1. BUSM1227: International Business: Entry Modes (II)
Business College
School of Management

2. Key Learning Objectives
This session will help you to understand the concepts of:
1) Internationalisation of business organisations
2) Key international business theories
3) Complexities of choices and approaches in internationalisation
RMIT University
School of Management

3. Aims of the Session:
To understand different forms of internationalisation and market entry.
To consider the benefits and problems of firm internationalisation from different perspectives.
RMIT University
School of Management

4. Key Questions How do organisations internationalise?
How does international business manage its internal and external operations when it comes to entry modes for foreign market?
RMIT University
School of Management

5. Entry Strategies
RMIT University
School of Management

6. Strategic Alliances
“When two or more companies from different countries agree to ENGAGE jointly in business activities.”
“A strategic alliance is a relationship between two or more entities that agree to share resources to achieve a mutually beneficial objective. For example, a company manufactures and distributes a product in the United States and desires to sell it in other countries. Another company wants to expand its product line with the type of product the first company creates, and has a worldwide distribution channel. The two companies establish an alliance to expand the distribution of the first company’s product.”
Examples: joint R&D, joint manufacturing, joint sales, joint service
RMIT University
School of Management

7. Rationale for International Strategic Alliances
Penetrating new foreign markets
Sharing market/marketing costs
Sharing research and development costs and risks
Launching a counterattack against competitors
Pooling global resources
Learning from partners
RMIT University
School of Management

8. Success Factor for Strategic Alliances
Reciprocity
Trust
Lack of Opportunism
Strategic Direction
Cultural Distance
RMIT University
School of Management

9. Activity 1: Case Study: South African Airways and Etihad
Please read the case of strategic alliance between Etihad and South African Airways in early Then, discuss the following questions: (
What are the key benefits for Etihad and South African airways?
What do you see as potential pitfalls?
Etihad Airways President and CEO James Hogan (L) with SAA acting chief executive Nico Bezuidenhout during the signing of the partnership
RMIT University
School of Management

10. Management Contract
A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise that performs the necessary managerial functions in return for a fee.
Management contracts involve not just selling a method of doing things (as with franchising or licensing) but involve actually doing them. A management contract can involve a wide range of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training.
RMIT University
School of Management

11. School of Civil, Environmental and Chemical Engineering

12. Why Management Contract?
Disadvantages
Potential incentive problem
Potential adverse selection problem
How do you know the competencies of the manager?
Advantages
Low Risk (financial/management)
Potential Government Support
Can be used as a national strategy for skill development
This story can help you to understand rationales behind MC
RMIT University
School of Management

13. Turnkey Projects
It is a contract under which a firm agrees to fully design, construct and equip a manufacturing/ business/ service facility and turn the project over to the purchaser when it is ready for operation for a remuneration.
Why/Why Not Turnkey?
+ Permit firms to specialize in their core competencies
+ Allow governments to obtain designs for infrastructure projects from the world’s leading companies
+ Technology Transfer
- Company may be awarded project for political reasons
- Can create future competitors
- No long term interests.
RMIT University
School of Management

14. Turnkey Projects
What are the key benefits and challenges of turn key project? Learn from the story of “Sunda Strait Bridge Project” from Indonesia
Link:
RMIT University
School of Management

15. Joint Venture
A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets.
RMIT University
School of Management

16. Access to partner’s local knowledge
Joint Venture
ADVANTAGES
Access to partner’s local knowledge
Reduction of concern about overpayment
Both parties have some performance incentives
Significant control over operation
PITFALLS
Potential loss of proprietary knowledge
Potential conflicts between partners
Neither partner has full performance incentive
Neither partner has full control
RMIT University
School of Management

17. Activity 2 International Joint Venture Case Study
Please read this IJV case study and answer the following questions:
What are the factors that MNCs should consider when deciding to use an international joint venture as a market entry strategy?
What are the potential benefits and risks in taking this course of action?
RMIT University
School of Management

18. Greenfield Investment
A form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees.
Compared to a greenfield investment, a cross-border acquisition is clearly much quicker and can also be a cost effective way to obtain technology and/or brand names
Cross-border acquisitions are however, not without pitfalls, as firms often pay too high a price or utilize expensive financing to complete a transaction
RMIT University
School of Management

19. Greenfield Investment
Please read this information from the Bulgarian Board of Investment and discuss if Bulgaria should be considered a place for greenfield investment? Why?
Link:
RMIT University
School of Management

20. Determinants of Entry Mode Strategies
Country-specific knowledge
Firm size: size can be related to commitment and resources
Firm experiences
Cultural distance
Political/economic factors
Tacit knowledge and know-how
Industry growth
Competitors
RMIT University
School of Management

21. Discussion
What factors should be consider when it comes to choice of entry mode? Why?
What are the cultural and political-economy links with entry mode? Please explain.
What are the roles of technology in the choice of entry strategies?
RMIT University
School of Management