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Entry Modes
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Internationalization Strategies
EMBA Class of 2017
Internationalization Risks: CAGE
• Cultural Distance• Administrative Distance• Geographic Distance• Economic Distance
Entry Modes
Entry Modes
Ownership and Control
Inve
stm
ent R
isk
ExportingLicensing
FranchisingAlliances and JVs
Subsidiaries/Acquisitions
Exporting
• Creating goods in the home country and shipping to another country
• Good place to start because low-cost way of seeing if products are appealin
Licensing
• Granting a foreign company the right to create or sell your product in exchange for a fee
• Common with patented technologies
• Avoids costs
Franchising
• Renting a firm’s brand name and business process.
• Common in service industries• Little financial investment from the
franchisor• Typical U.S. franchisor has 140
domestic locations before moving overseas
Alliances & Joint Ventures
• Strategic Alliance describes firms that create agreements to work together without forming a new organization.
• Equity Joint Venture is when two or more organizations each contribute to creation of a new entity
• Advantages• Provides local knowledge• Facilitates acceptance in local markets• Clears regulatory paths
Subsidiaries• Business operation in a foreign country that a
firm fully owns.• Demonstrates strategic commitment, which is
affirming for customers, suppliers and investors
• Types:• Greenfield Operation is building a subsidiary
from scratch.• Acquisition, sometimes called a brownfield
operation
Acquisitions
• Acquisition: Takes place when one company purchases another company. The acquired company is (generally) smaller than the firm that purchases it
• Merger: Joining of two companies into one. Involves similarly sized companies
• Takeover: A special type of acquisition when the target firm did not solicit the acquiring firm’s bid for outright ownership.
Acquisitions
If shareholders don’t gain value from acquisitions, then why do firms acquire other firms?
Acquisitions
• Complementary assets/resources• Friendly as opposed to hostile• Careful, long selection processes• Maintain financial slack, Low-to-moderate debt• Maintain key personnel• Sustain emphasis on innovation (continued R&D)• Flexibility (managerial experience with change)
Acquisition Success