Chap012 - Chapter 12 Chapter Entering Foreign Markets...

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Chapter 12 Chapter 12 Entering Foreign Markets
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12-2 Introduction Question: How can firms enter foreign markets? Firms can enter foreign markets through exporting licensing or franchising to host country firms a joint venture with a host country firm a wholly owned subsidiary in the host country to serve that market The advantages and disadvantages of each entry mode is determined by transport costs and trade barriers political and economic risks firm strategy
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12-3 Basic Entry Decisions Question: What are the basic entry decisions for firms expanding internationally? A firm expanding internationally must decide which markets to enter when to enter them and on what scale how to enter them (the choice of entry mode)
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12-4 Which Foreign Markets? Firms need to assess the long run profit potential of each market The most favorable markets are politically stable developed and developing nations with free market systems, low inflation, and low private sector debt The less desirable markets are politically unstable developing nations with mixed or command economies, or developing nations where speculative financial bubbles have led to excess borrowing Success firms usually offer products that have not been widely available in the market and that satisfy an unmet need
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12-5 Timing of Entry After a firm identifies which market to enter, it must determine the timing of entry Entry is early when an international business enters a foreign market before other foreign firms Entry is late when a firm enters after other international businesses have already established themselves in the market
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12-6 Timing of Entry Firms entering a market early can gain first mover advantages including the ability to pre-empt rivals and capture demand by establishing a strong brand name the ability to build up sales volume in that country and ride down the experience curve ahead of rivals and gain a cost advantage over later entrants the ability to create switching costs that tie customers into their products or services making it difficult for later entrants to win business
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12-7 Timing of Entry First mover disadvantages are the disadvantages associated with entering a foreign market before other international businesses These may result in pioneering costs (costs that an early entrant has to bear that a later entrant can avoid) such as the costs of business failure if the firm, due to its ignorance of the foreign environment, makes some major mistakes the costs of promoting and establishing a product offering, including the cost of educating the customers
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12-8 Scale of Entry and Strategic Commitments Firms that enter foreign markets on a significant scale make a major strategic commitment that changes the competitive playing field This involves decisions that have a long term impact and are difficult to reverse Small-scale entry can be attractive because it
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This note was uploaded on 04/23/2011 for the course ECON 103 taught by Professor Econ during the Spring '11 term at Universitas Katolik Parahyangan.

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Chap012 - Chapter 12 Chapter Entering Foreign Markets...

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