Page 104 - DMGT545_INTERNATIONAL_BUSINESS

Unit 6: Modes of Entering International Business

notes
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Caselet euro Disney

ifferent modes of entry may be more appropriate under different circumstances,
and the mode of entry is an important factor in the success of the project. Walt
DDisney Co. faced the challenge of building a theme park in Europe. Disney’s mode
of entry in Japan had been licensing. However, the firm chose direct investment in its
European theme park, owning 49% with the remaining 51% held publicly.
Besides the mode of entry, another important element in Disney’s decision was exactly
where in Europe to locate. There are many factors in the site selection decision, and a
company carefully must define and evaluate the criteria for choosing a location. The
problems with the EuroDisney project illustrate that even if a company has been successful
in the past, as Disney had been with its California, Florida and Tokyo theme parks, future
success is not guaranteed, especially when moving into a different country and culture.
The appropriate adjustments for national differences always should be made.

Source: http://www.quickmba.com/strategy/global/marketentry/
6.2.5 turnkey Projects

Firms that specialize in the design, construction, and start-up of turnkey plants are common in
some industries. In a turnkey project, the contractor agrees to handle every detail of the project
for a foreign client, including the training of operating personnel. At completion of the contract,
the foreign client is handled the “key” to a plant that is ready for full operation-hence the term
turnkey. This is a means of exporting process technology to other countries. Turnkey projects are
most common in the chemical, pharmaceutical, petroleum refining, and metal refining industries,
all of which use complex, expensive production technologies.

advantages of turnkey Projects

Turnkey projects has the following advantages:
1. Turnkey projects are a way of earning great economic returns from the asset. The strategy
is particularly useful where FDI is limited by host-government regulations. For example,
the governments of many oil-rich countries have set out to build their own petroleum
refining industries, so they restrict FDI in their oil and refining sectors. But because many
of these countries lacked petroleum technology; they gained it by entering into turnkey
projects with foreign firms than had the technology.
2. A turnkey strategy can also be less risky than conventional FDI. In a country with unstable
political and economic environments, a longer-term investment might expose the firm to
unacceptable political and/or economic risks (e.g., the risk of nationalization or of economic
collapse).

Disadvantages of turnkey Projects

Some of the disadvantages of turnkey projects are mentioned below:

1. The firm that enters into a turnkey deal will have no long-term interest in the foreign
country. This can be a disadvantage if that country subsequently proves to be a major
market for the output of the process that has been exported.
2. The firm that enters into a turnkey project with a foreign enterprise may inadvertently
create a competitor.

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