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INTERNATIONAL MANAGEMENT Chapter 6: International Market Entry

Chapter 6

INTERNATIONAL MARKET ENTRY

Learning Objectives

After studying this chapter, you should be able to:

2. Explain methods to internationalize.

4. Understand transnational firms.

6. Explain the aspects associated with implementation of international market entry.

General Teaching Suggestions

Describe the evolution of a brand that used the export route for international. Contrast

Opening Case Discussion Guide

The case describes AMC’s foray into the Chinese automotive market through the Beijing

Jeep joint venture and details the strategic dependence on the Chinese government

support that aided the success of the venture. When the support was withdrawn, Chrysler

(which owns Jeep today), had to revise their strategies to survive and succeed.

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CHAPTER OUTLINE: KEY CONCEPTS AND TERMS

Sections I through V of Chapter 6

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I. MOTIVATIONS FOR INTERNATIONAL MARKET ENTRY

1. Key Concepts

Factors that encourage all firms to expand internationally include:

• Increased Market Share

The impact of increased market share can affect a firm in several ways, including

offering new sales when the firm’s existing market is saturated.

2. Key Terms

• Harmonization – Efforts between nations to have the same code of standards for

products and how they are treated in regards to tariffs.

• Non-tariff trade barriers – A barrier to free trade that takes a form other than a

II. ENTERING INTERNATIONAL MARKETS

1. Key Concepts

Four major means of internationalization are:

Export: The most immediate way to internationalize a firm is to directly export

goods to a market outside your home country.

Alliances: A firm moves into a market in association with other firms. Different

types of alliances are:

i. Informal Alliances

ii. Licensing

iii. Joint Venture

iv. Franchising

Mergers and Acquisitions: A merger is a transaction involving two or more

corporations in which only one permanent corporation survives. An acquisition is

country and build its brand and various stakeholder relationships.

Wholly-Owned Subsidiary: A wholly-owned subsidiary is an organizational form

that focuses strictly on the country in which the organization has entered. Factors

affecting the decision are:

i. Where to Enter

ii. Organizational Learning

2. Key Terms

• Export – The shipping of a good from the home market to markets outside the

home country.

INTERNATIONAL MANAGEMENT Chapter 6: International Market Entry

product typically loses the right to control various aspects of the product when

manufactured or sold by the licensee.

• Franchising – A type of alliance where a contract is established between the

parent (franchisor) and the individual who actually buys the business unit

III. INTERNATIONAL ENTRY CYCLE

1. Key Concepts

The typical steps in the internationalization process are:

i. Firm starts only in a domestic market

ii. Firm becomes aware of international opportunities

iii. Firm enters a market in a small way

2. Key Terms

• Transnational firm – In this type of firm the business assets are highly

specialized, but interdependent with the other assets of the firm. The contribution

IV. MARKET ENTRY EXECUTION

1. Key Concepts:

• Planning Entry: The planning process will be more successful if it involves

greater numbers of individuals throughout an organization. This process will also

INTERNATIONAL MANAGEMENT Chapter 6: International Market Entry

• Timing of Entry: The first firm into an area is typically referred to as a first

mover also referred to as pioneers. Those that come after a first mover are called

• Integration M&A: In planning for an M&A, a firm must do extensive due

diligence on the business being acquired. It needs to have the plan in hand about

what individuals, systems, and activities are to be blended and how. A timeline

for accomplishing this activity needs to be established. Key points in

implementing a merger or acquisition can be summarized as:

i. defining clear objectives

ii. establishing an implementation team

• Joint Ventures Implementation: Typical implementation concerns include:

i. ensuring that the parties to the joint venture have shared goals for the

joint venture

ii. making sure there are no ambiguities in the relationship

1. Key Terms

• First mover – The first firm into an area, whether a product or national market.

Sometimes multiple firms can enter a product market within the same year and

V. SUMMARY

1. Key Concepts:

• A variety of motivations can encourage a firm to move into an international

market, including increasing market share; obtaining greater return on

INTERNATIONAL MANAGEMENT Chapter 6: International Market Entry

• Firms will typically start out with a low-risk method of entering a market, such as

licensing, and as the firm grows more confident, it may move on to greenfield

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END-OF-CHAPTER GUIDE

* MANAGERIAL GUIDELINES

* OPENING VIGNETTE DISCUSSION QUESTIONS

* DISCUSSION QUESTIONS

* IN-CLASS EXERCISES

* TAKE-HOME EXERCISES

* SHORT CASE QUESTIONS

MANAGERIAL GUIDELINES

1. Planning is critical to the success of the market entry. The plan becomes a road

map a firm should follow in the market entry process.

3. Firms will choose market-entry methods that require greater costs and carry

greater risks as they develop confidence about competing internationally.

4. Good preparation is essential for market entry, particularly via joint venture.

However, proper preparation is doubly important for entering emerging markets

OPENING VIGNETTE DISCUSSION QUESTIONS

1. Why did Daimler-Chrysler pay relatively so little attention to the joint venture

initially?

Student answers may vary. It could be argued that Daimler-Chrysler’s

2. The joint venture initially relied heavily on its relationships with the government,

and it seemed to bring benefits to the firm. Was it wrong to focus on such

relationships or should the firm have approached these relationships differently?

3. Based on your understanding of China today, do you think government

relationships are as critical as they were initially for Daimler-Chrysler?

4. What are some of the implementation issues that Daimler-Chrysler could have

focused on early to avoid the problems that arose?

Daimler-Chrysler should have planned their entry with more caution. Decision–

DISCUSSION QUESTIONS

1. What do you think of the pressures brought on transnational firms for issues like

pollution? Is it is ethical for political groups to target only those firms or is it done

because targeting these firms is politically expedient? Are the concepts of

political expedience and ethical business practice mutually exclusive?

Student answers will vary. Because of their size and influence, many countries

2. Over 75 percent of FDI from transnational corporations goes to Asia (particularly

China) but only approximately 1 percent of FDI goes to Africa. Is it appropriate to

force transnational corporations to spread their investment more evenly to areas

such as Africa?

Investments usually flow to locations that hold the best promise of returns.

Location benefits are typically of three types:

i. lower costs are obtained for inputs such as labor

3. Why do you think born global firms are a recent phenomenon? Will such firms

become the standard in international startups?

4. Is there a first mover advantage in most retail businesses?

Student opinions will vary. There are historical instances in which being the first

IN-CLASS EXERCISES

1. Separate into teams. Half the teams are to envision themselves as technology

companies from a mature western economy such as the United Kingdom. They

need to negotiate a joint-venture agreement with a Chinese firm to manufacture

goods in China. The other teams are to perceive themselves as the Chinese

manufacturer.

2. Separate into teams. Assume that half of the teams are representatives of a

transnational corporation such as Wal-Mart. The other half of the teams are

NGOs. The NGOs have found that most of the soccer balls from the suppliers’

plants are produced by children as young as 5 years old and typically less than 14

3. From the material you covered in Chapter 2 on culture, write down how the

management of joint ventures in China, Russia, Poland, and Venezuela might

differ. How should a corporation establish common standards for the corporation

INTERNATIONAL MANAGEMENT Chapter 6: International Market Entry

4. It was noted that first movers often have a competitive advantage when it

concerns Internet businesses. Assume you are an entrepreneur in Latin America

TAKE-HOME EXERCISES

1. Pick a country outside of your own. Identify a franchise available in that country

that you potentially would like to own in your country. Does this franchise have

many differences from a franchise you know in your home country?

A franchise agreement is a contract established between a parent (franchisor)

2. Research a firm that you believe is a transnational firm. How many products and

countries is it involved in? Has it had a major difficulty in one of those countries

that appeared in news reports that would appear to be a culture clash between the

culture in that country and the dominant national culture of the firm?

Various brands have manufacturing plants and service centers outside of home

3. Research a firm that has recently announced a joint venture in India or China.

What is the nature of the firm’s partner in the joint venture? Why do you think

this firm was chosen as a joint venture partner?

Numerous manufacturing and service firms have formed joint ventures with

4. Research an international merger or acquisition that has been criticized as

ultimately not being successful. (If you go to a search engine and put in terms like

international merger acquisition failure you will get lots of potential firms to look

at.) Why do you think the merger or acquisition failed? Is there any way to have

prevented the problems?

INTERNATIONAL MANAGEMENT Chapter 6: International Market Entry

A merger is a transaction involving two or more corporations in which only one

SHORT CASE QUESTIONS

1. What are the implications for other businesses of the concentration of the wealth

in China in coastal urban areas?

Student views may vary. As stated in the text example, beer consumption is four

2. What will be the implications for businesses such as SAB as the China market

matures?

As mentioned in the case, beer industry across the world is very mature with very

3. Why do you think that international brands such as Foster’s Beer were not more

successful in their market entry?

China is a patchwork of local breweries where local brands dominate. This highly