International Business Chapter 13 Homework Discuss How The Need Companies looking to enter foreign markets can choose between exporting, turnkey projects, licensing, joint ventures

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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-

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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?

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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.

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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