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Sess Modes of Entry

Foreign firms face liabilities of foreignness when entering new markets, such as differences in formal and informal institutions between countries. Location-specific advantages, such as natural resources or innovation clusters, influence where firms enter foreign markets. Cultural and institutional distances between the home and host countries also impact foreign entry locations, with some theories suggesting firms initially enter culturally similar countries. When and how firms enter foreign markets, such as through exports, joint ventures, or acquisitions, depends on considerations like first-mover advantages versus disadvantages.

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Pradnya Shah
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70 views14 pages

Sess Modes of Entry

Foreign firms face liabilities of foreignness when entering new markets, such as differences in formal and informal institutions between countries. Location-specific advantages, such as natural resources or innovation clusters, influence where firms enter foreign markets. Cultural and institutional distances between the home and host countries also impact foreign entry locations, with some theories suggesting firms initially enter culturally similar countries. When and how firms enter foreign markets, such as through exports, joint ventures, or acquisitions, depends on considerations like first-mover advantages versus disadvantages.

Uploaded by

Pradnya Shah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

ENTERING FOREIGN

MARKETS

LIABILITY OF FOREIGNNESS
the inherent disadvantage foreign firms experience
in host countries because of their nonnative status
differences in formal and informal institutions
governing the rules of the game in different countries
local firms are already well versed in these rules, but
foreign firms have to learn the rules quickly
foreign firms are often still discriminated against,
sometimes formally and other times informally

WHERE TO ENTER?
location-specific advantages - favorable locations in
certain countries may give firms operating there an advantage

agglomeration - beyond geographic advantages, locationspecific advantages also arise from the clustering of economic
activities in certain locations

natural resource seeking - resources are tied to particular


foreign locations

WHERE TO ENTER?
innovation seeking - firms target countries and regions
renowned for generating world-class innovations

market seeking - firms go after countries that offer strong


demand for their products and services

efficiency seeking

- firms single out the most efficient

locations featuring a combination of scale economies and low-cost


factors

Cultural/Institutional Distances
and Foreign Entry Locations
cultural distance - difference between two cultures along
some identifiable dimensions (such as individualism)

institutional distance - extent of similarity or dissimilarity


between the regulatory, normative, and cognitive institutions of two
countries

stage models - school of thought that believes that firms will


enter culturally similar countries during their first stage of
internationalization and that they may gain more confidence to enter
culturally distant countries in later stages

WHEN TO ENTER?
first-mover advantages - advantages that
first entrants into a market obtain and that later movers do not enjoy

first-movers - may also encounter significant disadvantages,


which in turn become late-mover
advantages

HOW TO ENTER ?
Equity vs Nonequity Modes
nonequity mode

- exports and contractual agreements that

tend to reflect relatively smaller commitments to overseas markets

equity mode - JVs and wholly owned subsidiaries indicative of


relatively larger, harder to reverse commitments

Making Actual Selections


direct export - most basic mode of entry capitalizes on
economies of scale in production concentrated in the home country
and affords better control over distribution

indirect export - exporting through domestically based export


intermediaries

licensing/franchising

- agreement in which the

licensor/franchisor sells the rights to intellectual property such as


patents and know-how to the licensee/franchisee for a royalty fee

Making Actual Selections


turnkey project

- projects in which clients pay contractors to

design and construct new facilities and train personnel

build-operate-transfer (BOT) agreement - nonequity


mode of entry used to build a longer term presence

R&D contract - outsourcing agreements in R&D between


firms

Making Actual Selections


co-marketing - efforts among a number of firms to jointly
market their products and services

joint venture - corporate entity formed and jointly owned by


two or more parent companies

wholly owned subsidiary - entity that is controlled


through the ownership of shares in the subsidiary by the parent
entity

Making Actual Selections


green-field operation - wholly owned subsidiary created by
building new factories and offices from scratch

acquisition

- wholly owned subsidiary created through direct

foreign investment

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