InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
Instructor Manual
Chapter 12: Foreign Entry Strategies
to accompany Mike Peng & Klaus Meyer: International Business, Cengage Learning
Prepared by Klaus Meyer
version February 2011
Introduction to the Topic
Learning Objectives
1. explain why MNEs establish subsidiaries abroad (why to enter)
2. identify relevant location-specific advantages that attract foreign investors (where to enter)
3. compare and contrast first- and late-mover advantages (when to enter)
General Teaching Suggestions
This chapter deals with the popular topic of entry strategy, that is ‘how do companies set up
their operations when they first enter a new location or market?’ The chapter approaches the
topic the topic from a decision makers’ perspective and thus differs from many other books
that approach it from a theoretical perspective and limit the discussion to the choice of entry
mode.
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
‘JVs are lower risk than WOS’, which I hear even amongst serious scholars, should not be
allowed to stand. (JVs are only lower risk in that the initial financial commitment is lower).
To motivate the topic, you as instructor may ask how do businesses set up subsidiaries in
[country of your choice]? What do they have to consider before committing their money?
Opening Case Discussion Guide
The opening case outlines the strategies of entry by a Chinese upstart that has established
itself successfully in the US market and is eying European markets as well. It established a
greenfield in the US, but made an acquisition in Europe. Yet, note what they were looking for
in the acquisition: only the brand name! They acquired other resources in different way, for
example by hiring key individuals: a sale manager in the US, a technician in Germany.
Chapter Outline, Section by Section
Section 1: Strategic Objectives of Establishing Foreign Subsidiaries
Key Ideas
The section emphasizes that before designing any foreign operations, a decision maker needs
to be clear about the objectives of this investment. Any investment proposal needs to be
assessed against its objectives. The section introduces the common categorization of FDI
motives originally proposed by Dunning.
Key Concepts
foreign subsidiaries
operations abroad set up by foreign direct investment
entry strategy
a plan that specifies the objectives of an entry and how to achieve them
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
efficiency seeking
Firms’ quest to single out the most efficient locations featuring a combination of scale economies and
Section 2: Where to Enter?
Key Ideas
The discussion of location choice is introduced by outlining how different investment
motives, introduced in the previous section, lead to investment in different types of location.
Section 3: When to Enter?
Key Ideas
This section discusses the timing of entry with focus on market-seeking types of investors.
While first-mover advantages are widely talked about, for many first late mover advantages
may actually induce them to wait before committing to a new market (Table 12.2).
Key Concepts
Section 4: How to Enter?
Key Ideas
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
This section introduces entry modes, which many consider the central element of an entry
strategy. We cover here both the acquisition-versus-greenfield and the equity stake aspects of
entry modes, discussing advantages, disadvantages (costs) and risks of each mode in turn. In
focus of ZF in Russia and Cadbury in Poland respectively illustrate when investors use JVs
and acquisitions respectively, and what the consequences are.
Key Concepts
modes of entry
the format of foreign market entry
acquisition
(here:) take over of another business
partial acquisition
acquisition of an equity stake in another firm
Section 5: How to Organize Your Operations?
Key Ideas
This section explains the interdependencies of the aspects of entry modes discussed so far
with operational aspects of the running of the new subsidiary. It thus links this chapter with
the operations chapters later in the book.
Key Concepts
No new concepts
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
Section 6: Institutions and Foreign Entry
Key Ideas
Section 7: Debates and Extensions
Key Ideas
The first debate concerns the question when foreign investors should go in with a large up-
front investment, and when they should do slow.
The second debate draws on my own research that differentiates types of acquisition entry
strategies that vary considerably in their implications (Table 12.5).
Key Concepts
scale of entry
The amount of resources committed to foreign market entry.
Section 8: Implications for Practice
Key Ideas
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
Review Questions
Review questions are provided to students on the website accompanying the book. They
directly ask to summarize the material provided in the text. Instructors may also use the
questions to structure their lectures or review sessions.
Review Questions
(as provided to students on the website)
Material in the Book
1. What are the main objectives that foreign investors
pursue when establishing subsidiaries abroad?
5. How can second movers overtake first movers?
6. What are the basic (equity) entry modes?
7. What are the advantages and disadvantages of
establishing a greenfield operation?
8. What are the challenges that firms face when
acquiring a local firm to enter a foreign country?
Page 363
Page 368
Page 369
Page 370-371
Page 371-372
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
12. What are partial acquisitions, and when are they
used?
13. How can investors vary their acquisition strategies to
make the best of opportunities in difficult local
business environment?
Page 375
Page 379-80
Critical Discussion Questions
At the end the chapter, we provide discussion questions that aim to stimulate students
thinking beyond memorizing the material learned in the chapter. They are designed to be
used at a basis for in-class discussions, group work, or individual assignments. Below,
provide some indicative answers of issues that may be raised in response to these questions.
Discussion Questions
(as provided in the book)
Indicative Responses
1. Since joining the EU, countries
like Poland and Hungary have seen
an increase of foreign direct
2. From institution- and resource-
based views, identify the obstacles
confronting MNEs from emerging
economies interested in expanding
overseas. How can such firms
overcome them?
1. On the resource side, the key concept to
use is unit labour costs (wages have
been rising faster than productivity in
that may not overcompensate for rising
costs.
2. On the resource side, answers may stress
the need for latest technology, brand
names and distribution channels. From
an institutional perspective, responses
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
3. In what situations should
companies consider sharing control
over an operation with a local firm
that is directly or indirectly owned
by the host country’s government?
may emphasize informal barriers such as
a negative country of origin image as
formal barriers to FDI do not
specifically disadvantage MNE from
these countries.
Closing Case
The closing case provides further opportunities to apply ideas and concepts learned in this
chapter in a real world setting. The Closing Case for this Chapter is “Danone and Wahaha”
and focuses on issues that may lead to conflicts in joint ventures, and the challenges of
dissolving a joint ventures. Below are some indicative responses to the case discussion
questions.
Case Discussion Questions
(as provided in the book)
Indicative Responses
1. Was a series of joint venture the
appropriate mode for Danone to enter
These questions are challenging students to
demonstrate their ability to think and argue
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
Further Learning Activities
In addition to the cases and discussion questions provided in the book, instructors may want
to use any of the following activities to further engage students with the material.
1. The most important element of your company’s success in its domestic market thus far has
been its electronic readiness and competitiveness. This has allowed the organization to develop
very stringent internal processes and controls that are the envy of the industry. As such, entering a
foreign market requires a sufficient level of technological prowess among possible target
locations. An evaluation of the “e-readiness” of specific locations can provide considerable
insight for your company’s anticipated internationalization in Asia. Gather information and
provide an overview of the five most technologically ready Asian locations.
Exercise 1 Answers
One resource which can be used is “EIU: E-readiness Rankings 2009”. This website can be
2. Global competition is determined in part by both efficiency and innovation. To develop a
foreign market entry strategy for your company, a colleague informed you of a competitiveness
report that is published periodically to evaluate the standing of each specific economy worldwide.
Locate this report for assessment. Which countries rank highest on both measures of efficiency
and innovation? Which regions of the world appear to rank well for each category? What
conclusions may be drawn from this information?
Exercise 2 Answers
One resource which can be used is “World Economic Forum: Global Competitiveness
InstructorManualtoMikePeng&KlausMeyer(2011):InternationalBusiness,CengageLearning.
Further Readings
At the end the chapter, suggested further readings are provided. The primary aim is to
provide students a starting point for further work, for example when preparing a class
assignment or dissertation. These references also are recommended for instructors not
familiar with the topic and wishing to ‘get ahead of the students’ before lecturing on a topic.
J.H. Dunning & S. Lundan, 2008, Multinational Enterprises and the Global Economy, 2nd ed., Cheltenham:
Elgar – the most comprehensive book reviewing scholarly work on how companies are setting up foreign
investment.