10239 Entry Modes in International Business 11

8/10/2019 10239 Entry Modes in International Business 11

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Exporting

Licensing

Franchising

Turn key Projects

Wholly owned subsidiaries


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The franchising system can be defined as: A

system in which semi-independent business

owners (franchisees) pay fees and royalties

to a parent company (franchiser) in returnfor the right to become identified with its

trademark, to sell its products or services,

and often to use its business format and

system.


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1.Low political risk

2.Low cost

3.Allows simultaneous expansion into

different regions of the world


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Franchisees may turn into future competitors

Demand of franchisees may be scarce whenstarting to franchise a company, which canlead to making agreements with the wrongcandidates

A wrong franchisee may ruin the companysname and reputation in the marketComparing to other modes such as exporting

and even licensing, international franchisingrequires a greater financial investment toattract prospects and support and managefranchisees.


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Subway

McDonald's

7-Eleven

Hampton Inns & Suites

Great Clips

Dunkin' Donuts


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A turnkey project refers to a project when

clients pay contractors to design and

construct new facilities and train personnel.

A turnkey project is way for a foreigncompany to export its process and

technology to other countries by building a

plant in that country.

Industrial companies that specialize incomplex production technologies normally

use turnkey projects as an entry strategy


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Advantage

It is the possibility for a company to

establish a plant and earn profits in a foreign

country.Disadvantage

From the companys perspective it include

risk of revealing companies secrets to

competitors.


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1.Bechtel and Fluor, which have built many

foreign plants and projects.

2.Congentrix an American power company has

built electric power generation plants in several

countries.

3.An entire automobile plant was constructed in

Russia by Fiat, the famous Italian company.

4.Foreign companies have built hospitals in

Saudi Arabia; and South Korean, Chinese, and

Indian companies have built highways in Africa

and Middle East under Turnkey contracts.


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Any cooperative effort between two or

more

independent organizations to develop,

manufacture or sell products or services.This form of cooperation lies between M&A

and organic growth.


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Horizontal strategic alliance

Vertical strategic alliances

Intersectoral strategic alliances


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Joint venture is a strategic alliance in which two or more firmscreate a legally independent company to share some of theirresources and capabilities to develop a competitive advantage.

Equity strategic allianceis an alliance in which two or more firmsown different percentages of the company they have formed bycombining some of their resources and capabilities to create a

competitive advantage. Non-equity strategic allianceis an alliance in which two or more

firms develop a contractual-relationship to share some of theirunique resources and capabilities to create a competitiveadvantage.

Global Strategic Alliances working partnerships betweencompanies (often more than two) across national boundaries and

increasingly across industries, sometimes formed betweencompany and a foreign government, or among companies andgovernments


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The advantages of forming a strategic alliance

include:

Allowing each partner to concentrate on their

competitive advantage.

Learning from partners and developing

competencies that may be more widely

exploited elsewhere.

Adequate suitability of the resources and

competencies of an organization for it to

survive.

To reduce political risk while entering into a new

market.


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Risk of losing control over proprietary

information, especially regarding complex

transactions requiring extensive coordination

and intensive information sharing.

Coordination difficulties due to informal

cooperation settings and highly costly

dispute resolution

Documents

10239 Entry Modes in International Business 11