International Business Chapter 12 – Flashcards
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Timing of entry
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entry is early when a firm enters a foreign market before other foreign firms and late is vice versa
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First Mover Advantages
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advantages from being first to a market
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First Mover Disadvantages
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problems with entering a foreign market before other businesses
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Pioneering costs
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costs that an early entrant must bear that later people can avoid. Learning curve
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Exporting
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sale of products produced in one country to residents of another country
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Turnkey project
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project in which a firm agrees to set up an operating plant for a foreign client and hand over the "key" when the plant is fully operational
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Licensing
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when a firm licenses therights to produce its product, or brand
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2 advantages of exporting
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1. avoids costs of establishing manufacturing in other countries 2. exporting helps a firm achieve experience curve and location economies
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3 disadvantages of exporting
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1. might not be appropriate in the case of lower cost production being available abroad 2. High transport costs 3. Tariff barriers
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An Advantage of Turnkey projects
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less risky than conventional FDI
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3 Main disadvantages
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the firm that enters into a turnkey deal has no long term interest in a country 2. the firm that enters may inadvertently create a competitor 3. if a firm's technology is a source of competitive advantage than the deal may expose that advantage
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3 Advantages of Licensing
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1. firm does not have to bear the development costs and risks associated with opening a foreign market 2. when a firm is prohibited by barriers or risk 3. whena firm possesses some intangible property that might ahve business aplications
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3 disadvantages of Licensing
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1. Does not give the firm tight control over manufacturing, marketing and strategy 2. may require a firm to coordinate strategic moves across countries by using profits in one country to support competitive attacks in another country 3.licensing technology to foreign companies
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2 ways to reduce Licensing risk
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1. enter into a cross licensing agreement (both companies license tech to each other) 2.Link an agreement to license know-how with the formation of a joint venture
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Franchising
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specialized form of licensing in which the franchiser sells property to the franchisee and insists on rules
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Joint Venture
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Establishing a firm that is jointly owned by two or more otherwise independent films
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An Advantage of a Franchise
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firm is relieved of many of the costs and risks of opening a foreign market on its own
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2 disadvantages of Franchising
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1. inhibition of a firm to take profits out of one nation to support competitive attacks 2. Quality Control
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Joint Venture
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Establishing a firm that is jointly owned by two or more otherwise independent firms
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3 advantages of a joint venture
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1. firm benefits from local partner's knowledge 2. When the development costs of opening a foreign market are high, firm gains by sharing these costs 3. political considerations make joint ventures the only feasible way in some nations
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3 disadvantages of joint ventures
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1. a firm that enters into a joint venture risks giving control of its technology to its partner 2. a joint venture does not give a firm the tight control over subsidiaries that it might need to realize experience curves 3. can lead to conflicts for control
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Wholly Owned Subsidiaries
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a subsidiary a firm owns 100%
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4 Advantages of Wholly Owned Subsidiaries
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1. reduces risk of losing control 2. control over operations 3. may be required if a firm is realizing location and experience curve economies 4. 100% share in profits
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2 disadvantages of Wholly Owned Subsidiaries
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1. Most costly method of serving a foreign market 2. Difficulties in trying to marry divergent corporate culture
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Greenfield strategy
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establish a wholly owned subsidiary in a country from the ground up
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3 major advantages of acquisitions
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1. quick to execute 2.acquisitions can preempt competitors 3. acquisitions may be less risk than greenfield ventures
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4 reasons acquisitions fail
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1. acquiring firm overpays for the assets of the acquired 2. clash between the two cultures 3. roadblocks in integrating operations 4. inadequate pre-acquisition screening
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Big Advantage of Greenfield Venture
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allows a company much greater ability to build the kind of subsidiary it wants
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3 disadvantages of Green Field Ventures
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1.slow to establish 2. Risky 3. possibility of being preempted by more aggressive competitors
