978-1259578113 Chapter 15 Lecture Notes

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Chapter 15 – Entry Strategy and Strategic Alliances

Entry Strategy and Strategic Alliances

Learning objectives

Explain the three basic decisions that firms contemplating foreign expansion must

make: which markets to enter, when to enter those markets, and on what scale.

Compare and contrast the different modes that firms use to enter foreign markets.

Identify the factors that influence a firm’s choice of entry mode.

Recognize the pros and cons of acquisitions versus greenfield ventures as an entry

strategy.

Evaluate the pros and cons of entering into strategic alliances.

This chapter is concerned with three closely related topics: the decisions of which

markets to enter, when to enter those markets, and on what scale.

When a firm that wishes to enter a foreign market, it has several options, 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.

Strategic alliances have become more frequent. They may be seen as one way for firms

to enter into cooperative agreements between actual or potential competitors. The term

“strategic alliances” is often used rather loosely to include a wide range of arrangements

between firms, including cross-share holding deals, licensing arrangements, formal joint

ventures, and informal cooperative deals.

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 opening case explores the entry strategy used by Starbucks, the popular Seattle-based

coffee company, to enter markets in Europe and Asia. The closing case explores how

General Motors focused on China as its next growth market. The company used a joint

venture strategy in the market and by 2010 sold more cars in China than in the United

States. As of 2015, China remains GM’s largest market in terms of vehicles sold.

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Chapter 15 – Entry Strategy and Strategic Alliances

OUTLINE OF CHAPTER 15: ENTRY STRATEGY AND STRATEGIC

ALLIANCES

Opening Case: Starbucks’ Foreign Entry Strategy

Introduction

Basic Entry Decisions

Which Foreign Markets?

Timing of Entry

Management Focus: Tesco’s International Growth Strategy

Scale of Entry and Strategic Commitments

Market Entry Summary

Management Focus: The Jollibee Phenomenon

Entry Modes

Exporting

Turnkey Projects

Licensing

Franchising

Joint Ventures

Wholly Owned Subsidiaries

Selecting an Entry Mode

Core Competencies and Entry Mode

Pressures for Cost Reductions and Entry Mode

Greenfield Venture or Acquisition?

Pros and Cons of Acquisitions

Pros and Cons of Greenfield Ventures

Which Choice?

Strategic Alliances

The Advantages of Strategic Alliances

The Disadvantages of Strategic Alliances

Making Alliances Work

Chapter Summary

Critical Thinking and Discussion Questions

Closing Case: General Motors Corporation

CLASSROOM DISCUSSION POINT

Ask students to find several examples of companies expanding into new markets.

Students can use such publications as The Wall Street Journal or Bloomberg

Businessweek as sources. Then ask students to consider why the companies involved

chose the form of market entry involved.

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Chapter 15 – Entry Strategy and Strategic Alliances

Try to get students to think about the trade-offs involved with the various forms of market

entry. Jot their responses on the board using the framework presented in the text.

Finally, refer to the discussion during the presentation of the material so that students can

recognize the trade-offs companies make.

LECTURE OUTLINE FOR CHAPTER

This lecture outline follows the Power Point Presentation (PPT) provided along with this

instructor’s manual. The PPT slides include additional notes that can be viewed by

clicking on “view,” then on “notes.” The following provides a brief overview of each

Power Point slide along with teaching tips, and additional perspectives.

Slide 15-3 Basic Entry Decisions

Firms expanding internationally must decide which markets to enter, when to enter them

and on what scale, and which entry mode to use. Entry modes include exporting,

licensing or franchising to a company in the host nation, establishing a joint venture with

a local company, establishing a new wholly owned subsidiary, or acquiring an established

enterprise.

Slide 15-4 What Influences the Choice of Entry Mode?

Several factors affect the choice of entry mode including transport costs, trade barriers,

political and economic risks, costs, and firm strategy.

Slides 15-5 and 15-6 Which Foreign Markets?

The choice of foreign markets will depend on their long-run profit potential.

Slides 15-7 through 15-9 Timing of Entry

Once attractive markets are identified, the firm must consider the timing of entry. Entry is

early when the firm enters a foreign market before other foreign firms, and late when the

firm enters the market after firms have already established themselves in the market.

First-mover advantages are the advantages associated with entering a market early.

First-mover disadvantages are disadvantages associated with entering a foreign market

before other international businesses.

Slide 15-10 Scale of Entry and Strategic Commitments

After choosing which market to enter and the timing of entry, firms need to decide on the

scale of market entry. Large-scale entry may keep rivals out and may stimulate

indigenous competitive response. Small-scale entry allows time to learn about the market

and reduces risk exposure.

Slide 15-11 Which Way Is Best?

There are no “right” decisions when deciding which markets to enter, and the timing and

scale of entry, just decisions that are associated with different levels of risk and reward.

Slide 15-12 Think Like a Manager: Analyze Jollibee’s Entry Strategy

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Slides 15-13 through 15-15 Entry Modes

The six entry modes are exporting, turnkey projects, licensing, franchising, joint ventures,

and wholly owned subsidiaries.

Slide 15-16 Exporting

Exporting avoid costs of investing in new location and may help achieve experience

curve and location economies. Exporting faces challenges from tariff barriers,

transportation costs, control over marketing, and local low-cost manufacturers.

Another Perspective: The Small Business Administration

{http://www.sba.gov/category/navigation-structure/exporting-importing} provides

information companies should know before they begin exporting. Students can click on

the various topics to learn more about export financing, export plans, dealing with risk,

and so on.

Slide 15-17 Turnkey Projects

Turnkey projects allow a company to get a return on knowledge assets and are less risky

than conventional FDI. The disadvantages are that there is not long-term interest in the

location, the project may create a competitor, and if process technology is involved, the

firm may be selling a competitive advantage.

Slide 15-18 Licensing

Licensing does not bear the costs and risks of investment and avoids political/economic

restrictions in a country.

Slide 15-19 Franchising

Franchising reduces costs and risks, avoids political and economic restrictions, and

allows for quicker expansion. Disadvantages include loss of control over quality.

Slides 15-20 and 15-21 Joint Ventures

Joint ventures benefit from the local partner’s knowledge, shared costs, and reduced risk.

Disadvantages include loss of control over technology and conflict between partners.

Slide 15-22 Wholly Owned Subsidiaries

Wholly owned subsidiaries offer the most control and the highest level of risk and cost.

Slide 15-23 Selecting an Entry Mode

The optimal choice of entry mode involves trade-offs.

Slide 15-24 Core Competencies and Entry Mode

The optimal choice of entry mode for firms pursuing a multinational strategy depends to

some degree on the nature of their core competencies.

Slide 15-25 Pressures for Cost Reductions and Entry Mode

When pressure for cost reductions is high, firms are more likely to pursue some

combination of exporting and wholly owned subsidiaries.

Slides 15-26 and 15-27 Greenfield Ventures or Acquisitions

Firms can establish a wholly owned subsidiary in a country through a greenfield strategy

(building a subsidiary from the ground up) or through an acquisition strategy.

Slide 15-28 Pros and Cons of Acquisitions

Pros: quick, preemptive, possibly less risky. Cons: disappointing results, overpay,

optimism/hubris, culture clash, failure of synergies

Slide 15-29 Pros and Cons of Greenfield Ventures

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Greenfield ventures allow the firm to build the subsidiary it wants, but it is slow, risky,

and may involve preemption by competitors. Acquisition is quicker, so a consideration if

there are competitors ready to enter.

Slide 15-30 Strategic Alliances

Strategic alliances refer to cooperative agreements between potential or actual

competitors.

Slide 15-31 The Advantages of Strategic Alliances

Strategic alliances facilitate entry into a foreign market, allow firms to share the fixed

costs (and associated risks) of developing new products or processes, bring together

complementary skills and assets that neither partner could easily develop on its own, and

can help a firm establish technological standards for the industry that will benefit the

firm.

Strategic alliances can give competitors low-cost routes to new technology and markets,

but unless a firm is careful, it can give away more than it receives.

The firm must be certain that the partner is one that can help the firm achieve its goals

and not act opportunistically to exploit the alliance purely for its own ends.

Another Perspective: Virgin Atlantic and Delta Airlines have formed a strategic alliance

to help Virgin Atlantic achieve its growth objectives. To learn more, see

{http://news.delta.com/index.php?s=43&item=1822}.

Slides 15-32 through 15-34 Making Alliances Work

The success of an alliance is a function of partner selection, alliance structure, and

manner in which the alliance is managed.

Another Perspective: The Association of Strategic Alliance Professionals

{www.strategic-alliances.org/} is an organization devoted to the formation of successful

strategic alliances. The organization is supported by a number of well-known global

companies and provides information on the involvement of the companies in strategic

alliances.

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