Chap 014 [PDF]

Zitiervorschau

Chapter 14 - Entry Strategy and Strategic Alliances

Entry Strategy and Strategic Alliances

14-1

14

Chapter 14 - Entry Strategy and Strategic Alliances



Learni ng objecti ves  

Expla in the three basic differ ences that firms conte mplat ing forei gn expa nsion must make : whic h mark ets to enter, when to enter those mark ets, and on what scale.

Outline the advantages and disadvantage s of the different modes that firms use to enter foreign markets. Identify the factors that influence a firm’s choice of entry strategy.



Evaluate the pros and cons of acquisitions versus greenfield ventures as an entry strategy.



Evaluate the pros and cons of using strategic alliances with foreign competitors to achieve a firm’s objectives in a global market place.

This chapter is concerned with three closely related topics: the decisions of which markets to enter, when to enter those markets, and on what scale. When a firm that wishes to enter a foreign market, it has several options, including exporting, licensing or franchising to host country firms, setting up a joint venture with a host country firm, or setting up a wholly owned subsidiary in the host country to serve that market. Each of these options has its advantages and each has its disadvantages. Strategic alliances have become more frequent. They may be seen as one way for firms to enter into cooperative agreements

14-2

between actual or potential competitors. The term "strategic alliances" is often used rather loosely to include a wide range of arrangements between firms, including crossshare holding deals, licensing arrangements, formal joint ventures, and informal cooperative deals. The magnitude of the advantages and disadvantages associated with each entry mode are determined by a number of different factors, including transport costs and trade barriers, political and economic risks, and firm strategy.

Chapter 14 - Entry Strategy and Strategic Alliances

OUTLINE OF CHAPTER 14: ENTRY STRATEGY AND STRATEGIC ALLIANCES Opening Case: JCB in India Basic Entry Decisions Which Foreign Markets? Timing of Entry Scale of Entry and Strategic Commitments Summary Management Focus: International Expansion at ING Group Management Focus: The Jollibee Phenomenon—A Philippine Multinational Entry Modes Exporting Turnkey Projects Licensing Franchising Joint Ventures Wholly Owned Subsidiaries Selecting an Entry Mode Core Competencies and Entry Mode Pressures for Cost Reductions and Entry Mode Greenfield Venture or Acquisition? Pros and Cons of Acquisitions Pros and Cons of Greenfield Ventures Greenfield or Acquisition? Strategic Alliances The Advantages of Strategic Alliances The Disadvantages of Strategic Alliances Making Alliances Work Management Focus: Cisco and Fujitsu Chapter Summary Critical Thinking and Discussion Questions Closing Case: Tesco Goes Global

14-3

Chapter 14 - Entry Strategy and Strategic Alliances

CLASSROOM DISCUSSION POINT Ask students to find several examples of companies expanding into new markets. Students can use publications like the Wall Street Journal or Business Week as sources. Then ask students to consider why the companies involved chose the form of market entry involved. Try to get students to think about the trade-offs involved with the various forms of market entry. Jot their responses on the board using the framework presented I the text. Finally, refer back to the discussion during the presentation of the material so students recognize the trade-offs companies make. OPENING CASE: JCB in India The opening case explores the joint venture between Britain’s JCB, a manufacturer of construction equipment, and Indian engineering conglomerate, Escorts. The two companies linked up to make back hoe loaders for the Indian market. The joint venture was a first for JCB, and proved to be hugely successful, gaining 80 percent of the market. However, JCB felt the arrangement limited its expansion opportunities, and recently bought out its partner. Today, JCN is a major player in the construction equipment market in both India and China. Discussion of the feature can revolve around the following questions. 1. Why did JCB, a company that had traditionally favored wholly owned operations, form a joint venture with Escorts? Did the company have any other alternatives? 2. What prompted JCB to buy out its partner? Do you feel JCB’s concerns were valid? Why or why not? 3. What did JCB learn from its experiences in India? How did this help JCB in its overall strategy? Another Perspective: To further explore JCB’s operations in India and China, go to the

company’s web site {http://www.jcb.co.uk/homepage.aspx}, click on “About JCB” and then on “A Global Manufacturer.” LECTURE OUTLINE FOR CHAPTER This lecture outline follows the Power Point Presentation (PPT) provided along with this instructor’s manual. The PPT slides include additional notes that can be viewed by clicking on “view”, then on “notes”. The following provides a brief overview of each Power Point slide along with teaching tips, and additional perspectives.

14-4

Chapter 14 - Entry Strategy and Strategic Alliances

Slides 14-3-14-4 Introduction Firms expanding internationally must decide which markets to enter, when to enter them and on what scale, and which entry mode to use. Entry modes include exporting, licensing or franchising to a company in the host nation, establishing a joint venture with a local company, establishing a new wholly owned subsidiary, or acquiring an established enterprise. Slide 14-5 Basic Entry Decisions The three basic decisions every firm must make when expanding internationally are: 1. which markets to enter 2. when to enter those markets 3. on what scale to enter those markets Slide 14-6 Which Foreign Markets? The choice of foreign markets will depend on their long run profit potential. Slides 14-7- 14-9 Timing of Entry Once attractive markets are identified, the firm must consider the timing of entry. Entry is early when the firm enters a foreign market before other foreign firms, and late when the firm enters the market after firms have already established themselves in the market. First mover advantages are the advantages associated with entering a market early. First mover disadvantages are disadvantages associated with entering a foreign market before other international businesses. Slide 14-11 Scale of Entry and Strategic Commitments After choosing which market to enter and the timing of entry, firms need to decide on the scale of market entry. Large-scale entry may keep rivals out and may stimulate indigenous competitive response. Small-scale entry allows time to learn about the market and reduces risk exposure. Slide 14-12 Summary There are no “right” decisions when deciding which markets to enter, and the timing and scale of entry, just decisions that are associated with different levels of risk and reward. Slide 14-13 Entry Modes The six entry modes are exporting, turnkey projects, licensing, franchising, joint ventures, and wholly owned subsidiaries.

14-5

Chapter 14 - Entry Strategy and Strategic Alliances

Slides 14-14-14-15 Exporting Exporting avoid costs of investing in new location and may help achieve experience curve and location economies. Exporting faces challenges from tariff barriers, transportation costs, control over marketing, and local low-cost manufacturers. Another Perspective: The Business Link provides information companies should know before they begin exporting. The site is available at{http://www.cbsc.org/alberta/tbl.cfm?fn=export}. Students can click on the various topics to learn more about export financing, export plans, dealing with risk, and so on.

Slides 14-16-14-17 Turnkey Projects Turnkey projects allow a company to get a return on their knowledge assets and are less risky than conventional FDI. The disadvantages are that there is not long-term interest in the location, the project may create a competitor, and process technology may be selling a competitive advantage. Another Perspective: To learn more about companies that identify themselves as firms that engage in "turnkey projects", go to the web site of Frigemaires Engineers {http://www.feprojects.com/}. A list of projects the company is currently involved in is available, and you can click on various types of factories and get visuals on each factory.

Slides 14-18-14-20 Licensing Licensing does not bear the costs and risks of investment and avoids political/economic restrictions in a country. Slides 14-21-14-22 Franchising Franchising reduces costs and risks, avoids political and economic restrictions, and allows for quicker expansion. Disadvantages include loss of control over quality. Slides 14-23-14-24 Joint Ventures Joint ventures benefit from local partner's knowledge, shared costs, and reduced risk. Disadvantages include loss of control over technology and conflict between partners. Another Perspective: 1000ventures, available at {http://www.1000ventures.com/business_guide/jv_main.html}, is a web site that offers a wealth of information about joint ventures.

Slides 14-25-14-26 Wholly Owned Subsidiaries Wholly owned subsidiaries offer the most control and the highest level of risk and cost. Slides 14-29-14-30 Selecting an Entry Mode The optimal choice of entry mode involves trade-offs.

14-6

Chapter 14 - Entry Strategy and Strategic Alliances

Slide 14-31 Core Competencies and Entry Mode The optimal choice of entry mode for firms pursuing a multinational strategy depends to some degree on the nature of their core competencies. Slide 14-32 Pressures for Cost Reductions and Entry Mode When pressure for cost reductions is high, firms are more likely to pursue some combination of exporting and wholly owned subsidiaries. Slide 14-34 Greenfield Ventures or Acquisitions Firms can establish a wholly owned subsidiary in a country through a greenfield strategy (building a subsidiary from the ground up) or through an acquisition strategy. Slides 14-35-14-36 Pros and Cons of Acquisitions Pros: quick, preemptive, possibly less risky. Cons: disappointing results, overpay, optimism/hubris, culture clash, failure of synergies Slide 14-37 Pros and Cons of Greenfield Ventures Greenfield ventures allow the firm to build the subsidiary it wants, but it is slow, risky, and may involve preemption by competitors. Slide 14-19 Greenfield or Acquisition? Acquisition is quicker, so a consideration if there are competitors ready to enter. Slide 14-40 Strategic Alliances Strategic alliances refer to cooperative agreements between potential or actual competitors. Slide 14-41 The Advantages of Strategic Alliances Strategic alliances facilitate entry into a foreign market, allow firms to share the fixed costs (and associated risks) of developing new products or processes, bring together complementary skills and assets that neither partner could easily develop on its own, can help a firm establish technological standards for the industry that will benefit the firm. Slide 14-42 The Disadvantages of Strategic Alliances Strategic alliances can give competitors low-cost routes to new technology and markets, but unless a firm is careful, it can give away more than it receives. The firm must be certain that the partner is one that can help the firm achieve its goals and not act opportunistically to exploit the alliance for purely its own ends.

14-7

Chapter 14 - Entry Strategy and Strategic Alliances

Slides 14-43-14-47 Making Alliances Work The success of an alliance is a function of partner selection, alliance structure, and manner in which the alliance is managed. Another Perspective: The Institute for Collaborative Alliances maintains a web site with information on how to make alliances more successful. The site is available at {http://www.icalliances.com/model/index.htm}. CRITICAL THINKING AND DISCUSSION QUESTIONS QUESTION 1: Licensing propriety technology to foreign competitors is the best way to give up a firm's competitive advantage. Discuss. ANSWER 1: The statement is basically correct - licensing proprietary technology to

foreign competitors does significantly increase the risk of losing the technology. Therefore licensing should generally be avoided in these situations. Yet licensing still may be a good choice in some instances. When a licensing arrangement can be structured in such a way as to reduce the risks of a firm's technological know-how being expropriated by licensees, then licensing may be appropriate. A further example is when a firm perceives its technological advantage as being only transitory, and it considers rapid imitation of its core technology by competitors to be likely. In such a case, the firm might want to license its technology as rapidly as possible to foreign firms in order to gain global acceptance for its technology before imitation occurs. Such a strategy has some advantages. By licensing its technology to competitors, the firm may deter them from developing their own, possibly superior, technology. And by licensing its technology the firm may be able to establish its technology as the dominant design in the industry. In turn, this may ensure a steady stream of royalty payments. Such situations apart, however, the attractions of licensing are probably outweighed by the risks of losing control over technology, and licensing should be avoided QUESTION 2: Discuss how the need for control over foreign operations varies with firms’ strategies and core competencies. What are the implications of the choice of entry mode? ANSWER 2: If a firm’s competitive advantage (its core competence) is based on control

over proprietary technological know-how, licensing and joint venture arrangements should be avoided if possible so that the risk of losing control over that technology is minimized. For firms with a competitive advantage based on management know-how, the risk of losing control over the management skills to franchisees or joint venture partners is not that great. Consequently, many service firms favor a combination of franchising and subsidiaries to control the franchises within particular countries or regions. The subsidiaries may be wholly owned or joint ventures, but most service firms have found that joint ventures with local partners work best for controlling subsidiaries.

14-8

Chapter 14 - Entry Strategy and Strategic Alliances

QUESTION 3: Under what circumstances are joint ventures to be preferred to wholly owned subsidiaries as the most appropriate mode for entering foreign markets? ANSWER 3: Joint ventures offer many advantages to firms as a means of entering foreign markets. A key advantage for firms that partner with local companies is taking advantage of the local company’s knowledge of the local marketplace. Another advantage of joint ventures over wholly owned subsidiaries is being able to share the costs and risks of developing a foreign market. In some cases, joint ventures are the only way a firm can enter a foreign market, and in politically risky situations where the chance of nationalization or other government interference are high, they may be a better choice than a wholly owned subsidiary. QUESTION 4: In recent years, the number of cross-border mergers and acquisitions has ballooned. What are the risks associated with the popularity of this vehicle for entering foreign markets? Can you find an example in recent press reports of such risks? How can these risks be reduced? ANSWER 4: Despite the current popularity of strategic alliances, they should not be taken lightly. In many cases, they give competitors a low-cost route to new technology and markets. It is vital that firms avoid giving away more than it receives. Many alliances run into managerial and financial troubles within a couple of years. To reduce the risks associated with strategic alliances, firms should be careful when selecting their partners, structure the alliance so that the risks of giving too much away are reduced, and build a trusting relationship with partners. QUESTION 5: A small Canadian firm that has developed some valuable new medical products using its unique biotechnology know-how is trying to decide how best to serve the European Union. Its choices are given below. The cost of investment in manufacturing facilities will be a major one for the Canadian firm, but it is not outside its reach. If these are the firm’s only options, which one would you advise it to choose? Why? a. Manufacture the product at home and let foreign sales agents handle marketing. b. Manufacture the products at home and set up a wholly owned subsidiary in Europe to handle marketing. c. Enter into a strategic alliance with a large European pharmaceutical firm. The product would be manufactured in Europe by the 50/50 joint venture and marketed by the European firm.

14-9

Chapter 14 - Entry Strategy and Strategic Alliances

ANSWER 5: If there were no significant barriers to exporting, then option (c) would seem

unnecessarily risky and expensive. After all, the transportation costs required to ship drugs are small relative to the value of the product. Both options (a) and (b) would expose the firm to less risk of technological loss, and would allow the firm to maintain much tighter control over the quality and costs of the drug. The only other reason to consider option (c) would be if an existing pharmaceutical firm could also give it much better access to the market and potentially access to its products and technology, and that this same firm would insist on the 50/50 manufacturing joint venture rather than agreeing to be a foreign sales agent. The choice between (a) and (b) boils down to a question of which way will be the most effective in attacking the market. If a foreign sales agent can be found that is already quite familiar with the market and who will agree to aggressively market the product, the agent may be able to increase market share more quickly than a wholly owned marketing subsidiary that will take some time to get going. On the other hand, in the long run the firm will learn a great deal more about the market and will likely earn greater profits if sets up its own sales force. QUESTION 6: Reread the Management Focus in International Expansion at the ING Group an then answer the following questions: a) Why did ING focus on entering the U.S. market rather than, for example, emerging markets such as China and India? b) What explains the timing of ING’s entry into the U.S. market? c) ING entered the U.S. insurance and investment banking market through acquisitions, rather than setting up business from scratch. Why do you think the company choose this entry mode? What are the advantages and disadvantages? d) Why do you think ING opted to start its Internet bank, ING Direct, from scratch in the United States? ANSWER 6: a) ING recognized that to be a key player in the business, it would need a significant market presence in the United States, the world’s largest financial market. So far, ING has been successful. In just a few years, the company has gone from having virtually no position in the market, to being one of the country’s top 10 financial services firms.   b) ING took advantage of two regulatory changes that made it easier to enter the U.S. market. First, the removal of barriers that kept different parts of the financial services industry separate, and second, the removal of barriers to cross-border investment in financial services. c) ING followed the same strategy in the United States that had proved to be successful in other countries. The company identified companies that it could acquire, left the companies’ management and products in place, and then, added in ING products and names. Many students will probably suggest that ING’s strategy is so successful because rather than growing its business from the ground up, it acquires existing firms, leaves them largely intact so as to retain the existing employees and customers, but adds in the ING name and products in order to capitalize on a global brand name.  

14-10

Chapter 14 - Entry Strategy and Strategic Alliances

d) ING’s expansion strategy typically involves the acquisition of existing companies. Many students will probably suggest that ING’s greenfield investment to open ING Direct occurred because there were no good candidates for acquisition.  Another Perspective: Explore ING’s international operations by going to the company’s homepage at {http://www.ing.com}, clicking on “Personal Finance” and then on the country of your choice. QUESTION 7: Reread the Management Focus on the Jollibee Phenomenon, then answer the following questions: a) What explains the pattern of Jollibee’s international expansion? Why do you think it entered the countries it did? b) Jollibee’s expansion into the United States has been quite limited. Why might this be so? c) Jollibee now seems to be focusing on India and China for overseas growth. Why are these countries attractive to Jollibee? d) Why is Jollibee considering entering India via an acquisition? ANSWER 7: a) Most students will probably recognize that Jollibee tends to target those countries where it will readily gain acceptance. Initially, Jollibee focused on expanding into neighboring countries like Indonesia. Later, Jollibee expanded into the Middle East and targeted a large contingent of Filipino expatriates. The United States, which also had a large number of Filipinos, became the firm’s next target. b) Jollibee opened eight stores in the United States—all of which are in California. Many students will probably suggest that this is simply an extension of Jollibee strategy to target only those markets where product acceptance is likely to be high. c) China and India seem to be attractive to Jollibee simply because of their size. In China, the company operates more than 100 stores that serve Chinese food. The stores are operated under a local name. In India, Jollibee is considering acquiring an Indian fast-food restaurant. d) Some students might suggest that Jollibee’s desire to enter the Indian market via an acquisition rather than a geenfield investment is a reflection of its overall strategy of entering those markets where the likelihood of acceptance is high. Since India does not have a large Filipino population, Jollibee may be more comfortable operating a local chain where product acceptance has already occurred. Because Jollibee does not have a global reputation, it must look for alternative ways to compete. Another Perspective: Jollibee’s web page is available at {http://www.jollibee.com.ph/} and click on “International” to explore some of the company’s foreign locations.

14-11

Chapter 14 - Entry Strategy and Strategic Alliances

QUESTION 8: Reread the opening case on JCB then answer the following questions: a) Do you think entering India via a joint venture was the optima choice for JCB in 1979? What other options did it have? b) Why do you think JBC picked India for its first foreign direct investment? c) Was JCB right to gain full control of its Indian joint venture in the 2000s? ANSWER 8: a) The choices of entry modes available to JCB in 1979 were very limited. High tariffs barriers made its usual strategy of exporting unattractive, and the Indian government did not allow wholly owned subsidiaries. Given those limitation, the joint venture was probably the best choice of entry mode. b) JCB was attracted to India because of the country’s growth potential, however, because of high tariffs, exporting was not an option. JCB entered the market via a joint venture with Escorts, an Indian engineering conglomerate. c) Most students will probably agree that JCB’s strategy of full ownership was appropriate. The company felt the joint venture curbed its ability to expand, and that full control was necessary in order to fully capitalize on its technology and innovation. QUESTION 9: Reread the Management Focus on Cisco and Fujitsu, then answer the following questions: a) What are the benefits of Cisco’s alliance with Fujitsu? What are the risks and associated costs? b) Given your assessment of the benefits, risks, and costs associated with this alliance, did it make sense for Cisco to enter the alliance? c) How might Cisco mitigate the risks associated with the alliance? ANSWER 9: a) Cisco hoped to achieve several goals through its alliance with Fujitsu. The company

hoped that by sharing R&D, new product development would be quicker, that combining its technology expertise with Fujitsu’s production expertise would result in more reliable products, that it would gain a bigger sales presence in Japan, and that by bundling its routers together with Fujitsu’s telecommunications equipment, the alliance could offer end-to-end communications solutions to customers. b) One of the key attractions of an alliance with Fujitsu’s was the company’s strong presence in the Japanese market. Japan is at the forefront of second generation high speed Internet based telecommunications networks, and Cisco wanted to be a part of that market. For Fujitsu, the alliance meant that it could fill the gap in its product line for routers, reduce product development costs and time, and produce more reliable products. For other competitors in the market, the alliance between Cisco and Fujitsu is significant. Together, the companies can offer one-stop shopping end-to-end communications solutions. Furthermore, because the two companies are pooling their resources, development costs are lower, which will put additional pressure on competitors.

14-12

Chapter 14 - Entry Strategy and Strategic Alliances

c) Students will probably suggest that the biggest risk for Cisco is that by sharing its proprietary technology with Fujitsu, it could potentially create a competitor. To avoid this, Cisco will need to take steps to protect its technology by making sure that safeguards are written into alliance agreements, and ensure that it is getting an equitable gain from the agreement. Another Perspective: To find out more about Cisco and Fujitsu, students can visit the company web sites at {http://www.cisco.com/} and {http://www.fujitsu.com/global/}. In addition, a new release about the Cisco- Fujitsu alliance is available at {http://newsroom.cisco.com/dlls/2004/prod_120604c.html}. CLOSING CASE: Tesco Goes Global The closing case describes Tesco’s international expansion strategy. Tesco, the British grocer, has established operations in a number of foreign countries. Typically, the company seeks underdeveloped markets in developing nations where it can avoid the head-to-head competition that goes on in more crowded markets, and then enters those markets via joint venture where the local partner provides knowledge of the market while Tesco provides retailing expertise. The following questions can be helpful in directing the discussion. QUESTION 1: Why did Tesco’s initial international expansion strategy focus on developing nations? ANSWER 1: Tesco’s global expansion strategy has been rather unique in the grocery industry. Rather than competing head-to-head with established retailers in developed markets like the United States and Western Europe, Tesco chose to pursue markets with strong growth potential, but little current competition. The strategy allows the company to use its expertise to grow international market share, without incurring the costs of establishing itself in already crowded markets. QUESTION 2: How does Tesco create value in its international operations? ANSWER 2: The keys to Tesco’s success in its international operations is its ability to spot markets with strong underlying growth trends, identify existing companies in those locations that have a deep understanding of the local market, form a joint venture with those companies and transfer its expertise in the industry to the venture, and later buy the partner out. The strategy is highly successful, supplementing the company’s United Kingdom earnings with an additional ₤9.2 billion in revenues in 2005. Tesco is now the number four company in the global grocery industry. QUESTION 3: In Asia, Tesco has a long history of entering into joint venture agreements with local partners. What are the benefits of doing this for Tesco? What are the risks? How are those risks mitigated?

14-13

Chapter 14 - Entry Strategy and Strategic Alliances

ANSWER 3: Tesco’s strategy of entering foreign markets via joint ventures has proven to be highly successful. The company is able to bring its expertise in retailing as well as its financial strength to the venture where it is paired with the partner’s knowledge of the local market. Local managers are hired to run the operations, with only support coming from expatriate managers. This format allows Tesco to use its core strengths to get into the market, and then later, after the ventures have become established, buy out its partner. QUESTION 4: In March 2006, Tesco announced that it would enter the United States. This represents a departure from its historic strategy of focusing on developing nations. Why do you think Tesco made this decision? How is the U.S. market different from others Tesco has entered? What are the risks here? How do you think Tesco will do? ANSWER 4: Most students will probably agree that while Tesco’s entry into the crowded market in the United States represents a departure from its traditional strategy of focusing on developing nations with little existing competition, the strategy still reflects the company’s traditional strategy in that the format the company has chosen to use, Tesco Express, still avoids the head-to-head competition that the company has steered clear of in developing markets. In that sense, the strategy could prove to be highly successful. The company can enter the market using its Tesco Express format, avoid major competition while it gains brand recognition and experience in the market, and then later, expand into the traditional grocery business. Another Perspective: Students can go to Tesco’s corporate home page {http://www.tescocorporate.com/home.htm} for up-to-date information about the company’s global expansion plans. You can click on numerous icons to learn more about how the company operates “Inside Tesco” is particularly worth a visit. INTEGRATING iGLOBES There are several iGLOBE video clips that can be integrated with the material presented in this chapter. In particular, you might consider the following: Title: Importing Liquefied Natural Gas Abstract: This video examines the rise of U.S. imports of liquefied natural gas, and the rationale behind the global protests against the product. Key Concepts: foreign direct investment, economic differences, imports, exports, joint ventures

14-14

Chapter 14 - Entry Strategy and Strategic Alliances

Notes: Demand for natural gas has surged in recent years. The product is a relatively clean-burning fuel and now accounts for almost a quarter of energy needs in the U.S. However, its alternate form, Liquefied Natural Gas (LNG) is at the center of a global controversy. In 2003, LNG was at the center of riots in Bolivia that left 70 dead, and put the Bolivian president in exile. Protesters in Peru and Indonesia claim that the product could jeopardize the environment and risk lives. Protesters against LNG have also been active in Russia and Nigeria. Now, a mayoral candidate in Long Beach, California is speaking out against the product in an effort to stop the building of a MitsubishiConocoPhillips partnership LNG plant in the city’s port. At the heart of these protests is the argument that LNG is unsafe. Proponents of LNG argue that fears about the product are unfounded. They claim that when compared to oil and gasoline, LNG is actually safer to transport. Yet, they seem to be acknowledging the concerns of the protesters at least to some degree. Sempra Energy for example, is building a billion-dollar facility in a remote stretch of Baja, California, away from heavily populated areas like Long Beach. Sempra Energy, an American company, will use its new facility to import natural gas from Russia and Indonesia and then pipe it to end-users in Mexico and the southwestern part of the U.S.   LNG was developed as a means of simplifying the transport of natural gas. In the past, natural gas was primarily moved via pipelines to destination markets. However, as demand for natural gas grew, an alternative method of distribution had to be found. The new method involved using innovative technologies that allowed the natural gas to be liquefied and then shipped by tankers. An added benefit of the new technology was the opportunity for companies to limit their activities in U.S. gas fields where natural gas is not only hard to reach, but is also relatively costly to obtain and instead turn to foreign markets. Prices for natural gas in foreign markets have been relatively stable and cheap compared to those in the U.S. making LNG imports attractive. However, some experts warn that relying on foreign sources of natural gas could be a recipe for disaster. Much of the world’s stock of natural gas is found in Third World countries, countries that are considered to be unstable. Concerns have been voiced that relying of these countries for such an important product could be risky. However, analysts predict that within the next five years, the U.S. will import as much as 16 percent of its natural gas from foreign sources. Today, that figure is just 3 percent. Discussion Questions: 1. LNG has been at the center of significant controversy throughout many parts of the world. Why is LNG so unpopular? Discuss the concerns critics of the product have expressed. Do you believe they are justified? Why or why not? 2. Consider Sempra Energy’s new facilities in Baja, California. In your opinion, was Sempra Energy’s strategy influenced by protests against LNG? How do you think protesters will respond to Sempra Energy’s new plant?

14-15

Chapter 14 - Entry Strategy and Strategic Alliances

3. U.S. imports of natural gas have risen significantly in recent years. What factors have led to this rise? Consider the dangers involved in relying on foreign sources of energy. Should the U.S. government take measures to limit imports of natural gas? 4. How has technology changed the nature of the natural gas industry? Some people might suggest that in the case of natural gas, technological advances have not always resulted in a positive outcome. Do you agree? Who are the winners from LNG technology? Who are the losers? INTEGRATING VIDEOS There are also several longer video clips that can be integrated with the material presented in this chapter. In particular, you might consider the following: Title 14: DHL Global Delivery Service Notes: DHL, which started in 1969 in San Francisco with a $3,000 investment, delivers packages to 120,000 destinations in 200 countries, bringing in over $50 billion in revenues. DHL is a market leader in international express delivery. In fact, the company considers itself to be the inventor of international express shipping. DHL built its global operations by slowly expanding its services over the years. The company followed a backward path around the world from its San Francisco offices into Asia, moving on to Europe and Africa, and finally into North America. Its American operations have been strengthened with its recent acquisition of Airborne. DHL’s focus on improving its service in the U.S. prompted the company to acquire A irborne rather than take the time to build its own operations. The acquisition gave DHL the infrastructure necessary to become a serious competitor in the market. Now the acquisition is part of the company’s overall operation providing U.S.-based gateways for packages traveling to other parts of the world. All packages traveling outside the U.S. must pass through the U.S. Customs office located within the gateway sites. Discussion Guide: 1. DHL has relied on its own agents when shipping internationally. Discuss the service. What are the advantages of having in-house handling of packages when shipping internationally rather than using agents who work for several different companies? 2. Rather building its own operations from scratch when it moved into the U.S. market, DHL chose to acquire Airborne. Discuss the advantages and disadvantages of this strategy. 3. Reflect on DHL’s U.S. gateway system that provides on-site customs clearance services. Does this give DHL a competitive advantage? Why or why not?

14-16

Chapter 14 - Entry Strategy and Strategic Alliances

4. DHL believes customers using international express delivery services are looking for speed and reliability. Using the pressure for costs reduction/pressure for local responsiveness grid, consider the international shipping business. Where do the major players stand relative to one another? Is any one player better positioned to succeed? globalEDGE™ Exercise Questions Use the globalEDGE™ site {http://globalEDGE.msu.edu/} to complete the following exercises: Exercise 1 A vital element in a successful international market entry strategy is an appropriate fit of skills and capabilities between partners. As such, the Entrepreneur magazine annually publishes a ranking of America's top 200 franchisors seeking international franchisees. Provide a list of the top 10 companies that pursue franchising as a mode of international expansion. Study one of these companies in detail and provide a description of its business model, its international expansion pattern, desirable qualifications in possible franchisees, and the support and training typically provided by the franchisor. Exercise 2 The U.S. Commercial Service prepares reports known as the “Country Commercial Guide” for countries of interest to U.S. investors. Utilize the Country Commercial Guide for Brazil to gather information on this country. Considering that your company is producing laptop computers and is considering entering this country, select the most appropriate entry method, supporting your decision with the information collected. Answers to the Exercises Exercise 1 The annual ranking of America’s Top 200 global franchisers can be found by searching the term “entrepreneur” at {http://globaledge.msu.edu/ResourceDesk/}. This resource is named Entrepreneur Magazine: Top Global Franchises and is found under the globalEDGE category “Research: Rankings”. Be sure to check the “Resource Desk only” checkbox of the search function on the globalEDGE website. Search Phrase: “Entrepreneur” Resource Name: Entrepreneur Magazine: Top Global Franchises Website: {http://www.entrepreneur.com/franzone/listings/topglobal/} globalEDGE™ Category: “Research: Rankings”

14-17

Chapter 14 - Entry Strategy and Strategic Alliances

Exercise 2 The Country Commercial Guides can be accessed by searching for the term “commercial guide” at {http://globaledge.msu.edu/ResourceDesk/}. The link is located under the globalEDGE category “Research: Multi-Country”. Detailed information regarding marketing U.S. products and services in Brazil can be found by selecting the report for this country and reading the chapter titled “Selling US Products and Services”. A direct link to the Country Commercial Guide for Brazil is also located on the Country Insights page for Brazil at {http://globaledge.msu.edu/countryInsights/country.asp? CountryID=107} Search Phrase: “Country Commercial Guide” Resource Name: Country Commercial Guides for U.S. Investors Website: {http://www.buyusainfo.net/adsearch.cfm?search_type=int&loadnav=no} globalEDGE™ Category: “Research: Multi-Country” or Resource Name: Brazil Country Commercial Guide Website: {http://globaledge.msu.edu/countryInsights/country.asp?CountryID=107} (site location frequently changes, therefore link through the globalEDGE Country Insights page might be more reliable) globalEDGE™ Category: “Country Insights / Region: Latin America / Brazil”

14-18