Chapter Ten Copyright, John Wiley and Sons, Inc. Chapter Ten three Learning Concepts – Chapter Understand the factors that managers must consider in choosing locations for FOREIGN DIRECT INVESTMENT projects. 2. Understand how company goals and experience play into the international location decision. …/… International Entry Strategies. International Entry Strategies.

Chapter Ten Copyright, John Wiley and Sons, Inc. Chapter Ten three Learning Concepts – Chapter 10 (cont) 3. Understand first mover and second mover advantages and liabilities. 4. Understand the variety of entry modes that are available to companies who are interested in operating in a host country environment. International Entry Strategies. International Entry Strategies.

Chapter Ten Copyright, John Wiley and Sons, Inc. DuPont’s Entry Strategies into China Dupont has a great deal of international experience and expertise, and have a variety of entry strategies they use. In china, they used a partnership with Shanghai Photomask Precision Company, and established another with China Worldbest Development to produce photomasks and Spandex, respectively. They also established joint ventures with companies like BASF to overcome trade barriers and establish distribution. Finally, they also established wholly owned subsidiaries to make …/…

Chapter Ten Copyright, John Wiley and Sons, Inc. DuPont’s Entry Strategies into China products that require proprietary technologies they cannot share with others. No company has only one entry strategy. Most choose entry strategies depending upon the necessary goal requirements.

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Selection, overall Location selection is an important decision. Essentially it boils down to deciding where, when, and how to enter, and then implementing that plan.

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Selection (Where) Where, that is country and location within country depends upon a number of factors. Among them are:  Cost/Tax Factors (transportation, wage, availability of land and its costs, construction cost, materials cost, financing costs, tax rates, investment incentives, profit repatriation costs)  Demand Factors (market size and growth, customer presence, local competition) …/…

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Selection (Where)  Strategic Factors (Investment infrastructure, industrial concentration, supply/distribution linkages, workforce productivity, complementary industries)  Regulatory/Economic Factors (Industrial policies, foreign direct investment policies, availability of economic zones)  Sociopolitical Factors (political risk and instability, cultural barriers and openness, local practices, government efficiency and corruption, attitudes toward foreign business, community characteristics, pollution control) …/…

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Selection (Where) Not only must the above factors be considered, but also strategic objectives, global integration, and market orientation objectives must be met. Strategic objectives are related to growth and competitive factors; integration factors are related to access to trading blocs and integrated economies; market orientation factors are related to whether primary target markets are available from the host location.

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Timing (When) This relates to timing of market entry in comparison to other enterprises. Timing is important because it determines the risks and potential returns from the investment. …/…

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Timing (When)  Early Mover Advantages include factors like market power, more preemptive opportunities, and strategic advantages over late movers. …/…

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Timing (When)  Early Mover, however, face environmental and operational risk that can come from host governments’ experience, underdeveloped investment laws and regulations, protectionism, difficulty in overcoming early growth stages, shortages of workers, underdeveloped support services, lack of financing, uncertain foreign exchange, consulting cost burdens, poor infrastructure systems, and unstable market structures.

Chapter Ten Copyright, John Wiley and Sons, Inc. International Entry Mode Selection (How) Entry Modes are specific forms or ways of entering a target country to achieve the strategic goals related to presence in that country. These can be trade related, transfer related, and foreign direct investment related. …/…

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Selection (How) Trade related modes include:  Export, using intermediaries to export products to market through an exporting company while negotiating letters of credit and terms of trade that are favorable.  Subcontracting, includes contracting with a local manufacturer to process goods into finished goods that will distribute into the local market.  Countertrade, where merchandise is traded in a barter-like system. Barter, counterpurchase, buybacks, and offsets and used in this method. …/…

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Selection (How) Transfer related entry modes include:  International Leasing  International Licensing  International Franchising  Build-Operate-Transfer (a.k.a “turn-key operation”) …/…

Chapter Ten Copyright, John Wiley and Sons, Inc. International Location Selection (How) Foreign direct investment related entry modes include:  Branch Office  Cooperative Joint Venture  Equity Joint Venture  Wholly Owned Subsidiary  Umbrella Holding Company

Chapter Ten Copyright, John Wiley and Sons, Inc. International Selection: Decision Framework Companies look for favorable country, industry, firm, and project factors.  Country, favorable policies, infrastructure, property rights, risks, cultural distance.  Industry, favorable entry barriers, industrial uncertainty and complexity, availability of supply and distribution.  Firm, favorable resource possession, minimal proprietary resource leakage, favorable strategic goal achievement, favorable experience with host.  Project factors like size, financial orientation, and availability of partners.

Chapter Ten Copyright, John Wiley and Sons, Inc. International Selection: Decision Framework In essence, the more experience a firm has, and the more complex the project, the more likely the entry mode will be foreign direct investment related. This can be a Greenfield Investment, an Acquisition, or a Merger.

Chapter Ten Copyright, John Wiley and Sons, Inc. FDI Options  A Greenfield Investment is an initial establishment of fully owned facilities and operations.  An Acquisition is a cross border transaction in which an acquiring firm buys an established local firm.  An international merger shares the logic of equity joint ventures and is a cross border transaction in which two firms merge their operations.