Entry Strategy and

Strategic Alliances
Theme 3
Learning Objectives
1 Explain the three basic decisions that firms
contemplating foreign expansion must make: which
markets to enter, when to enter those markets, and
on what scale.
2 Compare and contrast the different modes that firms
use to enter foreign markets.
3 Identify the factors that influence a firm's choice of
entry mode.
4 Recognize the pros and cons of acquisitions versus
greenfield ventures as an entry strategy.
5 Evaluate the pros and cons of entering into strategic
alliances. 2
Basic Entry Decisions
• Which Foreign Markets?
• Choice based on assessment of a nation’s long-run profit
potential
• Size of the market
• Present and likely future wealth of consumers
• Costs and risks
• Value an international business can create in a foreign market
depends on suitability of its products to that market and the
nature of indigenous competition

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Basic Entry Decisions
Timing of Entry
• First-mover advantages
• Preempt rivals and capture demand by establishing a strong
brand name and customer satisfaction
• Build sales volume in that country and ride down the
experience curve ahead of rivals
• Create switching costs that tie customers into their products
or services

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Basic Entry Decisions
Timing of Entry
• First-mover disadvantages
• Pioneering costs
• The enterprise has to devote considerable effort, time, and
expense to learning the rules of the game.
• Costs of business failure
• Costs of promoting and establishing a product offering,
including the costs of educating customers
• Regulations may change in a way that diminishes the value
of an early entrant’s investments.
• Need to educate customers about your company's
products

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Basic Entry Decisions
Scale of Entry and Strategic Commitments
• A strategic commitment has a long-term impact and is
difficult to reverse.
• Rapid large-scale market entry can have an important
influence on the nature of competition in a market.
• Must be balanced against the resulting risks and lack of
flexibility associated with significant commitments
• Small-scale entry allows a firm to learn about a foreign market
while limiting the firm’s exposure to that market.

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Basic Entry Decisions
Market Entry Summary
• No “right” decisions, depends on risks and rewards
• Businesses based in developing nations also have to enter
foreign markets and become global players

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Entry Modes
• Exporting - the sale of products produced in one
country to residents of another country.
• Turnkey project - project in which a firm agrees to
set up an operating plant for a foreign client and
hand over the “key” when the plant is fully
operational.
• Licensing agreement - an arrangement whereby a
licensor grants the rights to intangible property to
another entity (the licensee) for a specified period,
and in return, the licensor receives a royalty fee
from the licensee.
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Entry Modes
• Franchising - a specialized form of licensing in
which the franchiser not only sells intangible
property (normally a trademark) to the franchisee,
but also insists that the franchisee agree to abide
by strict rules as to how it does business.
• Joint venture - a cooperative undertaking between
two or more firms.
• Wholly owned subsidiary - a firm that owns 100
percent of the stock.

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Advantages and Disadvantages of
Entry Modes
Entry Mode Advantages Disadvantages
Exporting Ability to realize High transport costs
location and Trade barriers
experience curve Problems with local
economies marketing agents
Increased speed
and flexibility of
engaging target
markets
Turnkey contracts Ability to earn Creation of efficient
returns from process competitors
technology skills in Lack of long-term
countries where FDI market presence
is restricted 10
Advantages and Disadvantages of
Entry Modes
Entry Mode Advantages Disadvantages
Licensing Low development costs Lack of control over
and risks technology
Moderate involvement Inability to realize
and commitment location and
experience curve
economies
Inability to engage in
global strategic
coordination
Franchising Low development costs Lack of control over
and risks quality
Possible circumvention Inability to engage in
of import barriers global strategic 11
Strong sales potential coordination
Advantages and Disadvantages of
Entry Modes
Entry Mode Advantages Disadvantages
Joint ventures Access to local partner’s Lack of control over
knowledge technology
Shared development Inability to engage in
costs and risks global strategic
Politically acceptable coordination
Typically no ownership Inability to realize
restrictions location and experience
economies
Wholly owned Protection of technology High costs and risks
subsidiaries Ability to engage in global Need for more human
strategic coordination and nonhuman
Ability to realize location resources; interaction
and experience and integration with local
economies employees 12
Greenfield Venture or Acquisition?

• Acquisition when:
• The firm is seeking to enter a market where there are already
well-established incumbent enterprises
• Global competitors are also interested in establishing a
presence
• Greenfield when:
• There are no incumbent competitors to be acquired
• The competitive advantage of the firm is based on the transfer
of organizationally embedded competencies, skills, routines,
and culture

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Strategic Alliances
• Advantages
• May facilitate entry into a foreign market
• Allow firms to share the fixed costs (and associated risks) of
developing new products or processes
• Brings together complementary skills and assets that
neither company could easily develop on its own
• May help the firm establish technological standards for the
industry that will benefit the firm
• Disadvantages
• May give competitors a low-cost route to new technology
and markets

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Strategic Alliances
Making Alliances Work
• Partner selection
• Alliance Structure
• Reduce the risk of giving away too much to the partner.
• Use contractual safeguards to guard against the risk of
opportunism by a partner.
• Managing the Alliance
• Be sensitive to cultural differences.
• Build trust.

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