1. Entry strategy and Strategic Alliances
chapter 14
Entry strategy and Strategic Alliances

2. Case1 GE joint venture Opening case
Case implications- evolution
Started in acquisition and Greenfield approach- why? for full control.
Shift since Year 2000 to joint ventures- example, GE Money with Hyundai to offer auto loans.
Acquisitions have been bid so high to discover later on hidden problems in the acquired firm.
Economic, political, and cultural considerations make Joint venture less risky than Greenfield approach. So the local partner may take care of these issues.
Some countries like china for example prohibit other entry modes.
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3. GE’s Joint Ventures
6. Joint ventures now GE’s preferred entry strategy. 7. And this is a very important point- GE has no problem in finding international partners. Why? 8. Partners like GE Management competencies. 9. So it is a win-win situation- mgt Vs local market knowledge. Different forms of partner ownership. Minority partner – veto power. Majority partner 50/50
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4. Case2 Tesco’s international growth strategy page 472
Tesco is the largest grocery store in the UK similar to Carrefour. Tesco competencies: marketing, store site, logistics and inventory mgt, private label product offerings. Competencies lead to cash flow- lead to strategy of overseas expansion. To decide, would you go to established markets or to emerging markets? --they went to eastern Europe and Asia with few competitors and underlying growth trends. --huge investments in joint ventures and acquisitions in these countries and in china.
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5. Case2 Tesco’s international growth strategy
2007 Tesco had over 800 stores outside its homeland, with 7.6 billion Euros and 1,900 stores generating 30 billion Euros.
Success factors for Tesco:
1- knowledge transfer internationally, transferring its core capabilities in retailing.
2- hiring local managers and supporting them with Tesco Method.
3- teaming up with good companies- value added approach. Or synergy. We got the retailing know how and financial strength and you got the deep understanding of your local market. Joint venture rules for success.
4-seeking markets with good growth potential but lack strong indigenous (local) competitors.
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6. Case2 Tesco’s international growth strategy page
In March 2006 entered US. (contradiction, right?). No. Used Tesco Express Concept After its success in five countries. Differentiate before you enter. 1- smaller stores 2-high quality prepared health food 3- unique idea in the US.
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7. Case2 Tesco’s international growth strategy page 472
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8. Case 3 The Jollibee
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9. Case 3 The Jollibee
Jollibee is A Philippine Multinational store began 1975 as an ice cream store.
Copy Mc by benchmarking
Look for weaknesses while benchmarking
Tailoring its menu to local taste with secret spices.
It outperformed Mc in Philippine.
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10. Case 3 The Jollibee
1n 1980 strong confidence to expand internationally.
Follow countries with Pilipino people.
In the US saturated but did well.
The store started to receive Filipinos and ended up having more non- Filipinos than Filipinos in the US. Taco Bell has the same story.
Now over 100 stores in china and in its way to India
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11. Case 4 Cisco and Fujitsu 2004 Cisco and Fujitsu joint venture
Purpose to develop high speed internet routers in Japan and to have better presence in Japan.
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12. Case 4 Cisco and Fujitsu Alliance goals:
Pool R&D efforts and share technology and develop products more quickly.
Producing more reliable products via Cisco’s proprietary leading edge router technology with Fujitsu’s production expertise .
Fujitsu will give Cisco a stronger sales presence in Japan. Connections and network
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13. Case 4 Cisco and Fujitsu Alliance goals:
4- Fujitsu sells many telecommunication products but lacks a strong presence in routers, whereas Cisco is strong in routers, but lacks strong offerings elsewhere.
This alliance will offer Japan’s telecommunications companies end to end communication solutions- a complete solution not a fragmented one, because many companies like to purchase their equipment form a single provider. This should drive sales.
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14. Case 4 Cisco and Fujitsu
The consequences of this alliance: 1- development cost will be lower 2- Cisco will grow sales in Japan 3- Fujitsu can use cobranded routers to fill out its product line and sell more bundles of products to Japan’s telecommunication companies.
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15. JCB in India Very good closing case page 495
Read this case with your partner.
Answer any two questions
check and confirm answers with your partner.
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16. Group home work Select a company of your own – make it a fun exercise
Go global, step by step
Make your own decision via chapter 14 in terms of
1- which foreign market to enter
2- time and scale
3- entry mode (why for example franchising, and then to joint ventures?).
4-and how did you make your alliances work (effective).
Elect one of you to tell us your success story.
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17. Chapter main elements
Explain the three basic decisions that firms seeking foreign expansion must make: which markets to enter, when to enter those markets, and on what scale?
List some of the advantages and disadvantages of the different modes that firms use to enter foreign markets.
Identify the factors that influence a firm’s choice of entry mode.
Evaluate the pros and cons of acquisitions versus Greenfield ventures as an entry strategy.
Evaluate the pros and cons of entering into strategic alliances.
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18. Entry Strategy and Strategic Alliances
First check GE’s Joint ventures in the opening case page why GE shifted to joint ventures?
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19. 1 Basic Entry Decisions First- which foreign market?
1- nation’s long run profit potential.
2- the value an international business can create in a foreign market.
3- sustainable competitive advantage- the case of Tesco case page
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20. Basic Entry Decisions
The second decision: Timing of entry. It all depends:
1- do you want to be first mover Or
2- do you want to be late mover.
KFC was first to enter China but McDonalds has capitalized on the market on China.
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21. Basic Entry Decisions The third decision is:
the scale of entry and strategic commitment.
ING into the US insurance market in 1999 spending several billion dollars to acquire its US operations----strategic commitment
But it affects the firm’s strategic flexibility
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22. Basic Entry Decisions Large scale entry Vs Small scale entry.
Small scale entry allows a firm to learn about a foreign market while limiting the firm’s exposure to that market. Wait and see. Less risky.
Miss the chance for first mover advantage
Benchmarking for late movers. Look at the Jollibee case page 477.
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23. 1- which foreign market? 2- timing? 3- scale?
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24. 2 Entry Modes Exporting Trunkey Projects Licensing Franchising
Joint ventures
Wholly owned subsidiaries see table 14.1
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25. Selecting an Entry Mode
Core competencies and entry mode.
1- technological know how- avoid joint ventures and licensing in such cases- why? So it is better to go through wholly owned subsidiary.
2- Mgmt Know how – is less risky in services.
Pressure for cost reductions and entry mode
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26.
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27. 3 Greenfield Venture or acquisition
Pros and cons of acquisitions: 1- quick to execute, the case of DaimlerChrysler. 2- competing over global presence, the case of Vodafone in the USA 60 billion dollars acquisition of Air Touch communication in Zain and Fastlink Zain Vs STC
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28. Greenfield Venture or acquisition
3- managers believe acquisitions to be less risky than Greenfield ventures. Studies show declining value after acquisitions by more than 30 to 40 percent.
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29. Why do acquisitions fail?
Overpay for the acquired firm’s assets.
Over estimate ability to create value and revenues.
Too optimistic top mgmt- the case of DaimlerChrysler.
Culture clash between the two cultures
Different mgmt philosophies
Premature decisions with inadequate pre-acquisition screening.
So reversing the above will reduce the risks of failure
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30. Pros and Cons of Greenfield Ventures
Start from scratch the culture, the company, the system, the policies, the operating procedures that you want. The case of Lincoln Electric in Europe failed in acquisition and turned to Greenfield. You may build a culture but you may not convert it or change it easily.
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31. Pros and Cons of Greenfield Ventures
But, they are slower to establish
Risky.
The possibility of being blocked or interrupted by competitors who enter via acquisitions and build a big market presence that limits the market potential for the Greenfield venture
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32. Greenfield or Acquisition?
It all depends on the circumstances but if there is a global competition, acquisition might be better.
Greenfield is good with no competitors to be acquired
So competitive advantage is important
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33. 4 Strategic Alliances
SA refers to cooperative agreements between potential or actual competitors.
Joint ventures – Fuji Xerox
Short term contractual agreements – such as developing a new product.
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34. The advantages of Strategic Alliances
You need a local partner in China to facilitate your entry. NYiT and JUST.
SA allow firms to share the fixed costs and risk.
A way to bring together complementary skills and assets that neither company could easily develop on its own. Sharing now-how and skill.
To establish technological standards for the industry.
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35. The Disadvantages of Strategic Alliances
Steal the Know-How or technology and use as a leverage for one firm at the expense of the other.
Alliance must be built around shared and mutual gain and benefits that can not be obtained otherwise for both partners.
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36. Strategic Alliances To avoid the disadvantages you need to learn:
how to make it work
partner selection
alliance structure
managing the alliance.
End of chapter
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37. Next are just extra slides to enhance your knowledge of strategic alliances
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38. Strategic Alliances
Cooperation between international firms can take different forms.
A strategic alliance is a business arrangement whereby two or more firms choose to cooperate for their mutual benefit.
They may choose to pool R&D, marketing..etc.
Globalization can be a very expensive process, particularly when a firm must perfectly coordinate R&D, production, distribution, marketing, and financial decisions throughout the world in order to succeed. A firm may lack all the necessary internal resources to effectively compete against its rivals internationally. The high costs of researching and developing new products alone may stretch its corporate budget. Thus a firm may seek partners to share these costs. Or a firm may develop a new technology but lack a distribution network or production facilities in all the national markets it wants to serve. Accordingly, the firm may seek out other firms with skills or advantages that complement its own and negotiate agreements to work together. Cooperation between international firms can take many forms, such as cross-licensing of proprietary technology, sharing of production facilities, cofunding of research projects, and marketing of each other's products using existing distribution networks. Such forms of cooperation are known collectively as strategic alliances.
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39. Joint Venture
A joint venture (JV) is a special type of strategic alliance in which two or more firms join together to create a new business entity that is legally separate and distinct from its parents.
A joint venture can be managed in one of three ways.
The founding firms share management by appointing personnel who report to the parent company.
One company assuming prime responsibility.
Independent management team.
Joint ventures are normally established as corporations and are owned by the founding parents in whatever proportions they negotiate. Although unequal ownership is common, many are owned equally by the founding firms.
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40. Figure 13.1 Benefits of Strategic Alliances
Potential Benefits
of Strategic Alliances
Ease of
Market
Entry
Shared
Risk
Shared
Knowledge
and
Expertise
Synergy
and
Competitive
Advantage
A firm wishing to enter a new market often faces major obstacles, such as entrenched competition or hostile government regulations. Partnering with a local firm can often help it navigate around such barriers. A strategic alliance may allow the firm to achieve the benefits of rapid entry while keeping costs down.
Strategic alliances can be used to either reduce or control individual firms' risks.
A firm may want to learn more about how to produce something, how to acquire certain resources, how to deal with local governments' regulations, or how to manage in a different environment—information that a partner often can offer.
Firms may also enter into strategic alliances in order to attain synergy and competitive advantage. These related advantages reflect combinations of the other advantages discussed in this section: the idea is that through some combination of market entry, risk sharing, and learning potential, each collaborating firm will be able to achieve more and to compete more effectively than if it had attempted to enter a new market or industry alone.
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41. Ease of market entry
Elimination of obstacles such as government regulations and strong competition.
For instance, some government may require foreign firms to have local partners.

42. Shared Risk
Much of the costs of some products are paid on research and development before even assessing the market potential.
Shared risk is important when uncertainty and instability is high.

43. Shared knowledge and expertise
Companies may lack knowledge and expertise.
For instance, foreign company may lack the knowledge of dealing with suppliers, or how to deal with government regulations.

44. Synergy and Competitive advantage
Such as creating brand image which might be time consuming and expensive.
Pepsi cola and Lipton:Tea

45. Scope of Strategic Alliances
Scope of alliance could be comprehensive or functional or narrowly defined alliance.
Degree of collaboration depends upon basic goals of each partner.
In comprehensive the partners agree to perform together multiple stages such as design,production..etc.
The scope of cooperation among firms may vary significantly. This is illustrated in Figure 13.2 shown on the next slide.
The scope may consist of a comprehensive alliance, in which the partners participate in all facets of conducting business, ranging from product design to manufacturing to marketing. It may consist of a more narrowly defined alliance that focuses on only one element of the business, such as R&D. The degree of collaboration will depend on the basic goals of each partner.
Comprehensive alliances arise when the participating firms agree to perform together multiple stages of the process by which goods or services are brought to the market: R&D, design, production, marketing, and distribution. Because of the broad scope of such alliances, the firms must establish procedures for meshing such functional areas as finance, production, and marketing for the alliance to succeed. Yet integrating the different operating procedures of the parents over a broad range of functional activities is difficult in the absence of a formal organizational structure. As a result, most comprehensive alliances are organized as joint ventures.
Strategic alliances may also be narrow in scope, involving only a single functional area of the business. In such cases, integrating the needs of the parent firms is less complex. Thus functionally based alliances often do not take the form of a joint venture, although joint ventures are still the more common form of organization. Types of functional alliances include production alliances, marketing alliances, financial alliances, and R&D alliances.
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46. Scope of Strategic Alliances 2
Functional alliances: It usually involves only a single area of the business.
Production: A functional alliance in which companies manufacture products in a shared or common facility.
Marketing alliance: Companies share marketing resources. For instance, one company introduces products into a market the other company has presence in. Or it may take the form of reciprocal marketing in which they market each other products.

47. Figure 13.2 The Scope of Strategic Alliances 3
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48. Scope of Strategic Alliances 4
Financial alliance: For instance, sharing equally the financial resources to the project or one partner may contribute the bulk of financing while the other partner provides special expertise.
R & D: Agree to have joint research to develop new products.

49. Types of Functional Alliances
Production alliances
Marketing alliances
Financial alliances
A production alliance is a functional alliance in which two or more firms each manufacture products or provide services in a shared or common facility. A production alliance may utilize a facility one partner already owns.
A marketing alliance is a functional alliance in which two or more firms share marketing services or expertise. In most cases, one partner introduces its products or services into a market in which the other partner already has a presence. The established firm helps the newcomer by promoting, advertising, and/or distributing its products or services. The established firm may negotiate a fixed price for its assistance or may share in a percentage of the newcomer's sales or profits. Alternatively, the firms may agree to market each others' products on a reciprocal basis.
A financial alliance is a functional alliance of firms that want to reduce the financial risks associated with a project. Partners may share equally in contributing financial resources to the project, or one partner may contribute the bulk of the financing while the other partner (or partners) provides special expertise or makes other kinds of contributions to partially offset its lack of financial investment.
In an R&D alliance, the partners agree to undertake joint research to develop new products or services. An R&D consortium is a confederation of organizations that band together to research and develop new products and processes for world markets. It represents a special case of strategic alliance in that governmental support plays a major role in its formation and continued operation.
R&D alliances
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50. implementation of Strategic Alliances
1. Selection of the appropriate partner.
The factors to consider in selection
Compatibility: choosing partner that can be trusted. For instance, if management style is inconsistent.
Nature of the partner’s products. For instance, it is hard to cooperate with a firm in one market and competing with in another market.
Safeness of the alliance based on success or failure of previous alliances made by the partner.
Potential for learning from the alliance

51. Implementation of SA 2 Partner Selection Form of ownership Joint
management
The success of any cooperative undertaking depends on choosing the appropriate partner(s). Strategic alliances are more likely to be successful if the skills and resources of the partners are complementary—each must bring to the alliance some organizational strength the other lacks. A firm contemplating a strategic alliance should consider at least four factors in selecting a partner (or partners): (1) compatibility, (2) the nature of the potential partner's products or services, (3) the relative safeness of the alliance, and (4) the learning potential of the alliance. These are discussed further on the next slide.
A joint venture almost always takes the form of a corporation, usually incorporated in the country in which it will be doing business. The corporate form enables the partners to arrange a beneficial tax structure, implement novel ownership arrangements, and better protect their other assets. It allows the joint venture to create its own identity apart from those of the partners.
Further issues and questions are associated with how a strategic alliance will be managed. Three standard approaches are often used to jointly manage a strategic alliance (see Figure 13.3 on slides 14-16): shared management agreements, assigned arrangements, and delegated arrangements.
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52. Implementation of SA 3- Factors Affecting Partner Selection
Compatibility
seeking skills and resources
compatibility
Nature of
partner services
Should not have competitive
products in different area
Relative safeness
Gather as much info about
the potential partner
Learning potential
In specific areas of ops
The firm should select a compatible partner which it can trust and work effectively with. Without mutual trust, a strategic alliance is unlikely to succeed. But incompatibilities in corporate operating philosophies may also doom an alliance.
Another factor to consider is the nature of a potential partner's products or services. It is often hard to cooperate with a firm in one market while doing battle with that same firm in a second market. Under such circumstances, each partner may be unwilling to reveal all its expertise to the other partner for fear that the partner will use that knowledge against the firm in another market.
Most experts believe a firm should ally itself with a partner whose products or services are complementary to but not directly competitive with its own.
Given the complexities and potential costs of failed agreements, managers should gather as much information as possible about a potential partner before entering into a strategic alliance.
Before establishing a strategic alliance, partners should also assess the potential to learn from each other. Areas of learning can range from the very specific—for example, how to manage inventory more efficiently or how to train employees more effectively—to the very general—for example, how to modify corporate culture or how to manage more strategically. At the same time, however, each partner should carefully assess the value of its own information and not provide the other partner with any that will result in competitive disadvantage for itself should the alliance dissolve
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53. Implementation of SA 4 2. Forms of Ownership
Joint venture is more likely to take the form of corporation, usually incorporated in the country in which it will be doing business.
The corporate form enables the partners to have its own identity apart from the partners.
Public-private venture in which the government is involved and a privately owned firm. Common in oil industry.

54. Implementation of SA 5 – Joint Management Considerations
There are different approaches.
Shared management agreement: each partner is involved. The managers pass the instructions to the alliance managers. In other words, the alliance managers have limited authority.
Assigned management: One partner assumes primary responsibility.
Delegated arrangement: delegate management control to the executives of the venture.

55. Joint Management considerations
Shared
management
agreements
Assigned
arrangements
Under a shared management agreement, each partner fully and actively participates in managing the alliance. The partners run the alliance, and their managers regularly pass on instructions and details to the alliance's managers. The alliance managers have limited authority of their own and must defer most decisions to managers from the parent firms. This type of agreement requires a high level of coordination and near-perfect agreement between the participating partners. Thus it is the most difficult to maintain and the one most prone to conflict among the partners.
Under an assigned arrangement, one partner assumes primary responsibility for the operations of the strategic alliance.
Under a delegated arrangement, which is reserved for joint ventures, the partners agree not to get involved in ongoing operations and so delegate management control to the executives of the joint venture itself. These executives may be specifically hired to run the new operation or may be transferred from the participating firms. They are responsible for the day-to-day decision making and management of the venture and for implementing its strategy. Thus they have real power and the autonomy to make significant decisions themselves and are much less accountable to managers in the partner firms.
Figure 13.3 illustrates these approaches.
Delegated
arrangements
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56. Figure 13.3a Shared Management Agreement
Both parties are active participants
Partner 1
Partner 2
Alliance
Alliance mgrs have limited authority and must refer to the parent firm for most decisions.
Requires high level of coordination and most prone to conflict.
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57. Figure 13.3b Assigned Arrangement
Partner 1
Partner 2
One partner takes primary responsibility
Alliance
Mgt of the alliance is greatly simplified because of dominant power of one partner
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58. Figure 13.3c Delegated Arrangement
Partner 1
Partner 2
Joint venture
Delegate mgt control to the executives of the JV.
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59. Figure 13.4 Pitfalls of Strategic Alliances
Changing
circumstances
Incompatibility
of partners
Pitfalls
Loss of
autonomy
Access to
information
Incompatibility among the partners of a strategic alliance is a primary cause of the failure of such arrangements. At times, incompatibility can lead to outright conflict, although typically it merely leads to poor performance of the alliance. Compatibility problems can be anticipated if the partners carefully discuss and analyze the reasons why each is entering into the alliance in the first place.
Limited access to information is another drawback of many strategic alliances. For a collaboration to work effectively, one partner (or both) may have to provide the other with information it would prefer to keep secret.
An obvious limitation of strategic alliances relates to the distribution of earnings. The partners must also agree on the proportion of the joint earnings that will be distributed to themselves as opposed to being reinvested in the business, the accounting procedures that will be used to calculate earnings or profits, and the way transfer pricing will be handled.
Just as firms share risks and profits, they also share control, thereby limiting what each can do. Most attempts to introduce new products or services, change the way the alliance does business, or introduce any other significant organizational change first must be discussed and negotiated.
The economic conditions that motivated the cooperative arrangement may no longer exist, or technological advances may have rendered the agreement obsolete.
Distribution
of earnings
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