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Unformatted text preview: Chapter 12 - Entering Foreign Markets Entering Foreign Markets INTRODUCTION A) This chapter is concerned with two closely related topics: the decision of which foreign markets to enter, when to enter them, and on what scale; and the choice of entry mode. B) There are several different options open to a firm that wishes to enter a foreign market, including exporting, licensing or franchising to host country firms, setting up a joint venture with a host country firm, or setting up a wholly owned subsidiary in the host country to serve that market. Each of these options has its advantages and each has its disadvantages. C) The magnitude of the advantages and disadvantages associated with each entry mode are determined by a number of different factors, including transport costs and trade barriers, political and economic risks, and firm strategy. The optimal choice of entry mode varies from situation to situation depending upon these various factors. Thus while it may make sense for some firms to serve a given market by exporting, other firms might serve the same market by setting up a wholly owned subsidiary in that market, or by utilizing some other entry mode. BASIC ENTRY DECISIONS A) There are three basic decisions that a firm contemplating foreign expansion must make: which markets to enter, when to enter those markets, and on what scale. Which Foreign Markets? B) The choice between different foreign markets must be made on an assessment of their long run profit potential. This is a function of a large number of factors, many of which we have already considered in depth in earlier chapters. C) Other things being equal, the benefit-cost- risk tradeoff is likely to be most favorable in the case of politically stable developed and developing nations that have free market systems, and where there is not a dramatic upsurge in either inflation rates, or private sector debt. It is likely to be least favorable in the case of politically unstable developing nations that operate with a mixed or command economy, or developing nations where speculative financial bubbles have led to excess borrowing. D) If an international business can offer a product that has not been widely available in a market and that satisfies an unmet need, the value of that product to consumers is likely to be much greater than if the international business simply offers the same type of product that indigenous competitors and other foreign entrants are already offering. Timing of Entry E) Once a set of attractive markets has been identified, it is important to consider the timing of entry . With regard to the timing of entry, we say that entry is early when an international business enters a foreign market before other foreign firms, and late when it enters after other international businesses have already established themselves in the market....
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This note was uploaded on 08/09/2010 for the course INTB 3351 taught by Professor Priest during the Fall '08 term at University of Houston.
- Fall '08