BA 510 International Management

Doha 2011Class 5

TODAY Review of Entry Modes Selecting an Entry Mode International Manufacturing Strategy Case Study Discussion: Canada Solar Pitch preparation; 7 minute Pitches

ENTRY MODESENTRY MODES

Joint Venture Company

Licensing

Acquisition

Joint Venturing

Local Firm

New Subsidiary Company

“Green Field” Entry

HOME COUNTRY HOST COUNTRY

ExportMNC

ENTRY MODES: EXPORTING Ship to another country for sale or

exchange Advantages:

Avoid cost of establishing manufacturing operations

Help achieve experience curve and location economies

Disadvantages:May compete with low-cost location manufacturersPossible high transportation costsTariff barriersPossible lack of control over marketing reps

ENTRY MODES: LICENSING

Licensor grants rights to intangible property to another entity for a specified period of time in return

Advantages:Reduces development costs and risks of

establishing foreign enterprise Lack capital for venture; Unfamiliar/volatile market

Overcomes restrictive investment barriersOthers can develop business applications of

intangible property Disadvantages:

Lack of controlCross-border licensing may be difficultCreating a competitor

ENTRY MODES: FRANCHISING

A franchiser sells intangible property and provides guidelines for operating the business.

Advantages:Reduces costs and risk of establishing

enterprise Disadvantages:

May prohibit movement of profits from one country to support operations in another country

Quality control

ENTRY MODES: JOINT VENTURES

Advantages:Benefit from local partner’s knowledgeShared costs/risks with partnerReduced political risk

Disadvantages:Risk giving control of technology to partnerMay not realize experience curve or location

economiesShared ownership can lead to conflict

ENTRY MODES: WHOLLY OWNED SUBSIDIARY

Pro: Quick to execute Preempt competitors Possibly less risky

Con: Often produce

disappointing results Overpay for firm Too optimistic about value

creation (hubris) Culture clash Problems with proposed

synergies

Pro: Can build subsidiary it

wants Easy to establish

operating routines

Con: Slow to establish Risky Preemption by

aggressive competitors

Acquisition Greenfield

SELECTING AN ENTRY MODE

TechnologicalKnow-How

ManagementKnow-How

Wholly owned subsidiary unless1. Venture is structured to reduce risk of loss of technology2. Technology advantage transitory

Then licensing or joint venture OK Franchising, subsidiaries (wholly owned or joint venture)

Pressure forCost

Reduction

Combination of exporting and wholly owned subsidiary

Entry ModeBasis for Competition

SELECTING AN ENTRY MODE

SolarWorldBonn HQQatar

Polysilicon processing JV with Qatar Foundation (70%), Qatar Development

Bank (1%) and SolarWorld (29%) “..a forward integration along the entire solar value

chain all the way to the finished solar power module could be implemented.”

Portland Wafers, Cells, and Modules manufacturing Wholly owned subsidiary, US HQ

Interface EngineeringPortland HQ

Building engineering and design General administrative

Sacramento, San Francisco, Seattle and Abu Dhabi Building engineering and design

SELECTING AN ENTRY MODE

Pre

ssure

s fo

r G

lob

al Effi

ciency

Pressures for Local Responsiveness

High

Low

HighLow

ExportStrategy

SELECTING AN ENTRY MODE

U.S.

Germany

Mexico

Malaysia

SELECTING AN ENTRY MODE

ExportStrategy

Pre

ssure

s fo

r G

lob

al Effi

ciency

Pressures for Local Responsiveness

High

Low

HighLow

ExportStrategy

Multi-domesticStrategy

SELECTING AN ENTRY MODE

U.S.

Germany

Mexico

Malaysia

SELECTING AN ENTRY MODE

Multi-domesticStrategy

Pre

ssure

s fo

r G

lob

al Effi

ciency

Pressures for Local Responsiveness

High

Low

HighLow

ExportStrategy

??

MultidomesticStrategy

GlobalStrategy

SELECTING AN ENTRY MODE

U.S.

Germany

Mexico

Malaysia

GlobalStrategy

SELECTING AN ENTRY MODE

Pre

ssure

s fo

r G

lob

al Effi

ciency

Pressures for Local Responsiveness

High

Low

HighLow

ExportStrategy

??

MultidomesticStrategy

GlobalStrategy

TransnationalStrategy

SELECTING AN ENTRY MODE

U.S.

Germany

Mexico

Malaysia

TransnationalStrategy

SELECTING AN ENTRY MODE

SELECTING AN ENTRY MODE

Hi

Lo

HiLo

Str

ate

gic

Im

port

ance

of

Cou

ntr

y

Attractivenessof Country/Region

Lo

Hi

Resource

s,

Control,

Risk

Decision M

atrix

SELECTING AN ENTRY MODE

U.S. H.Q.

GermanyJV

MexicoWOS-G

MalaysiaExport

Strategic Importance

High

Attractiveness

High

Risk Low

Strategic Importance

High

Attractiveness

High

Risk High

Strategic Importance

Medium

Attractiveness

Medium

Risk High

INTERNATIONALMANUFACTURING

STRATEGY

INTERNATIONAL MANUFACTURING STRATEGY

First-mover advantage.Preempt rivals and capture demandBuild sales volumeMove down experience curve before rivals

and achieve cost advantageCreate switching costs

Disadvantages:First mover disadvantage - pioneering

costsChanges in government policy Costs early entrant

bears that later entrant can avoid.

INTERNATIONAL MANUFACTURING STRATEGY

Key factorsCountry: Factor costs, location externalities,

infrastructureTechnological: Economies of scale, manufacturing

flexibilityProduct: Value to weight ratio, universality of needs

The optimal locationof activity X considered

independently

WHERE TO LOCATEACTIVITY X?

The importance of linksbetween activity X and

other activities of the firm

Where is the optimal location

of X in terms of the cost and

availability of inputs?What government incentives/ penalties

affect the location decision?What internal

resources and capabilities does the firm

possess in particular locations?

What is the firm’s business strategy (e.g. cost vs. differentiation advantage)?

How great are the coordinationbenefits from co-locating activities?

Determining the Optimal Location

of Value Chain Activities

Determining the Optimal Location

of Value Chain Activities

INTERNATIONAL MANUFACTURING STRATEGY

Economic Cluster

Considerations

Technological Factors

Flexible manufacturing technology Available Not Available

Minimum efficient scale High LowFixed costs High Low

Product Factors

Serves universal needs Yes NoValue-to-weight ratio High Low

Country Factors

Differences in factor costs Substantial Few

Substantial Few

Trade barriers Few Many

Differences in political economyDifferences in culture Substantial Few

Concentrated Decentralized

Favored Manufactured Strategy

INTERNATIONAL MANUFACTURING STRATEGY

CASE DISCUSSION:

CANADA SOLAR

CASE DISCUSSION: CANADA SOLAR What is the structure of its existing

value chain, both domestic and international?

What options for international market entry may exist, including but not limited to manufacturing in China?

What are the possible modes of entry for expanding its international presence?

If it enters China, what mode(s) of entry should it consider? What are the pros and cons of one or more entry modes?

PITCH

PITCH Cluster Assessment + “Fit-1” (Solar PV

Mfg and Qatar) + “Fit-2” (The Company + Qatar Industrial Policy

7 minutes 2 page outline