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BUS 381 ch9: Global Market -Entry Strategies

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Which global strategy should depends on
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– Vision – Attitude toward risk – Available investment capital – How much control is desired
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Investment Cost of Marketing Entry Strategies
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– Exporting – Licensing – Contact Manufacturing – Joint Venture – Early Stable or Acquisition
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Licensing
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contractual agreement whereby one company the licensor makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation
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Types of Licensing
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Patent Trade secret Brand name Product formulations
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License
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– Worldwide sales of licensed goods totaled $241.5 billion in 2014 – Disney is the worlds top licensor
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Advantage of Licensing
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– Provides additional profitability with little initial investment – Provides method of circumventing tariffs, quotas, and other export barriers – Attractive ROI
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Advantage of Licensing .
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– Low costs to implement – Licensees have autonomy to adapt products to local tastes – License agreements should have cross-technology agreements to share developments and create competitive advantage for each party
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Disadvantage to Licensing
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-Limited market control – Returns may be lost – The agreement may be short-lived – Licensee may become competitor – Licensee may exploit company resources
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Contract Manufacturing
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– Company provides technical specifications to a subcontractor or local manufacturer – Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities
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Contract Manufacturing
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– May open the firm to criticism if manufacturers operate with harsh working conditions or have low wages –
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Franchising
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– Contract between a parent company-franchisor and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies – Used by the specialty retailing & fast-food industries
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Franchising Question
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-Will local consumers buy your product? -How tough is the local competition? – Does the government respect trademark and franchiser rights? – Can your profits be easily repatriated? – Can you buy all the supplies you need locally? – Is commercial space available and are rents affordable?
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Investment
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– Partial or full ownership of operations outside of home country – Foreign Direct Investment (FDI)
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Forms of Investment
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– Joint ventures – Minority or majority equity stakes – Outright acquisition
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Joint Venture
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– Entry strategy for a single target country in which the partners share ownership of a newly-created business entity – Builds upon each partner’s strengths – Examples: Budweiser and Kirin (Japan), GM and Toyota, GM and Daewoo in S. Korea, Ford and Mazda, Chrysler and BMW
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Advantage of Joint Ventures
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– Allows for risk sharing-financial and political – Provides opportunity to learn new environment
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Advantage of Joint Venture
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– Provides opportunity to achieve synergy by combining strengths of partners – May be the only way to enter market given barriers to entry
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Disadvantage of Joint Venture
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– Requires more investment than a licensing agreement – Must share rewards as well as risks – Requires strong coordination
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Disadvantage of Joint Venture
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– Potential for conflict among partners – Partner may become a competitor
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Disadvantage of Joint Ventures
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– Requires strong coordination Potential for conflict among partners – Partner may become a competitor
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Equity Stake
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is an investment – Minority 50% – Full-ownership = 100%
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Start up of new Operation
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Greenfield operations or Greenfield investment – slowly acquire more stakes
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Investment via. Equity or Full ownership
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– Merger with an existing enterprise – Acquisition of an existing enterprise – Examples: Roche acquired Genentech in 2008 for $43 billion
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Issues in Acquisitions
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– Globalization is driving acquisitions; smaller firms cannot expand without a partner – Ownership circumvents tariffs & quota barriers, gets new markets, allows technology transfers and gain new manufacturing methods.
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Alternative for Market Entry
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Licensing, joint ventures, minority or majority equity stake, and ownership—are points along a continuum of alternative strategies for global market entry and expansion.
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Company alternative for market entry
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Companies may use a combination Ex. Borden Foods stopped licensing for branded food products in Japan and set up its on production, distribution & marketing but kept JVs in non-food products
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Global Strategic Partnership
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Possible Terms – Collaborative Agreement – Strategic Alliance – Strategic International Alliance – Global Strategic Partnership
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Nature of Global Strategic Partnership
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3 type: Customer, Competitor, markets 3 Cooperation : Shared Benefit, Independence of Participants, Ongoing Contribution
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Characteristic of Global Strategic Partnership
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– Participants remain independent following formation of the alliance – Participants share benefits of alliance as well as control over performance of assigned tasks – Participants make ongoing contributions in technology, products, and other key strategic areas
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5 Attribute of True Global Strategic Partnership
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1) Two or more companies develop a joint long-term strategy 2) Relationship is reciprocal 3) Partners’ vision and efforts are global
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5 Attribute of True Global Strategic Partnership .
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4) Relationship is organized along horizontal lines not vertical 5) When competing in markets not covered by alliance, participants retain national and ideological identities
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Success Factor of Alliances
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– Mission: – Strategy: – Governance:
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Mission
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Successful GSPs create win-win situations, where participants pursue objectives on the basis of mutual need or advantage.
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Strategy
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A company may establish separate GSPs with different partners; strategy must be thought out up front to avoid conflicts.
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Governance
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Discussion and consensus must be the norms. Partners must be viewed as equals.
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Culture
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Personal chemistry is important, as is the successful development of a shared set of values.
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Organization
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Innovative structures and designs may be needed to offset the complexity of multi-country management.
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Management
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Potentially divisive issues must be identified in advance and clear, unitary lines of authority established that will result in commitment by all partners.
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Alliance with Asian Competitors
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Western companies must learn from Asian firms’ excellence in manufacturing, overcome NIH syndrome, become students, not teachers
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4 common problem areas: alliance with Asian Competitors
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1. Each partner had a different dream 2. Each must contribute to the alliance and each must depend on the other to a degree that justifies the alliance
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problem with alliance with asian competitor
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3) Differences in management philosophy, expectations, and approaches 4) No corporate memory
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Cooperative Alliance in Japan: Keiretsu
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– Company that work in multiple industry – Inter-business alliance or enterprise groups in which business families join together to fight for market share
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Japan: Keiretsu cooperation
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– Often cemented by bank ownership of large blocks of stock and by cross-ownership of stock between a company and its buyers and non-financial suppliers – Keiretsu executives can legally sit on each other’s boards, share information, and coordinate prices
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Horizontal Keiretsu
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– Big Six: Mitsui, Mitsubishi, Sumitomo, Fuyo, Sanwa, DKB Groups – Horizontal keiretsu: intragroup relationships involve shared stock holdings and trading relations
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Horizontal Keiretsu.
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– Large, powerful with revenues in hundreds of billions – Can block foreign suppliers causing higher prices – Promotes corporate stability, risk sharing, long-term employment –
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Vertical Keretsui
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– Hierarchical alliances between manufacturers and retailers – Matshusita sells its products through its chain of National stores; 50-80% of products are Matshusita brands Panasonic, Technics, and Quasar
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Vertical Keretsui
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– Manufacturing keretsui: Vertical hierarchical alliances between automakers suppliers, and component manufacturers
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Cooperative Strategies in South Korea: chaebol
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– Composed of dozens of companies, centered around a bank or holding company, and dominated by a founding family – Samsung, LG, Hyundai, Daewoo
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21st Century Cooperative Strategies: Targeting the Digital Future
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– Alliances between companies in several industries that are undergoing transformation and convergence – Computers – Communications – Consumer electronics – Entertainment
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21st century cooperative strategies
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– Semantech: Consortium of 14 tech companies tasked with saving the U.S. chip-making industry – Relationship enterprise: groupings of firms from different industries and countries with common goals and act as one entity – Next stage of evolution of the strategic alliance -Super-alliance – Virtual corporation
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Market expansion strategy
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Companies must decide to expand by – Seeking new markets in existing countries – Seeking new country markets for already identified and served market segments
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1. Narrow Focus
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– Concentration: Concentration – county and market concentration involve targeting a limited number of customer segment in a few county – starting point
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2. Country Focus
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Country concentrate and market diversify – company serve many market in a few country
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3. Country Diversification
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– country diversification and Market diversification – classic global strategies a company seek out world market for a product
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4. Global Diversification
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Country and market diversification – global and multi business company
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Which of the following market expansion strategies seeks new country markets for? already-identified and served market? segments?
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Country diversification and market concentration
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For the home? company, which of the following is one of the goals of a global strategic partnership? (GSP)?
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Market Access
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From the example of? Anheuser-Busch, what is critical to success in the Japanese? market?
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Access to Distribution
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Which of the following is a U.S. technology alliance created to keep the U.S.? chip-industry from losing market share to? Japan?
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Sematcech
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Which of the following terms refer to the startup of new? operations?
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Greenfield Investment
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When forming a global strategic partnership? (GSP), which of the following factors is considered critically? important?
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Learning from partners
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Which of the following market expansion strategies could be used for an American company wanting to diversify within the United States rather than going? global?
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Country Concentration and Market Diversification
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?________ represents a special category of cooperative strategy in Japan that has been described as? “a fighting clan in which business families join together to vie for market? share.”
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Keiretsu
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Which of the following best describes American? businesses’ major concern with the Japanese keiretsu??
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Keiretsu own more than half of the? Japanese-affiliated manufacturing plants in the United States
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A(n) ________ is a grouping of firms in different industries and countries held together by common goals that encourage them to act as a single firm
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Relationship Enterprise
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Which of the following market expansion strategies is typically the starting point for most? companies?
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Country and Market Concentration
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Which of the following is credited with being the driving force behind South? Korea’s economic growth between 1960 and? 1990
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Chaebol
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Which of the following would be the first choice for a Japanese automaker looking for a? supplier?
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use keiretsu Company
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Which of the following is a general term that refers to capital that flows out of the home country as companies invest in? plants, equipment, and other? assets?
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FDI: Foreign Direct Investment
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Success for which of the following organizations will depend on its ability to gather big? data, analyze that? data, and then make intelligent decisions based on that? data?
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Virtual Corporation
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One of the principles of forming a global strategic partnership? (GSP) tells us that although partners are pursuing mutual goals in some? areas, they are? _______
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Competitors in other areas
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________ is defined as a contractual arrangement whereby one company makes a legally protected asset available to another company in exchange for some form of compensation.
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Licensing
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Which of the following market expansion strategies best serves the? global, multi-business? company?
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Country and Market Diversification
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Which of the following is a major problem in connection with joint ventures in developing? countries?
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Outdated regulatory & Legal System
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Which of the following is key to licensing strategy? success?
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Ensuring ongoing Competitive Advantage
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Specifically, which of the following has great appeal to local entrepreneurs who are anxious to learn and apply? Western-style marketing? techniques?
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Franchising
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What is the main benefit of a licensing agreement where the licensee is typically a local? business?
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Avoidance of barriers for foreign companies doing business
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Benefits of a joint venture entry strategy include sharing of? risk, a good way to learn about a new market? environment, and? ________.
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Allowing partners to achieve synergy
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Which of the following represents hierarchical alliances between manufacturers and retailers in? Japan?
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Keiretsu
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Which of the following refers to a method of guarding against unintended transfers of technology in a GSP between a Western company and an Asian? company?
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