1

Chapter 9:
Entry strategies, alliances
and evolution
 ❖ To establish the major decisions a firm needs to make when
entering an international market
❖ To identify the six modes of foreign market entry and their
advantages and risks, and the key criteria that shapes a firm’s
Aims of the choice.
❖ To introduce and establish the relative merits of strategic
chapter alliances, acquisitions and green and brown field strategies as
modes of foreign market entry
❖ To identify how firms evolve their presence internationally over
time, and the strategies they can adopt.
 ❖ Explain the four decisions a company must address when
entering foreign markets: why enter a foreign market, which
market(s) to enter, when to enter the market(s) and on what scale
and level of ownership
❖ Describe the advantages and disadvantages of the major ways
>200
that small and medium enterprises (SMEs) and multinational
enterprises (MNEs) can enter foreign markets
Learning ❖ Identify the key factors that shape a company’s choice of entry mode
Outcomes ❖ Assess the advantages of acquisitions versus greenfield ventures
as entry strategies
❖ Assess why companies enter into strategic alliances and the
factors that can make such an entry mode effective or ineffective
❖ Determine how individual companies evolve and expand
their international presence.
Essential ❖ Willcocks, L. Global business: strategy in context.
reading (Stratford-upon-Avon: SB Publishing, 2021a) Chapter
6
 ❖ Cantwell, J. et al. ‘An evolutionary approach to understanding international
business activity’, Journal of International Business 41 2010, pp.567–86.
❖ Ghemawat, P. The new global road map: enduring strategies for turbulent
times. (Boston: Harvard Business Review Press, 2018).
❖ Hennart, J. ‘Down with MNE-centric theories! Market entry and expansion
as the bundling of MNE and local assets’, Journal of International Business
40 2010, pp.1432–54.
❖ Hoffmann, W., ‘Strategies for managing a portfolio of alliances’, Strategic
Further reading Management Journal 28 2007, pp.827–56.
❖ Khanna, T. and K. Palepu ‘Emerging giants: building world class companies
in developing countries’, Harvard Business Review 84(10) 2006, pp.60–69.
❖ Peng, M. and K. Meyer International business. (London: Cengage Learning,
2019) Chapters 11, 12 and 14.
❖ Rothaermal, F., S. Kotha et al. ‘International market entry by US internet
firms’, Journal of Management 32(1) 2006 pp.56–82.
❖ Tanev, S., ‘Global from the start: the characteristics of born global firms in
the technology sector’, Technology Innovation Management Review March
2012, pp.5–8
 The decision to enter foreign
markets

❖ The decision to enter a foreign market breaks down into four

decisions.
❖ If you are a small or medium enterprise (SME) your reasons
and decisions may be very different from those of a
multinational (MNE).
❖ Both types of businesses are considered here, though the
main focus will be on MNEs.
lower overhead costs and standardization of the product that doesn't need localization this is known as born global products that doesn't need product development.

Why enter a foreign market?

❖ The obvious reason to seek foreign markets is to
expand sales revenues.
❖ Ex: Kaspersky Lab with anti-virus software for home
and company use.
❖ This is easily adaptable for international markets. The
company started very small in 1997 but by 2008 was the
fourth largest supplier in the world.
❖ They did this by gaining funding initially through
foreign licensing agreements, expanding using foreign
sales partners, then launching local offices, initially in
the UK, Poland, Holland and China, but then other
countries were gradually added.
❖ Its dramatically successful growth is one that many
SMEs seek to replicate, though each has its own
distinctive set of challenges on the road to
internationalisation.
 Why enter a foreign
market?
❖ Some MNEs, may well have sufficient
financial resources and be mature enough to
act on a larger-scale and longer-term basis and
be able to invest directly in establishing
subsidiaries abroad.

9
 moving to a country to use natural,
title energy/generators, creating electricity out of waves,
1. Natural resource-seeking
Common objectives of
2. Market-seeking
MNE’s to enter new
locations 3. Efficiency-seeking Vietnams garment industry workers

(Peng and Meyer, 2015) 4. Innovation-seeking. movement to superintelligence countrires

 Common ❖ Pearl River Piano, founded in 1956, has experienced a long-
objectives of term evolution towards internationalisation and becoming a
multinational. (Willcocks, 2021)
MNE’s to ❖ Over time, the company has diversified its product range,
producing over 10,000 pianos a year and exporting them to
enter new over 80 countries. This success is a testament to the
locations importance of entering new markets for companies to thrive.
 12
Which markets to enter?
❖ The answer to this question depends on a company's
objectives, as market-seeking companies consider
market size, consumer purchasing power, and domestic
and foreign competition.
❖ Natural resource-seeking companies seek quantity,
quality, and low-cost resources, while efficiency-
seeking companies seek low-cost, productive, and
reliable local workforces.
❖ Total cost, not just labor costs, is a vital calculation for
efficiency-seeking companies.
impossible food - plant based meat. WhatsApp high switching costs
tesla - electric cars.

12
When to enter?
❖ Entering a market before competitors can give first-
mover advantages.

1. Pre-empting rivals by establishing a strong brand

name
2. Building up sales volume and riding down the
experience curve ahead of rivals, gaining a cost
advantage over later entrants
3. Creating switching costs that tie customers to products
or services, making it difficult for later entrants to win
business.
 first mover that failed the firephone chat GPT - model collapse - ChatGPT->LLM->data.
using the same data and using data to generative itself
less human verified data replaced to generative data.

12
When to enter?
❖ However, being a first mover can also have risks and
disadvantages, including:

1. The risks and costs of business failure, if inexperience

in the foreign market leads to major mistakes

2. Pioneering costs where the foreign business

environment is so different that major time, effort and
expense has to be incurred

3. Costs of promoting and establishing a product offering

and brand.
 12
When to enter?
late mover advantage

Late movers can benefit from early movers' investments in

customer education, market knowledge, and managerial
skills, allowing them to navigate market uncertainties and
technological uncertainties, and enabling them to
differentiate products or services more precisely than early
movers.
Location-specific advantages
4. When to enter?
Scale and ownership
❖ Entering a foreign market involves risk and requires strategic commitment.
❖ MNEs may choose to maintain control by starting a new business in the foreign country or buying
an existing business with market presence. This is known as a greenfield site
❖ Less control and ownership can be achieved through joint ventures with another business, sharing
costs, risks, and profits, and accessing the partner's knowledge, assets, and market presence.
❖ Partial acquisitions may give less ownership and control but can gain size, presence, and existing
know-how in the foreign market.
standard products focus on more on IT infrastructure, communication platforms like cloud computing.
❖ Born global companies, such as Spotify, focus on foreign markets rather than their country of
origin. They initially adopt a lean internationalisation approach, This means running as much of
the business as possible using information technology and the internet, focusing on smaller market
segments, being lean on committing resources, and using intermediaries. This approach is a
contemporary way of entering new foreign markets.
 1

Major Modes of • There are six major ways we see businesses

entering foreign markets.
• Each mode of entry has its advantages and

Entering Foreign disadvantages.

• As a company’s positioning in a foreign market
evolves, you will also see shifts in ownership and

Markets modes of operating in order to achieve further

revenue growth and competitive advantage.
Major Modes of 1

Entering Foreign
Markets
1. Exporting
2. Turnkey projects
3. Licensing
4. Franchising
5. Joint ventures
6. Fully owned subsidiaries
Exporting

❖ Exporting is the sale of products made by companies

in their home country to customers in other countries.
❖ Exporting is a common first step for many
manufacturing firms.
❖ Later, feeling limited in terms of revenue growth, and
lack of control, such firms may switch to another
mode.
willcoks thinks that it creates a stock gap and the need fro using other forms is essential
 letter from a bank guaranteeing that a buyer’s payment to a seller will be received on

Exporting time and for the correct amount. If the buyer is unable to make a payment on the
purchase, the bank will be required to cover the full or remaining amount of the
purchase.

Exporting is attractive because:

• It avoids the costs of establishing local manufacturing
and service operations.
• It helps firms achieve experience curve and location
economies.
• Lack of trust on payment can be overcome by a letter of
credit, working through the banks of the buyer and
supplier.
• Export intermediaries are usually available in the
exporting country with the expertise to help facilitate
exports to a range of other countries. These are
especially used by SMEs. The exporter can also employ
its own sales agents, on commission fees, in the foreign
country, or sell the products to a distributor, who is a
local intermediary in the foreign country trading on their
own account
Exporting high risk of uncertainty due to geopolitical issues

However, exporting might also be unattractive because:

• There may be lower-cost locations for manufacturing the

products abroad that are not being taken advantage of.
• High transport costs and tariffs can make it
uneconomical.
• Agents in a foreign country cannot be closely controlled.
• There may be restrictions on the amount of revenue
growth that can be achieved.

suce canal and the hoothirables and the pirate issues limiting trade and exports
effectively outsourcing production process/ construction. outsourcing contraction from a different country.

Turnkey projects
❖ In a turnkey project the foreign contractor agrees to handle
every detail of the project for a local client, including
training personnel.
❖ After designing and constructing the new facility, the
contractor completes the contract by handing the client the
‘key’to the plant that is ready for full operation – which
gives it the term turnkey.
❖ A variant is the build-operate-transfer model, which
includes the contractor managing the facility for fees after
the construction has been completed.
❖ Turnkey projects are most common in the metal refining,
pharmaceutical, petrol refining and chemical industries. All
of these use complex and expensive production
technologies.
❖ Turnkey projects are a means of exporting such know-how
to foreign countries lacking these competencies. The
approach is also popular in the construction and
engineering industries for large infrastructure projects.
 Turnkey projects
Turnkey projects are attractive because:.
❖ They are a way of earning economic returns from the
know-how required to assemble and run a technologically
complex process.
❖ They can be less risky than more conventional forms of
foreign direct investment
However, problems with turnkey projects include:
❖ The contractor company has no long-term interest in the
foreign country so market growth may be small.
❖ The contractor company may create a local competitor that
can grow to compete globally.
❖ If the contractor company is supplying process technology
or knowhow that is its own source of competitive
advantage, then selling this through a turnkey project is
also selling competitive advantage to potential
competitors.
Licensing Patent - licensing the process / design of the product - Apple face ID
Apple has a patent to its lightening connector,

A licensing agreement is where a licensor grants the rights to

intangible property to another entity (the licensee) for a
specified period in return for a royalty fee paid by the
licensee. Intangible property includes patents, inventions,
formulas, processes, designs, copyrights and trademarks

Licensing has several advantages:

• It avoids development costs and risks associated with
opening a foreign market.
• It avoids barriers to investment (e.g. in the case of US-
based Xerox, the Japanese government prohibited Xerox
from setting up a fully owned subsidiary in Japan).
• The company can capitalise on market opportunities
without developing additional marketing, administrative
and operational capabilities itself.
Licensing
Licensing also has several disadvantages:
• The company does not have tight control over
manufacturing, marketing and strategy needed to
gain economies from experience curve and location
advantages.
• For a technology-based company, lack of control
over the technology and intellectual property (IP)
may become a problem.
• The company’s ability to coordinate strategic moves
across countries is constrained.
• Proprietary or intangible assets could be lost.
 Franchising
❖ Franchising is a specialized, longer-term form of
licensing where the franchiser not only sells intangible
property to a franchisee (e.g. a trademark), but also
insists on tight rules regarding how it does business.
❖ The franchiser will also often assist the franchisee to
run the business on an ongoing basis.
❖ Typically the franchiser receives a royalty payment,
usually a percentage of the franchisee’s net revenues.
❖ Whereas licensing is used primarily by manufacturing
firms, franchising is used primarily by service
companies. The obvious example globally is
McDonalds.
the difference between franchise and licensing is for quality assurance and quality control and especially in cases of service based company

Franchising
The advantages of franchising include:
❖ It avoids the costs and risks of opening up a foreign
market.
❖ A company can quickly build a global presence.

However, a business needs to take into account certain risks of

franchising, including:
❖ It may inhibit the company’s ability to take profits out of one
country to support competitive attacks in another.
❖ Geographical and administrative distance from the
franchisee may make it difficult to detect poor quality.
ghost kitchens which ideally goes between licensing and franchising

17
Franchising

❖ Poor quality at one branch can hurt the brand globally. For
example, travelers expect the same quality of experience in
a Four Seasons hotel in Hong Kong as in New York. If they
experience variable quality, they may be dissuaded from
staying in this brand of hotel in the future.
 ❖ A joint venture (JV) involves establishing a company
that is jointly owned by two or more otherwise
independent companies.
❖ US multinational General Electric has in recent years
used joint ventures to enter foreign markets like Spain
Joint ventures and South Korea where its units lacked a strong
presence.
❖ JVs are typically 50/50 owned by the partners, but
minority ownership is also frequent, though this
sometimes creates issues around power, direction and
control.

18
 Joint ventures examples
Sony Ericsson (Sony and Ericsson):
•Industry: Telecommunications (Mobile Phones)
•Overview: Sony Ericsson was a joint venture between
Sony Corporation and Ericsson to manufacture mobile
phones. It operated from 2001 to 2012, producing a range
of mobile devices.

Hulu (Disney, NBCUniversal, and Comcast):

•Industry: Media and Entertainment (Streaming)
•Overview: Hulu is a streaming platform formed as a
joint venture among Disney, NBCUniversal (now part of
Comcast), and 21st Century Fox (now part of Disney). It
offers a variety of TV shows, movies, and original
content.
 Joint ventures
Joint ventures can be attractive because:
1. Companies benefit from a local partner’s
knowledge of local conditions, culture, language,
political systems, legal know-how and business
systems.
2. The costs and risks of opening a foreign market are
shared.
3. JVs often satisfy local political considerations for
market entry.
 21

But joint ventures run a number of risks

1. The company risks giving control of its
technology to its partner.
2. The company may not have the tight control
needed to realize economies from the experience
curve or from location economies or to
coordinate attacks against rivals on a global
Joint ventures basis.
might lead to active conflicts in the business..
3. Shared ownership can frequently lead to
conflicts and battles for control if goals and
objectives differ or change over time, or power
imbalances develop between the parties.
4. JVs can be difficult to coordinate globally
bueracracy in paper work, too much
Damro expanding into India. franchising is the intermediary runing the business for you by licensing the brand name

Fully Owned Subsidiaries

❖ The company owns 100 per cent of shares in the
subsidiary. A fully owned subsidiary can be defined as a subsidiary located in a foreign country
that is entirely owned by the parent multinational.

Advantages

• They reduce the risk of losing control over core competencies.

• The company gains 100 per cent of the profits earned in the foreign market.
• They can help in the protection of key technologies and intellectual property.
• They give tight control over operations in different countries, which is necessary for engaging
in global strategic coordination.
• They may be required in order to gain location and experience curve economies. This is
important where a company wishes to establish a fully optimised global production system, or
where there are intense cost pressures in the specific industry, for example.
• Companies pursuing global standardisation or transnational strategies (see Chapter 7) tend to
prefer establishing fully owned subsidiaries, which allow them more opportunity for creating an
integrated global strategy.
greenfield strategy is where a local company buids the business from scratch and foreign business
buying business that already exists
26

❖ Fully owned subsidiaries may also be unattractive, not

least because the company bears the full risk and cost of
setting up overseas.
❖ One additional decision a company needs to make if going
Fully owned down the fully owned subsidiary route is whether to adopt a
greenfield or acquisition strategy.
subsidiaries ❖ In a greenfield strategy the company builds the subsidiary
from the ground up, as opposed to acquiring an existing
company.
❖ The main advantage of a greenfield venture is that it gives
the company a greater ability to build the kind of subsidiary
company it needs.
 27

❖ Companies also often discover that it is very difficult to

transfer organizational culture and ways of operating to
acquired companies.
Fully owned ❖ greenfield ventures are slower to establish and are also risky.
subsidiaries They might also lead to market entry being pre-empted by a
rival who uses an acquisition strategy to gain a quicker
foothold in the same market.
 ❖ Alternatively, a company can acquire an established company in 28
the host nation and use that company to promote, or even
manufacture, its products/services. Acquisitions can be attractive
as a mode of entry because:
1. They can be quicker to execute.
2. They enable companies to pre-empt their competitors in the
foreign market.
3. Part acquisition can still offer access to operations the previous
Fully owned owner resisted giving up, and also the previous owner’s
continuing commitment.
subsidiaries 4. They do not add unnecessary new capacity.
5. They may incur less risk than greenfield ventures or other
options. You buy a set of assets that are producing a known
revenue and profit stream. You also gain tangible assets
(factories, logistics systems, etc.) as well as intangible assets,
❖ Ex: brand name, managers’ local knowledge of markets, existing
customer relationships.
IPO- face clan

29

However, acquisitions have been known to fail due to:

1. The acquiring company overpaying for the acquired
company.
2. High up-front capital needs twitter bought by elon musk
Fully owned
2. Clash of cultures between the two companies.
subsidiaries 3. Political sensitivities in the host country
4. Attempts to realize synergies running into roadblocks, for
example incompatible technologies and human resource
policies, and so take much longer and are more expensive
to realize than forecast.
5. There is inadequate pre-acquisition screening.
 Fully owned subsidiaries

❖ For these reasons companies that are frequently on

the acquisition trail, for example Cisco Systems
and Cemex, develop a core expertise in carefully
screening the company to be acquired, ensuring
they do not pay too much for the acquisition, and
moving rapidly to implement a pre-developed
integration plan.
❖ Another approach to reduce risks might be to carry
out staged acquisitions, though this can create
uncertainty about the future ownership structure.
Assessing the relevance of strategic
alliances
• Strategic alliances (SAs) are collaborations
between independent companies using
equity or non-equity contractual
agreements.
• They can form between potential or actual
competitors, and can take various forms,
such as formal joint ventures, business unit
joint ventures, R&D joint ventures, or
short-term contractual agreements.
Why choose a strategic
alliance?
• It facilitates entry into a foreign market.
• It can be a stepping-stone to a full acquisition, allowing the parties to
learn how to work together, so smoothing the path to full acquisition.
• It allows a company to share the fixed costs and risks of developing
new products or processes.
• It helps a company to establish technological standards for the
industry that will benefit both companies.
• It brings together complementary skills and assets that neither partner
could easily develop on its own.
Criticisms of SA entry mode
• An SA may give the competitor you ally with a low-cost route to
technologies and market.
• For example, many US companies in the semiconductor and machine
tool industries were criticised for their SAs with Japanese companies
which, it was argued, allowed the Japanese companies to keep high
paying, high value added jobs in Japan while gaining valuable US
project engineering and production process skills, thus reducing US
companies’ competitive advantage.
• The failure rate for SAs is very high. Historically, two-thirds run into
serious financial and managerial trouble within two years of their
formation, and one third of these are subsequently rated as failures.
Strategic Alliances
• SAs require careful management and entry.
• Some companies merge existing business units into a joint venture (JV), if
they can achieve market leadership or technological innovation.
• This option is useful if a full takeover isn't feasible or if the merged unit
depends on inputs that would be disrupted by legal separation.
• Another form of SA is operational collaboration, such as national airlines
forming alliances to connect to major travel destinations and share
frequent flyer programs and resources.
The success of an alliance is a function
of:
• Partner selection: An effective partner helps the company achieve its
strategic goals and has capabilities the company lacks, it has a shared
vision on the alliance’s purpose and does not exploit the alliance just for
its own ends.
• Alliance structure: This should make it difficult to transfer technology
that is not meant to be transferred; have contractual guarantees to guard
against partner opportunism; and allow for swapping of skills and
technologies with equal gains.
• Management capability: This requires the building of strong
interpersonal relationships – called relational or social capital – between
the two managements. It also seems to require learning from each alliance
partner
Going international: growth through
evolution (Willcocks, 2021a)
• Foreign market entry is just the beginning of a long journey for a company.
• Companies can evolve and grow their international business by selling domestic products with
minimal customisation, choosing a localisation strategy, developing a global standardisation
strategy, or a transnational strategy.
• Competitive markets are highly dynamic, and companies constantly adjust their organizational
structures to fit emerging strategies.
• The initial mode of entry may be the temporary starting point for a company's globalising strategy.
• Companies can make a relatively low commitment to a market through exporting, licensing,
franchising, small-scale acquisitions, or limited joint ventures/alliances.
• They may also seek a low-risk approach, such as using the internet to extend their business beyond
national boundaries.
• To grow further, companies may need to make bigger commitments through fully owned
subsidiaries, large-scale joint ventures, or large mergers/acquisitions, integrating their internet
business strategy with other modes of operating in foreign markets.