Entry Modes - Hill

From Clever Camel Wiki
Jump to navigationJump to search

Modes to Enter a New Market

Export

Advantages

  1. No need to set up operations in another country
  2. Can get global economies of scale because of volume

Disadvantages

  1. Transportation costs
  2. Tariffs
  3. Inability to control marketing and sales (can be solved with wholly owned subs)

Turnkey Projects

Advantages

  1. The tech ability to create a manufacturing facility is not a trivial task

Disadvantages

  1. Lose long term interest in the country
  2. Can create competitors by giving away technology
  3. Selling away competitive advantage to competitors

Licensing

Advantages

  1. The Licensor does not have to pay much upfront cost
  2. Legal reasons by a subsidiary cannot be created in the new market
  3. The production of the product is not in the expertise of the licensor

Disadvantages

  1. Lack of control over manufacturing, marketing, and strategy
  2. Cannot coordinate the licensing between countries
  3. Competitors might steal the licensed technology (can be mitigated by using cross licensing, or licensing with equal stake amongst the licensor and licensee)

Franchising

Advantages

  1. The risk and cost is taken mostly by the franchisee

Disadvantages

  1. Hard to coordinate franchises (cost and experience curve)
  2. Quality control (poor quality can ruin global brand) (can be mitigated by having some local subsidiaries that monitor the quality of the franchises

Joint Ventures

Advantages

  1. Can partner with a local who knows the market better
  2. costs are shared between partners
  3. Might be the only legal way to do it (and can lead to less government interference)

Disadvantages

  1. Might lose secret technology
  2. Not enough control to get location or experience economies
  3. Fights over control of the company

Wholly Owned Subsidiary

Advantages

  1. Won't lose any secret technology
  2. Tight control over operations
  3. Can get location and experience economies
  4. Can establish global production system

Disadvantages

  1. Cost
  2. Have to learn how to operate in the new country