Chapter 8
Expansion Strategies and Entry Mode Selection
LEARNING OBJECTIVES
After studying this chapter students should be able to:
• Offer an understanding of company expansion strategies, entry mode selection, and
CHAPTER SPOTLIGHTS
• Developing an International Marketing Strategy: International strategic planning
takes place at different levels of the company: The corporate level, the division
CHAPTER OVERVIEW
This chapter provides an overview of international marketing strategy and insights into
the international marketing planning process of select companies. Entry mode selection
and the control and risk associated with each type of entry mode are also addressed.
CHAPTER OUTLINE
8-1 Going International: Evaluating Opportunities
Managers must evaluate the costs of delivering their products and services to their
8-2 Control Versus Risk in International Expansion
Companies must decide whether to use middlemen or market directly to the
8-3 Deciding on the International Entry Mode
8-3a Indirect exporting:
With indirect exporting, the company sells its products to intermediaries in the
company’s home country, who then sell the product overseas. These companies
8-3b Direct exporting:
8-3c Licensing:
A more risky entry mode, offers more control than exporting, and it involves a
licensor and a licensee. The licensor offers the know-how and use of the brand
name; the licensee, in turn, pays the licensor royalties. Licensing often does not
8-3d Franchising:
Constitutes a principal mode of entry for the service industry and it is the service
industry’s equivalent to licensing. Franchising involves a franchisor who gives
8-3e Joint venture:
Involves a foreign company creating a new company in conjunction with a local
company to which the companies contribute capital, equity, and labor.
8-3f Consortia:
Involve three or more companies joining forces to form a new company. They are
8-3g Wholly-owned subsidiaries:
Companies set up wholly-owned subsidiaries if they can afford it, if they are
8-3h Branch offices:
8-3i Strategic alliances:
Involve agreements between companies attempting to reach joint corporate and
market-related goals. This term is typically used to refer to different types of non-
equity alliances.
1) Manufacturing alliances: Alliances that include contract manufacturing,
technological, engineering, and research and development alliances.
2) Marketing alliances: Alliances that focus on all aspects of marketing,
involving a nonequity relationship whereby one firm handles the other’s
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requirements, and expected benefits.
KEY TERMS
Consortia: A company created with the participation of three or more companies;
allowed in underserved markets or in domains where the government and/or the
marketplace can control its monopolistic activity.
Direct Exporting: An export entry mode whereby a firm handles its own exports,
usually with the help of an in-house exporting department.
Distribution Alliance: A nonequity relationship between two firms, in which one firm
handles the other’s distribution or some aspect of the distribution process.
Franchisor: The owner of the franchise who gives the franchisee the right to use its
brand name and all related trademarks and its business know-how, such as secret recipes
and customer interfacing techniques, in return for royalties.
Greenfielding: Developing a brand new subsidiary.
Indirect Exporting: An export entry mode whereby a company sells its products in the
company’s home country to intermediaries who, in turn, sell the product overseas.
Licensor: The owner of a product license who agrees to share know-how, technology,
and brand name with the licensee in return for royalties.
Manufacturing Alliance: A nonequity relationship between two firms, in which one
firm handles the other’s manufacturing or some aspect of the manufacturing process.
Marketing Alliance: A nonequity relationship between two firms, in which one firm
handles the other’s marketing or some aspect of the marketing process.
Mother Henning: Using the distribution system of exporters with established systems of
Wholly Owned Subsidiary: The entry mode that affords the highest level of control and
presents the highest level of risk to a company; it involves establishing a new company
that is a citizen of the country where the subsidiary is established
DISCUSSION QUESTIONS
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1. What is the difference between international franchising and international
licensing? Explain.
Licensing is an international entry mode that involves a licensor, who shares the
brand name, technology, and know-how with a licensee in return for royalties,
2. Briefly describe each type of international entry mode, from exporting to
wholly owned subsidiary, and address the risks and controls characterizing
each entry mode.
The lowest risk, lowest control entry mode is exporting, followed by licensing,
3. There are many types of international alliances. Go to the home page of U.S.
Air (http://usairways.com/dividendmiles/index.htm) and identify the
company’s alliances.
U.S. Air has strategic marketing alliances with Air Canada, Air New Zealand,
REVIEW QUESTIONS
True/False
1. True
Multiple Choice
1. B
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Case 8-1
Danone in a Bind
1. Describe the joint venture between Danone and Hangzhou Wahaha. What
are some of the ownership characteristics? Who is contributing what to this
relationship?
The Danone – Hangzhou Wahaha joint venture Wahaha has the potential to be an
extremely powerful beverage producer in the high-growth, large emerging market of
China. Both Danone and Hangzhou Wahaha bring important characteristics and skill sets
2. What are the advantages to Danone, and to Hangzhou Wahaha for setting up
the joint venture?
The joint venture has numerous advantages for both companies involved. Danone is a
large multinational company, so its knowledge and experience in the Chinese market may
be limited. Aspects of Chinese regulation may also be oriented to keep multinationals
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3. What are the disadvantages to Danone and to Hangzhou Wahaha in this
joint venture relationship?
Despite the advantages that Danone and Hangzhou Wahaha gain in the joint venture,
there are also several disadvantages. The most obvious one is the potential conflict of
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