Entering Foreign Markets
23 important questions on Entering Foreign Markets
Two ways liability of foreigness manifests
First, numerous differences in formal and informal institutions govern the rules of the game in different countries
Second, although customers in this age of globalization supposedly no longer discriminate against foreign firms, the reality is that foreign firms are often still discriminated against either formally or informally.
How do firms crack new markets?
Industry-based considerations on the degree of competitiveness
- Rivalry among firms
- Entry barriers/scale economies
- Bargaining power of suppliers
- Bargaining power of buyers
- Substitute products/services
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Institution-based considerations on country risks
- Regulatory risks
- Trade barriers
- Currency risks
- Cultural distances
- Institutional norms
Rivalry among established firms may
The higher the entry barriers
Bargaining power of suppliers
Extensive backward integration
Bargaining power of buyers may lead to certain foreign market entries
The market potential of substitute products
The organization of firm-specific resources
Well-known regulatory risk
3 rounds of obsolescing bargain
- MNE and government negotiate a deal. The MNE is usually not willing to enter in the absence of government assurance of property rights, earnings or incentives
- MNE enters and if all is well and earns profits that may become visible
- The government, often pressured by domestic political groups may demand renegotiations of the deal seems to yield " excessive " profits to foreign firms
Local content requirements
Natural resource seeking
Benefits large scale entries
Drawbacks large scale entries
1. Limited strategic flexibility
2. Huge losses if these " large-scaled" bets turn out to be wrong
Choice of entry: Non-equity modes
- Exports
- Direct exports
- Indirect exports
- others
Strategic alliances:
- contractual agreements
- Licensing/franchising
- Turnkey projects
- R&D contracts
- Co-marketing
Choice of entry: Equity (FDI) modes
Strategic alliances
- joint ventures (JVs)
- Minority JVs
- 50/50 Jvs
- Majority Jvs
Wholly owned subsidiaries (WOS)
- Greenfields
- Acquisitions
- others
3 principal advantages of MNE
Ownership
Location
Internalization
Contractual (non-equity-based) alliances
Industry-based considerations ( strategic alliances & networks)
- Collaboration among rivals (horizontal alliances)
- Entry barriers scaled by alliances
- Upstream/downstream vertical alliances with suppliers/buyers
- Alliances and networks to provide substitute products/services
Resource-based considerations ( strategic alliances & networks)
- Value-added must outweigh costs
- Rarity of relational capabilities and desirable partners
- Imitability of firm-specific and relationship-specific capabilities
- Organization of alliance activities at the firm and relationship levels
The question on the page originate from the summary of the following study material:
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