Tesco Development

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Entering Foreign Markets
Chapter Outline

OPENING CASE: General Electric’s Joint Ventures

INTRODUCTION

Basic Entry decisions

Which Foreign Markets?
Management Focus: Tesco’s International Growth Strategy Timing of Entry
Scale of Entry and Strategic Commitments
Summary
Management Focus: The Jollibee Phenomenon—A Philippine Multinational

ENTRY MODES

Exporting
Turnkey Projects
Licensing
Franchising
Joint Ventures
Wholly Owned Subsidiaries

SELECTING AN ENTRY MODE

Core Competencies and Entry Mode
Pressures for Cost Reduction and Entry Mode

GREENFIELD VENTURE OR ACQUISITION?

Pros and Cons of Acquisitions
Pros and Cons of Greenfield Ventures
Greenfield or Acquisition?

CHAPTER SUMMARY

CRITICAL THINKING AND DISCUSSION QUESTIONS

CLOSING CASE: JCB in India

Learning Objectives

1. Explain the three basic decisions that a firm contemplating foreign expansion must make: which markets to enter, when to enter, and on what scale.

2. Outline the advantages and disadvantages of the different modes that firms use to enter foreign markets.

3. Identify the factors that influence a firm’s choice of entry mode.

4. Evaluate the pros and cons of acquisitions versus greenfield ventures as an entry strategy.

Chapter Summary

This chapter focuses on the basic market entry decisions for firms. The six most common foreign entry strategies are discussed. These are: exporting, turnkey projects, licensing, franchising, establishing a joint venture with a host country firm, and setting up a wholly owned subsidiary in the host country. The advantages and disadvantages of each of these strategies are discussed.

Opening Case: General Electric’s Joint Venture

Summary

The opening case explores General Electric’s change in strategy. For years, General Electric entered new markets using wholly owned operations that it built from the ground up. Today however, the company has moved to a joint venture approach. Discussion of the case can revolve around the following questions:

QUESTION 1: General Electric has traditionally followed a strategy of expanding into new markets using wholly owned greenfield ventures. More recently however, the company has shifted to a strategy of forming joint ventures with local companies. Explain why General Electric has made this strategic shift.

ANSWER 1: General Electric has shifted away from its traditionally preferred method of entering new markets via wholly owned subsidiaries to entering new markets through joint ventures with local firms for a number of reasons. Two key factors in the strategic shift are the lower risk and cost associated with joint ventures. The company also believes that by linking with local companies, it can gain invaluable knowledge of the local market. In addition, joint ventures have proved to be an easier route in some countries where local laws prohibit other types of entry methods.

QUESTION 2: What are the disadvantages of General Electric’s new strategy of using joint ventures to enter foreign markets?

ANSWER 2: Most students will probably focus on the fact that joint ventures, while offering firms the opportunity to share costs and risks, also imply that firms are sharing control. General Electric has run into some problems with its joint venture approach. For example, General Electric could not reach an agreement with potential British partner Smiths Group, and ended talks with the company. General Electric has also had to settle for minority stakes in some ventures when it would have preferred to have a majority position.

Teaching Tip: To explore General Electric’s international operations in more depth, go to {http://www.ge.com/} and click on “worldwide.”

Lecture Note: To extend this case, consider...
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