International Business
Oded Shenkar and Yadong Luo
Chapter 10
International Entry Strategies
Chapter 10: International Entry Strategies
Do You Know?
• The factors that managers must consider in
choosing locations for foreign direct
investment projects?
• How company goals and experience play into
the international location decision?
• What first mover and second mover
advantages and liabilities are?
• The variety of entry modes that are available
to companies who are interested in operating
in a host country environment?
Chapter 10: International Entry Strategies
DuPont’s Entry Strategies
into China
• Dupont has a great deal of international
experience and expertise, and have a variety
of entry strategies they use.
• In china, they used a partnership with
Shanghai Photomask Precision Company,
and established another with China
Worldbest Development to produce
photomasks and Spandex, respectively.
• They also established joint ventures with
companies like BASF to overcome trade
barriers and establish distribution.
Chapter 10: International Entry Strategies
Dupont’s Entry Strategies into China
• Finally, they also established wholly
owned subsidiaries to make products
that require proprietary technologies
they cannot share with others.
• No company has only one entry
strategy. Most choose entry strategies
depending upon the necessary goal
requirements.
Chapter 10: International Entry Strategies
International Location Selection, overall
• Location selection is an important
decision. Essentially it boils down to
deciding where, when, and how to
enter, and then implementing that plan.
Chapter 10: International Entry Strategies
International Location Selection (Where)
Where, that is country and location within
country depends upon a number of factors.
Among them are:
• Cost/Tax Factors (transportation, wage,
availability of land and its costs, construction
cost, materials cost, financing costs, tax
rates, investment incentives, profit
repatriation costs)
• Demand Factors (market size and growth,
customer presence, local competition)
…/…
Chapter 10: International Entry Strategies
International Location Selection (Where)
• Strategic Factors (Investment infrastructure,
industrial concentration, supply/distribution
linkages, workforce productivity,
complementary industries)
• Regulatory/Economic Factors (Industrial
policies, foreign direct investment policies,
availability of economic zones)
• Sociopolitical Factors (political risk and
instability, cultural barriers and openness,
local practices, government efficiency and
corruption, attitudes toward foreign business,
community characteristics, pollution control)
Chapter 10: International Entry Strategies
International Location Selection (Where)
• Not only must the above factors be
considered, but also strategic objectives,
global integration, and market orientation
objectives must be met.
• Strategic objectives are related to growth and
competitive factors; integration factors are
related to access to trading blocs and
integrated economies; market orientation
factors are related to whether primary target
markets are available from the host location.
Chapter 10: International Entry Strategies
International Location Selection (Where)
Exhibit 10-1: Locational determinants
Chapter 10: International Entry Strategies
International Location Selection (Where)
Exhibit 10-2: Maquiladoras in the Mexico-U.S.
border zone
Chapter 10: International Entry Strategies
International Location Timing (When)
• This relates to timing of market entry in
comparison to other enterprises.
• Timing is important because it
determines the risks and potential
returns from the investment.
Chapter 10: International Entry Strategies
International Location Timing (When)
• Early Mover Advantages include factors
like market power, more preemptive
opportunities, and strategic advantages
over late movers.
Chapter 10: International Entry Strategies
International Location Timing (When)
• Early Mover, however, face environmental
and operational risk that can come from host
governments’ experience, underdeveloped
investment laws and regulations,
protectionism, difficulty in overcoming early
growth stages, shortages of workers,
underdeveloped support services, lack of
financing, uncertain foreign exchange,
consulting cost burdens, poor infrastructure
systems, and unstable market structures.
Chapter 10: International Entry Strategies
International Location Timing (When)
Exhibit 10-3: Advantages and disadvantages of
early movers
Chapter 10: International Entry Strategies
International Entry Mode Selection (How)
• Entry Modes are specific forms or ways
of entering a target country to achieve
the strategic goals related to presence
in that country.
• These can be trade related, transfer
related, and foreign direct investment
related.
Chapter 10: International Entry Strategies
International Location Selection (How)
Trade related modes include:
• Export, using intermediaries to export
products to market through an exporting
company while negotiating letters of credit
and terms of trade that are favorable.
• Subcontracting, includes contracting with a
local manufacturer to process goods into
finished goods that will distribute into the local
market.
• Countertrade, where merchandise is traded
in a barter-like system. Barter,
counterpurchase, buybacks, and offsets and
used in this method.
Chapter 10: International Entry Strategies
International Location Selection (How)
Transfer related entry modes include:
• International Leasing
• International Licensing
• International Franchising
• Build-Operate-Transfer (a.k.a “turn-key
operation”)
Chapter 10: International Entry Strategies
International Location Selection (How)
Foreign direct investment related entry
modes include:
• Branch Office
• Cooperative Joint Venture
• Equity Joint Venture
• Wholly Owned Subsidiary
• Umbrella Holding Company
Chapter 10: International Entry Strategies
International Location Selection (How)
Exhibit 10-4: International entry modes
Chapter 10: International Entry Strategies
International Selection:
Decision Framework
Companies look for favorable country, industry, firm,
and project factors.
• Country, favorable policies, infrastructure, property
rights, risks, cultural distance.
• Industry, favorable entry barriers, industrial
uncertainty and complexity, availability of supply
and distribution.
• Firm, favorable resource possession, minimal
proprietary resource leakage, favorable strategic
goal achievement, favorable experience with host.
• Project factors like size, financial orientation, and
availability of partners.
Chapter 10: International Entry Strategies
International Selection:
Decision Framework
• In essence, the more experience a firm
has, and the more complex the project,
the more likely the entry mode will be
foreign direct investment related.
• This can be a Greenfield Investment,
an Acquisition, or a Merger.
Chapter 10: International Entry Strategies
FDI Options
• A Greenfield Investment is an initial
establishment of fully owned facilities and
operations.
• An Acquisition is a cross border transaction
in which an acquiring firm buys an
established local firm.
• An international merger shares the logic of
equity joint ventures and is a cross border
transaction in which two firms merge their
operations.
Chapter 10: International Entry Strategies