Strategy in Three Dimensions
, Dorothy Brawley, Bob Desman and Tim Mescon, SouthWestern Publishing
Expected release late 1996, Chapter 6)
When geographical expansion
includes foreign countries, some new strategic considerations
are added to the mix.
At the very least, transcending national borders introduces sociocultural,
political/legal, economic, and technological complexity to the planning process because each new
country adds an additional dimension to each of the institutional variables.
Further complexity is
introduced from interaction effects among the institutions of multiple countries (e.g. compatibility
among financial reporting requirements, product standards, advertising messages, etc.).
Add to this
infrastructure differences, distance, the level of sophistication of foreign customers, and the presence
or absence of support industries (e.g. suppliers, market communications media, repair services, etc.)
and new concerns are spawned.
And then, of course, there is the issue of risk . . . political risk,
economic risk, social risk, ecosystem risk, and infrastructure risk.
Potential risks compel consider-
ation of the depth of the commitment a firm might make in some locales and how the new risks
might best be managed.
Although risk is an on-going issue for all enterprises, the risks associated
with cross-border enterprises will, from the outset, determine whether new locations are approached
boldly or with caution.
The point here is that movement into the global marketplace is somewhat
more complicated than adding new time zones, longer distances, and other languages to a strategy
that was conceived for domestic purposes.
Entry strategies dictate how the firm will create its initial presence in a foreign
Here, consideration is given to the degree of risk to which assets will be exposed; what
assets will have the greatest exposure and their criticality; the degree to which the expanding firm
understands local business conditions and markets; legal and regulatory constraints imposed by both
the home country and the host country that will affect the enterprise; the security of proprietary
and trade secrets; and, the amount of ownership control the expanding firm
requires or desires.
The ultimate entry decision will take one of the following forms.
Licensing and Franchising —
A license or franchise is simply a legal agreement that
permits one firm to use the intellectual property
of another in exchange for a royalty and/or
share of the profits that might accrue to that use.
Intellectual property would include such
things as product and process designs, formulae and recipes, trademarks and brand names,
and copyrighted materials.