BA 510 International
Management
Doha 2011
Class 5
 Review
of Entry Modes
 Selecting an Entry Mode
 International Manufacturing Strategy
 Case Study Discussion: Canada Solar
 Pitch preparation; 7 minute Pitches
HOME COUNTRY
HOST COUNTRY
Licensing
Acquisition
MNC
Local Firm
Export
Joint Venturing
“Green Field” Entry
Joint Venture
Company
New Subsidiary
Company
 Ship
to another country for sale or
exchange
 Advantages:


Avoid cost of establishing manufacturing
operations
Help achieve experience curve and location
economies
 Disadvantages:
May compete with low-cost location
manufacturers
Possible high transportation costs
Tariff barriers
Possible lack of control over marketing reps
 Licensor
grants rights to intangible
property to another entity for a specified
period of time in return
 Advantages:

Reduces development costs and risks of
establishing foreign enterprise



Lack capital for venture; Unfamiliar/volatile market
Overcomes restrictive investment barriers
Others can develop business applications of
intangible property
 Disadvantages:



Lack of control
Cross-border licensing may be difficult
Creating a competitor
A
franchiser sells intangible property and
provides guidelines for operating the
business.
 Advantages:

Reduces costs and risk of establishing enterprise
 Disadvantages:


May prohibit movement of profits from one
country to support operations in another country
Quality control
 Advantages:



Benefit from local partner’s knowledge
Shared costs/risks with partner
Reduced political risk
 Disadvantages:



Risk giving control of technology to partner
May not realize experience curve or location economies
Shared ownership can lead to conflict
Acquisition
 Pro:
Quick to execute
 Preempt competitors
 Possibly less risky

 Con:

Often produce
disappointing results




Overpay for firm
Too optimistic about value
creation (hubris)
Culture clash
Problems with proposed
synergies
Greenfield
 Pro:
Can build subsidiary it
wants
 Easy to establish
operating routines

 Con:
Slow to establish
 Risky
 Preemption by aggressive
competitors

Basis for Competition
Technological
Know-How
Entry Mode
Wholly owned subsidiary unless
1. Venture is structured to reduce
risk of loss of technology
2. Technology advantage
transitory
Then licensing or joint venture OK
Management
Know-How
Pressure for
Cost Reduction
Franchising, subsidiaries
(wholly owned or joint
venture)
Combination of exporting and
wholly owned subsidiary
 SolarWorld


Bonn HQ
Qatar




Polysilicon processing
JV with Qatar Foundation (70%), Qatar Development Bank
(1%) and SolarWorld (29%)
“..a forward integration along the entire solar value chain
all the way to the finished solar power module could be
implemented.”
Portland


Wafers, Cells, and Modules manufacturing
Wholly owned subsidiary, US HQ
 Interface

Portland HQ



Engineering
Building engineering and design
General administrative
Sacramento, San Francisco, Seattle and Abu
Dhabi

Building engineering and design
Pressures for Global Efficiency
High
Low
Export
Strategy
Low
High
Pressures for Local Responsiveness
Export
Strategy
Germany
U.S.
Mexico
Malaysia
Pressures for Global Efficiency
High
Low
Export
Strategy
Low
Multi-domestic
Strategy
High
Pressures for Local Responsiveness
Multi-domestic
Strategy
Germany
U.S.
Mexico
Malaysia
Pressures for Global Efficiency
High
Low
Global
Strategy
Export
Strategy
??
Low
Multidomestic
Strategy
High
Pressures for Local Responsiveness
Global
Strategy
Germany
U.S.
Mexico
Malaysia
Pressures for Global Efficiency
High
Low
Global
Strategy
Export
Strategy
??
Low
Transnational
Strategy
Multidomestic
Strategy
High
Pressures for Local Responsiveness
Transnational
Strategy
Germany
U.S.
Mexico
Malaysia
Strategic Importance
of Country
Hi
Lo
Lo
Hi
Attractiveness
of Country/Region
Germany
JV
U.S. H.Q.
Mexico
WOS-G
Malaysia
Export
 First-mover
advantage.
Preempt rivals and capture demand
 Build sales volume
 Move down experience curve before rivals and
achieve cost advantage
 Create switching costs

 Disadvantages:
First mover disadvantage - pioneering costs
 Changes in government policy

Costs early entrant
bears that later
entrant can avoid.
 Key



factors
Country: Factor costs, location externalities,
infrastructure
Technological: Economies of scale, manufacturing
flexibility
Product: Value to weight ratio, universality of needs
Determining the Optimal
Location
of Value Chain Activities
The optimal location
of activity X considered
independently
WHERE TO LOCATE
ACTIVITY X?
Where is the optimal location
of X in terms of the cost and
availability of inputs?
What government incentives/
penalties
affect the location decision?
Economic
Cluster
Considerations
What internal
resources and capabilities does
the firm
possess in particular locations?
What is the firm’s business strategy
(e.g. cost vs. differentiation advantage)?
The importance of links
between activity X and
other activities of the firm
How great are the coordination
benefits from co-locating activities?
Favored Manufactured Strategy
Country Factors
Differences in political economy
Differences in culture
Differences in factor costs
Trade barriers
Concentrated
Decentralized
Substantial
Substantial
Substantial
Few
Few
Few
Few
Many
High
High
Low
Low
Technological Factors
Fixed costs
Minimum efficient scale
Flexible manufacturing technology Available
Not Available
Product Factors
Value-to-weight ratio
Serves universal needs
High
Yes
Low
No
 What
is the structure of its existing value
chain, both domestic and international?
 What options for international market entry
may exist, including but not limited to
manufacturing in China?
 What are the possible modes of entry for
expanding its international presence?
 If it enters China, what mode(s) of entry
should it consider? What are the pros and
cons of one or more entry modes?
 Cluster
Assessment + “Fit-1” (Solar PV Mfg
and Qatar) + “Fit-2” (The Company + Qatar
Industrial Policy
 7 minutes
 2 page outline