BA 510 International Management - School of Business Administration
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Transcript BA 510 International Management - School of Business Administration
BA 510 International
Management
Doha 2011
Class 5
Review
of Entry Modes
Selecting an Entry Mode
International Manufacturing Strategy
Case Study Discussion: Canada Solar
Pitch preparation; 7 minute Pitches
HOME COUNTRY
HOST COUNTRY
Licensing
Acquisition
MNC
Local Firm
Export
Joint Venturing
“Green Field” Entry
Joint Venture
Company
New Subsidiary
Company
Ship
to another country for sale or
exchange
Advantages:
Avoid cost of establishing manufacturing
operations
Help achieve experience curve and location
economies
Disadvantages:
May compete with low-cost location
manufacturers
Possible high transportation costs
Tariff barriers
Possible lack of control over marketing reps
Licensor
grants rights to intangible
property to another entity for a specified
period of time in return
Advantages:
Reduces development costs and risks of
establishing foreign enterprise
Lack capital for venture; Unfamiliar/volatile market
Overcomes restrictive investment barriers
Others can develop business applications of
intangible property
Disadvantages:
Lack of control
Cross-border licensing may be difficult
Creating a competitor
A
franchiser sells intangible property and
provides guidelines for operating the
business.
Advantages:
Reduces costs and risk of establishing enterprise
Disadvantages:
May prohibit movement of profits from one
country to support operations in another country
Quality control
Advantages:
Benefit from local partner’s knowledge
Shared costs/risks with partner
Reduced political risk
Disadvantages:
Risk giving control of technology to partner
May not realize experience curve or location economies
Shared ownership can lead to conflict
Acquisition
Pro:
Quick to execute
Preempt competitors
Possibly less risky
Con:
Often produce
disappointing results
Overpay for firm
Too optimistic about value
creation (hubris)
Culture clash
Problems with proposed
synergies
Greenfield
Pro:
Can build subsidiary it
wants
Easy to establish
operating routines
Con:
Slow to establish
Risky
Preemption by aggressive
competitors
Basis for Competition
Technological
Know-How
Entry Mode
Wholly owned subsidiary unless
1. Venture is structured to reduce
risk of loss of technology
2. Technology advantage
transitory
Then licensing or joint venture OK
Management
Know-How
Pressure for
Cost Reduction
Franchising, subsidiaries
(wholly owned or joint
venture)
Combination of exporting and
wholly owned subsidiary
SolarWorld
Bonn HQ
Qatar
Polysilicon processing
JV with Qatar Foundation (70%), Qatar Development Bank
(1%) and SolarWorld (29%)
“..a forward integration along the entire solar value chain
all the way to the finished solar power module could be
implemented.”
Portland
Wafers, Cells, and Modules manufacturing
Wholly owned subsidiary, US HQ
Interface
Portland HQ
Engineering
Building engineering and design
General administrative
Sacramento, San Francisco, Seattle and Abu
Dhabi
Building engineering and design
Pressures for Global Efficiency
High
Low
Export
Strategy
Low
High
Pressures for Local Responsiveness
Export
Strategy
Germany
U.S.
Mexico
Malaysia
Pressures for Global Efficiency
High
Low
Export
Strategy
Low
Multi-domestic
Strategy
High
Pressures for Local Responsiveness
Multi-domestic
Strategy
Germany
U.S.
Mexico
Malaysia
Pressures for Global Efficiency
High
Low
Global
Strategy
Export
Strategy
??
Low
Multidomestic
Strategy
High
Pressures for Local Responsiveness
Global
Strategy
Germany
U.S.
Mexico
Malaysia
Pressures for Global Efficiency
High
Low
Global
Strategy
Export
Strategy
??
Low
Transnational
Strategy
Multidomestic
Strategy
High
Pressures for Local Responsiveness
Transnational
Strategy
Germany
U.S.
Mexico
Malaysia
Strategic Importance
of Country
Hi
Lo
Lo
Hi
Attractiveness
of Country/Region
Germany
JV
U.S. H.Q.
Mexico
WOS-G
Malaysia
Export
First-mover
advantage.
Preempt rivals and capture demand
Build sales volume
Move down experience curve before rivals and
achieve cost advantage
Create switching costs
Disadvantages:
First mover disadvantage - pioneering costs
Changes in government policy
Costs early entrant
bears that later
entrant can avoid.
Key
factors
Country: Factor costs, location externalities,
infrastructure
Technological: Economies of scale, manufacturing
flexibility
Product: Value to weight ratio, universality of needs
Determining the Optimal
Location
of Value Chain Activities
The optimal location
of activity X considered
independently
WHERE TO LOCATE
ACTIVITY X?
Where is the optimal location
of X in terms of the cost and
availability of inputs?
What government incentives/
penalties
affect the location decision?
Economic
Cluster
Considerations
What internal
resources and capabilities does
the firm
possess in particular locations?
What is the firm’s business strategy
(e.g. cost vs. differentiation advantage)?
The importance of links
between activity X and
other activities of the firm
How great are the coordination
benefits from co-locating activities?
Favored Manufactured Strategy
Country Factors
Differences in political economy
Differences in culture
Differences in factor costs
Trade barriers
Concentrated
Decentralized
Substantial
Substantial
Substantial
Few
Few
Few
Few
Many
High
High
Low
Low
Technological Factors
Fixed costs
Minimum efficient scale
Flexible manufacturing technology Available
Not Available
Product Factors
Value-to-weight ratio
Serves universal needs
High
Yes
Low
No
What
is the structure of its existing value
chain, both domestic and international?
What options for international market entry
may exist, including but not limited to
manufacturing in China?
What are the possible modes of entry for
expanding its international presence?
If it enters China, what mode(s) of entry
should it consider? What are the pros and
cons of one or more entry modes?
Cluster
Assessment + “Fit-1” (Solar PV Mfg
and Qatar) + “Fit-2” (The Company + Qatar
Industrial Policy
7 minutes
2 page outline