Using real world examples, compare and contrast foreign market entry strategies used by different Multinational Enterprises. Evaluate the success of these entry strategies by referring to real world examples. You may refer to cases discussed in seminars and also provide new examples.
Multinational corporations are those with bases and production plants in several countries, usually but not always with headquarters in the more developed countries. Multinational enterprises invest overseas to expand their profit amongst several other reasons. Companies become multinational by making investments and expanding their ventures abroad, through exporting or foreign direct investment. There are several ways by which a firm can expand its horizons. I will be comparing these in my essay and will provide some real world examples.
A firm expanding internationally must decide which markets to enter, when to enter them, on what scale and how to enter them (the choice of entry mode). Firms can enter foreign markets through exporting, turnkey projects, licensing, franchising, joint ventures or wholly owned subsidiaries. The central managerial trade-off between the alternative modes of market entry is that between risk and control. When choosing foreign market entry strategy the firm must consider its goals and objectives, the degree of control they are after, the firms resources and capabilities and the risks they face by taking on a foreign venture. Different modes of entry expose the firm to different degree of risk.
There are several successful multinational enterprises that benefit from investing abroad. Some move their production plants abroad where the labor and raw materials are cheaper in order to minimize production costs. This in turn increases their profit margins. Others reach a bigger consumer base by establishing their brand internationally, with branches abroad serving in the foreign country. Others choose to risk less and expand through exporting internationally.
Licensing is an agreement where the licensor grants rights to intangible property to another entity for a specified period of time in return for royalties. Intangible property includes patents, inventions, formulas, processes, designs, copyrights, and trademarks. Licensing is a common method of international market entry for companies with a distinctive and legally protected asset, which is a key differentiating element in their marketing offer. Under a licensing model, a company sells licenses to other (typically smaller) companies to use intellectual property, brand, design or business programs. These licenses are usually non-exclusive, which means they can be sold to multiple competing companies serving the same market. In this arrangement, the licensing company may exercise control over how its intellectual property is used but does not control the business operations of the licensee.
While cross-border licensing may be difficult and offers lack of control, it eliminates a lot of risks and costs associated with expansion. Unfamiliar or politically volatile market may discourage a firm from entering a new market on its own, licensing budges that risk on to the licensee just like franchising too. Starbucks licenses abroad, it sees that international operations ‘require a higher degree of administrative support to be responsive to country specific regulatory requirements’. And so Starbucks passes the administrative responsibilities to their licensees, who bring in royalties.
A similar mode of entry to licensing is franchising. This mode of entry minimizes entry risks faced by entering a foreign market by passing them on to the local franchisees that operate the business. This is a form of licensing in which the franchisor sells intangible property and requires the franchisee agree to abide by strict contract rules as to how it does business. Franchising is the practice of using another firm's successful business model with established...
Bibliography: David Arnold 2003 ‘strategies for entering and developing international markets’
S. Schifferes ‘Cracking chinas car market’ BBC news 2007
Please join StudyMode to read the full document