Tabulate the advantages and disadvantages of the various ...
Tabulate the advantages and disadvantages of the various entry modes
|Entry mode |Advantage |Disadvantage |
|Exporting |Realise location and experience curve economies. |High transport costs. |
| |Increased production in home country typically |Trade barriers. |
| |results in higher domestic employment |Problems with local marketing agents. |
| |Export sales generate valuable foreign exchange |High transportation costs |
| |Least expensive way for a firm to sell its |Trade barriers to imports in the foreign country |
| |products overseas |Problems with foreign marketing agents |
| |Minimum of financial commitment |Have no control of its products in foreign markets|
| |Avoids high cost of establishing manufacturing |and middleman represents other clients |
| |operations |Own marketing staff does not gain experience |
| | |Other cheaper exporters |
|Turnkey contracts |Ability to earn returns from process technology |Creating efficient competitors (client may become |
|“Allow firms to export their know-how to |skills in countries where FDI is restricted. |competitor). |
|countries that may restrict FDI by training |Earning substantial income for the companies |Lack of long-term market presence – limited life |
|of staff for the project” |concerned and valuable foreign exchange for the |Process technology is divulged and it could lose |
| |home country |its competitive advantage |
|Licensing |Low development costs & risks. |Lack of control over technology. |
|“Licensor grants a right to the licensee, |Might be the only alternative in countries with |Inability to realise location and experience curve|
|who pays a fee or royalty ”. |barriers to foreign investment |economies. |
| |Has marketing intellectual property, but does not |Inability to engage in global strategic |
| |want to develop this itself |coordination. |
| | |Risk of losing technological know-how to the |
| | |licensee, and consequently, their competitive |
| | |advantage |
| | |Prevents firm from optimally co-ordinating its |
| | |activities across countries |
|Franchising |Low development costs & risks. |Lack of control over quality. |
|“very similar to licensing, but involves | |Inability to engage in global strategic |
|longer-term commitments. Sells intangible | |coordination. |
|property such as a trademark” | |Customers may be driven away by a bad experience |
| | |Geographical distance may make is difficult to |
| | |detect poor quality and inefficient operations |
|Joint ventures |Sharing development costs & risks. |Lack of control over technology. |
|“Establishing a firm that is jointly owned |Access to partner’s knowledge. |Inability to engage in global strategic |
|by 2+ partners.” (Strategic alliances are |Politically acceptable. |coordination. |
|based on collaborative agreements). |May be the only available option where industries |Inability to realise location and experience curve|
| |are regarded as politically sensitive |economies. |
| |Home countries resources are limited, can make use|Risk of giving away core competence or |
| |of shared countries resources |technological know-how systems |
| |Multinational companies can form a joint venture |Potential for conflict |
| |in developing countries without much capital | |
| |outlay, but provide technological know-how, or | |
| |developing country needs managerial know-how | |
| |Local companies can provide raw material | |
| |Knowledge of host-country’s markets, competitive | |
| |conditions, culture, language and political, legal| |
| |and economic systems | |
|Wholly-owned subsidiaries |Protection of technology. |High costs & risks. |
|“setting up a new operation in a foreign |Ability to engage in global strategic | |
|country, or acquiring an established firm in|coordination. | |
|the industry concerned” |Ability to realise location and experience curve | |
| |economies. | |
Strategic Alliance Defined
It is a cooperative arrangement between tow or more local and/or global firms that can effect the competitive positioning of either participant in the market segment in which they set out to compete
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Deciding on the type of foreign market “entry mode” through which to forge an appropriate strategic alliance,
Evaluate the importance of strategic alliance for SA in light of the above.
Strategic alliances are collaborative agreements between two companies often in the same industry working towards a common purpose. They are normally not from the same country.
Political considerations makes strategic alliance one of the feasible modes of market entry
Strategic alliance alows firms to benefit from:
Advantages
• Local partners knowledge of country conditions
• Share risks with partners
• Be politically acceptable
• Share costs associated with research and development including new products
Disadvantages
• Firms may relinquish control over its technology
• Firms may not have sufficient control over its subsidiaries
• Incompatible management styles
• Incompatable organisational cultures and controls
• Inability to engage in global strategic co0ordenation
For example in SA the Comair and British Airways alliance was a pionering venture in this field.
Strategic alliance – particular mode of inter organisational relations in which partners make substantial investments in developing a long term cpllaborative effort and common orientation towards the individual and mutual goals.
SA is still a developing country and because we are economically not as strong it would be to our benefit to be in a strategic alliance with Japan for instance because of their current strong economy and their huge advantage in the technological field.
Choice of a Strategic Alliance influenced by a variety of factors.
1. Legal requirements
2. Access to technology
3. Fixed costs
4. Experience
5. Competition
6. Risks and control asp[ects
7. Product complexity
8. International expansion of enterprises
9. The degree of similiarity between countries in respect of language and culture.
Stategic alliance as a mode of entry is chosen by South Afrivan business in marketing and distribution agreements .
Business also more positive to becom e involved in research and development with overseas partners
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