1. Modes of Entry
Chapter 9, pages

2. Modes of Entering a Country
Wholly owned subsidiary. Sometimes created by an acquisition.
Joint venture. Sometimes created by a merger.
Licensing
Franchising
Exporting and importing
Strategic alliances.
See also: Table 9-1, page 267.

3. Modes of Entry Wholly Owned Subsidiary
A wholly owned subsidiary is an overseas operation that is totally owned and controlled by one MNC. Used when
The MNC wants total control
The MNC believes that the firm will be more efficient without outside partners.
Some countries prohibit wholly owned subsidiaries
Some host countries are concerned that local firms will not be able to compete with the MNC.

4. Modes of Entry Wholly Owned Subsidiary (2)
Home-country unions often view foreign subsidiaries as an attempt to “export jobs”
Today many multinationals opt for a merger, alliance, or joint venture rather than a wholly owned subsidiary

5. Modes of Entry Joint Ventures
An international joint venture (IJV) is An agreement under which two or more companies from different countries own or control a business
In a non-equity joint venture, one firm provides services to another
In an equity joint venture, each firm invests in the business. The firms share the risks and the profits.

6. Modes of Entry Advantages of Joint Ventures
Can create economies of scale or scope that improve efficiency
Access to knowledge: Usually, each partner contributes knowledge or skills
Political factors: The host-country partner can deal with political problems, such as a hostile government or restrictive laws
Avoiding collusion among host-country competitors or restrictions on foreign-owned firms
Example: U.S. firms often enter the Japanese market with a Japanese partner, who handles marketing

7. Modes of Entry Mergers and Acquisitions
This involves a cross-border purchase or exchange of equity (stock) involving two or more companies
If one company buys another, the buying company makes an acquisition. This may create a wholly owned subsidiary, or the acquired company may be absorbed into the buying company.
If each company contributes financially to the new company, the transaction is a merger. Creates a joint venture
The strategic plan of merged companies often calls for each to contribute a series of strengths toward making the firm a highly competitive operation

8. Acquisition Example Bowater was a U. S. paper manufacturer.
Abitibi is a Canadian paper manufacturer.
The paper industry has more capacity than is needed.
In 2007, Abitibi bought Bowater. The new company is called Abitibibowater.
Abitibi is now managing Bowater’s assets and employees.

9. Modes of Entry Merger Example – Springs Global
In 2005, Springs Industries merged with Coteminas, a Brazilian textile firm that had previously done contract manufacturing for Springs
Both companies had been privately owned.
The new company was called Springs Global
Former Springs employees handled marketing and sales in the United States.
Some manufacturing remained in the United States.
Manufacturing headquarters and most manufacturing were in Brazil
Joint supply chain management department
Co-CEO's until 2007

10. Springs Global From Private to Public Ownership
In an effort to keep some manufacturing in the U. S., Springs made incremental efficiency improvements in technology.
Springs’ U. S. manufacturing was still not cost-competitive.
The last U. S. plants were shut down in 2007.
In 2007, Springs Global made an initial public offering in the Brazilian stock market.
The 2 families that owned Springs Global (U.S. and Brazilian) sold a substantial portion of their stock.
The founder of Coteminas is now the sole CEO of Springs Global.

11. Modes of Entry Licensing
A licensor owns an intangible property, such as a patent, copyright, trademark, formula, process, or design
The licensor grants another firm, a licensee the exclusive right to make or sell the good in a particular geographic area for a specified period of time.
The licensee pays a fee (usually a percentage of sales) to the licensor
Often used to market mature products, when competition is strong, and profit margins are low.

12. Modes of Entry Franchising
A franchisor owns a trademark, logo, product line, and management methods.
The franchisor allows a franchisee to use these assets to run a business in a particular location or geographic area, in return for a an initial fee, plus a percentage of sales.
The franchise may be granted for a certain period of time.
Common in hotel, restaurant, and fast food industries

13. Modes of Entry Exporting and Importing
Often the only available choices for small and new firms wanting to go international
Provide an avenue for larger firms that want to begin their international expansion with a minimum of investment
Exporting and importing can provide easy access to overseas markets
For exporting, the choice of a distributor is a key decision
Export/import is usually a first step in globalization

14. Modes of Entry Strategic Alliances
A strategic alliance is a cooperative agreement between firms
Includes joint ventures, long-term contracts, short-term contracts

15. Modes of Entry Advantages of Strategic Alliances
To acquire marketing expertise and political savvy in a foreign market
To share costs and risks
To trade complementary skills and assets
To set an industry standard in technology

16. Strategic Alliance Example NUMMI
New United Motors Corporation (NUMMI)
Joint venture between Toyota and General Motors
Toyota’s goals:
Start building products in the U. S.
Learn about the U. S. market for autos
Learn to manage American workers
G. M.’s goal
Build cars more cheaply
Learn Toyota’s lean production methods

17. Modes of Entry Selecting an Alliance Partner
The two firms should help each other achieve strategic goals
Each must have some skills or assets that the other lacks
The two firms should have a shared vision for the partnership.
The potential partner should have a reputation for "fair play" with partners.

18. Modes of Entry Strategic Alliance Structure
Make it difficult to transfer technology that is not supposed to be transferred. ("Wall off" other technology).
Example: Boeing and Japanese companies cooperated to build the Boeing 767.
Boeing shared production technology with the Japanese firms.
Boeing did not share other research, design, or marketing information.

19. Modes of Entry Strategic Alliance Structure (2)
Put restrictions on marketing, technology, research, or design into the contract as needed.
Agree to swap complementary technologies
Each partner has an incentive to live up to the contract.
If possible, each partner should make a significant financial commitment to the alliance.

20. Modes of Entry Managing a Strategic Alliance
Build trust through informal contacts between objectives.
Communicate effectively and frequently.
Both firms should live up to their commitments.
Learn from your partner.

21. Selecting an Entry Mode
Firms whose core competency is proprietary technology that must be protected
These firms often export or set up a wholly owned subsidiary – these provide the greatest protection for proprietary technology
When these firms use joint ventures or strategic alliances, they try to "wall off" or protect critical technology
This may be hard to do in countries where the legal system does not protect intellectual property

22. Selecting an Entry Mode (2)
Licensing of proprietary technology is risky but is sometimes done
To establish an industry standard
To discourage competitors from developing superior technology
A foreign government will not allow a company to enter its market otherwise

23. Selecting an Entry Mode (3)
Firms whose core competency is management know-how often set up a wholly owned subsidiary or joint venture (j.v.)
Foreign governments often prefer a joint venture
Joint venture provides local knowledge
A joint venture may have a better public image in the host country than a wholly owned subsidiary
Subsidiary or j.v. may own some service outlets and also sell franchises to other owners (hotel chains are a good example)