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Global Business Today Ninth Edition Chapter 13
Entering Foreign Markets
Chapter Outline
OPENING CASE: Market Entry at Starbucks
INTRODUCTION
BASIC ENTRY DECISIONS
Which Foreign Markets?
Management Focus: Tesco’s International Growth Strategy
Timing of Entry
Scale of Entry and Strategic Commitments
Market Entry Summary
Management Focus: The Jollibee Phenomenon—A Philippine Multinational
ENTRY MODES
Exporting
Turnkey Projects
Licensing
Franchising
Joint Ventures
Wholly Owned Subsidiaries
SELECTING AN ENTRY MODE
Core Competencies and Entry Mode
Pressures for Cost Reduction and Entry Mode
GREENFIELD VENTURE OR ACQUISITION?
Pros and Cons of Acquisitions
Pros and Cons of Greenfield Ventures
Greenfield Venture or Acquisition?
CHAPTER SUMMARY
CRITICAL THINKING AND DISCUSSION QUESTIONS
CLOSING CASE: JCB in India
Global Business Today Ninth Edition Chapter 13
Learning Objectives
1. Explain the three basic decisions that a firm contemplating foreign expansion must make: which
markets to enter, when to enter, and on what scale.
2. Compare and contrast the advantages and disadvantages of the different modes that firms use to
enter foreign markets.
3. Identify the factors that influence a firm’s choice of entry mode.
4. Recognize the pros and cons of acquisitions versus greenfield ventures as an entry strategy.
Chapter Summary
This chapter focuses on the basic market entry decisions for firms. The six most common foreign
entry strategies are discussed. These are: exporting, turnkey projects, licensing, franchising,
establishing a joint venture with a host country firm, and setting up a wholly owned subsidiary in
the host country. The advantages and disadvantages of each of these strategies are discussed.
Opening Case: Market Entry at Starbucks
Summary
The opening case explores the international expansion of Starbucks. The company has expanded
over the last thirty years from a single store in Seattle to some 20,000 locations spread across 62
different countries. As Starbucks has expanded, it has been forced to meet the challenges of
operating in different cultures and political systems. Today, Starbucks is focused on continuing its
global expansion and at the same time, helping the environment and small coffee farmers through
its commitment to buying only Free Trade Certified coffee. Discussion of the case can revolve
around the following questions:
QUESTION 1: Why do you think Starbucks decided to enter the Japanese market via a joint
venture with a Japanese company? What lesson can you draw from this?
QUESTION 2: What drove Starbucks to start expanding internationally? How is the company
creating value for its shareholders by pursuing and international expansion strategy?
04-03/starbuckss-howard-schultz-on-mobile-payments-china-and-oprah}.
Chapter Outline with Lecture Notes, Video Notes, and Teaching Tips
INTRODUCTION
A) This chapter is concerned with two closely related topics: the decision of which foreign markets
to enter, when to enter them, and on what scale; and the choice of entry mode.
B) There are several different options open to a firm that wishes to enter a foreign market,
including exporting, licensing or franchising to host country firms, setting up a joint venture with a
host country firm, or setting up a wholly owned subsidiary in the host country to serve that market.
Each of these options has its advantages and each has its disadvantages.
C) The magnitude of the advantages and disadvantages associated with each entry mode are
determined by a number of different factors, including transport costs and trade barriers, political
and economic risks, and firm strategy. The optimal choice of entry mode varies from situation to
situation depending upon these various factors. Thus while it may make sense for some firms to
serve a given market by exporting, other firms might serve the same market by setting up a wholly
owned subsidiary in that market, or by utilizing some other entry mode.
BASIC ENTRY DECISIONS
A) There are three basic decisions that a firm contemplating foreign expansion must make: which
markets to enter, when to enter those markets, and on what scale.
Which Foreign Markets?
Global Business Today Ninth Edition Chapter 13
B) The choice between different foreign markets must be made on an assessment of their long run
profit potential. This is a function of a large number of factors, many of which we have already
considered in depth in earlier chapters.
C) Other things being equal, the benefit-cost- risk tradeoff is likely to be most favorable in the case
of politically stable developed and developing nations that have free market systems, and where
there is not a dramatic upsurge in either inflation rates, or private sector debt. It is likely to be least
favorable in the case of politically unstable developing nations that operate with a mixed or
command economy, or developing nations where speculative financial bubbles have led to excess
borrowing.
D) If an international business can offer a product that has not been widely available in a market
and that satisfies an unmet need, the value of that product to consumers is likely to be much
greater than if the international business simply offers the same type of product that indigenous
competitors and other foreign entrants are already offering.
Video Note: To expand this discussion, consider the video in the International Business Library on
Pinterest (http://www.pinterest.com/mheibvideos/) Yum! To Bring First KFC to Myanmar in 2015.
Management Focus: Tesco’s International Growth Strategy
Summary
This feature describes Tesco’s international expansion strategy. Tesco, the British grocer, has
established operations in a number of foreign countries. Typically, the company seeks
underdeveloped markets in developing nations where it can avoid the head-to-head competition
that goes on in more crowded markets, and then enters those markets via joint ventures where the
local partner provides knowledge of the market while Tesco provides retailing expertise.
Discussion of the feature can revolve around the following questions:
Suggested Discussion Questions
1. Reflect on Tesco’s decision to expand internationally primarily through establishing operations
in developing countries. What makes these countries attractive to Tesco?
2. Why does Tesco believe it is important to transfer its core capabilities to new ventures? How
have the company’s partners helped it find success in foreign locations?
Timing of Entry
E) Once a set of attractive markets has been identified, it is important to consider the timing of
entry. With regard to the timing of entry, we say that entry is early when an international business
enters a foreign market before other foreign firms, and late when it enters after other international
businesses have already established themselves in the market.
F) There are several advantages frequently associated with entering a market early. These are
commonly known as first mover advantages. One first mover advantage is the ability to pre-empt
rivals and capture demand by establishing a strong brand name. A second advantage is the ability
to build up sales volume in that country and ride down the experience curve ahead of rivals. To the
extent that this is possible, it gives the early entrant a cost advantage over later entrants. This cost
advantage may enable the early entrant to respond to later entry by cutting prices below the
(higher) cost structure of later entrants, thereby driving them out of the market. A third advantage
is the ability of early entrants to create switching costs that tie customers into their products or
services. Such switching costs make it difficult for later entrants to win business.
G) It is important to realize that there can also be disadvantages associated with entering a foreign
market before other international businesses (these are often referred to as first mover
disadvantages)
H) Pioneering costs are costs that an early entrant has to bear that a later entrant can avoid.
Pioneering costs arise when a business system in a foreign country is so different from that in a
firm’s home market that the enterprise has to devote considerable time, effort and expense to
learning the rules of the game. Pioneering costs include the costs of business failure if the firm,
due to its ignorance of the foreign environment, makes some major mistakes. Pioneering costs also
Global Business Today Ninth Edition Chapter 13
include the costs of promoting and establishing a product offering, including then cost of educating
customers.
Scale of Entry and Strategic Commitments
I) Another issue that an international business needs to consider when contemplating market entry
is the scale of entry. Entering a market on a large scale involves the commitment of resources to
that venture. The consequences of entering on a significant scale are associated with the value of
the resulting strategic commitments. A strategic commitment is a decision that has a long term
impact and is difficult to reverse. Deciding to enter a foreign market on a significant scale is a
major strategic commitment. Significant strategic commitments are neither unambiguously good
nor bad. Rather, they tend to change the competitive playing field and unleash a number of
changes, some of which may be desirable and some of which will not be.
J) Small-scale entry has the advantage of allowing a firm to learn about a foreign market while
simultaneously limiting the firm’s exposure to that market.
Market Entry Summary
K) It is important to realize that there are no “right” decisions here, just decisions that are
associated with different levels of risk and reward.
Management Focus: The Jollibee Phenomenon—A Philippine Multinational
Summary
This feature describes the remarkable success story of Jollibee. Jollibee, a fast food chain from the
Philippines, not only stood its ground when McDonald’s invaded its market in 1981, but also
managed to find the weaknesses in the larger company’s global strategy and capitalize on them.
Jollibee, unlike McDonald’s, tailored its menu to the local market. The company was able to build
on this localization strategy as it expanded into neighboring Asian countries and the Middle East.
Today, Jollibee has managed to find success in the United States where it is being hailed as a
strong niche player, and has begun to focus on options in mainland China and India. Discussion of
the feature can begin with the following questions:
Suggested Discussion Questions
1. How would Christopher Bartlett and Sumantra Ghoshal view Jollibee’s performance to date?
2. A key difference between McDonald’s global strategy and that of Jollibee is that McDonald’s
sees its path to success as offering a fairly standardized menu everywhere whereas Jollibee views
localization as its ticket to success. In your opinion, would Jollibee have achieved its current
position in the market if the company had standardized its menu like McDonald’s?
Teaching Tip: It is worth visiting Jollibee’s web page to see the American influence on the
company. Go to {http://www.jollibee.com.ph/} and click on “International” to explore some of
the company’s foreign locations.
Lecture Note: To extend this discussion consider {http://www.businessweek.com/news/2014-08-
17/faster-food-at-philippine-minimarts-tests-mcdonald-s}.
ENTRY MODES
A) These are six different ways to enter a foreign market – exporting, turnkey projects, licensing,
franchising, establishing joint ventures with host country firms, or setting up a new wholly owned
subsidiary in the host country. Each method has its advantages and disadvantages.
Exporting
B) Most manufacturing firms begin their global expansion as exporters and only later switch to
another mode for servicing a foreign market.
Teaching Tip: The Business USA Beta provides U.S. companies with detailed information on
exporting. The site is available at {http://business.usa.gov/about-us}.
Students can click on the various topics to learn more about export financing, export plans, dealing
with risk, and so on.
Teaching Tip: Students may wonder how firms U.S. firms find buyers in foreign countries. To
find foreign customers, exporters often use '"trade leads" that are provided by organizations
dedicated towards the activity of matching "buyers" and "sellers" in an international context. An
example of a site that provides trade leads is the National Trade Data Bank at
{http://www.wand.com/ntdb/}.
Advantages
Global Business Today Ninth Edition Chapter 13
C) Exporting avoids the often substantial cost of establishing manufacturing operations in the host
country. Exporting may also help a firm achieve experience curve and location economies.
Teaching Tip: A SBA Office of International Trade offers export assistance to small businesses.
Students can learn more about the programs at the SBA at {http://www.sba.gov/}.
Disadvantages
D) Exporting from the firm's home base may not be appropriate if there are lower-cost locations
for manufacturing the product abroad. High transport costs can also make exporting uneconomical,
as can tariff barriers. Agents in a foreign country may not act in exporter’s best interest.
Turnkey Projects
E) In a turnkey project, the contractor agrees to handle every detail of the project for a foreign
client, including the training of operating personnel. At completion of the contract, the foreign
client is handed the "key" to a plant that is ready for full operation - hence the term turnkey. This
is actually a means of exporting process technology to another country.
Lecture Note: Students might enjoy learning more about companies that identify themselves as
firms that engage in "turnkey projects." One such company, Frigemaires Engineers,
{http://www.feprojects.com/}, offers turnkey deals in India. A list of projects the company is
currently involved in is available, and you can click on various types of factories and get visuals on
each factory.
Advantages
F) The main advantage of turnkey projects is that they are a way of earning great economic returns
from the know-how required to assemble and run a technologically complex process. Turnkey
projects may also make sense in a country where the political and economic environment is such
that a longer-term investment might expose the firm to unacceptable political and/or economic
risk.
Disadvantages
G) First, by definition, the firm that enters into a turnkey deal will have no long-term interest in the
foreign country. Second, the firm that enters into a turnkey project may create a competitor. Third,
if the firm's process technology is a source of competitive advantage, then selling this technology
through a turnkey project is also selling competitive advantage to potential and/or actual
competitors.
Licensing
H) A licensing agreement is an arrangement whereby a licensor grants the rights to intangible
property to another entity (the licensee) for a specified time period, and in return, the licensor
Global Business Today Ninth Edition Chapter 13
receives a royalty fee from the licensee. Intangible property includes patents, inventions, formulas,
processes, designs, copyrights, and trademarks.
Advantages
I) In the typical international licensing deal, the licensee puts up most of the capital necessary to
get the overseas operations going. Thus, a primary advantage of licensing is that the firm does not
have to bear the development costs and risks associated with opening a foreign market. Licensing
is often used when a firm wishes to participate in a foreign market, but is prohibited from doing so
by barriers to investment. Licensing is frequently used when a firm possesses some intangible
property that might have business applications, but the firm does not want to develop those
applications itself.
Disadvantages
J) First, licensing does not give a firm the tight control over manufacturing, marketing, and
strategy that is required for realizing experience curve and location economies. Second, competing
in a global market may require a firm to coordinate strategic moves across countries by using
profits earned in one country to support competitive attacks in another. Licensing severely limits a
firm's ability to do this. A third problem involves the potential loss of proprietary (or intangible)
technology or property. One way of reducing the risk of losing proprietary trade secrets is through
the use of cross-licensing agreements. Under a cross-licensing agreement, a firm might license
some valuable intangible property to a foreign partner, but in addition to a royalty payment, the
firm might also request that the foreign partner license some of its valuable know-how to the firm.
Franchising
K) Franchising is basically a specialized form of licensing in which the franchisor 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.
Advantages
L) The advantages of franchising as an entry mode are very similar to those of licensing.
Specifically the firm is relieved of many costs and risks of opening up a foreign market, and can
quickly build a foreign market presence.
Disadvantages
M) Franchising may inhibit the firm's ability to take profits out of one country to support
competitive attacks in another. A more significant disadvantage of franchising is quality control.
The geographic distance of the firm from its foreign franchisees can make poor quality difficult for
the franchisor to detect.
Joint Ventures
Global Business Today Ninth Edition Chapter 13
N) A joint venture entails establishment of a firm that is jointly owned by two or more otherwise
independent firms. Fuji-Xerox, for example, was set up as a joint venture between Xerox and Fuji
Photo.
Teaching Tip: 1000ventures, {http://www.1000ventures.com/business_guide/jv_main.html},
offers a wealth of information about joint ventures. The site is a busy one, but worth a visit.
Advantages
O) Joint ventures offer several advantages. First, a firm can benefit from a local partner's
knowledge of the host country's competitive conditions, culture, language, political systems, and
business systems. Second, when the development costs and/or risks of opening a foreign market
are high, a firm might gain by sharing these costs and/or risks with a local partner. Third, in many
countries, political considerations make joint ventures the only feasible entry mode.
Disadvantages
P) Joint ventures also have some significant disadvantages. First, as with licensing, a firm that
enters into a joint venture risks giving control of its technology to its partner. Second, a joint
venture does not give a firm the tight control over subsidiaries that it might need to realize
experience curve or location economies. Third, shared ownership arrangements can lead to
conflicts and battles for control between the investing firms if their goals and objectives change
over time, or if they take different views as to what the venture's strategy should be.
Video Note: One of the longest running joint ventures in the auto industry, the NUMMI venture
between Toyota and General Motors, is coming to an end. To explore the joint venture in more
detail and its demise, consider the video in the International Business Library on Pinterest
(http://www.pinterest.com/mheibvideos/) California Braces As NUMMI Auto Plant Nears Closing.
Wholly Owned Subsidiaries
Q) In a wholly owned subsidiary, the firm owns 100 percent of the stock. Establishing a wholly
owned subsidiary in a foreign market can be done two ways. The firm can set up a new operation
in that country, or it can acquire an established firm and use that firm to promote its products in the
country's market.
Advantages
R) Wholly owned subsidiaries offer three key advantages. First, when a firm's competitive
advantage is based on technological competence, a wholly owned subsidiary will often be the
preferred entry mode, since it reduces the risk of losing control over that competence. Second, a
wholly owned subsidiary gives a firm the tight control over operations in different countries
necessary for engaging in global strategic coordination (i.e., using profits from one country to
Global Business Today Ninth Edition Chapter 13
support competitive attacks in another). Third, a wholly owned subsidiary maybe required if a firm
is trying to realize location and experience curve economies.
Disadvantages
S) Establishing a wholly owned subsidiary is generally the most costly method of serving a foreign
market. Firms doing this must bear full costs and risks of setting up overseas operations.
SELECTING AN ENTRY MODE
A) Trade-offs are inevitable when selecting an entry mode. However, it is possible to generalize
about the optimal choice of entry mode.
Core Competencies and Entry Mode
B) The optimal entry mode for these firms depends to some degree on the nature of their core
competencies. In particular, a distinction can be drawn between firms whose core competency is in
technological know-how and firms whose core competency is in management know-how.
Technological Know-How
C) If a firm’s competitive advantage (its core competence) is based upon control over proprietary
technological know-how, licensing and joint venture arrangements should be avoided if possible in
order to minimize the risk of losing control over that technology, unless the arrangement can be
structured in a way where these risks can be reduced significantly.
D) When a firm perceives its technological advantage as being only transitory, or the firm may be
able to establish its technology as the dominant design in the industry, then licensing may be
appropriate even if it does involve the loss of know-how. By licensing its technology to
competitors, a firm may also deter them from developing their own, possibly superior, technology.
Management Know-How
E) The competitive advantage of many service firms is based upon management know-how. For
such firms, the risk of losing control over their management skills to franchisees or joint venture
partners is not that great, and the benefits from getting greater use of their brand names can be
significant.
Pressures for Cost Reductions and Entry Mode
F) The greater the pressures for cost reductions, the more likely it is that a firm will want to pursue
some combination of exporting and wholly owned subsidiaries. This will allow it to achieve
location and scale economies as well as retain some degree of control over its worldwide product
manufacturing and distribution.
Global Business Today Ninth Edition Chapter 13
Lecture Note: Universal Studioes recently formed a joint venture with Beijing Tourism Group to
open a theme park in China. To learn more, go to {http://www.bbc.com/news/business-
29608767}.
Lecture Note: Joint ventures have become more popular than ever during the recent times of global
economic uncertainty. To extend this discussion, consider
{http://www.businessweek.com/managing/content/nov2010/ca2010112_913040.htm}.
GREENFIELD VENTURE OR ACQUISITION?
A) A firms can establish a wholly owned subsidiary in a country by building a subsidiary from the
ground up (greenfield strategy), or by acquiring an established enterprise in the target market
(acquisition strategy).
Pros and Cons of Acquisitions
B) Acquisitions have three major points in their favor. First, they are quick to execute. Second, in
many cases firms make acquisitions to preempt their competitors. Third, managers may believe
acquisitions to be less risky than greenfield ventures.
Why Do Acquisitions Fail?
C) Acquisitions fail for several reasons. First, the acquiring firms often overpay for the assets of
the acquired firm. Second, many acquisitions fail because there is a clash between the cultures of
the acquiring and acquired firm. 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 expected. Finally, many acquisitions fail because of inadequate pre-
acquisition screening.
Reducing the Risks of Failure
D) These problems can all be overcome through careful screening of the firm to be acquired, and
moving rapidly once the firm is acquired to implement an integration plan.
Pros and Cons of Greenfield Ventures
E) The big advantage of establishing a greenfield venture in a foreign country is that it gives the
firm a much greater ability to build the kind of subsidiary company that it wants. However,
greenfield ventures are slower to establish. They are also risky.
Greenfield Venture or Acquisition?
F) In general, the choice between acquisitions and greenfield ventures will depend on the
circumstances confronting the firm.
Global Business Today Ninth Edition Chapter 13
Critical Thinking and Discussion Questions
1. Review the Management Focus on Tesco. Then answer the following questions:
a) Why did Tesco’s initial international expansion strategy focus on developing nations?
b) How does Tesco create value in its international operations?
c) In Asia, Tesco has a long history of entering into joint venture agreements with local partners.
What are the benefits of doing this for Tesco? What are the risks? How are those risks mitigated?
d) In March 2006, Tesco announced that it would enter the United States. This represented a
departure from its historic strategy of focusing on developing nations. Why do you think Tesco
made this decision? How is the U.S. market different from others Tesco has entered? What are
the risks here? How do you think Tesco has been doing?
Answer:
Teaching Tip: Tesco has been the recipient of sharp criticism in Britain recently for its aggressive
growth strategy. To learn more and to extend the discussion of this feature, consider
{http://www.businessweek.com/stories/2011-04-27/one-thing-tesco-shares-with-wal-mart-critics}
and {http://www.businessweek.com/globalbiz/content/jun2010/gb2010069_828199.htm}.
2. Licensing propriety technology to foreign competitors is the best way to give up a firm's
competitive advantage. Discuss.
Global Business Today Ninth Edition Chapter 13
© 2016 by McGraw-Hill Education.
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
258
should generally be avoided in these situations. Yet licensing still may be a good choice in some
instances. When a licensing arrangement can be structured in such a way as to reduce the risks of
a firm's technological know-how being expropriated by licensees, then licensing may be
appropriate. A further example is when a firm perceives its technological advantage as being only
transitory, and it considers rapid imitation of its core technology by competitors to be likely. In
such a case, the firm might want to license its technology as rapidly as possible to foreign firms in
order to gain global acceptance for its technology before imitation occurs. Such a strategy has
some advantages. By licensing its technology to competitors, the firm may deter them from
developing their own, possibly superior, technology. And by licensing its technology the firm may
be able to establish its technology as the dominant design in the industry. In turn, this may ensure
a steady stream of royalty payments. Such situations apart, however, the attractions of licensing
are probably outweighed by the risks of losing control over technology, and licensing should be
avoided.
3. Discuss how the need for control over foreign operations varies with firms’ strategies and core
competencies. What are the implications for the choice of entry mode?
4. A small Canadian firm that has developed some valuable new medical products using its unique
biotechnology know-how is trying to decide how best to serve the European Community market.
Its choices are given below. The cost of investment in manufacturing facilities will be a major
one for the Canadian firm, but it is not outside its reach. If these are the firm’s only options, which
one would you advise it to choose? Why?
• Manufacture the product at home and let foreign sales agents handle marketing.
• Manufacture the products at home but set up a wholly owned subsidiary in Europe to
handle marketing.
• Enter into a strategic alliance with a large European pharmaceutical firm. The product
would be manufactured in Europe by a 50/50 joint venture, and marketed by the European
firm.
Global Business Today Ninth Edition Chapter 13
© 2016 by McGraw-Hill Education.
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
259
pharmaceutical firm could also give it much better access to the market and potentially access to
its products and technology, and that this same firm would insist on the 50/50 manufacturing joint
venture rather than agreeing to be a foreign sales agent. The choice between (i) and (ii) boils down
to a question of which way will be the most effective in attacking the market. If a foreign sales
agent can be found that is already quite familiar with the market and who will agree to
aggressively market the product, the agent may be able to increase market share more quickly than
a wholly owned marketing subsidiary that will take some time to get going. On the other hand, in
the long run the firm will learn a great deal more about the market and will likely earn greater
profits if sets up its own sales force.
Closing Case: JCB in India
Summary
The closing case describes the strategy of heavy equipment maker JCB to expand into the India
market. JCB began its expansion in 1979 when it formed a joint venture with Escorts, an Indian
engineering conglomerate. JCB had primarily served foreign markets via exports however,
because of high tariff barriers that made exporting unattractive, and government regulations that
made a wholly owned subsidiary impossible, the company was forced into forming the joint
venture. Further expansion via the joint venture was difficult though, and the company was
concerned about keeping its proprietary technology safe. Eventually, as government regulations in
the country were relaxed, JCB was able to acquire Escorts’ share of the joint venture. Discussion
of the feature can revolve around the following questions:
QUESTION 1: Why do you think that India was an attractive market for JCB?
QUESTION 2: Historically, JCB entered foreign markets through exports. Why do you think
JCB generally favored exports?
QUESTION 3: In India, JCB decided to enter via a joint venture. What was the articulated
rational for this? In what other ways might the joint venture strategy have benefitted JCB?
Global Business Today Ninth Edition Chapter 13
© 2016 by McGraw-Hill Education.
This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
260
ANSWER 3: JCB entered the Indian market in 1979 via a joint venture with Escorts. The decision
to enter via a joint venture arrangement was prompted by high tariff barriers that made JCB’s
traditional strategy of exporting its product to foreign locations difficult. Given that JCB was
primarily an exporter and had little experience operating in foreign locations, the joint venture
arrangement offered the company a means of serving the Indian market without incurring all the
risk involved in setting up a wholly owned operation. Moreover, since JCB’s technology provided
the company with a key competitive advantage, the company avoided licensing arrangements
because it felt that such arrangements did not give it the control over its technology that was
needed. JCB feared that licensing its technology to Escorts could eventually make Escorts a direct
competitor.
QUESTION 4: What were the risks associated with the joint venture strategy? How did JCB deal
with these risks?
QUESTION 5: What are the benefits to JCB of localizing significant production in India? What
are the disadvantages? Do the benefits outweigh the disadvantages?
Teaching Tip: Students can go to {http://www.jcb.com/ } for additional information on the
company.
Continuous Case Concept
Since the 1970s, the world has been witness to a transformation of the auto industry from one in
which domestic markets were primarily served by local companies, to one in which a few large
companies serve the world. However, how the transformation took place, and indeed how it
Global Business Today Ninth Edition Chapter 13
continues to change today, provides an excellent opportunity to study the process of entering
foreign markets.
• Ask students to consider one of the earliest international expansion strategies by a major
company, that of Toyota entering the U.S. market. Recall that Toyota chose to enter the
U.S. market through a joint venture. Ask students why Toyota chose this entry method
over other alternatives such as exporting or a wholly owned subsidiary. In order for Toyota
to be successful in the U.S. market, what core competencies had to be transferred to the
joint venture?
• Next, ask students to compare Toyota’s strategy to those of BMW, Mercedes, and Nissan,
all of which expanded into the U.S. market through wholly owned subsidiaries. Did the
timing of market (all of these firms entered the U.S. later) entry have an effect on the
choice of entry mode? What advantages did BMW, Nissan, and Mercedes gain over
Toyota? Were there any disadvantages? Why did all of these companies choose to locate
in the Southern part of the country?
• Finally, ask students to consider the decision by Italian automaker Fiat to take control of
troubled Chrysler. Rather than expanding on its own, the company decided to acquire
Chrysler. What were the benefits of this decision? Were there any risks involved? How
does Fiat’s decision to acquire rather than establish a new venture help the company? Are
there any drawbacks to this approach? Fiat Chrysler recently announced that it would sell
off its exclusive Ferrari brand. What are the implications of this decision?
Students that are familiar with the auto industry will probably be able to answer these questions
with some prompting at the start of the discussion on entry modes. Students who are less familiar
with the industry may need some basic background information before they can contribute to the
discussion in a meaningful way. In either case, this feature can be used as an introduction to the
material presented in the chapter—keep the discussion very general at this point-- then, after
discussing the chapter material, go back and flesh out the answers a bit more. At this point, other
information such as entry into the European or BRIC markets can also be incorporated.
globalEDGE Exercises
The resources for each exercise can be easily located by using the search box at the top of the
globalEDGE website at http://globalEDGE.msu.edu
Exercise 1
Search phrase: Top Global Franchises
Resource Name: Entrepreneur Magazine: Top Global Franchises
Website: http://www.entrepreneur.com/franchises/topglobal/index.html
globalEDGE Category: Rankings
Global Business Today Ninth Edition Chapter 13
Additional Info:
Entrepreneur Magazine publishes two rankings of Franchises, one for the US, and one
International. The International one lists the top ranking 200 Franchise 500 companies that are
seeking international franchisees. Each company listing includes an overview of the company, as
well as how much investment is required to open up a franchise, what type of support is provided,
and the type of financing available.
Exercise 2
Search phrase: Country Commercial Guide
Resource Name: Country Commercial Guides for U.S. Investors
Website: http://www.buyusainfo.net/adsearch.cfm?search_type=int&loadnav=no
globalEDGE Category: Multi-Country
Additional Info:
The Country Commercial Guides are detailed reports about each country in the world drafted by
U.S. Commercial Service specialists and commercial attaches responsible for each of these
markets. Each report is several hundred pages long and provides a detailed economic overview of
each market, as well as analysis of attractive sectors for U.S. exporters, trade barriers they will
face, appropriate market entry modes and successful marketing and advertising strategies they can
consider utilizing in those markets.
Additional Readings and Sources of Information
Tesco Profit Overstated by 263 Million Pounds
http://www.businessweek.com/videos/2014-10-23/tesco-profit-overstated-by-263m-pounds
Kengen Plans Joint Venture for Kenyan Geothermal Power Projects
http://www.businessweek.com/news/2014-10-06/kengen-plans-joint-ventures-for-kenyan-
geothermal-power-projects
AMC Enters Joint Venture to Operate BBC America
http://www.businessweek.com/ap/2014-10-23/amc-enters-joint-venture-to-operate-bbc-america
Airbus Plans 1st U.S. Factory
http://www.businessweek.com/ap/2012-07-02/news-summary-airbus-plans-1st-us-factory
India's Decade of Collaboration
http://www.businessweek.com/managing/content/may2011/ca20110531_251462.htm
Retailer Tesco Eyes Global Growth
http://www.businessweek.com/globalbiz/content/apr2010/gb20100421_041251.htm
Rolls-Royce May Expand to Indochina Philippines
Global Business Today Ninth Edition Chapter 13
http://www.businessweek.com/videos/2012-09-28/rolls-royce-may-expand-to-indochina-
philippines
Retailer Tesco Eyes Global Growth
http://www.businessweek.com/globalbiz/content/apr2010/gb20100421_041251.htm
Is China Fed Up with the Colonel’s Chicken?
http://www.businessweek.com/magazine/content/10_08/b4167030011836.htm
Export Import Bank of the United States
