[국제경영론] Entering foreign markets (2)

국제경영론 International Business

Chapter. Entering foreign markets (2) 

How : what scale and what nature should this entry have? 

• basic logic of entry mode : more money→ more control
• equity: ownership = control → how much money put in project
• entry mode 선택은 company’s resource, risk tolerance, ,,등등 어떤것이 늘 좋다고는 할수 없고 각각은 장단점이 있음
• 전략적 자원과 타겟 시장의 특성에 따라 equity mode와 non equity mode로 나뉨

1. non equity mode
   • export : direct exports, indirect exports
   • contractual agreements : licensing/franchising, turnkey projects, R&D contracts, co-marketing
2. equity (FDI) mode : significant direct investment in foreign country → high level of commitment, and high risk
   • Joint ventures : minority JVs, 50/50 JVs, majority JVs
   • Wholly owned subsidiaries : green fields, acquisitions

 

• Export
  • “domestically” produced products → sell abroaddon’t need new manufacture facility,, dont put money in entry market
  • → (1) through local independent agency or distributor in foreign country (indirect) or (2) directly to customers
  • Advantages:
    • Avoids cost of establishing manufacturing operations overseas
    • May help achieve the economies of scale
  • Disadvantages:
    • May compete with low-cost location manufacturers
    • Possible high transportation costs
    • Tariff barriers can make it uneconomical
    • Foreign agents fail to act in the exporter’s best interest
• contractual agreements
  • Turnkey project
    • 특정 프로젝트를 시행할 때, 모든 설비가 완공되어 운영할 수 있는 상태로 하여 소유주에게 인도하기로 하는 계약 방식.
    • “Exporting firm” builds a facility overseas, starts it up → host country owner turn over → departs : exporting of process technology
    • ⇒ contractor agrees to handle every detail of project for foreign client
    • Ex: petroleum refining, chemical, pharmaceutical industries. bcs set up is complex and process is based on specifical knowledge
    • Advantages:
      • Can earn a return on knowledge asset (e.g., process technology) they can capitalize their IP
      • Less risky than conventional FDI once the project is complete and hand over
    • Disadvantages:
      • No long-term interest in the foreign country
      • Selling process technology may be selling competitive advantage as well -- May create a competitor
  • licensing
    • Licensor grants rights to licensee for
      • Intangible property use: patents, inventions, formulas, processes, designs, copyrights, trademarks
      • Specified period of time, Specified compensation
    • Licensee typically gives licensor
      • Quality assurance rights (quality control)
      • Strategic brand control if licensee sells to consumers using the licensor’s brand name (consistent image)
    ⇒ agreement in which licensor grants rights to intangible property to another entity for a specified period of time in return for royalties
    • Means to Reduce Risks : Cross-Licensing
      • Amgen and Kirin (양방향으로 기술을 교환, tech 회사에 유용한 방법, 노하우를 서로 공유, 리스크를 줄임, amgen 은 다국적 약 회사 , 바이오 테크의 선두 기업 , kirin 역시 약 산업에서 유명 they benefit each other)
    • advantage
      • Reduces development costs and risks of establishing foreign enterprise
      • Don’t need to commit substantial resources to unfamiliar or politically volatile foreign markets (foreign market은 때때로 정치적으로 unstable,,,)
      • Overcomes restrictive investment barriers. (india- 진행 절차가 굉장히 slow… 따라서 india같은 국가에서는 licensing이 최선의 entry mode일 수 있음. )
      • Others can develop business applications of intangible property.
    • disadvantage
      • Lack of control over manufacturing, marketing, and strategy (disney license: 장난감 만드는 업체에 디즈니 캐릭터 라이선스를 줌 → 그럼 장난감 만드는 업체들이 어떤 장난감을 어던 표정으로 만들지 정하기 때문에 디즈니는 lack of control임)
      • Inability to realize location and scale economies
      • Inability to engage in global strategic coordination (standardization 등과 관련)
      • May lose technology by licensing it (ex. RCA vs. Sony and Matsushita — (rca가 소니와 마수쉬타에게 기술을 라이센싱을 함 → 소니와 마수쉬타가 더 잘하게 됨 → rca의 기술자들이 티비 시장에서 직업을 잃게 됨 )
  • franchising
    • Franchisor, grants franchisee use of intangibles under the condition that franchisee follow strict rules of operating the business
    • Mode of operation is part of the brand image
    • Licensing과 similar
    • Franchiser sells intangible property and insists on rules for operating business
    (franchisor 은 상품규격, 스토어 디자인, 마켓 전략 등에 관한 엄격한 가이드라인등을 따라야함 → brand image consistent 하게 하기 위해 )
    • Advantages
      • Reduces costs and risk of establishing foreign operations (rent, marketing, hire등의 비용을 전부 내지는 않아도됨- local owners use mcdonald brand and pay loyalty, franchising fee to mcdonald)
    • Disadvantages
      • May prohibit movement of profits from one country to support operations in another country (외국에서 돈을 버는 것이니,,)
      • Quality control (master franchising subsidiary)
• Joint ventures (JV)
  • Firms owned jointly by two or more independent firms; (multiple owners→business partnership, to create new company, share the risk, profit, cost)
  • International JVs : One (or more) parent firms are non-resident in the host market
  • Advantages
    • Benefit from the partner’s knowledge (collaborate → learn form each other, new insight, new tech,better understnad local market)
    • Shared costs/risks with a partner
    • Reduced political risks
  • Disadvantages
    • Risk giving control of technology to partner
    • May not have the tight control over subsidiaries for location and scale economies
    • Shared ownership can lead to conflicts
  • minority JVs (less than 50% ownership), 50/50 JVs(split equally between company and foreign partner), majority JVs (your company will have most conrol)
• Wholly owned subsidiaries (WOS)
  • whollly owned subsidiearies (100% ownership, control) : green fields, acquisition, others
  • Firms solely owned by a company in a foreign country subsidiaries could be greenfield investment or acquisitions
  • Advantages
    • No risk of losing technical competence to a competitor
    • Tight control of operations for global coordination
    • Realize location and scale economies
  • Disadvantage
    • Bear full cost and risk (greenfield investment같은,, hight risk high return)
    • Slower to implement

 

selecting an entry mode (how to select entry mode)
: core comepetency 와 cost reduction presssure 고려

• core competencies & entry mode
  • technological know-how
    • if competitive advantage is proprietary tech → licensing, JV 피할 것 → minimize the risk of losing control over tech
    • tech advantage is transitory (일시적인) or firm can establish its tech as the dominant design →licensing 매력적 (high tech들, licensing은 테크놀로지 spread를 빠르게 만들어주므로)
  • management know-how
    • 많은 서비스 회사들의 경쟁우위는 management know how임 , International trademark laws are generally effective for protecting trademarks
    • risk of losing control over management skills to franchisees or joint venture partners is low
    • → Many service firms favor a combination of franchising and master subsidiaries (WOS/JV) to control the franchises within particular countries or regions.
• cost reduction pressure & entry mode
  • 강한 비용 절감 압박을 직면하는 회사들 → pursue combination of exporting and wholly owned subsidiaries (how the firm keep tight control, wos-the subsidiary→ advantage of control the cost and so on. how to match the global strategy is another issue.
  • → Allows the firm to achieve location and scale economies as well as retain some degree of control over worldwide product manufacturing and distribution.
  • global standardization or transnational strategies → tend to establish wholly owned subsidiaries
• green field vs acquisition (dominance of market에 따라 둘 중 하나를 선택할 수 있음)
  • acquisiton
    • pro : Quicker to execute., Enable firms to preempt their competitors., Enable firms to overcome entry barriers., Can be less risky than greenfield ventures.
    • con : However, many acquisitions are not successful
    ⇒ Why Do Acquisitions Fail?
    • Inadequate pre-acquisition screening.
    • Firm overpays for the assets of the acquired firm.
    • Buy the wrong company
    • Clash between the cultures of the acquiring and acquired firm.
    • Optimism about value creation (hubris)
    • Attempts to realize gains by integrating the operations of the acquired and acquiring entities run into roadblocks and take much longer than forecast.
    • (Bad) Fail to realize proposed synergies
    • (Worse) Destroy what you’ve bought!
  • green field
    • Greenfield ventures are attractive because they allow the firm to build the kind of subsidiary company that it wants.
    • Disadvantages of establishing a greenfield venture: • Slower to establish. • Risky because they have no proven track record. • Can be problematic if a competitor enters via acquisition and quickly builds market share.
    Which Choice?− If there are no incumbents or the firm’s competitive advantage is based on the transfer of organizationally embedded competencies, skills, routines, and culture, greenfield might be best. • Things such as skills and organizational culture are much easier to embed in a new venture than in an acquired entity
  • − Dependent on circumstances confronting the firm. − If there are already well-established incumbent enterprises or interest from global competitors, an acquisition is best. • Greenfield may be too slow to establish a presence.
• Strategic Alliance: Formal and mutually agreed commercial collaboration between companies
• Joint Venture: Separate legal organization entity representing the joint equity holdings of two or more parent firms
• joint venture in strategic alliance 친구랑 같이 렌트를 하거나 혹은 같이 집을 사거나 둘 중 하나를 고르는 것과 비슷 , tech knowhow등을 공유할 수 있음, share cost, risk,, promise (?) - how much commitment u want to give and achieve에 따라 달라짐
• range of strategic alliances
  • cross licensing: 서로 맞바꿈, win win for company, → R&D consortia : company share brain power, learn together, but not share secret each other, → co-production (energy에서 좋음,, ) → top is JV ! company comes together