92.
Compare and contrast licensing agreements and franchising agreements.
A licensing agreement is an arrangement whereby a licensor grants the
rights to intangible property to another entity for a specified period in
exchange for royalties. In contrast, franchising is basically a specialized
form of licensing in which the franchiser not only sells intangible property to
the franchisee, but also insists that the franchisee agree to abide by strict
rules as to how it does business. Franchising tends to involve longer-term
commitments than licensing.
AACSB: Reflective Thinking
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
93.
Briefly explain the advantages and disadvantages of franchising
agreements.
There are several advantages of franchising as an entry mode. In particular,
the firm is relieved of many of the costs and risks of opening a foreign
market on its own. This creates a good incentive for the franchisee to build
a profitable operation as quickly as possible. However, franchising may
inhibit the firm’s ability to take profits out of one country to support
competitive attacks in another. Furthermore, quality control may become an
issue if a franchisee does not maintain an appropriate quality level.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
94.
What is a joint venture? What type of joint venture is most common?
Provide an example of a joint venture.
A joint venture involves establishing a firm that is jointly owned by two or
more otherwise independent firms.
The most typical joint venture is a 50/50 venture, in which there are two
parties, each of which holds a 50 percent ownership stake and contributes a
team of managers to share operating control.
Fuji-Xerox is an example of a joint venture that was established between
Fuji Photo and Xerox.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
95.
Discuss the advantages of using a joint venture to enter foreign markets.
There are several advantages to expanding into foreign markets via a joint
venture. First, firms benefit from a local partner’s knowledge of the host
market. Second, a firm can share the costs and/or risks of operating in a
foreign market. Third, in many countries, political considerations make joint
ventures the only feasible entry mode.
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
96.
Imagine that you are meeting with your superiors to discuss entering a
foreign market. Your boss has asked you to analyze a joint venture
prospect. Why might you tell your boss that the joint venture is not a good
idea?
There are major disadvantages with joint ventures. A firm that enters into a
joint venture risks giving control of its technology to its partner. In addition,
a joint venture does not give the firm the tight control over subsidiaries that
it might need in order to realize experience curve or location economies.
Finally, a joint venture might not be a good strategy because the shared
ownership structure can lead to conflicts and battles for control between
the investing firms if their goals and objectives change or if they do not
share a common vision for the venture.
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
97.
How can a firm protect its proprietary information in a joint venture
arrangement?
There are several things a firm can do to protect proprietary information in a
joint venture arrangement. One option is to hold majority ownership in the
venture so that the firm has greater control over the technology. A second
option is to “wall off” from a partner technology that is central to the core
competence of the firm, while sharing other technology.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
98.
What are the two methods of entering foreign marketing using a wholly
owned subsidiary?
Firms entering a foreign market via a wholly owned subsidiary, where the
firm owns 100 percent of the stock, can either make the investment in a
greenfield operation or in an acquisition. A greenfield operation involves the
establishment of a new operation, whereas an acquisition involves buying
an established firm in the host country and using that firm to promote the
company’s products.
Difficulty: 1 Easy
Learning Objective: 15-02 Compare and contrast the different modes that firms use to enter foreign markets.
Topic: Entry Modes
99.
Consider why a firm should enter a market via a wholly owned subsidiary.
What are the advantages and disadvantages of this type of strategy?
In a wholly owned subsidiary, the firm owns 100 percent of the stock.
Wholly owned subsidiaries can take two forms, a greenfield investment
which involves the establishment of a new company, or an acquisition.
Establishing a wholly owned subsidiary as an entry strategy into a foreign
market is appropriate when a firm’s competitive advantage is based on
technological competence. By establishing a wholly owned subsidiary, a
firm reduces the risk of losing control over that competence. In addition,
expanding via a wholly owned subsidiary gives a firm tight control over its
operations in various countries. This strategy maximizes a firm’s potential to
100.
Draw a distinction between firms based on their core competency.
The optimal choice of entry mode depends on the firm’s strategy. When
technological know-how constitutes a firm’s core competence, wholly
owned subsidiaries are preferred, since they best control technology. When
management know-how constitutes a firm’s core competence, foreign
franchises controlled by joint ventures seem to be optimal. When the firm is
pursuing a global standardization or transnational strategy, the need for
tight control over operations to realize location and experience curve
economies suggests wholly owned subsidiaries are the best entry mode.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-03 Identify the factors that influence a firm’s choice of entry mode.
Topic: Selecting an Entry Mode
101.
Why do acquisitions fail?
Acquisitions fail for several reasons. First, the acquiring firm often overpays
for the assets of the acquired firm. Second, many acquisitions fail because
there is a clash between the cultures of the acquired and the acquiring
firms. Third, many acquisitions fail because attempts to realize synergies by
integrating the operations of the acquired and acquiring entities often run
into roadblocks and take much longer than forecast. Finally, many
acquisitions fail due to inadequate pre-acquisition screening.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-04 Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Topic: Greenfield Venture or Acquisition?
102.
Discuss strategic alliances. How successful are they? Why do firms form
strategic alliances?
The term strategic alliance refers to cooperative agreements between
potential or actual competitors. Strategic alliances run the range from
formal joint ventures, in which two or more firms have equity stakes, to
short-term contractual arrangements, in which two companies agree to
cooperate on a particular task. Firms enter into strategic alliances for four
main reasons. First, strategic alliances may facilitate entry into a foreign
market. Second, strategic alliances allow firms to share the fixed costs of
developing new products or processes. Third, strategic alliances allow firms
to bring together complementary skills and assets that neither company
could easily develop on its own. Fourth, strategic alliances can help firms
establish technological standards for an industry.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 15-05 Evaluate the pros and cons of entering into strategic alliances.
Topic: Strategic Alliances
103.
Discuss the three primary characteristics of a good ally.
A good ally, or partner, has three characteristics. First, a good partner helps
the firm achieve its strategic goals, whether they are market access, sharing
the costs and risks of product development, or gaining access to critical
core competencies. The partner must have capabilities that the firm lacks
and that it values. Second, a good partner shares the firm’s vision for the
purpose of the alliance. If two firms approach an alliance with radically
different agendas, the chances are great that the relationship will not be
harmonious, will not flourish, and will end in divorce. Third, a good partner
is unlikely to try to opportunistically exploit the alliance for its own ends,
that is, to expropriate the firm’s technological know-how while giving away
little in return. In this respect, firms with reputations for “fair play” to
maintain probably make the best allies.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
104.
How can a firm increase the probability of selecting a good partner?
To increase the probability of selecting a good partner, the firm should:
1. Collect as much pertinent, publicly available information on potential
allies as possible.
2. Gather data from informed third parties. These include firms that have
had alliances with the potential partners, investment bankers that have had
dealings with them, and former employees.
3. Get to know the potential partner as well as possible before committing
to an alliance. This should include face-to–face meetings between senior
managers (and perhaps middle-level managers) to ensure that the
chemistry is right.
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 15-05 Evaluate the pros and cons of entering into strategic alliances.
Topic: Strategic Alliances