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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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Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
15
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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McGraw-Hill Education.
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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McGraw-Hill Education.
Chapter 15 - Entry Strategy and Strategic Alliances
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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McGraw-Hill Education.
Chapter 15 - Entry Strategy and Strategic Alliances
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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McGraw-Hill Education.
