Download Global Strategy 1e. - Michael Peng - The University of Texas at Dallas

6
Chapter
6
chapter
Entering
Foreign
Markets
Global Strategy
Strategy
Global
Mike W. Peng
Mike W. Peng
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Outline
• Overcoming the liability of foreignness
• A comprehensive model of foreign market
entries
• Where to enter?
• When to enter?
• How to enter?
• Debates and extensions
• The savvy strategist
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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Overcoming the Liability of Foreignness
• The Liability of Foreignness - the inherent
disadvantage foreign firms experience in host
countries because of their non-native status
• Differences in formal and informal institutions
govern the rules of the game in different
countries
• Foreign firms are often discriminated against
• Foreign firms deploy overwhelming resources
and capabilities to offset the liability of
foreignness
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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Understanding the Propensity to
Internationalize
• The underlying factors
 The size of the firm
 The size of the domestic market
• The propensity
 Enthusiastic internationalizer
 Follower internationalizer
 Slow internationalizer
 Occasional internationalizer
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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Firm Size, Domestic Market Size, and
Propensity to Internationalize
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publicly accessible website, in whole or in part.
Figure 6.1
A Comprehensive Model of Foreign Market Entries
6
A Comprehensive Model of
Foreign Market Entries (cont’d)
• Industry-based considerations
 Rivalry
 Entry barriers
 Bargaining power of suppliers
 Bargaining power of buyers
 Substitute products
• Resource-based considerations
 Value of firm-specific resources and capabilities
 The rarity of firm-specific assets
 Transaction costs
 Methods of organizing firm-specific resources and capabilities
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accessible website, in whole or in part.
A Comprehensive Model of
Foreign Market Entries (cont’d)
• Institution-Based Considerations
 Regulatory risks: Obsolescing bargain
 Trade barriers:
 Tariff
barriers
 Nontariff
barriers (safety inspections, local content
requirements, entry modes restrictions)
 Currency risks: Speculation and hedging
• Synthesis - Different considerations may pull the
foreign entrant in different directions
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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Where to Enter?
Location-Specific Advantages
• Location Specific Advantages
 Geographical advantages
 Agglomeration - clustering of economic activities
• Strategic Goals: Seeking natural resources, markets,
efficiency and innovation
• Cultural/Institutional Distances and Foreign Entry
Locations
 Cultural distance - the difference between two cultures
 Institutional distance - comparing the regulatory, normative, and
cognitive institutions
 Two schools of thought: stage models vs strategic goals
Copyright © 2014 Cengage Learning. All Rights Reserved. May not
be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Where to Enter?
Matching Strategic Goals with Locations
STRATEGIC
GOALS
STRATEGIC
GOALS
LOCATION-SPECIFIC
ADVANTAGES
LOCATION-SPECIFIC
ADVANTAGES
EXAMPLES
IN THE TEXT
ILLUSTRAVTIVE
LOCATIONS MENTIONED IN THE TEXT
Natural
Resource
Seeking
Natural
Resource
Seeking
Possession
of natural
resources
andand
related
Possession
of natural
resources
related
Transport
andand
communication
infrastructure
Transport
communication
infrastructure
Oil inOil
the
East,East,
Russia,
and Venezuela
inMiddle
the Middle
Russia,
and Venezuela
Market
Seeking
Market
Seeking
Abundance
of strong
market
demand
andand
Abundance
of strong
market
demand
customers
willing
to pay
customers
willing
to pay
GM Seafood
in China in Japan
Efficiency
Seeking
Efficiency
Seeking
Economies
of scale
andand
abundance
of of
Economies
of scale
abundance
low-cost
factors
low-cost
factors
Manufacturing
in China
(especially in Shanghai)
Manufacturing
in China
Innovation
Seeking
Innovation
Seeking
Abundance
of innovative
individuals,
firms,
Abundance
of innovative
individuals,
firms,
andand
universities
universities
IT in IT
Silicon
Valley
and Bangalore,
telecom
in Dallas,
in Silicon
Valley
and Bangalore,
financial
services
and aerospace
inand
Russia
in New York
London and aerospace in Russia
Source: First two columns adapted from J. Dunning, 1993, Multinational Enterprises
and the Global Economy (pp. 82–83), Reading, MA: Addison-Wesley.
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not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
CULTURAL/INSTITUTIONAL DISTANCES AND
FOREIGN ENTRY LOCATIONS
Cultural distance difference between two
cultures along
identifiable dimensions.
Ex: individualism.
Institutional distance –
the extent of similarity
or dissimilarity between
regulatory, normative
and cognitive
institutions of two
countries.
 Stage model – suggests that firms enter culturally similar
countries first.
 Alternative model – highlights the importance of strategic goals
rather than cultures and institutions.
11
12
When to Enter?
• First mover advantages
 Developing proprietary, technological leadership
 Preempting scarce assets
 Establishing entry barriers
 Becomes the dominant firm
 Opportunity for relationships with key stakeholders
• Late mover advantages: benefit from first mover
investments, experience, and inflexibility
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accessible website, in whole or in part.
How to Enter?
Scale of Entry: Commitment and Experience
• Large-Scale Entries
 Benefit from a strategic commitment
 Drawbacks of large-scale entries: Limited strategic
flexibility and potential huge losses
• Small-scale entries
 Focus on accumulating experience
 “Learning by doing”
 Drawbacks of small-scale entries
 A lack of strong strategic commitment
 Difficulties in building market share
Copyright © 2014 Cengage Learning. All Rights Reserved. May not
be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
How To Enter?
Modes of Entry: Two Steps
• First step
 Strategists must prioritize variables
 A decision model is helpful
 Non-equity vs equity modes

Level of commitment

Contractual and ownership alternatives
• Foreign direct investment advantages
 Ownership
 Location
 Internalization
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accessible website, in whole or in part.
16
How To Enter?
• The second step: See the following three slides
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accessible website, in whole or in part.
18
Modes of Entry: Advantages and Disadvantages
Table 6.3
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publicly accessible website, in whole or in part.
Modes of Entry: Advantages and Disadvantages
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be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
Table 6.3 (cont’d)
Debates and Extensions
• Liability versus Asset of Foreignness
 Some foreignness can be an asset (“cool”): the
“country of origin” effect
• Global versus Regional Triad Concentration
Geographic Diversification
 Should MNEs truly globalize?
• Old-line versus emerging multinationals: OLI
versus LLL
Copyright © 2014 Cengage Learning. All Rights Reserved. May not
be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
The Savvy Strategist
• Thoroughly understand the dynamism
underlying the industry in a foreign market you
are looking into
• Develop overwhelming capabilities to offset the
liability of foreignness
• Understand the rules of the game
• Match entries with specific goals
Copyright © 2014 Cengage Learning. All Rights Reserved. May not
be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.