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Foreign Entry Modes and Decision making
Modes of entry: Alternatives and challenges
Why internationalise?
▲ Access to new markets ▲ Access to resources/capabilities
Entry Mode alternatives
Hierarchical model of entry modes
Risks: ▲ Setting up the infrastructure – staff, funding, ▲ Skills ▲ Distraction (Lose momentum in home country) ▲ Legal /Tax issues ▲ Reputation – maintain consistency ▲ Control issues
Expansion alternatives:
Tight control -Wholly Owned: Ownership increases value dividends. Location – remote locations provide differentiation. Internationalisation – control of this process brings benefits
Success rates of acquisitions: Only one-third add value. Almost 70 % reduce shareholder worth – share gain is less than expected increase if two entities had not joined. Why do they fail?
- Momentum
- Undue diligence
- Debt
- Culture
- Fudge
Low Control
Licensing: Authorising the right to use a product or brand. Promotes brand penetration. Provides an additional source of revenue. Unlocks new markets Franchising
Medium Control - Strategic Alliances Rangan and Yoshino, 1996
- Two or more firms that unite to pursue a set of goals but remain independent
- (^) Share control over the performance
- Contribute on a continuing basis to the alliance
Four types of strategic alliances:
Outsourcing
Companies usually adopt multiple complementary strategies. E.g. Microsoft
Factors to consider:
*corruption
Government Initiatives: Country Marketing Investment Promotion Agencies (IPA’s) Locations compete for business’s
Government FDI Promotion: Incentives Financial and Fiscal
- Tax breaks
- Preferential loans
- Co-investment
- Grants: Capital grants for infrastructure investment
- Facilitates market positioning
Subsidiary Perspectives •Partnerships “The big 4” – Deloitte, KPMG, PWC, EY
- Affiliates/Associates:
- Minority share owned by a local entity
- Establishes local market presence without the requirement for full control
- Subsidiaries (including Wholly-Owned Subsidiaries)
- Majority (or 100%) ownership of the local entity
