Different entry modes:
Acquisition (brownfield) Greenfield Exporting (not really an entry mode) Licensing/Franchising Joint Venture Service contract Management Agreements
When to use exporting? pros and cons
Positives:
- keep control over quality
- cheaper than setting up operation abroad
negatives:
- high trade costs (transport, tariffs)
- lack of knowledge of local consumer tastes
ex: chanel, belgian chocolate, harley davidson
Used for global strategy companies
When?
Use when the trade costs are low, and low need to adapt to local market
Brownfield: when and pros and cons
Used when:
- the foreign market is developed (less room for us to enter),
- there is a real strategic fit between the two firms (culture wise).
- strong financial resources and ability to manage the new company
We buy a supermarket chain in the new market,
- we gain local knowledge and access existing base suppliers and relationships.
- we use existing business practices in new market
negatives,
- may encounter clash of cultural and social issues,
- local workers may lose motivation when being controlled by the MNC
- Expensive to acquire new chain
- May require deep reconstructing and massive integration in a short time to adapt
Greenfield, when, pros and cons
Used when:
- we have knowledge of new market
- we have string brand awareness ( so customers in the new market will already know us)
- strong financial resources and operational ability
pros:
- we maintain direct control of operation, apply our own policies and processes
- no integration problems
cons:
- high risk
- costly
- if we underestimate the new market it can lead to long delays and costly mistakes
Licensing and franchising, when, pros and cons
When:
- there is strong copyright protection
- local knowledge is important (work with local partners)
- we need to adapt product/service to local conditions (and local franchises will know how to do it better)
pros:
- can be cheap as no direct investment in country is required
- high returns with little input
- takes advantage of local knowledge
Cons:
- more beneficial to the local franchise than the large
- risk of creating new competitors as we are “selling knowledge”
- risk of damaging brand image
Joint Venture (with a local company)
When: large gains are expected from both sides each has something of similar value to offer trade secrets can be protected cultural differences are not too high
pros:
- gain partners local knowledge
- maintain significant control
- increase economies of scale by expanding distribution
cons:
- conflict over investment level and ownership of outputs
- Mixed incentives
- problems of ending the relationship
Service contracts, when and pros and cons
When:
product is mass marketed
Suitable quality local partners are available
pros:
- cheap as little direct investment in country is required
- enables us to expand out service
cons
- requires high training investments for new partners and supervision
- brand can face reputational risk of local partners don’t comply with company standards
Management agreements with local company
When:
need to grow product offering
local company has a good and strong
systems and cultures are compatible
pros:
easy access to local resources,
low cost
maintain strategic control
cons:
- you don’t really know service abilities of local operation, incentive levels which can affect reputation
management agreements for LOCAL company
when to use:
- when you need more customers
- when you can work well with global competencies
Pros
gives them access to global resources, maintain operational control
cons:
- problems with reputation and quality in the global operation
Waterfall strategy
a product it launched in one country at a time, and new markets are entered only certain targets are reached in the previous market
well suited for risk-averse companies with little international experience and want to preserve their resources
waterfall is useful if there are important difference between exisitng markets and proposed new market (needs high local adaption)
works best for multinational strategy
Sprinkler strategy
Enter as many countries as possible as quickly as possible
best for when you are dealing with a lot of competition in the domestic market or a high degree of globalization in the industry
high risk, but one can capture a large market share if successful
often used in industries with short production or technological life (mobiles, computers, etc)
best for global strategy
