Page 121 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes lz The most attractive foreign markets tend to be found in politically stable developed and
developing nations that have free market systems and where there is not a dramatic upsurge
in either inflation rates or private-sector debt.
lz There are six modes of entering a foreign market: exporting, creating turnkey projects,
licensing, franchising, establishing joint ventures, and setting up a wholly owned
subsidiary.
lz Each mode has relative advantages and disadvantages. The optimal choice of entry mode
depends on the firm’s strategy.
lz Relative to green-field ventures, acquisitions are quick to execute, may enable a firm to
preempt its global competitors and involve buying a known revenue and profit stream.
lz Acquisitions may fail when the acquiring firm overpays for the target, when the culture of
the acquiring and acquired firms clash, when there is a high level of management attention
after the acquisition, and where there is a failure to integrate the operations of the acquiring
and acquired firm.
lz The big advantage of establishing a green-field venture in a foreign country is that it gives
the firm a much greater ability to build the kind of subsidiary company that it wants.
lz Strategic alliances are co-operative agreements between actual or potential competitors.
lz The advantages of alliances are that they facilitate entry into foreign markets, enable partners
to share the fixed costs and risks associated with new products and processes, facilitate the
transfer of complementary skills between companies, and help firms establish technical
standards.
lz The disadvantage of a strategic alliance is that the firm risks giving away technological
know-how and market access to its alliance partner in return for very little.

lz The disadvantages associated with alliances can be reduced if the firm selects partners
carefully, paying close attention to the firm’s reputation and the structure of the alliance so
as to avoid unintended transfers of know-how.
lz Two keys to making alliances work seem to be building trust and informal communications
networks between partners and taking proactive steps to learn from alliance partners.

6.8 keywords

Alliance Termination: Alliance termination involves winding down the alliance, for instance
when its objectives have been met or cannot be met, or when a partner adjusts priorities or
re-allocated resources elsewhere.
International Strategy: Trying to create value by transferring core competencies to foreign
markets where indigenous competitors lack those competencies.

Joint Venture: A joint venture is an entity formed between two or more parties to undertake
economic activity together.
Merger: Merger is a tool used by companies for the purpose of expanding their operations often
aiming at an increase of their long-term profitability.
Multipoint Strategy: Emphasizing the need to be responsive to the unique conditions prevailing
in different national markets.
Strategic Alliance: Strategic alliances are agreements between companies (partners) to reach
objectives of a common interest.

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