Page 118 - DMGT545_INTERNATIONAL_BUSINESS

Unit 6: Modes of Entering International Business

3. Third, in many countries, political considerations make joint ventures the only feasible notes
entry mode.

6.6.4 Disadvantages of Joint ventures

As with licensing, a firm that enters into a joint venture risks giving control of its technology to
its partner.

1. A joint venture does not give a firm the tight control over subsidiaries that it might need
to realize experience curve or location economies. Nor does it give a firm the tight control
over a foreign subsidiary that it might need for engaging in coordinated global attacks
against its rivals.

2. Shared ownership arrangements can lead to conflicts and battles for control between the
investing firms in their goals and objectives change or if they take different views as to
what the strategy should be.

Example:
Massey-/Ferguson entered into a 51% joint venture in Turnkey to produce Tractors.

American Motor Corporation entered into a joint venture with Beijing Automotive Works called
Beijing Jeep to enter Chinese market by producing jeeps and other vehicles.

6.6.5 comparison of Different modes of entry

Advantages and Disadvantages associated with all the entry modes are summarized in
Table 6.1 below:

table 6.1
entry mode advantages Disadvantages
Exporting Ability to realize location and experience High transport costs
curve economies Trade barriers
Problems with local marketing agents
Turnkey Ability to earn returns from process Creating efficient competitors
contracts technology skills in countries where FDI is Lack of long-term market presence.
restricted
Licensing Low development costs and risks Lack of control over technology.
Inability to realize location and experience
curve economies.
Inability to engage in global strategic
coordination.
Franchising Low development costs and risks Lack of control over quality.
Inability to engage in global strategic
coordination.
Joint ventures Access to local partner’s knowledge. Lack of control over technology
Sharing development costs and risks Inability to engage in global strategic
Politically acceptable coordination.
Inability to realize location and experience
economies.
Wholly owned Protection of technology High costs and risks.
subsidiaries Ability to engage in global strategic
coordination.
Ability to realize location and experience
economies

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