Global Market Entry Strategies: Licensing, Investment, and Strategic Alliances

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Global Market Entry Strategies Licensing,
Investment, and Strategic Alliances

• Chapter 9
• What is market entry strategy?

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Entry strategies vary.WHY?????

• The choice of market entry strategy of a company
  will depend on
• The ________of company executives
• Attitude toward risk
• How much _____ is available
• How much ___________ is desired
• PLUS.Market Size and Growth Government
  Regulations Competitive Environment Local
  Infrastructure Country Characteristics
• Internal Resources, Assets and Capabilities

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Introduction
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Methods of entry

• Exporting
• ____________
• Direct vs. Indirect
• Contractual
• Licensing
• Franchising
• Contract manufacturing
• Joint ventures

• Strategic alliances
• Direct Foreign Investment
• -Self built
• -Acquisitions

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1. Exporting

• Advantages
• Limited investment low risk

• Disadvantages
• Higher unit cost to consumer
• Likely lower market share
• Limited learning on country market characteristics

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2. Contractual

• Licensing Contractual arrangement whereby one
  company (_______) makes the asset available to
  another company (_______) in exchange for
  royalties, license fees or some other form of
  compensation
• Products
• Technologies and Process Innovation
• Trademarks (Disney)

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Why Licensing?

• Advantages
• Relatively easy access to global markets
• Profitability with little investment
• Circumvent tariffs quotas
• Standard setting failure to seize an opportunity
  to license can lead to negative consequences
• Apples Mac system

• Disadvantages
• Limited participation
• Lack of control of marketing programs
• Sacrifices long term returns
• Creates future competitors

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2. Contractual (cont.)

• ________ Contract that allows franchisees to
  operate a business developed by the franchiser in
  return for a fee and adherence to parent company
  policies and practices.
• I Cant Believe Its Yogurt, McDonalds, Body
  Shop
• ___________________ A global company provides
  specifications to a local manufacturer to oversee
  production
• Nike
• NOTE The book states that franchising and
  contract manufacturing fall under special
  licensing. I keep them separate.

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3. Foreign Direct Investment

• FDI occurs when a firm makes ______ investments
  in _________ to source, produce and/or market a
  product in a foreign country. Partial or full
  ownership of operations outside of home country
• More extensive form of participation
• Stems out of desire to have partial or full
  control or ownership of operations outside home
  country
• __________ FDI
• FDI in same industry abroad as at home
• Toyota setting up plant in the US
• IBMs plant in Mexico
• __________FDI
• Backward Exxon buying oilfields in
  Siberia(inputs)
• Forward VW acquiring dealerships in US

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3. Foreign Direct Investment (cont.)

• Forms
• Joint ventures
• Ownership or equity stake
• Outright acquisition

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3A. Joint Venture _________ share the ownership
of a newly ________ business entity.

• Advantages
• Limit financial risks exposure to political
  uncertainty
• Learning opportunity about new market environment
• Achieve synergy with partner.
• P G in China
• May be the only way to get into a country.

• Disadvantages
• Share rewards
• Incur significant costs of coordination and
  control
• Potential for conflict
• Corning Glass and Vitro Failed 130 mn. JV
  (cultural clashes)
• Jamont 13 companies from 10 countries
• Incompatible computer systems
• Varying measures of production efficiency
• Partner turns into competitor
• GM Daewoo 1978

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3B. Investment via ownership or equity stake

• Greenfield _______ new facilities
• Buys land, constructs new facilities,
  hires/transfers managers, launches operations
• Mercedes-Benz factory in Alabama
• Mergers Acquisitions
• 1997, PG acquired division of Grupo Carso to
  enter Mexican tissue market
• Acquired manufacturing facilities, brand names,
  and distribution system
• Movement from licensing or JV to ownership
• After 20 years, Ralston Purina ended JV with
  Japanese company to start its wholly owned
  subsidiary (WOS)
• Monsanto Bayer disbanded JVs in favor of WOS in
  Japan
• Minority stakes VW and Skoda (Czech) 31 to 70

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3c Why so many acquisitions?

• _________ factors
• dumping fears
• Path to globalization
• Helene Curtis agreeing to being acquired by
  Unilever
• Access to markets, avoidance of ____ or _________
• Technology transfers and access to new
  manufacturing technologies

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Joint Ventures vs. AlliancesWhats the
difference?

• Some textbooks teach that joint ventures are
  alliances some textbooks teach that joint
  ventures are not alliances. Our textbook
  attempts to keep JVs and alliances separate, but
  blurs them under Global Strategic Partnerships!
  In the end, it truly depends on the definition of
  alliance.
• Remember. a Joint Venture is where two (or
  more?) partners share the ownership of a newly
  created business entity. By the strictest
  definition, an alliance does not create a legal
  separate business entity.

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Examples Of Alliances
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Global Strategic Partnershipsin a nutshell..

• ______ significantly different than partnerships
  (alliances, joint ventures, etc.) done on a
  ________level except that GSPs are on a global
  level (that is, GSPs involve different companies
  in multiple countries).
• Many of the advantages and disadvantages of GSPs
  are the same as those for JVs and alliances.
• Companies are realizing what countries have known
  for a long time ________________!
• Compete yet cooperate.

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Advantages Of GSPs

• _________ product development costs
• Boeing and Japanese consortium for the 777
• International Space Station
• Individual companies may ________ the skills to
  undertake projects independently
• _________ access to national and regional markets
• Provide important and continuous learning
  opportunities
• Race to learn

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Disadvantages of GSPs

• Must share _______ over assigned tasks
• Risk of strengthening a competitor
• Conflict between participants

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Success Factors For Any Partnership, not just GSPs

• _______ Create win-win situations
• Strategy Conflict among different partners
  thought up front
• Governance based on discussion consensus
• _______ Personal chemistry and shared set of
  values
• GEC (UK) and Siemens (Germany) failed
• GEC run by finance, Siemens by engineers
• Organization Innovative structures and designs
• _________ Potentially divisive issues identified
  upfront clear unitary lines of authority
  established resulting in commitment by all
  partners.

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Foreign Cooperative Strategies_________ in Japan

• ____________ alliance or enterprise groups in
  which business families join together to fight
  for market share
• Cemented by bank ownership of large blocks of
  stock, and cross-ownership of stock between a
  company and its buyers and non-financial
  suppliers
• Keiretsu executives can legally sit on each
  others boards, share information, and coordinate
  prices
• Mitsubishi groupsFigure 9-4

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_________ in Korea

• Composed of ______ of companies, centered around
  a bank or holding company, and dominated by a
  founding family
• Samsung
• Hyundai
• Daewoo

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Digital Keiretsu in US

• Alliances between companies in several industries
  that are undergoing transformation and
  convergence
• Computers
• Communications
• Consumer electronics
• Entertainment
• _______ (Consortium for Semiconductor Industry)

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Strategy Choices

• Overall design may require ___________ of the
  various choices
• Avon and Jamont uses both acquisitions JVs to
  enter developing markets
• Strategic approaches _________
• Cummins prefers JVs Caterpillar prefers WOS
• Strategy of a company may change over time
• Borden in Japan moved up from licensing and JV to
  WOS (production, marketing and distribution)

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How high are transportation costs and tariffs?
Export
Low
High
Is Know-how amenable to licensing?
Horizontal FDI
No
Yes
Is tight control over foreign operation required?
Horizontal FDI
Yes
No
Horizontal FDI
Can know-how be protected by licensing contract?
No
Yes
A Decision Framework
Then license
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(Exhibit continues on next slide)
Kotabe Helsen/Global Marketing Management,
2e Chapter 9, Exhibit 09-10
Advantages and Disadvantages of Different Modes
of Entry
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Kotabe Helsen/Global Marketing Management,
2e Chapter 9, Exhibit 09-10 continued
Advantages and Disadvantages of Different Modes
of Entry (Continued)
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Study Guide for Ch. 9

• The slides covered nearly the entire chapter.
  Concentrate on what the entry strategies are, the
  pros/cons of each, keiretsu, chaebol, Sematech