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Global Business Today Eleventh Edition Chapter 13
13-13
CONNECT
Click and Drag
Entry Mode Options
Summary
This activity focuses on the choice of how to enter a foreign market. Companies looking to enter
foreign markets can choose between exporting, turnkey projects, licensing, joint ventures, wholly
owned subsidiaries, and franchising.
Activity
Students are asked to match advantages and disadvantages associated with the different entry
modes to the correct entry mode.
Class Discussion
International managers need to understand the advantages and disadvantages associated with the
six different entry modes. Discuss when each mode should be selected.
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
to minimize the risk of losing control over that technology, unless the arrangement can be
structured in such a way that 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
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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.
management FOCUS: General Motors on the Upswing
Summary
This feature focuses on the presence of General Motors (GM) in the China market. Beginning
with a joint venture with Shanghai Automotive Industry Corporation (SAIC) in 1997 with a $1.6
billion investment, this presence matched only Volkswagen among the major automobile
manufacturers in China. The relationship GM developed with SAIC has been very fruitful as the
Chinese market is continuing to expand, and the joint venture established provides GM a critical
position. As there is a low vehicle penetration rate to date in China, continued success is
expected.
Discussion Questions
1. Why did GM enter into a joint venture with SAIC when the company decided to begin
operations in China? Do you think GM could have been successful on its own?
2. How has the relationship between GM and SAIC developed over time? Would you say this is
a successful joint venture?
Teaching Tip: It is worth visiting the web page of General Motors to see the scope of the
company. Go to https://www.gm.com/other-gm-sites.html to see GM’s foreign operations.
Lecture Note: To extend this discussion, explore General Motors’ recent plant closures and
workforce cuts. To learn more, go to https://www.bloomberg.com/news/articles/2018-11-26/gm-
Global Business Today Eleventh Edition Chapter 13
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is-said-to-plan-closure-of-canada-plant-with-2-200-workers and
https://www.theguardian.com/business/2018/nov/26/general-motors-set-to-cut-workforce-as-
slowing-sales-and-steel-tariffs-bite.
CONNECT
Click and Drag
Selecting an Entry Mode
Summary
This activity focuses on market entry decisions for international companies. Firms can chose
from six possible entry modes, each of which has advantages and disadvantages.
Activity
Students are asked to match the advantages and disadvantages of each entry mode to the correct
entry mode.
Class Discussion
Choosing an entry mode involves weighing the advantages and disadvantages of each mode and
choosing the mode that makes the most sense. Discuss the advantages and disadvantages of each
entry mode and how firms can assess each mode.
Greenfield Venture or Acquisition?
A) A firm 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?
Global Business Today Eleventh Edition Chapter 13
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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.
WHICH CHOICE?
F) In general, the choice between acquisitions and greenfield ventures will depend on the
circumstances confronting the firm.
CONNECT
Video Case
Coca-Cola Agrees to Buy Whitbread’s Costa Coffee
Summary
This activity focuses on international market entry and specifically on Coca-Cola’s acquisition of
Costa Coffee.
Activity
Students are asked to watch a video on market entry decisions and then respond to a series of
questions related to the video.
Class Discussion
Understanding the trade-offs between the different international market entry modes is important
for international managers. Discuss why Coca-Cola chose to acquire Costa Coffee.
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End-of-Chapter Resources
Critical Thinking and Discussion Questions
1. Review the Management Focus “Tesco's International Growth Strategy,” and 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. When Tesco decided to enter the United States, this represented a departure form its
historic strategy of focusing on developing nations. Why do you think Tesco made this
decision? How is the U.S. market different from other markets that Tesco has entered?
2. Licensing propriety technology to foreign competitors is the best way to give up a firm’s
competitive advantage. Discuss.
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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 Union
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?
a. Manufacture the product at home, and let foreign sales agents handle marketing.
b. Manufacture the products at home, and set up a wholly owned subsidiary in Europe to
handle marketing.
c. Enter into an 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 Eleventh Edition Chapter 13
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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.
globalEDGE™ Research Task
Use the globalEDGE™ site (globaledge.msu.edu) to complete the exercises in the text.
Exercise 1
Search phrase: Top Global Franchises
Resource Name: Entrepreneur Magazine: Top Global Franchises
Website: https://www.entrepreneur.com/franchises/topglobal
globalEDGE™ Category: Rankings, Company Level
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: Export.gov: Country Commercial Guides
Website: https://www.export.gov/ccg
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.
Cutco Corporation—Sharpening Your Market Entry
closing case
Summary
The closing case explores the development and partners Cutco has established over the years.
Originally established as a joint venture between W.R. Case & Sons Cutlery Company and
Alcoa, Cutco Corporation also purchased Vector Marketing Corporation to act as the direct sales
arm of the company. Cutco operates today based on the management buyout that took place in
1982. Cutco’s product line includes 100 different choices and the company has about $200
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million in annual sales worldwide. In addition to its standing in North America, independent
offices are operated in Australia, Costa Rica, Germany, South Korea, and the United Kingdom.
Case Discussion Questions
1. The Cutco brand is affiliated with Cutco Corporation, Vector Marketing Corporation, and
Cutco Cutlery Corporation. It seems overly cumbersome for customers to understand that Vector
Marketing Corporation is selling Cutco knives! Meanwhile, Cutco is now the largest
manufacturer of high-quality kitchen cutlery in the United States and Canada. How would you
structure Cutco’s branding if you entered a new international market?
2. Two things that have never changed at Cutco are their commitment to fine craftsmanship and
the Forever Guarantee. The guarantee means what it implies—that Cutco stands behind its
knives’ performance and sharpness forever. They also have a forever guarantee of replacing their
knives for any misuse or abuse at half the cost. Is this a viable international strategy when
considering entry into the vastly diverse markets that exist globally?
3. Vector Marketing Corporation is the exclusive marketer of Cutco products directly to
consumers via sales representatives located throughout the United States and Canada. Cutco
International Inc. is responsible for international marketing. Can the direct sales model work as a
market entry strategy internationally? Where can it work and where does it potentially not work?
4. Cutco’s product line includes more than 100 choices under the Cutco name alone. The
extended line includes kitchen utensils, gadgets and flatware, sporting and pocket knives, and
garden tools. Is it realistic to think that Cutco can enter global markets with all of its products for
each market every time they consider a new market entry?
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Many students will probably recommend that Cutco choose a few products, perhaps under a new
brand name (see question 1 above) and then gradually introduce additional products once the
brand name becomes known. Other students may suggest making all products available but
introducing only the best sellers via the direct marketing campaign. Still, others may recommend
that the company consider making a complete commitment with the full product line to just a
few markets and work to develop its brand name before venturing on to additional markets.
Teaching Tip: Students can go to https://www.cutco.com for additional information on the
company.
Lecture Note: To extend this discussion, consider exploring the company in more depth at
https://www.entrepreneur.com/article/245652 and https://www.inc.com/robert-glazer/one-man-
has-sold-more-cutco-knives-than-anyone-else-heres-his-secret.html.
CONNECT
Geography
Summary
This activity is designed to test the student’s knowledge of geography. Questions related to
chapter material are asked, requiring students to understand the topics and the locations of the
countries involved.
Activity
Students are asked to respond to a series of question related to the geographic location of several
countries.
Class Discussion
Understanding the geographic location of countries is essential to the understanding of
international business. Ask students to discuss the implications of the geographic locations of the
countries in this exercise on the subject matter.
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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
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 entry have an effect on the choice of entry mode (all of these
firms entered the U.S. later)? 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?
Global Business Today Eleventh Edition Chapter 13
Additional Readings and Sources of Information
Ex-Tesco Executives to Plead Not Guilty in Accounting Case
http://www.bloomberg.com/news/articles/2016-09-22/ex-tesco-executives-to-plead-not-guilty-
in-accounting-fraud-case-ite61lcz
The road to 2020 and beyond: What’s driving the global auto industry?
https://www.mckinsey.com/~/media/mckinsey/dotcom/client_service/%20Automotive%20and%
20Assembly/PDFs/McK_The_road_to_2020_and_beyond.%20ashx
Global automakers expand presence in china e-cars market
http://www.chinadaily.com.cn/business/motoring/2017-10/25/content_33696738.htm
Alcoa Settles Dispute With Australian Joint-Venture Partner
http://www.bloomberg.com/news/articles/2016-09-01/alcoa-settles-dispute-with-australian-joint-
venture-partner
China May Lift Cap on Foreign Carmaker Stakes in Joint Ventures
http://www.bloomberg.com/news/articles/2016-06-27/china-may-lift-cap-on-foreign-carmaker-
stakes-in-joint-ventures
How China Could Stall Tesla, GM, Ford Growth Plans in No. 1 Auto Market
https://www.investors.com/research/ibd-industry-themes/how-china-could-stall-tesla-gm-ford-
growth-plans-in-no-1-auto-market
Distress in the Shale Oil Patch Spurs New Type of Joint Venture
http://www.bloomberg.com/news/articles/2016-01-26/distress-in-the-shale-oil-patch-spurs-new-
type-of-joint-venture
Carrefour and Google Sign Strategic Partnership to Innovate on New Distribution Models and
Commerce Experiences for Shoppers in France
https://www.businesswire.com/news/home/20180611005885/en/Carrefour-Google-Sign-
Strategic-Partnership-Innovate-New
Export-Import Bank of the United States
http://www.exim.gov
