Chapter 9 [PDF]

Zitiervorschau

ANSWERS TO QUESTIONS FOR DISCUSSION 8.1 What are the major nonexport modes of entry into foreign markets? How does strategic focus relate to such market entry modes? The major nonexport modes of entry are (1) establishing a manufacturing plan, (2) setting up of assembly operations, and (3) forming a strategic alliance with one or more other companies. The strategic focus of the company, including its relative emphasis on profitability, productivity, volume, risk, and control, will be factors in determining the appropriate entry mode. 8.2 What are the major considerations taken into account by the international marketer in a decision to engage in some form of foreign area production? The major considerations are the size of the market which can be served, and opportunities to expand that market, costs of production, government barriers to continued imports, government incentives or barriers to manufacturing there, and control. 8.3 If a company were contemplating establishing a manufacturing facility in a foreign market, why might it decide to wholly own the facility rather than partially own it? Similarly, why might it prefer partial ownership? While establishing a wholly owned facility generally requires a greater commitment of capital, it provides greater control. Partial ownership may result in better government and business relations in the foreign market if the partner is well connected/has a good reputation. 8.4 When developing manufacturing operations in foreign markets is it better for the international marketer to seek out merger/acquisition possibilities or start from scratch (a greenfield investment)? Explain. Which approach is better depends upon the situation. A greenfield investment usually is more time consuming and involves problems in facility setup, recruiting and training labor, setting up the management team, and usually large capital commitment. An acquisition usually allows a faster start-up, and provides existing management, labor, facilities, and marketing organization with all their strengths and weaknesses. Acquisitions often result in some problems in establishing or merging differing managerial approaches. Local participation in ownership may be required by some governments. 8.5 Why might an international marketer who is involved in foreign production still have problems concerning channel control and cooperation? Would such a marketer handle channel conflict differently than the international marketer who exports? The international marketer with foreign production may still have problems in gaining cooperation and control. There may be problems in developing modified managerial approaches and operating methods that work well in the foreign country. Securing cooperation from other companies in the distribution chain may also be a problem. The producer will generally have both greater knowledge of local requirements and a greater ability to rapidly respond to those requirements than will an exporter. 8.6 What is a strategic alliance? Why are these alliances so popular and who benefits? Strategic alliances are cooperative ventures between two or more companies designed to exploit some marketing, manufacturing, or R&D opportunity. They are increasingly popular because, if properly set up and operated, they enable the participants to use the strengths of each to achieve more jointly than they could individually. All participants must benefit or the alliance will not last.

8.7 What are the key essentials for a strategic alliance to be a success? Goal compatibility among the participants, strategic advantage for each, interdependence, commitment, communication and conflict resolution, and effective planning and coordination. 8.8 ‘Licensing seems to be a fairly safe way for a manufacturer to produce in a foreign market for the first time.’ Comment. Licensing is a relatively easy and low-cost method of entering a foreign market. It may not always be safe, however. See the answer to Question 8.9. 8.9 Although licensing and contracting may appear to be desirable, they have drawbacks. What are the drawbacks? The licensor or contractor may gain enough knowledge to become a competitor, lack of control over production that may lead to quality problems, lack of control over marketing that may lead to inadequate market exploitation, and it may be difficult to coordinate the activities of a licensee with other entities in the worldwide marketing plan. 8.10 Why might a company not choose outsourcing even when production costs are sufficiently lower? A company might be concerned with training a potential competitor, loss of intellectual property, problems in finding a satisfactory manufacturer, loss of control in manufacturing, possibility that it will be accused of ‘exporting jobs,’ or exploiting or mistreating foreign workers. 8.11 Why might an international marketer prefer a joint venture to a licensing arrangement? Joint ventures may be encouraged or required by certain host governments. They may be preferred because joint ownership encourages each partner to contribute in areas where he/she is strong, provides a feeling of cooperative effort, and when successful accomplishes more at lower risk and cost than could be achieved by the partners working independently. 8.12 ‘In running a jointly owned facility in a foreign market (including a joint venture), it is not necessary to own more than 50% to maintain operational and management control.’ Discuss. The percentage of equity required for control depends upon the circumstances. Control with less than 50% equity may be possible if the remaining equity is divided among two or more other companies, or if the outside investor controls essential resources required by the jointly owned facility. If the local company controls essential resources, or has governmental support, the outside investor may not have effective control even with more than 50% equity. Exactly 50% equity for each of two partners may just lead to stalemate.

8.13 Why are management styles, and any cultural difference that exist in styles, important in all types of market entry modes involving partners? Management styles affect many aspects of operations and relationships. For example: a

differences in communications styles may lead to misunderstandings and conflict;

b

the ways in which decisions are made may result in conflict if one partner prefers consultation with the reaching of consensus desired/required, and the other prefers less input and top-down decisions;

c

junior managers and other employees may respond in unexpected/undesired ways to directions and orders that are given in a way (management style) to which they are not accustomed; and

d

misunderstandings and conflicts may occur when partners have different modes of personal interaction.

8.14 Select a company that has chosen direct investment in a foreign market and a company that has established a strategic alliance abroad. Analyze why each company made the decision it did. Explain why you would or would not agree with that decision. Students’ answers will vary. Some students will note that many international marketers use more than one form of envy mode for different products and/or countries. (The instructor may wish to use an example like that of Nissan’s and Toyota’s approaches to beginning manufacturing in the United States. Nissan entered with a wholly owned plant in Tennessee. Toyota, which was concerned about how to deal with unionized American labor and with American suppliers, entered a joint venture with General Motors in Fremont, California. Toyota followed up this successful learning experience with the building of a wholly owned plant in Kentucky.) 8.15 Choose a company that has made both a direct investment in a foreign country and has become part of a strategic alliance in that same or another country and analyze why the company chose those particular forms of entry. Student answers will vary, but should include consideration of some of the factors of risk, cost, control, access to technology, or others discussed in the text. (See the Toyota example above.)

ANSWERS TO CASE QUESTIONS 8.1 1.

Terralumen S.A. What should be Francisco Alvarez’s position at the directors meeting?

Senor Alvarez is faced with a difficult situation. The American parent does not understand Spanish business culture, the Spanish real estate market, or the Spanish labor market. They have not evidenced any interest in learning about these factors, and apparently do not recognize their importance. Their new plan for accelerated expansion based on the report of an American consulting firm appears to have been similarly oblivious to these factors. (Did the consulting firm simply provide a report that projected what Delta wanted in the way of rapid expansion without really testing the plan’s feasibility?). Since the Americans seem unwilling or unable to adjust their approach to the Spanish environment, Senor Alvarez should do two things. He should prepare ‘American-style’ arguments for the meeting itself, and he should begin to formulate a plan of action in case of dissolution of the joint venture.

Regarding the proposed accelerated expansion, the ‘American-style’ arguments should include a quantitative analysis of the resources required for, the potential sources of the required resources, and the feasibility/infeasibility of the plan. The large amount of funds required for capital investment would not be available from current operations of Terralumen, which had not even been able to pay current debt obligations to their Spanish bank out of earnings. It would likely not be possible to attain sufficient rental space to accommodate the proposed increase. Hiring and training of the large number of people required would not be very risky with the requirements of Spanish law. Senor Alvarez should quantify all of these costs and problems insofar as possible, and sum up with the amount of additional capital that would be required. He should also present a short written summary of the reasons – legal, financial, and otherwise – in the Spanish environment, which make such expansion risky and infeasible. Regarding Delta’s proposed changes in contract terms, Senor Alvarez should maintain his position. It is not apparent that Delta intends to make any contributions that would justify Terralumen making any concessions. 2.

Can the joint venture between Terralumen S.A. and Delta Foods survive? What do the partners need to make this happen?

From the facts provided in this case, it appears unlikely that the joint venture can survive. The demands of Delta, and the negotiating stance they are taking, appear to indicate a lack of understanding of Terralumen’s contributions to and importance in the joint venture, as well as a complete lack of understanding of requirements for successful operation in the Spanish market. Delta’s approach seems to combine a high level of ethnocentrism with substantial arrogance. In order for the joint venture to survive, Delta needs to change its stance. If Delta does that, Terralumen could make some minor concessions on other items. 3.

If Delta does want out of the venture, what terms should be set by Terralumen?

It can be expected that the restaurants are operated using the Blue Ridge name, and this name would almost certainly remain with the Blue Ridge corporation. There are three basic possibilities for ending the joint venture: Terralumen might be able to buy out Delta’s interest, might sell its interest in the chain to Delta, or they might divide the assets. It would be best if this could be done by negotiation, but if they have to go to court (in Spain, where the subsidiary must be, by law, incorporated), Terralumen should have an advantage. It is probably in the best interest of Terralumen to buy out Delta’s share in the partnership. Terralumen has acquired valuable experience in establishing, staffing, and operating fast food outlets, and should be able to use this experience in developing a chain of their own. It would be helpful if they could retain control of all or most of the outlets, changing their name and focus as appropriate. If Terralumen has to sell its interest, it should not do so unless it can gain a substantial capital gain on its contributions. If it must divide the assets, it can attempt to obtain the best of the locations for itself. (Note to instructors: Though very well disguised, this is a real case. Delta, the new parent of Blue Ridge, did not have a good understanding of the requirements for developing and running restaurants overseas, and of course additionally suffered from the problems noted in 1 and 2 above. Terralumen bought out Delta’s share, and went on to establish a very successful chain of specialty fast food restaurants in Spain. Blue Ridge had little success in France and Germany, and virtually disappeared in Spain.)

8.2 1.

GG Farm Machinery Company Do you agree with the decision made by Marcel Ger? Explain your answer.

Marcel Ger’s decision seems to be appropriate given the small size of his company, his lack of interest in spending much time or effort in getting deeply involved in activities in Australia, his good patent protection, and the fact that the ‘best’ candidate for cooperation wants to be a licensee rather than a

distributor. Table 8.5 does not explain fully the entry on duties. It says that duties exist for some products, but it is unclear if there are duties on GG Farm Machinery Company’s ‘specialized piece of machinery.’ Surely the marketing consulting firm should have determined specifically what the duty rate is. Licensing is particularly appealing to firms that have technology, product, or manufacturing expertise who lack the resources, desire, or experience to enter foreign markets. There are virtually no risks and the only costs are in negotiating and signing a mutually acceptable agreement, and checking on and controlling the implementation. The major disadvantages are loss of control, potential returns from marketing and manufacturing may be lost, and the licensee may turn itself into a competitor when the agreement expires. A further drawback is that the licensor learns nothing about the foreign market. In summary, licensing is a low-cost method of potentially making relatively ‘easy’ money in the short term. 2.

What other modes of market entry into the Australian market might GG have considered? Why are these viable alternatives?

They might have considered:

8.3 1.



A Joint Venture. A joint venture provides a more extensive form of participation in foreign markets. The major advantages are the sharing of risk and the combined strengths of the two partners. Joint ventures allow the partner to gain access to market knowledge and build its expertise in this area. The main disadvantages are the costs of control and coordination in working with a partner and the potential for conflict. Over time, many joint ventures are dissolved because the partners perceived inappropriate allocation of costs versus returns (i.e., each partner felt the other was contributing too little and getting too much).



Direct Investment. This would have involved setting up a plant in Australia. This would require an investment of time, effort, and money that are probably far beyond what GG is willing to consider. The advantages of direct investment where it is feasible are (1) control is maintained, (2) market knowledge is gained, and (3) all profits accrue to the firm.



Exporting directly or indirectly, as discussed in Chapter 7.

VW in China Evaluate Volkswagen’s strategies with regard to marketing.

Volkswagen’s marketing decisions were limited by government regulations, involved considerations of the long-term potential of the market, and were directly tied to its changing entry strategies. Volkswagen’s early entry into the Chinese market, and its entry decisions, enabled it to become the nation’s market leader in automobile sales. It made wise decisions in selection of partners that could provide political and economic support, and could directly increase the market for its automobiles. (See the answer to question 2 immediately below.) Its cooperation with city of Shanghai resulted in the city setting up a taxi company using VW’s Santanas. As the market in China expanded, and competition increased, Volkswagen added additional models to its line. It has also lowered prices as other companies have expanded manufacturing in China and competition has increased. With China’s entry into the WTO and attendant lowering of tariffs, the company is also increasing imports of specialized models that cannot be sold in sufficient numbers to justify local manufacturing. These models add to its prestige. Originally, a partner had the responsibility for marketing the cars produced in its initial joint venture. VW has now developed its own sales network, an incentive system for dealers, and is moving into financing of car purchases. The marketing policies, and directly related manufacturing policies, have been very successful to date. Increasing investment by other automobile manufacturers is resulting in a decline in market share even while VW’s sales are increasing. (See the answer to question 3 below.) 2.

What choices did Volkswagen have in market entry strategy, and did it make a wise decision?

Volkswagen originally entered the Chinese market through exporting, and its success made it confident that it could sell enough cars in China to justify entering into assembly and eventually manufacturing there. Government regulations required that it have a Chinese partner or partners. The first step in the process of investing was to develop relationships with government officials at the national, regional, and local levels. As the location for its first assembly plant, it chose Shanghai, the industrial and business center of the country. Its first partner, under the control of the municipal government, had an excellent industrial network for supplying parts. The Bank of China became a third partner (valuable in facilitating payments, etc.), and a firm controlled by the national government became a fourth partner. Its second joint venture was with a firm directly under the control of the central government. Volkswagen has carried out policies of increasing the use of locally made parts, establishing joint ventures, developing licensing agreements, and undertaking other forms of cooperation. It has modernized its production lines and provided employee-training programs to improve quality and productivity. Its strategies have been very successful, providing stronger growth than enjoyed by other entrants into the market. 3.

Should Volkswagen make a strong effort to maintain market share?

Volkswagen cannot maintain market share. The market is growing rapidly, but the amount of FDI flowing in to China from other European, American, and Japanese automobile manufacturers is growing even more rapidly. Meeting overall market demand would require investments of an amount beyond the capacity of VW. Oversupply is already emerging as a problem and prices are falling. Volkswagen needs to concentrate on improving productivity and lowering prices to remain competitive, hopefully continuing to increase sales (while market share will inevitably be eroded). 4.

Could selling the super luxury Phantom in China be useful for Volkswagen even if it does not make money there?

Having a super luxury car in the Volkswagen lineup should contribute to the company’s image and prestige. This may be helpful in getting increased sales across the whole line of VW-produced automobiles. 5.

What benefits can Volkswagen expect from its promotional activities?

Its promotional activities keep Volkswagen’s name in front of the public in the increasingly competitive Chinese market. It also should give the company an even better image with the people and government.

8.4 1.

Nouveau Cosmeceuticals Evaluate Nouveau Cosmeceuticals’ use of licensing in entering the Eastern European market.

Their use of a licensing agreement can be evaluated in three ways: (1) the problems involved in using another form of market entry; (2) the advantages of using licensing; and (3) the disadvantages of using licensing. Ace’s lack of knowledge regarding international business, and the high costs that would be incurred in setting up her own marketing network, argue against taking a more direct approach. The licensing agreement can be expected to provide rapid international expansion with minimum cost and effort. The dangers in using licensing are discussed in the answer to question 2 below. 2.

Should the company have formed a more formal and complete strategic alliance agreement? Why or why not?

The details of the agreement are not clear from the limited information provided. It does appear that the Latvian company is licensed to sell Nouveau Cosmeceuticals only within Latvia, so this leaves Ace free to pursue licensing agreements with distributors in other countries. However, this would require a level of initiative and involvement that Ace has not shown so far. One potential problem is that the Latvian distributor might at some point decide to make and sell its own line of Cosmeceuticals in competition with or in place of Nouveau Cosmeceuticals. They might do this just in Lavia or in other countries as well. They may have better contacts in other European countries than Ace. The formulas for the product are apparently not protected, there is apparently no ‘no competition’ agreement, and the Latvian company might be able to manufacture the products more cheaply themselves. Thus, a more formal and complete licensing agreement should have been made.

8.5 1.

Sonya Madden Evaluate Sonya Madden’s decision to locate her business close to where she has her products produced.

As the sole owner of the business, Ms Madden’s personal preferences, as well as purely business reasons, are important. From the business standpoint, the basic questions are (1) either locating close to the market or close to the customers provides greater advantages and (2) where are conditions most favorable for headquartering the business itself. Ms Madden prefers to be based in Hong Kong and the city does appear to have advantages for her business operations. The design function could probably be located anywhere, but Madden feels that proximity to the production source is important in getting what she wants quickly and with personal oversight. The location in Hong Kong, properly noted, also probably provides some cachet. Trips to the ‘market,’ her customers and potential customers in the US (why not Europe?) are less frequently required and fairly quick and easy from Hong Kong. The planned openings of offices in New York and Los Angeles will add substantial costs that would have to be covered by the potential benefits (and greater sales) of having representatives available ‘locally,’ that is, in US time zones.

8.6 1.

Wah Shing Toys Is this an ‘alliance that cannot miss?’ Discuss.

The ecological problem of disposing of 500 million alkaline batteries per year is real. However, it is not clear from the material presented in the case that (1) the technical problems in developing fuel cells for a wide range of toys will be easily solved; (2) the costs involved will be such that a wide range of toys can be produced economically; or even (3) what the specifics of the fuel cell car developed are. According to the case material, the H-racer miniature car developed by Horizon Fuel Cell Technologies uses a

hydrogen fuel cell. Hydrogen fuel cells for full-size automobiles are still in the development stage with some individually produced cars using them now on the road for testing. Problems with them are that they require a source of pure hydrogen, either derived from a fossil fuel or from electrolysis of water (which requires a lot of energy). The hydrogen must be held under a great deal of pressure to keep it in a liquid state (at least in the amounts required to run a full-size automobile). Such a car is ‘zero emissions’ as it runs along the road as the hydrogen and air burn to produce only water vapor, once the hydrogen has been obtained/produced. So it would seem that the H-racer would have to have a rechargeable container for holding the hydrogen – a container that would have to be refilled from time-to-time with hydrogen. But the company is talking about fuel cell toys powered by the sun. Mr Wankewycz says in the case that ‘The product is basically a miniature version of a real zero emissions car that runs on power generated from sun and water.’ For a reader to be able to evaluate what he is saying, it would be necessary for the reader to find out how the ‘sun and water’ part works. Could it be that the hydrogen is produced by using energy from the sun to generate electricity to perform the electrolysis? 2.

Would the venture be better if Wah Shing had acquired Horizon Fuel Cell Technologies or visa versa? Why or why not?

It is probably better for both companies to be in a joint venture than for Wah Shing to have acquired Horizon Fuel Cell Technologies (or visa versa). Wah Shing is a large-scale manufacturer most skilled at applying well-developed technologies in producing advanced toys. Horizon seems to be more focused on developing new technologies that can be applied. It is likely that the managerial skills and approaches best suited to the primary activities/objectives of each company might lead to conflict if one company owned the other.

TEST BANK 1

First-mover advantages may include: (a) reaching customers before others (b) establishing brand recognition (c) finding distributors and retailers who do not already handle the same type of products/ services (d) All of the above (e) None of the above.

1. The strategic focus of companies that have nonexport foreign market-based operations tends to vary among companies from various countries: (a) US companies in the UK market tended to focus more on cost reduction. (b) Japanese companies in the UK market tended to focus more on volume. (c) US companies in the UK market tended to focus more on improved productivity. (d) All of the above. (e) None of the above.

2. International strategic alliances: (a) refer to cooperative activities between companies from two or more countries. (b) have become less common as increased competition has reduced trust among companies. (c) are seldom used by large, strong companies. (d) All of the above. (e) None of the above. 3. A fundamental purpose of an international or global strategic alliance is to enhance the long-run competitiveness of the strategic partners. (a) True (b) False 4. In the Ford–Mazda collaboration discussed in ‘how to succeed in a joint venture/strategic alliance,’ (a) Ford provided expertise in manufacturing and product development. (b) Mazda provided expertise in international marketing and finance. (c) top management involvement, frequent meetings, and anticipation of cultural differences were important in success. (d) All of the above. (e) None of the above. 5. Market entry modes that have the drawback of training potential competitors are: (a) licensing. (b) greenfield wholly owned manufacturing. (c) contract manufacturing. (d) only answers (a) and (c) are correct. (e) only answers (b) and (c) are correct. 6. The exhibit discussing the approach used by Korean companies in the European market indicated that: (a) rapid growth in their market share to over 20% each inspired them to find even better ways to continue their rapid expansion. (b) Daewoo, Goldstar, and Samsung all used the same approach. (c) a key to their approach is stressing the advantage they have because of the reputation they have for high quality. (d) All of the above. (e) None of the above.

7. An advantage of mergers and acquisitions as a form of market entry is that there is no problem of integrating management styles. (a) True (b) False 8. A foreign assembly operation differs from a typical manufacturing operation in that the former primarily assembles imported parts. (a) True (b) False 9. The turnkey operation is a specialized form of management contract. (a) True (b) False 10. The selection of a local partner is perhaps the single most important activity involved in establishing a joint venture. (a) True (b) False 11. Once the decision has been made to have a production presence in a foreign market, determining the best mode of entry is easy. (a) True (b) False

ANSWERS TO TEST BANK QUESTIONS 1. (d)

2. (d)

11. (a)

12. (b)

3. (a)

4. (a)

5. (c)

6. (d)

7. (e)

8. (b)

9. (a)

10. (a)