Chapter 12a Entering Foreign Markets

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Unformatted text preview: 12-1Click to edit Master subtitle styleChapter 12Entering Foreign Markets12-2IntroductionQuestion:How can firms enter foreign markets?Firms can enter foreign markets throughexportinglicensing or franchising to host country firmsa joint venture with a host country firma wholly owned subsidiary in the host country to serve that market The advantages and disadvantages of each entry mode is determined bytransport costs and trade barrierspolitical and economic risksfirm strategy12-3Basic Entry DecisionsQuestion:What are the basic entry decisions for firms expanding internationally?A firm expanding internationally must decidewhich markets to enterwhen to enter them and on what scalehow to enter them (the choice of entry mode)12-4Which Foreign Markets?Firms need to assess the long run profit potential of each marketThe most favorable markets are politically stable developed and developing nations with free market systems, low inflation, and low private sector debtThe 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 need12-5Timing of EntryAfter a firm identifies which market to enter, it must determine the timing of entryEntry is early when an international business enters a foreign market before other foreign firmsEntry is late when a firm enters after other international businesses have already established themselves in the market12-6Timing of EntryFirms entering a market early can gain first mover advantagesincludingthe ability to pre-empt rivals and capture demand by establishing a strong brand namethe 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 entrantsthe ability to create switching costs that tie customers into their products or services making it difficult for later entrants to win business12-7Timing of EntryFirst mover disadvantages are the disadvantages associated with entering a foreign market before other international businessesThese may result inpioneering costs (costs that an early entrant has to bear that a later entrant can avoid) such asthe costs of business failure if the firm, due to its ignorance of the foreign environment, makes some major mistakesthe costs of promoting and establishing a product offering, including the cost of educating the customers12-8Scale of Entry and Strategic CommitmentsFirms 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 reverseSmall-scale entry can be attractive because it allows the firm to learn about a foreign market, but at the same time it limits the firms exposure to that market12-9...
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Chapter 12a Entering Foreign Markets - 12-1Click to edit...

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