•General Motors was an early entrant into China’s automobile market •Entered on a significant scale
Basic Entry Decisions
•A firm contemplating foreign expansion must make three basic decisions oWhich markets to enter
oWhen to enter those markets
oOn what scale
Which Foreign Markets?
•the choice must be based on an assessment of a nation’s long-run profit potential opotential is a function of several factors
•the attractiveness of a country as a potential market for an internal business depends on balancing the benefits, costs, and risks associated with doing business in that country •the costs and risks associated with doing business in a foreign country are typically lower in the economically advanced and politically stable democratic nations •look at living standards and economic growth
•another important factor is the value an international business can create in a foreign market odepends on the suitability of its product offering to that market and the nature of indigenous competition Timing of Entry
•Early entry is when an international business enters a foreign market before other foreign firms •Late when it enters after other international businesses have already established themselves •The advantages frequently associated with entering a market early are commonly known as first-mover advantage oAbility to preempt rivals and capture demand by establishing a strong brand name oAbility to build sales volume in that country and ride down the experience curve ahead of rivals, giving the early entrant a cost advantage over later entrants •May enable the early entrant to cut prices below that of later entrants, thereby driving them out of the market oAbility of early entrants to create switching costs that tie customers into their products or services •Make it difficult for later entrants to win business
•There can also be disadvantages associated with entering a foreign market before other international businesses oFirst mover disadvantages
•May give rise to pioneering costs, which are costs that an early entrant has to bear that a later entrant can avoid Arise when the business system in a foreign country is so different from that in a firm’s home market that the enterprise has to devote considerable effort, time, and expense to learning the rules of the game Include the costs of business failure if the firm makes major mistakes A late entrant may benefit by observing and learning from the mistakes made by early entrants Also include the costs of promoting and establishing a product offering, including the costs of educating customers •Significant when the product being promoted is unfamiliar to local consumers •If regulations change in a way that diminishes the value of an early entrant’s investments Serious risk in many developing nations where the rules that govern business practices are still evolving Scale of Entry
•Entering a market on a large scale involves the commitment of significant resources oImplies rapid entry
oNot all firms have the resources necessary to enter on a large scale and even come large firms prefer to enter foreign markets on a small scale and then build slowly as they become more familiar with the market •The consequences of entering on a significant scale—entering rapidly—are associated with the value of the resulting strategic commitments oHas a long-term impact and is difficult to reverse
oStrategic commitments, such as rapid large-scale market entry, can have an important influence on the nature of competition in a market •Significant strategic commitments are neither unambiguously good nor bad oThey tend to change the competitive playing field and unleash a number of changes, some of which may be desirable and some of which will not be •The value of the commitments that flow from rapid large-scale entry into a foreign market must be balanced against the...