Entry
Content
Entry Strategy and Strategic Alliances
104.
(p. 499)
Discuss the advantages of using a joint venture to enter foreign markets.There are several advantages to
expanding into foreign markets via a joint venture. First,firms benefit from a local partner's knowledge of
the host market. Second, a firm can sharethe costs and/or risks of operating in a foreign market. Third,
in many countries, politicalconsiderations make joint ventures the only feasible entry mode.
Difficulty: Medium
105.
(p. 499-500)
Imagine that you are meeting with your superiors to discuss entering a foreignmarket. Your boss has
asked you to analyze a joint venture prospect. Why might you tell your boss that the joint venture is not
a good idea?There are major disadvantages with joint ventures. A firm that enters into a joint venture
risksgiving control of its technology to its partner. In addition, a joint venture does not give thefirm the
tight control over subsidiaries that it might need in order to realize experience curveor location
economies. Finally, a joint venture might not be a good strategy because theshared ownership structure
can lead to conflicts and battles for control between the investingfirms if their goals and objectives
change or if they do not share a common vision for theventure.
Difficulty: Medium
106.
(p. 499)
How can a firm protect its proprietary information in a joint venture arrangement?There are several
things a firm can do to protect proprietary information in a joint venturearrangement. One option is to
hold majority ownership in the venture so that the firm hasgreater control over the technology. A second
option is to "wall off" from a partner technology that is central to the core competence of the firm, while
sharing other technology.
Difficulty: Medium
14-28
Chapter 14 - Entry Strategy and Strategic Alliances
107.
(p. 500)
What are the two methods of entering foreign marketing using a wholly ownedsubsidiary?Firms entering
a foreign market via a wholly owned subsidiary, where the firm owns 100 percent of the stock, can
either make the investment in a greenfield operation or in anacquisition. A greenfield operation involves
the establishment of a new operation, whereas anacquisition involves buying an established firm in the
host country and using that firm to promote the company's products.
Difficulty: Easy
108.
(p. 500-501)
Consider why a firm should enter a market via a wholly owned subsidiary. Whatare the advantages and
disadvantages of this type of strategy?In a wholly owned subsidiary, the firm owns 100 percent of the
stock. Wholly ownedsubsidiaries can take two forms, a greenfield investment which involves the
establishment of a new company or an acquisition.Establishing a wholly owned subsidiary as an entry
strategy into a foreign market isappropriate when a firm's competitive advantage is based on
technological competence. Byestablishing a wholly owned subsidiary, a firm reduces the risk of losing
control over thatcompetence. In addition, expanding via a wholly owned subsidiary gives a firm tight
controlover its operations in various countries. This strategy maximizes a firm's potential to engagein
global strategic coordination. Furthermore, a wholly owned subsidiary strategy may berequired if a firm
is trying to realize location and experience curve economies. However,establishing a wholly owned
subsidiary is generally the most costly method of serving aforeign market and since the firm owns 100
percent of the operation, the risks are also thehighest.
Difficulty: Medium
14-29
Chapter 14 - Entry Strategy and Strategic Alliances
109.
(p. 504-505)
Why do acquisitions fail?Acquisitions fail for several reasons. First, the acquiring firm often overpays for
the assets of the acquired firm. Second, many acquisitions fail because there is a clash between the
culturesof the acquired and the acquiring firms. Third, many acquisitions fail because attempts torealize
synergies by integrating the operations of the acquired and acquiring entities often runinto roadblocks
and take much longer than forecast. Finally, many acquisitions fail due toinadequate preacquisition
screening.
Difficulty: Medium
110.
(p. 506-508)
Discuss strategic alliances. How successful are they? Why do firms formstrategic alliances?The term
strategic alliance refers to cooperative agreements between potential or actualcompetitors. Strategic
alliances run the range from formal joint ventures, in which two or more firms have equity stakes, to
short-term contractual arrangements, in which twocompanies agree to cooperate on a particular task.
Firms enter into strategic alliances for four main reasons. First, strategic alliances may facilitate entry into
a foreign market. Second,strategic alliances allow firms to share the fixed costs of developing new
products or processes. Third, strategic alliances allow firms to bring together complementary skills
andassets that neither company could develop easily on its own. Fourth, strategic alliances canhelp firms
establish technological standards for an industry
104.
(p. 499)
Discuss the advantages of using a joint venture to enter foreign markets.There are several advantages to
expanding into foreign markets via a joint venture. First,firms benefit from a local partner's knowledge of
the host market. Second, a firm can sharethe costs and/or risks of operating in a foreign market. Third,
in many countries, politicalconsiderations make joint ventures the only feasible entry mode.
Difficulty: Medium
105.
(p. 499-500)
Imagine that you are meeting with your superiors to discuss entering a foreignmarket. Your boss has
asked you to analyze a joint venture prospect. Why might you tell your boss that the joint venture is not
a good idea?There are major disadvantages with joint ventures. A firm that enters into a joint venture
risksgiving control of its technology to its partner. In addition, a joint venture does not give thefirm the
tight control over subsidiaries that it might need in order to realize experience curveor location
economies. Finally, a joint venture might not be a good strategy because theshared ownership structure
can lead to conflicts and battles for control between the investingfirms if their goals and objectives
change or if they do not share a common vision for theventure.
Difficulty: Medium
106.
(p. 499)
How can a firm protect its proprietary information in a joint venture arrangement?There are several
things a firm can do to protect proprietary information in a joint venturearrangement. One option is to
hold majority ownership in the venture so that the firm hasgreater control over the technology. A second
option is to "wall off" from a partner technology that is central to the core competence of the firm, while
sharing other technology.
Difficulty: Medium
14-28
Chapter 14 - Entry Strategy and Strategic Alliances
107.
(p. 500)
What are the two methods of entering foreign marketing using a wholly ownedsubsidiary?Firms entering
a foreign market via a wholly owned subsidiary, where the firm owns 100 percent of the stock, can
either make the investment in a greenfield operation or in anacquisition. A greenfield operation involves
the establishment of a new operation, whereas anacquisition involves buying an established firm in the
host country and using that firm to promote the company's products.
Difficulty: Easy
108.
(p. 500-501)
Consider why a firm should enter a market via a wholly owned subsidiary. Whatare the advantages and
disadvantages of this type of strategy?In a wholly owned subsidiary, the firm owns 100 percent of the
stock. Wholly ownedsubsidiaries can take two forms, a greenfield investment which involves the
establishment of a new company or an acquisition.Establishing a wholly owned subsidiary as an entry
strategy into a foreign market isappropriate when a firm's competitive advantage is based on
technological competence. Byestablishing a wholly owned subsidiary, a firm reduces the risk of losing
control over thatcompetence. In addition, expanding via a wholly owned subsidiary gives a firm tight
controlover its operations in various countries. This strategy maximizes a firm's potential to engagein
global strategic coordination. Furthermore, a wholly owned subsidiary strategy may berequired if a firm
is trying to realize location and experience curve economies. However,establishing a wholly owned
subsidiary is generally the most costly method of serving aforeign market and since the firm owns 100
percent of the operation, the risks are also thehighest.
Difficulty: Medium
14-29
Chapter 14 - Entry Strategy and Strategic Alliances
109.
(p. 504-505)
Why do acquisitions fail?Acquisitions fail for several reasons. First, the acquiring firm often overpays for
the assets of the acquired firm. Second, many acquisitions fail because there is a clash between the
culturesof the acquired and the acquiring firms. Third, many acquisitions fail because attempts torealize
synergies by integrating the operations of the acquired and acquiring entities often runinto roadblocks
and take much longer than forecast. Finally, many acquisitions fail due toinadequate preacquisition
screening.
Difficulty: Medium
110.
(p. 506-508)
Discuss strategic alliances. How successful are they? Why do firms formstrategic alliances?The term
strategic alliance refers to cooperative agreements between potential or actualcompetitors. Strategic
alliances run the range from formal joint ventures, in which two or more firms have equity stakes, to
short-term contractual arrangements, in which twocompanies agree to cooperate on a particular task.
Firms enter into strategic alliances for four main reasons. First, strategic alliances may facilitate entry into
a foreign market. Second,strategic alliances allow firms to share the fixed costs of developing new
products or processes. Third, strategic alliances allow firms to bring together complementary skills
andassets that neither company could develop easily on its own. Fourth, strategic alliances canhelp firms
establish technological standards for an industry
