Management of Multinational Corporations ( MNCS )

Chapter 5 : Modes of Entry and Strategic Alliances

Modes of Entry to Foreign Markets

Exporting

Advantages and Disadvantages of Exporting

Turnkey Projects

Advantages and Disadvantages of Turnkey Projects

Licensing

Advantages and Disadvantages of Licensing

Franchising

Advantages and Disadvantages of Franchising

Joint Ventures

Advantages and Disadvantages of Joint Ventures

Wholly owned Subsidiaries

Selecting an Entry Mode

Entry Mode choice and Performance
Risk, Entry Mode Choice and Performance
Multiple Measures of Risk

Strategic Alliance

Advantages and Disadvantages of Strategic Alliances

Making Alliance Work

Partner Selection
Alliance Structure
Managing the Alliance.

Chapter Summary

In this chapter, we discussed the various modes of entry into a foreign market-Exporting, Turnkey Projects, Licensing, Franchising, Joint Ventures and Wholly-Owned Subsidiaries and Strategic Alliances. We also discussed the advantages and disadvantages of each of these modes of entry.

The advantage of exporting is that it facilitates realization of experience curve economies and prevents cost of setting up manufacturing operations in another country. Disadvantages include high transport costs, trade barriers and problems with local marketing agents. Turnkey projects allow firms to export their process technology where FDI is not permitted.

The disadvantage is that the firm may create competitors in the process. The main advantage of licensing is that the licensee bears the cost and risk of opening a foreign market. The disadvantages include the risk of losing technological know-how to the licensee.

The advantage of franchising is similar to that of licensing and the disadvantage is that the franchiser has to keep strict control over the franchisee. The advantage of joint ventures is the partners share the costs and risk of opening a foreign market and of gaining knowledge and political influence. The disadvantage is the risk of losing control over technology.

The advantages of wholly owned subsidiary include tight control over operations and technology. However, the firm has to bear all the costs and risks of opening a foreign market. We have also seen that the multiple measures of risk should be taken into consideration while selecting an entry mode. We also discussed strategic alliances and its advantages and disadvantages.

The advantage of strategic alliance is that it facilitates entry into foreign market and enables partners to share the fixed costs and risks associated with new products and processes. The disadvantage is that firms may sometimes have to give away technological know-how and market access to the alliance partner.

To make the alliance work, factors to be taken into consideration are selection of partner, structure of the alliance and management of the alliance. The key issues involved in managing alliances are building trust and learning from each other.

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