Foreign Market Entry
Strategy II
International Business
Strategy
301LON
Unit: 7 Knowledgecast: 2
Module Learning Outcomes
• Integrate and apply
practical
situations
organisations
strategic approaches
in
various
types
to
of
• Resolve management problems in the area of
strategic management by evaluating alternative
outcomes
Internal
Strategy Developmental Methods
External
Organic Development
“Organic development is where
strategies are developed by
building on and developing an
organisation’s own capabilities”.
( Johnson & Scholes 2008:357)
FDI and Collaborative Ventures?
Foreign direct investment (FDI): Strategy
in which the firm establishes a physical
presence abroad by acquiring productive
assets, such as capital, technology, labor,
land, plant, and equipment
• International collaborative venture: A
cross-border business alliance in which
partnering firms pool their resources and
share costs and risks of a venture
• Joint venture (JV): A form of collaboration
between two or more firms to create a
jointly-owned enterprise
Motives for Foreign Direct Investment
Marketseeking
motives
Resourceor assetseeking motives
Efficiencyseeking
motives
• Gain access to
new markets
or opportunities
• Follow key
customers
• Compete with
key rivals in their
own markets
• Access raw
materials
• Gain access to
knowledge or other
assets
• Access
technological and
managerial knowhow available in a
key market
• Reduce sourcing
and production
costs
• Locate production
near customers
• Take advantage of
government
incentives
• Avoid trade
barriers
Key Features of Foreign Direct Investment
1. Represents substantial resource commitment.
2. Implies local presence and operations.
3. Firms invest in countries that provide specific
comparative advantages.
4. Entails substantial risk and uncertainty.
5. Direct investors deal more intensively with
specific social and cultural variables in the host
market.
Examples of FDI
• Vodafone, a British firm, acquired the Czech
telecom Oskar Mobil.
• eBay, a U.S. firm, acquired Luxembourg’s Skype
Technologies, a prepackaged software company.
• Japan Tobacco Inc. acquired the British
cigarette maker Gallaher Group PLC for almost
$15 billion.
• Dubai International Capital Group acquired the
British theme park operator Tussauds Group
for $1.5 billion.
Factors Relevant to Selecting Locations for FDI
FDI Types (Ownership and level of integration)
• Greenfield investment vs. mergers and
acquisitions
• Nature of ownership: Wholly owned direct
investment vs. equity joint venture
• Level of integration:
Vertical vs. Horizontal FDI
Greenfield Investment vs. M&As
• Greenfield investment: Firm invests to build
a new manufacturing, marketing, or
administrative facility, as opposed to acquiring
existing facilities
OR
• “Organic development is where strategies are
developed by building on and developing an
organisation’s own capabilities”
Mergers and Acquisitions
“A merger is a mutually agreed decision
for joint ownership between organisations”.
“An acquisition is where an organisation
takes ownership of another organisation”.
http://www.youtube.com/watch?v=mja3b56pSm
w
( Johnson & Scholes 2008:357)
Level of Integration
• Vertical integration: Firm owns, or seeks to
own, multiple stages of a value chain for
producing, selling, and delivering a product
• E.g., Toyota owns some Toyota car dealerships
around the world. Ford once owned steel mills that
produced steel used to make Ford cars.
• Horizontal integration: Arrangement whereby
the firm owns, or seeks to own, the activities
involved in a single stage of its value chain
• E.g., Microsoft acquired a Montreal-based firm that
makes software used to create movie animation.
International Collaborative Venture
Collaborative ventures, sometimes called
international partnerships or international
strategic alliances, are essentially partnerships
between two or more firms.
Strategic alliance is where two or more
organisations share resources and activities
to pursue a strategy”.
International Collaborative Venture
• A partnership between two or more firms
• Includes equity joint ventures and non-equity,
project-based ventures
• Helps overcome the often substantial risk and
high costs of international business
• Makes possible the achievement of projects
that exceed the capabilities of the individual
firm
Equity vs. Project-Based Joint Ventures
• Equity Joint Ventures are normally formed
when no one party has all the assets needed to
exploit an opportunity. Typically, the local
partner contributes a factory, market navigation
know-how, connections, or low-cost labor.
• A project-based joint venture has a narrow
scope and limited timetable. No new legal entity
is created. Typically, partners collaborate on joint
development of new technologies, products, or
share other expertise with each other. Such
cooperation helps them catch up with rivals in
technology development.
Other Types of Collaborative Ventures
• Consortium: Project-based, usually nonequity
venture with multiple partners fulfilling a large-scale
project
• E.g., commercial aircraft manufacturing (Boeing and
Airbus)
• Cross-licensing agreement: Type of project-based,
nonequity venture where each partner agrees to
access licensed technology developed by the other on
preferential terms E.g., Telecommunications industry
for inventing new technologies
Advantages and Disadvantages
of Collaborative Ventures
Success Factors in Collaborative Ventures
• Half of all global collaborative ventures fail in
the first 5 years of operations due to
unresolved disagreements, confusion, and
frustration. Thus, partners should:
 Be aware of cultural differences
 Pursue common goals
 Pay attention to planning and management
of the venture
 Safeguard core competencies
 Adjust to shifting environmental
circumstances
Knowledgecast Summary
• Integrate and apply strategic approaches to practical
situations in various types of organisations
• Resolve management problems in the area of strategic
management by evaluating alternative outcomes
Seminar
Mini case: Internationalization of French Retailer—Carrefour
(found in chapter 5, page 148 of recommended text by Frynas
& Mellahi)
1. What are the factors responsible for Carrefour's
internationalization?
2a. Assess Carrefour's internationalization effort and profile its
choices (host countries) based on market and economies
(developing, developed and emerging).
2b. Give a generic description of the each classification and its
attractiveness to carrefour.
3. What internationalization strategy is adopted by Carrefour?
(International, Transnational etc.) Support your answer with
specific example from the case.
Group Activity
Assessing National Competitive Advantage
Opening Mini Case: Dubai: The Path to Creating a KnowledgeBased Economy (found on page 177 of your required text)
Requirement
1. Consider the Persian Gulf City-State of Dubai and discuss the
key contributory factor to its National Competitive Advantage.
2. Conduct a brief independent research on the city of Shanghai
and
present
a
comparative
analysis
assessing competitive advantage between Shanghai and Dubai and
draw some conclusion on their attractiveness.