chapter nine
Entry Strategies
Pages 280 - 289
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.
Entry Strategies and
Ownership Structures
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Export/import
Wholly-owned subsidiary
Acquisitions and mergers
Alliances and joint ventures
Licensing
Franchising
9-2
Importing and Exporting
– Often the only available choices for small
and new firms wanting to go international
– Also permits larger firms to begin
international expansion with minimum
investment
– Permits easy access to overseas suppliers
and markets
– Export/import is usually a first step in
globalization
9-3
Importing
• Manufacturers often import parts and raw
materials
• "Hollow corporations" do their own research
and development, product design, and
marketing. They hire contract manufacturers to
produce the goods.
• A customs broker can be hired to handle
customs paper work and make sure that the
company is not over-charged on tariffs.
9-4
Managing Exporting (1)
• An export management company (EMC) is a
firm that acts as its client's export department
by managing the legal, financial, and logistical
details of exporting, and providing advice
about consumer needs and available
distribution channels in the foreign markets the
exporter wants to penetrate. The EMC
– May handle the details of exporting for a fee
– May take title to the goods and market them
9-5
Managing Exporting (2)
• A company can also set up its own export
management department.
• This department may rely on
– foreign freight forwarders who arrange
transportation
– customs brokers in the destination country
9-6
Distribution Options for Exporters
who do not use EMC's
1. Hire a foreign distributor
–
Does the distributor have the expertise to
distribute and service the product?
– What else does the distributor distribute?
– Is the distributor financially stable?
Note: The exporter and the distributor may have conflicts
about pricing and marketing strategy.
2. Set up your own distribution system.
9-7
Wholly Owned Subsidiaries
• A wholly owned subsidiary is an overseas
operation that is totally owned and controlled
by one MNC. Used when
– The MNC wants total control
– The MNC believes that the firm will be more
efficient without outside partners.
• Some countries prohibit wholly owned
subsidiaries
• Some host countries are concerned that local
firms will not be able to compete with the
MNC.
9-8
Wholly Owned Subsidiaries (2)
• Home country unions sometimes view foreign
subsidiaries as an attempt to “export jobs”
• Today many MNCs opt for an alliance or joint
venture than a fully owned subsidiary
9-9
Mergers and Acquisitions
• These involve a cross-border purchase or
exchange of equity (stock) involving two or more
companies
– If one company buys another, the buying company
makes an acquisition. This may create a wholly
owned subsidiary, or the acquired company may be
absorbed into the buying company.
– If each company contributes financially to the new
company, the transaction is a merger.
9-10
Mergers and Acquisitions (2)
• The strategic plan of merged companies often
calls for each to contribute a series of
strengths toward making the firm a highly
competitive operation
• Common problems
– Cultural differences
– Transition costs
– Eliminating duplication of effort
9-11
Merger Example
Springs Global
• In 2005, Springs Industries merged with
Coteminas, a Brazilian textile firm that had
previously done contract manufacturing for
Springs
• Both companies had been privately owned.
• The new company was called Springs Global
• Co-CEO's until 2007
9-12
Merger Example
Springs Global (2)
• Springs employees handled marketing and
sales in the United States.
• Some manufacturing remained in the United
States.
• Manufacturing headquarters and most
manufacturing were in Brazil
• Joint supply chain management department
9-13
Springs Global
From Private to Public Ownership
• In an effort to keep some manufacturing in the U. S.,
Springs made efficiency improvements in technology.
– Springs’ U. S. manufacturing was still not cost-competitive.
– Nearly all U. S. plants were shut down in 2007.
• In 2007, Springs Global made an initial public offering in
the Brazilian stock market.
– The 2 families that owned Springs Global (U.S. and Brazilian)
sold a substantial portion of their stock.
– The founder of Coteminas is now the sole CEO of Springs
Global.
9-14
Alliances and Joint Ventures
• An alliance is any type of cooperative
relationship among different firms
– In a non-equity venture, the companies do not
share ownership of a business. Typically, one firm
provides a service for another
• An international joint venture (IJV) is a type of
alliance in which two or more partners from
different countries own or control a business.
– If two or more companies own stock in the business,
the joint venture is an equity joint venture.
9-15
Advantages of
Alliances and Joint Ventures
• Greater efficiency
– The companies share skills and knowledge.
– The companies may have greater economies of
scale
• Host country market knowledge
• Ability to enter host country distribution
channels and make deals with local customers
9-16
Advantages of
Alliances and Joint Ventures (2)
• Political factors: A host country partner can
deal with political issues and meet government
demands for a local partner.
• In a joint venture, the partners share costs,
risks, and benefits.
9-17
Strategic Alliance Recommendations
1. Know partner well before alliance is formed.
2. Expect differences in alliance objectives.
Resolve these in advance if possible.
3. Be careful about concluding that a potential
partner has the skills and resources that your
company needs.
4. Be sensitive to the partner's needs.
5. Work on developing a relationship of trust
with the partner.
9-18
Licensing
• A licensor owns an intangible property, such
as a patent, copyright, trademark, formula,
process, or design
• The licensor grants another firm, a licensee
the exclusive right to make or sell the good in
a particular geographic area for a specified
period of time.
• The licensee pays a fee (usually a percentage
of sales) to the licensor
9-19
When Licensing is Used
1. To market mature products, when profit
margins are low, and competition is strong.
2. Avoid host country government requirements
to make a major foreign investment.
3. The licensor is a small firm with limited
financial and managerial resources.
4. The licensor spends a large share of its
revenue on research and development.
9-20
Franchising
• A franchisor owns a trademark, logo,
product line, and management methods.
• The franchisor allows a franchisee to use
these assets to run a business in a
particular location or geographic area, in
return for a an initial fee, plus a percentage
of sales.
• The franchise is usually granted for a
certain period of time.
9-21
Franchising (2)
• Common in hotel, restaurant, and fast food
industries
• Can be highly profitable for franchisor and
franchisee
• Adjustments in the product line may be
required.
9-22