IBUS 1101
Global Business
Entry Strategy
Vikas Kumar
Entry Strategy
Where, when & how?
Advantages, disadvantages, KSFs
Factors affecting entry strategy
Managerial issues
Basic Entry Decisions
› Where? – location choice
› When? – Timing
› How? –
- Scale of entry
- Mode of entry
Research shows that these decisions
are highly inter-connected
St
ra
te
gi
c
Im
po
rt
an
ce
o
f
M
ar
ke
ts
High
Low
Low HighFirm’s Ability to Exploit
the Market
Moderately Attractive
Most Attractive
(Example: Mariott
Full Service Lodging
Moderately Attractive
Least Attractive
(Example: Marriott
Senior Living
Services
Where? Framework for Choice of Markets
(Ikea)
Phased-in entry
US (16)(Canada first ‘76)
China ‘98(Taiwan and
HK first)
Ignore for now
Rapid Entry
Germ ny- ’74(31)
ranc - ’81(13)
Italy- ’89(8)
UK- ’87(11)
Opportunistic entry
Norway- ’63(5)
Denmark- ’69(4)
Finland (2)
Holland- ’79(10)
When? Timing of Entry
› Advantages in early market entry:
- First-mover advantage.
- Build sales volume.
- Move down experience curve and achieve cost advantage.
- Create switching costs.
› Disadvantages:
- First mover disadvantage - pioneering costs.
- Changes in government policy.
Pa
ce
o
f T
ec
hn
ol
og
ic
al

Ev
ol
ut
io
n
Slow
Fast
Slow FastPace of Market Evolution
Moderately Attractive
Most Attractive
(Example: Mariott
Full Service Lodging
Moderately Attractive
Least Attractive
(Example: Marriott
Senior Living
Services
Factors Influencing First-Mover Advantage
Calm Waters
Scotch Tape-3M
Vacuum cleaner-Hoover
The Technology Leads
Digital Cameras-Sony
The M rket Leads
Personal Stereos-Sony
Sewing Machines-Elias Howe
Rough Waters
Cellular Phones-AT&T
Internet Browser-Netscape
Personal Computers-IBM
How? – Scale of Entry
› Large scale entry
- Strategic Commitments - a decision that has a long-term impact and is
difficult to reverse.
- May cause rivals to rethink market entry.
› Small scale entry:
- Time to learn about market – serves as a platform option
- Reduces exposure risk.
How? – Entry Modes
› Exporting
› Turnkey Projects
› Licensing
› Franchising
› Joint Ventures
› Wholly Owned Subsidiaries
Increasing
control
Exporting
›Advantages:
- Low cost entry
- Scale economies at home
- May help achieve experience curve and location
economies
›Disadvantages:
- May compete with low-cost local manufacturers
- Possible high transportation costs
- Tariff barriers
- Possible lack of control over local marketing and after-
sales
Turnkey Projects
› Advantages:
- Can better exploit knowledge asset
- Less risky than conventional FDI
› Disadvantages:
- No long-term interest in the foreign country
- May create a competitor
- Selling process technology may be selling
competitive advantage as well
Contractor agrees
to handle every
detail of project
for foreign client
Licensing
› Advantages:
- Reduces costs and risks of establishing enterprise
- Overcomes restrictive investment barriers
› Disadvantages:
- Lack of control
- Cross-border licensing may be difficult
- Creating a competitor
Agreement where
licensor grants rights to
intangible property to another
entity for a specified period
of time in return
for royalties.
Franchising
› Advantages:
- Reduces costs and risk of establishing enterprise
- Rapid expansion opportunities
› Disadvantages:
- Cumbersome to manage a large number of
franchisees
- Quality control
Franchisor sells
intangible property
and insists on rules
for operating business –
sale of an entire business
system
Joint Ventures
› 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
Wholly Owned Subsidiary – Foreign Direct Investment
(FDI)
› Advantages:
- No risk of losing technical competence to a
competitor
- Tight control of operations
- Realize learning curve and location economies
› Disadvantage:
- Bear full cost and risk
Entry Mode Advantage Key Success Factors
countries where FDI is
restricted
Licensing Low development costs and
risks
Exporting Low risk Choice of distributor
No long-term assets Transportation costs
Easy market access and exit Tariffs and quotas
Licensing No asset ownership risk Quality and trustworthiness
of licensee
Fast market access Appropriability of intellectual
property
Avoids regulations and tariffs Host-country royalty limits
Franchising Little investment or risk Quality control of franchisee
and franchise operations
Fast market access
Small business expansion
Entry Modes: Advantages & KSF
Entry Modes: Advantages & KSF
Entry Mode Advantage Key Success Factors
Franchising
Low development costs and
risks
Lack of control over quality
Inability to engage in global strategic
coordination
Joint
ventures
Access to local partner’s
knowledge
Sharing development costs
and risks
Politically acceptable
Lack of control over technology
Inability to engage in global strategic
coordination
Inability to realize location and
experience economies
Wholly
owned
subsidiaries
Protection of technology
Ability to engage in global
strategic coordination
Ability to realize location and
High costs and risks
Joint ventures Insider access to markets Strategic fit and c mplementarity
Share costs and risk of partner, markets, products
Leverage partner’s skill base, Ability to protect technology
technology, local contacts Ability to share control
Cultural adaptability of partners
Wholly owned Realize all revenues and Ability to access and control
subsidiaries control economic, political and currency
Global economies of scale risk
Strategic coordination Ability to get local acceptance
Protect technology and Repatriability of profits
skill base
Acquisition provides rapid
entry into established
market
Entry Modes: Advantages & KSF
Entry Modes: Advantages & KSF
Entry Mode Advantage Key Success Factors
Franchising
Low development costs and
risks
Lack of control over quality
coordination
Joint
ventures
Access to local partner’s Lack of control over technology
Turnkey operations Revenue from skills and Reliable infrastructure
technology where FDI Sufficient local supplies and labor
restricted Repatriable profits
Reliability of any govt. partner
Entry Modes: Advantages & KSF
Factors Affecting Choice of International Entry Mode
Factor Category
Firm Factors
Examples
› International
experience
› Core competencies
› Corporate culture
› Firm strategy,
goals, and
motivation
Factors Affecting Choice of International Entry Mode
(contd.)
› Industry Factors
› Location Factors
› Industry globalization
› Industry growth rate
› Country risk
› Cultural distance
› Knowledge of local market
› Potential of local market
› Competition in local market
Factors Affecting Choice of International Entry Mode
(contd.)
› Venture-specific
Factors
› Value of firm – assets risked
in foreign location
› Extent to which know-how
involved in venture is
informal (tacit)
› Costs of making or
enforcing contracts with
local partners
› Size of planned foreign
venture
› Intent to conduct research
and development with local
partners
› Pro:
- Quick to execute
- Preempt competitors
- Possibly less risky
› Con:
- Disappointing results
- Overpay for firm
optimism about value
creation
- Culture clash.
› Pro:
- Can build subsidiary it
wants
- Easy to establish
operating routines
› Con:
- Slow to establish
- Risky
- Preemption by
aggressive competitors
Acquisition Greenfield
Acquisition or Greenfield Preferred?
Evolution of Entry Mode Strategy
Evolving Nature of Entry Mode Choices
- Starbucks: Franchising  JV WOS
- China’s Haier in the United States: Direct exports  FDI
(green-field projects)
- Walmart’s 50-50 JV in Mexico and 60-40 JV in Brazil 
full ownership
Entry strategies, even when successful, do not guarantee
international success; post-entry strategies are also
crucial.
Managerial Issue: What Guides Entry
Strategy?
1) a critical evaluation of the advantages (and
disadvantages of each in relation to the firm’s
capabilities,
2) the critical environmental factors, and
3) the contribution that each choice would make to the
overall mission and objectives of the company.
Takeaways
› The overall strategic posture of the firm must
be the guiding force underlying entry decisions
› The optimal entry mode must incorporate an
inter-temporal strategy
› Initial entry is a ‘platform option’ that can be
encashed in the future
- Wal-mart’s JV entry into Mexico was a
platform for an eventual wholly owned
subsidiary
- Honda’s parts plants in small Asia markets are
a platform option in future market growth