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International Strategy and Organization Part II: International Licensing, Joint Ventures, Consortia, Franchising, Mergers & Acquisitions, Clusters and Counter Trade. Josef Windsperger Professor of Organization and Management. Content. 3 Management of Networks of the MNC

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slide1

International Strategy and OrganizationPart II:International Licensing, Joint Ventures, Consortia, Franchising, Mergers & Acquisitions, Clusters and Counter Trade

Josef Windsperger

Professor of Organization and Management

content
Content

3 Management of Networks of the MNC

3.1 Theoretical Foundation of Networks of the MNC

3.2 International Licensing

3.3 International Strategic Alliances, Joint Ventures and

Consortia

3.4 Internationalization through Franchising

3.5 Internationalization through M&As

3.6 Internationalization through Clusters

3.7 Internationalization through Counter Trade

3.8 Organization Design of the MNC of the Future

3 1 theoretical foundations of networks
3.1 Theoretical Foundations of Networks

Hierarchy Stable Network

Internal Dynamic

Network Network

One FirmSeveral Firms

networks of the mnc
Networks of the MNC

Joint Venture

Consortium

High

Countertrade

Interaction Level

Franchising

Cluster

Cross-Licensing

Licensing

Cooperation

low

Competition

Cooperation

Cooperation Propensity

theories of networks
Theories of Networks

Transaction Cost Theory

Property Rights-Theory

Resource-based Theory

Relational View

3 1 1 transaction cost theory o e williamson 1975
3.1.1 Transaction Cost Theory O. E. Williamson (1975)

Atmosphere

Bounded Rationality Uncertainty/Complexity

‚Transaction Costs‘

Opportunism Transaction Specifity

quasi rents specific investments and hold up
Quasi-Rents, Specific Investments and Hold-up

g BA

A

B

g AB

D

g AC

C

g BD

B‘s profit with A: gBA

A‘s profit with B: gAB

A‘s quasi-rent: QRAB = (gAB – gAC)

B‘s quasi-rent: QRBA = (gBA – gBD)

HOLD-UP Potential of B (HB)

Quasi-rent of A (QRBA) =

transaction costs and networks
Transaction Costs and Networks

TC

Market

Network

Hierarchy

Specifity,

Uncertainty

Complexity

of Know How

S1

S2

S3

3 1 2 property rights theory
3.1.2 Property Rights-Theory

a. the right to use the good

b. the right to change the good

c. the right to capture the profit or to bear the loss

d. the right to sell the good and to receive the liquidation value

a + b = decision rights

c + d = ownership rights

Contractability (due to intangibility) of assets determines the structure of residual rights

example franchising network
Example: Franchising-Network

Intangible assets of the franchisor:

Brand name assets, system-specific know-how

Intangible assets of the franchisee:

Outlet-specific knowledge

ao and a1 are contactible – market coordination

ao and a1 are noncontractible – network coordination

3 1 3 resource based theory
3.1.3 Resource-based Theory

Strategic Rents (SR) = Competitive Advantage

(Schumpeterian and Ricaridian Rents)

Organizational Capabilities

Resources

resource characteristics
Resource Characteristics

Intangible, tangible resources and organizational capabilities

Heterogenity

Imitability

Substitutability

Firm specifity

3 1 4 relational view networks and trust
3.1.4 Relational View: Networks and Trust

g BA

A

B

g AB

D

g AC

C

g BD

B‘s Reputation capital: RB

A‘s Reputation capital: RA

A‘s Quasi-Rents: QRAB = (gAB – gAC)

B‘s Quasi-Rents: QRBA = (gBA – gBD)

Quasi-Rents of A (QRAB) + reputation capital of A (RA)

HA - cooperative behavior

HA - opportunistic behavior

>

<

3 2 international licensing
3.2 International Licensing

Licensing agreement

A company (licencee) is allowed to use the licensor‘s trademark,

patent, manufacturing process or some other value creating activity

of the licensor.

Objectives

(a) In-licencing: Access to complementary assets

(b) Out-licensing: Risk reduction, deterrence of potential competitors,

standard creation

Cross Licensing

Agreement on the exchange of rights for the entire portfolio of technology for

a certain time period.

Licensee pays fixed fees and/or royalties (percentage of sales)

conditions for licensing
Conditions for Licensing
  • Complementary and contractible resources

Resources

    • easy to replicate (contractible)
    • property rights are well defined
tc and licensing
TC and Licensing

TC

Hierarchy:

FDI

Licensing

Specific

Investment

Know-how

Complexity

Uncertainty

S3

S1

S2

property rights explanation
Property Rights-Explanation

A

Contractible Know-how

Non-contractible Know-how

Contractible

Know-how

B to A:

Licensing

Market Contract

B

Non-contractible

Know-how

A to B:

Licensing

Network

Austrian company A wants to enter the market in Ukraine. The

Company B in Chernivtsi has intangible knowledge at the consumer

and labour market. On the other hand, the know-how of A is contractible.

country culture and licensing
Country Culture and Licensing
  • Does the national culture influence the choice between licensing and foreign direct investments?

“The national differences in levels of trust impact the choice of foreign market entry mode” (Shane, 1994)

  • Results

- High Trust Countries → Licensing

- Low Trust Countries → Foreign Direct Investment

“Resorting to hierarchies is less common where

trust among people is greater.” (Shane, 1994)

3 3 international joint ventures strategic alliances and consortia as stable networks
3.3International Joint Ventures, Strategic Alliances and Consortia as stable Networks

Joint Venture

A

B

b

a

JV

Strategic alliance

a, b

B

A

3 3 1 joint ventures strategic alliances
3.3.1 Joint Ventures – Strategic Alliances

Strategic Alliance:

Agreement to gain competitive advantage through access to partner’s resources, including markets, technologies, capital and human resources.

Joint Venture

a.Scale JV:

Firms enter together into a stage of production, distribution or a new market (for example: JV that produce components for

automobile producers). Objective: Economies of Scale

b.Link JV:

Firms combine resources and capabilities from different stages of the value chain. Objective: Synergies in R&D, production, distribution, marketing.

jv and strategic alliances as stable networks
JV and Strategic Alliances as Stable Networks

Characteristics:

  • High specific investments, high uncertainty and/or
  • Complementary firm-specific resources and organizational capabilities
  • Joint Ventures: Allocation of decision and ownership rights
  • Strategic alliances: Allocation of decision rights, no ownership rights
  • Weak Ties:

Trust instead of formal coordination mechanisms

conditions for jv and sa
Conditions for JV and SA

Hennart 1988:

„When knowledge is tacit, it cannot be effectively transferred in

codified form; its exchange must rely on intimate human contact“ (366)

- High TC:

Markets for intermediate inputs are subject to high transaction costs due to high specific investments and high uncertainty, leading to a transfer of decision and ownership rights.

- Firm-specific resources:

The inputs are difficult to imitate by one of the parties.

tc licensing and joint venture
TC, Licensing and Joint Venture

TC

Internal Hierarchy

Licensing

JV

Specifity,

Know-how

Complexity,

Uncertainty

S1

S2

S3

determinants of decision and ownership rights in jv
Determinants of Decision and Ownership Rights in JV

Hennart 1988:

„When knowledge is tacit, it cannot be effectively transferred in

codified form; its exchange must rely on intimate human contact“ (366)

- According to the PR-theory, the contractibility of assets determines the governance structure.

- Noncontractible assets require the transfer of decision and ownership rights.

- Intangible assets refer to organizational, marketing, country-specific and technological know how.

property rights explanation1
Property Rights-Explanation

A

Contractible Know-how

Non-contractible Know-how

Contractible

Know-how

B to A:

Licensing

Market Contract

B

Non-contractible

Know-how

A to B:

Licensing

Joint Venture

joint venture choice of entry mode
Joint Venture: Choice of Entry Mode

- Licensing

- Joint venture

- Wholly-owned subsidiary

market entry and control
Market Entry and Control
  • Licensing: low control
  • Joint Ventures: shared control
  • Subsidiary (WOS): Decision and ownership rights have the foreign headquarter
market entry and resource commitments
Market Entry and Resource Commitments

Licensing: Low

Joint Venture: Medium

Wholly-owned Subsidiary: High

Market Entry and Diffusion Risk

Licensing: High

Joint Venture: Medium

Wholly-owned Subsidiary: Low

eclectic theory hill et al 1990

Strategic Variables

  • Scale Economies
  • Global Concentration
  • Market Potential
  • Environmental Variables
  • Country Risks
  • Cultural Distances
  • Demand Uncertainty
  • Competitive Dynamics

Form of Market Entry

  • Resource Variables
  • Value of the Firm-specific Know-how
  • Tacit Knowledge of the Partner
  • International Experience
Eclectic Theory: Hill et al. 1990
3 3 2 consortia
3.3.2 Consortia

Latin „consortium“: association, society

= a temporary collaboration to perform a certain task or to provide a specific service or product more efficiently

= association of two or more individuals, companies, universities, or governments (or any combination)

Separate legal status

 Control over each participant is generally limited to activities refering to the joint project

consortia versus internalization
Consortia versus Internalization

Firms have to decide how much of the R&D they should be internally procured

- not possible to procure all R&D from outside

- in-house R&D is necessary for implementation

This decision depends on a number of factors:

- transaction and disincentive costs

- technological and organizational capabilities

transaction cost explanation
Transaction Cost Explanation
  • Organization has to balance transaction costs with incentives
    • Firm is more likely to integrate R&D activities (in-house) where transaction costs are high
    • Firm is more likely to procure R&D from external partners where incentives can be enhanced with market competition
organizational capability theory 1
Organizational Capability Theory (1)

Schumpeter (1912, 1942) and Penrose (1959)

(resource based view)

  • capabilities of the firm result in competitive advantages
  • capabilities have to be enhanced through innovation and learning
organizational capability theory 2
Organizational Capability Theory (2)
  • R&D transactions: companies acquire scientific knowledge from outside and form alliances with other firms with different capabilities.

Organizational Capability theory

  • lack of knowledge and sufficient capabilities of the firms
  • advantage of utilizing the new capabilities of external partners can exceed the coordinaton cost disadvantages.
sakakibara s model motives for consortia
Sakakibara‘s ModelMotives for Consortia

Economic View  Cost-sharing Motives

  • symmetrical firms in terms of capabilities or knowledge
  • same industry & outcome

Organizational View  Skill-Sharing Motives

  • heterogeneous capabilities
  • direct competitors in the product market
  • knowledge base
      • tacit knowledge
      • difficult to transmit
      • complementary knowledge
3 4 internationalization through franchising networks
3.4 Internationalization through Franchising-Networks

Royalties

to

t

Franchisor: System-specific Know-how

Franchisee: Initial Fee

Specific Investments

  • Characteristics:
  • Franchisees and franchisor are entrepreneurs.
  • Intangible Assets:
  • Franchisor‘s brand name, system-specific know how
  • Franchisee‘s local market know how
  • Incentive system:
  • Royalties and intial fees
transaction cost theory
Transaction Cost Theory

TC

Company-owned subsidiaríes

Licensing

Franchising

‚Hostage Model‘

Specifity,

Uncertainty

S1

S2

S3

slide43

A Property Rights View

Intangible assets

System-specific und local market knowledge

How is the knowledge distrubuted

Between the franchisor and the

franchisee?

H1

Residual decision rights

Who is the residual decision maker

(whose decisions influences

the residual income)?

H2

Ownership rights

(Residual income rights)

Royalties/

Initial Fees

Proportion of

company-owned

Outlets (PCO)

H3

How are the ownership rights allocated?

determinants of the market entry choice environmental and organisational factors
Determinants of the Market Entry Choice: Environmental and Organisational Factors

- Geographic distance

  • Cultural distance
  • Country risk
  • Political risk
  • Market volume and growth
  • Resources of the partner
  • Brand name assets
  • International experience
  • Financial situation of the franchisor
efficiency comparison
Efficiency Comparison

Subsidiary (WOS)

1. High resource commitments

2. Central control

3. Protection of the system-specific know how

Appropriate:

  • High cultural and geographic distance
  • Strong brand name
  • Important system-specific know how
  • High market potential and growth
  • International experience
slide48
Area Development Agreement

1. Lower resource commitment

2. Relatively strong central control

3. Fast market entry

Appropriate:

  • High geographic and cultural distances
  • Uncertain market development
  • Instable legal environment
  • Local market knowledge is very important
  • No international experience
slide49
Direct Franchising

High control and agency costs

Appropriate:

  • Low geographic and cultural differences
  • Strong local market know how of the franchisees
  • Relatively small market potential and growth
slide50
Joint Venture

1. Shared control

2. Know-how diffusion risk

3. Lower risk

Appropriate:

  • Franchisor has not enough local market knowledge
  • Uncertain market development
  • High legal and political uncertainty
  • Relatively high cultural differences
  • Legal barriers
slide51
Master Franchising

Lower central control

Appropriate:

  • High geografic and cultural differences
  • No international experience
  • High political risk
  • Strong market growth
  • High market uncertainty
  • Local market know-how is very important.
3 5 mergers acquisitions merger waves
3.5 Mergers & Acquisitions Merger Waves

2000:

10.952

11000

# of cases

With US-firm involvements

10000

2001:

9.614

1999:

9.218

9000

(5) Globalization,

Single European Market,

Shareholder Value

Internet

2002:

8.423

8000

7000

30.09.2003:

5.444

93-??

(4)

“Merger mania",

liberalization and deregul-ation

6000

(3) “Conglomerate era"due to diversification theory

5000

(1)

„IndustrialRevolution"

leads to

monopolies

(2)

New Anti-trust laws leads tovertical integrations

4000

65-69

84-89

3000

2000

16-29

97-04

1000

0

80

85

90

05

1895

00

05

10

15

20

25

30

35

40

45

50

55

60

65

70

75

95

00

Source: 1895-1920: Nelson (1959); 1921-1939: Thorp/Crowder (1941), 1940-1962: FTC (1971, 1972), 1963-99: MergerStat Review, 2000-03: Thomson Financial, FH Zwickau

mergers and diversification strategies 1
Mergers and Diversification Strategies (1)
  • Unrelated M&A: Conglomerate Mergers
    • NPV(A+B) = NPV(A) + NPV(B)
    • P = NPV(A+B) – NPV(A)
    • Only generates normal economic profit
  • Related M&A: Vertical and Horizontal Integration

NPV(A+B) > NPV(A) + NPV(B)

M&A generate strategic rents

NPV = Synergies – Premium (preacquisition value – paid price)

mergers and diversification strategies 2
Mergers and Diversification Strategies (2)
  • NVP(A) = 15000; NVP(B) = 10000
  • Unrelated M&A: Conglomerate Mergers
    • NPV(A+B) = NPV(A) + NPV(B) = 25000
    • P = NPV(A+B) – NPV(A) = 10000
    • Only generates normal economic profit
  • Related M&A: Vertical and Horizontal Integration
    • NPV(A+B) = 30000 > NPV(A) + NPV(B)
    • P = NPV(A+B) – NPV(A) = 15000

M&A generate strategic rents

slide55

Lubatkin (1983)

  • Technical economies (functional and management synergies)
    • marketing, production, organization, scheduling,
    • and compensation
  • Pecuniary economies
  • dictate prices by exerting market power
  • Diversification economies (financial synergies)
  • portfolio management and risk reduction
slide56

Jensen & Ruback 1983 (1)

  • The reduction of production/distribution/coordination costs:
  • 1. Through economies of scale
  • 2. Through the adoption of more efficient production or organizational technology
  • 3. Through the increased utilization of the bidder’s management team
  • 4. Through a reduction of agency costs
slide57

Jensen & Ruback 1983 (2)

  • Financial Motivations:
    • To avoid bankruptcy costs
    • To increase leverage opportunities
    • To gain tax advantages
  • To gain power in product markets
  • To eliminate inefficient target management
target firm s responses against the bidding firm
Target Firm’s Responses against the Bidding Firm
  • Greenmail: target firm purchases any of its stock owned by a bidding firm for a price which is greater than the current market price.
  • Poison Pills: any action of a target firm that makes the acquisition very costly, e.g. issue rights for the current stockholders for a special cash dividend in the case of a unfriendly take-over.
  • Crown jewel sale: target sells parts of the company, which are most profitable for the bidding firm.
slide59

Postmerger Integration Model

Combination potential

Synergy

realization

+

+

-

Organizational

integration

+

Employees‘

resistance

+

+

combination potential
Combination Potential
  • Economies of scale – similar operations
  • Operational synergies
  • Administration synergies
  • Managerial synergies
  • Financial synergies
employee resistance
Employee Resistance
  • M&As affect career plans
  • M&As create appearance of psychological problems such as:
    • “We versus they” antagonism
    • Distrust, Tension and Hostility
  • Cultural problems
factors influencing integration
Factors influencing integration
  • Management style similarity
    • Attenuates employee resistance
    • Cushions the degree of change and enhances organizational

integration

  • Cross-border Combination
    • Impede the interaction and coordination because of country differences
    • Culture clashes promoting employee resistance
  • Relative Size
    • Insufficient managerial attention to smaller targets
    • Positively associated with organizational integration
slide63

Hypotheses

  • The higher the combination potential, the larger the synergy realisation.
  • The stronger the organizational integration, the larger the synergy realisation.
  • The higher the employee resistance, the lower the synergy realisation.
  • The higher the combination potential, the greater the organizational integration.
  • The higher the combination potential, the larger the employee resistance.
  • The greater the organizational integration, the larger the employee resistance.
networks and m as a alliances versus m a
Networks and M&Asa. Alliances versus M&A
  • Alliances allow simultaneous and fast entering into multiple countries
  • Both achieve complementary capabilities and/or economies of scale effects
  • Alliances have a lower degree of organizational integration than acquisitions
  • In alliances all decisions must be made by consensus among the partner firms
  • Alliances are more flexible to adjust to environmental changes
  • Alliances result in higher knowledge spill-over risks
b acquisitions versus greenfield investments
b.Acquisitions versus Greenfield Investments

Advantages of greenfield investments:

- Know-how advantage of the MNC

(ownership-specific advantages)

- High market potential

- Long-term market growth

- Few competitiors

- Stable legal and political institutional factors

c greenfield brownfield investment acquisition
c. Greenfield/Brownfield Investment/Acquisition

Mode Choice

Preference for internal expansion

(greenfield)

Preference for external expansion

(acquisition)

The acquired foreign firm

has sufficient

resources?

Critical resources are

freely available at the foreign market.

no

no

yes

yes

A B

G B

slide67

Impact of International Strategy on the Market Entry Mode (1)

Global and multidomestic strategies are associated with different types of firm-specific advantages (FSAs):

1.location-bound FSAs

2.Nonlocation bound FSAs

Global companies: exploitation of nonlocation-bound home based firm-specific advantages

Multidomestic companies: exploitation of location-bound FSAs using host country specific advantages

international strategy impact on m a and network form 2
International Strategy: Impact onM&A and Network Form (2)
  • Hypotheses:- Companies following Global Strategy  higher proportion of Greenfield Investments

- Companies following Multidomestic Strategy  higher proportion of Acquisitions and Alliances

porter s diamond model

3.6 Internationalization through Clusters

Government

Porter‘s Diamond Model

Firm Strategy, Structure and Rivalry

Demand Conditions

Factor Conditions

Related and Supporting Industries

competitive advantage through clusters
Competitive Advantage through Clusters
  • They include an array of linked industries and other entities important to competition.
  • Many clusters include governmental and other institutions that provide specialized training, education, information, research and technical support.
  • Clusters can be extended downstream, horizontally and laterally.

„Clusters are geographic concentrations of interconnected companies and institutions in a particular field.“ (Michael E.Porter)

organisation design of clusters
Organisation Design of Clusters
  • Characteristics:
    • Stable network based on the core competencies of partner firms
    • Location-bound
    • Institutional support
  • Configuration:
    • Less formal coordination
    • Exclusive brand name at the market
    • Stable pool of cooperation partners
  • Soft Integration Factors:
    • Trust as coordination mechanism
  • IT-supported network relations
evolution of clusters

Birth

Evolution

Decline

Evolution of Clusters
  • historical circumstances; unusual local demand; existence of supplier industry and related industries; a couple of innovative companies stimulate others.

influence of government and other institutions expands; new entrepreneurs are attracted; suppliers emerge; information accumulates; infrastructure is improved.

technological discontinuities; a shift in buyer‘s needs

advantages of clusters 1
Advantages of Clusters (1)

(A) Access to employees and suppliers

  • Can recruit from a pool of specialized and experienced employees

 lowers search and transactions costs

  • Offer a specialized supplier network

 minimizes the need for inventory

 eliminates delays

 lowers the opportunism risk and coordination costs

advantages of clusters 2
Advantages of Clusters (2)

(B) Preferred access to specialized information

  • Extensive market, technical and competitive information accumulates within a cluster

(C) Access to institutions and public goods

  • Investments by government or other public institutions and universities can enhance a company’s productivity
advantages of clusters 3
Advantages of Clusters (3)

(D) Higher motivation and easier performance measurement

  • Local rivalry is highly motivating
  • Peer pressure leads to competitive pressure
  • Easier to compare and measure performances because of local competition
regional objective creation of location specific competitive advantage
Regional Objective: Creation of Location-specific Competitive Advantage

Specific

resources

Innovation und Know-How-Upgrading

Sophisticated demand

Strong local competition

Suppliers with high capabilities

3 7 internationalization through countertrade
3. 7 Internationalization through Countertrade
  • Explanation:
    • Market failure at the international product and financial markets
    • Advantages for the MNC:
    • Realization of a higher market potential
  • Informal coordination mechanisms
  • (reputation capital, trust) instead of formal coordination mechanisms
forms of counter trade
Forms of Counter Trade
  • Classical barter

- Clearing arrangement

- Switch Trading

  • Buy-Back
  • Counterpurchase
  • Offset
barter
Barter

Clearing arrangement:

- purchase equal value of goods and services

Switch-trading:

- goods that are useless to the trading country can be sold or transferred to a third country

advantages of barter
Advantages of Barter
  • To open new markets
  • To avoid protectionist barriers
  • To stimulate trade
  • To trade with the Second World
advantages of offsets
Advantages of Offsets
  • Secure competitive advantage
  • Increase local employment
  • Create alternative sources of financing
  • Transfer technology
  • Avoid taxes and tariffs
counter purchase
Counter Purchase
  • Two hard currency contracts
  • Goods are taken back by the seller
  • These goods are not those produced with the equipment sold. They are from a list which is set up by the importer.
buy back
Buy-Back
  • Transfer of technology, plant, equipment and technical assistance
  • Purchase of a certain percentage of the output
  • Long-term orientation
buy back contract
Buy-back-contract
  • Example
  • A producer of luxery products from France (F) sells a machine to a company in Ukraine in order to produce and sell these products in Ukraine. The Ukraine producer (U) cannot use these production technology for other products.
  • Questions:
  • Market contract between F and Ukraine
  • Vertical integration
  • Buy-back: The F-producer concludes a contract to buy a certain amount of product from the Ukraine producer.

Market Contract:

What is the problem?

U

F

Buy-back:

‚double hostage effect‘

hostage model of countertrade williamson 1983 hennart 1988
Hostage Model of Countertrade (Williamson 1983; Hennart 1988)

TC

Licensing

Countertrade

Hierarchy: DI

‚Hostage-effect‘

Specifity,

Uncertainty

S1

S2

S3

3 8 organization design of the mnc of the future
3.8 Organization Design of the ‘MNC of the Future’

Theses (based on expert interviews)

  • Evolution of ‘virtual countries’
  • Evolution of networks
cases for discussion
Cases for Discussion

Case Study: Joint Venture

  • The car producer ADOK uses the input goods A and B for the production of OMEGA. The following resources are given:
  • ADOK has firm-specific production know how in producing A but has now experience in producing B.
  • MAX has firm-specific advantages in developing and producing B. MAX has built up his ownership-specific advantages through high R&D-investments in the last decades. His capabilities are difficult to imitate by potential competitors.
  • In addition, the market environment is very uncertain; especially the technological uncertainty is very high because new competitors frequently enter the industry.

A) Which organizational form should be used to produce B?

(Market contract, joint venture between MAX and ADOK or internal production)

B) Now we assume that MAX has no firm-specific advantages in B; in addition the market uncertainty is relatively low. Which organizational decision should be made by ADOK in this situation?

C) Assume that ADOK is in Germany and MAX in Bulgaria? Does this influence the organization decision for ADOK and why?

slide90
Case: Joint Venture, Acquisition and Greenfield Investment

ALPHA want to enter the following markets:

Market A:

Characteristics:

High market uncertainty, high market potential and growth, unstable political and legal institutional structure, high cultural differences. In addition, the competitors in the host country have high local market advantages (knowledge of the product and labour market).

(1) ALPHA’S Market entry decision:

Joint venture/acquisition/greenfield investment?

Market B:

Characteristics:

Many competitors, no market entry barriers, high market potential and growth, longterm international experience. In addition, ALPHA has high competitive advantages in production and R&D. In addition, ALPHA’s organizational culture enables empowerment and decentralized decision making.

(2) Which market entry strategy is efficient in this market?

(3) Under which condition would you choose brownfield investment?

slide91
Case: Discussion of Hypotheses – Market Entry in China: JV vs. Licensing
  • H1: European companies (EC) which consider China as a high risk country are less likely to enter china through JV.
  • H2: The larger the cultural distance between EC firms’ home countries and China, the more likely they are to employ JV.
  • H3: The larger the political and economic distance between EC firms’ home countries and China, the less likely these firms are to employ JV.
  • H4: The greater the international experience of EC firms in China, the more they will employ JV.
  • H5: The larger the firm size, the more likely that firms will employ JV.
  • H6: When know how is of a tacit nature, it is more likely to be transferred through JV.
  • H7: The greater the transaction complexity and uncertainty, the greater the likelihood that firms will use JV.
  • H8: Firms employing a marketing mix strategy with standardized elements are more likely to use licensing.
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Case: Market Entry of Japanese Firms in US – Acquisitions vs. Greenfield Investments
  • Discuss:
  • H1: The greater the J-investor’s research and development intensity, the higher the probability of greenfield investments.
  • H2: The greater the J-investor’s experience in U.S. market, the higher the probability of acquisitions.
  • H3: The higher the rate of growth of demand in target market, the higher the incentive to enter through acquisitions.
  • H4:The lower the J-investor’s endowment in human resources, the higher the likelihood of acquisitions.
  • H5: The larger the size of subsidiary relative to that of the investor, the higher the probability of an acquisition.