, making them a feasible entry mode in many countries.

What are the disadvantages of joint ventures?

Disadvantages include the risk of losing core technology, not having total control over the venture, and potential clashes between partners over control, strategy, and goals.

What are the two ways a firm can establish a wholly owned subsidiary in a foreign market?

A firm can establish a wholly owned subsidiary through a greenfield venture, which involves building operations from the ground up, or by acquiring an established firm in the host nation.

What are the advantages of a greenfield venture over an acquisition?

Greenfield ventures allow a firm to build the kind of subsidiary it wants from scratch, which is easier for embedding organizational culture and routines, and can be preferable when transferring competencies and skills.

What are the potential challenges of acquisitions as an entry strategy?

Challenges include overpaying for the acquisition, cultural clashes between the acquiring and acquired firms, and underestimating the difficulties of integrating operations and realizing synergies.