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Entry Strategy and Strategic
Alliances in International Business
Elizabeth Devasia, Ph.D
International Business Date: 14/11/2025
LO 15-1 Explain the three basic decisions firms must make when they
decide on foreign expansion: which markets to enter, when to
enter those markets, and on what scale.
LO 15-2 Compare the different modes firms use to enter foreign markets.
LO 15-3 Identify the factors that influence a firm’s choice of entry mode.
LO 15-4 Recognize the pros and cons of acquisitions versus greenfield
ventures as an international market entry strategy.
LO 15-5 Evaluate the pros and cons of entering into strategic alliances when
going international
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• International firms must consider:
1. The decision of which foreign markets to enter, when to enter them, and on what scale
2. The choice of entry mode
3. The role of strategic alliances
• Strategic alliances include:
• Cross-shareholding deals
• Licensing arrangements
• Formal joint ventures
• Informal cooperative arrangements
Basic Entry Decisions 1 of 5
• Which Foreign Markets?
• Choice based on assessment of a nation’s long-run profit potential
• Size of the market
• Present and likely future wealth of consumers
• Costs and risks
• Value an international business can create in a foreign market depends on suitability of
its products to that market and the nature of indigenous competition
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Basic Entry Decisions 2 of 5
Timing of Entry
• First-mover advantages
• Preempt rivals and capture demand by establishing a strong brand name and customer
satisfaction
• Build sales volume in that country and ride down the experience curve ahead of rivals
• Create switching costs that tie customers into their products or services
Basic Entry Decisions 3 of 5
• First-mover disadvantages
• Pioneering costs
• The enterprise has to devote considerable effort, time, and expense to learning the
rules of the game.
• Costs of business failure
• Costs of promoting and establishing a product offering, including the costs of
educating customers
• Regulations may change in a way that diminishes the value of an early entrant’s
investments.
• Need to educate customers about your company's products
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Basic Entry Decisions 4 of 5
Scale of Entry and Strategic Commitments
• A strategic commitment has a long-term impact and is difficult to reverse.
• Rapid large-scale market entry can have an important influence on the nature of
competition in a market.
• Must be balanced against the resulting risks and lack of flexibility associated with
significant commitments
• Small-scale entry allows a firm to learn about a foreign market while limiting the firm’s
exposure to that market.
Basic Entry Decisions 5 of 5
Market Entry Summary
• No “right” decisions, depends on risks and rewards
• Businesses based in developing nations also have to enter foreign markets
and become global players
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Entry Modes 1 of 9
• Exporting
• Advantages
• Avoids the often substantial costs of establishing manufacturing operations in host
country
• May help firm achieve experience curve and location economies
Entry Modes 2 of 9
Exporting continued
• Disadvantages
• May not be appropriate if lower-cost locations for manufacturing the product can be
found abroad
• High transport costs can make exporting uneconomical, particularly for bulk products
• Tariff barriers can make exporting uneconomical
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Entry Modes 3 of 9
• Turnkey Projects
• Advantages
• Can earn great economic returns
• Can be less risky than conventional FDI
• Disadvantages
• The firm that enters into a turnkey deal will have no long-term interest in the foreign
country.
• May inadvertently create a competitor
• Selling a technology through a turnkey project is also selling competitive advantage to
potential and/or actual competitors
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Entry Modes 4 of 9
Licensing
• Intangible property
• Patents, inventions, formulas, processes, designs, copyrights, and trademarks
• Advantages
• No development costs and risks associated with opening a foreign market
• Used when a firm wishes to participate in a foreign market but is prohibited from doing
so by barriers to investment
• Used when a firm possesses some intangible property that might have business
applications, but it does not want to develop those applications itself
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Entry Modes 5 of 9
Licensing continued
• Disadvantages
• Does not give a firm the tight control over manufacturing, marketing, and strategy that is
required for realizing experience curve and location economies
• Limits a firm’s ability to coordinate strategic moves across countries by using profits
earned in one country to support competitive attacks in another
• A firm can lose control over its technology by licensing it
• To reduce this risk, enter into a cross-licensing agreement or joint venture
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Entry Modes 6 of 9
• Franchising
• Employed primarily by service firms
• Advantages
• Firm experiences lower costs and risks than opening a foreign market on its own
• Helps build a global presence quickly
• Disadvantages
• May inhibit the firm’s ability to take profits out of one country to support competitive attacks
in another
• Quality control
• Set up subsidiaries
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Entry Modes 7 of 9
Joint Ventures
• 50-50 ventures are most common
• Advantages
• Local partner’s knowledge of the host country’s competitive conditions, culture,
language, political systems, and business
• Shared costs and risks
• Political considerations (government interference, nationalism, etc.)
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Entry Modes 8 of 9
Joint Ventures continued
• Disadvantages
• Loss of technology control
• Lack of control over subsidiaries that it might need to realize experience curve or
location economies
• Can lead to conflicts and battles for control between the investing firms if their goals and
objectives change or if they take different views as to what the strategy should be
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Entry Modes 9 of 9
Wholly Owned Subsidiaries
• Greenfield venture - set up a new operation in host country
• Acquisition - acquire an established firm in a host nation
• Advantages
• Reduces the risk of losing control over technology
• Can tightly control operations in different countries
• Location and experience curve economies
• 100 percent share of profits
• Disadvantages
• Bear full cost and risk of establishing new market
• Can be problems associated with acquisitions
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Selecting an Entry Mode 1 of 2
• Core Competencies and Entry Mode
• Technological know-how
• Licensing and joint-venture arrangements should be avoided unless the technological
advantage is transitory.
• Management know-how
• Less risk for franchises or joint ventures
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Selecting an Entry Mode 2 of 2
Pressures for Cost Reductions and Entry Mode
• The greater the pressures for cost reductions, the more likely a firm will want
to pursue some combination of exporting and wholly owned subsidiaries.
• Wholly owned marketing subsidiaries give the firm tight control that might be
required for coordinating a globally dispersed value chain.
• Also give the firm the ability to use the profits generated in one market to
improve its competitive position in another market
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Greenfield Venture or Acquisition? 1 of 5
• Pros and Cons of Acquisitions
• Quick to execute
• May help preempt competitors
• May be less risky than greenfield ventures
• Acquisitions often produce disappointing results.
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Greenfield Venture or Acquisition? 2 of 5
Pros and Cons of Acquisitions continued
• Why Do Acquisitions Fail?
• Overpaying
• Hubris hypothesis of why acquisitions fail
• Culture clash
• Integrating the operations of the acquired and acquiring entities often run into
roadblocks and take much longer than forecast
• Inadequate preacquisition screening
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Greenfield Venture or Acquisition? 3 of 5
Pros and Cons of Acquisitions continued
• Reducing the risks of failure
• Detailed audit of operations, financial position, and management culture
• Reduce unwanted management attrition
• Have an integration plan
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Greenfield Venture or Acquisition? 4 of 5
Pros and Cons of Greenfield Ventures
• Gives the firm a much greater ability to build the kind of subsidiary company
that it wants
• Slower to establish
• Risky, but less risky than acquisitions
• Preemption by global competitors
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Greenfield Venture or Acquisition? 5 of 5
• Which Choice?
• Acquisition when:
• The firm is seeking to enter a market where there are already well-established
incumbent enterprises
• Global competitors are also interested in establishing a presence
• Greenfield when:
• There are no incumbent competitors to be acquired
• The competitive advantage of the firm is based on the transfer of organizationally
embedded competencies, skills, routines, and culture
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Strategic Alliances 1 of 5
• Advantages of Strategic Alliances
• May facilitate entry into a foreign market
• Allow firms to share the fixed costs (and associated risks) of developing new
products or processes
• Brings together complementary skills and assets that neither company could
easily develop on its own
• May help the firm establish technological standards for the industry that will
benefit the firm
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Strategic Alliances 2 of 5
Disadvantages of Strategic Alliances
• May give competitors a low-cost route to new technology and markets
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Strategic Alliances 3 of 5
Making Alliances Work
• Partner selection
• A good partner:
• Helps the firm achieve its strategic goals
• Has capabilities the firms lacks
• Is unlikely to try to opportunistically exploit its partner
• Choosing a partner:
• Collect as much pertinent, publicly available information on potential allies as possible
• Gather data from informed third parties
• Get to know the potential partner as well as possible before committing to an alliance
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Strategic Alliances 4 of 5
Making Alliances Work continued
• Alliance Structure
• Reduce the risk of giving away too much to the partner.
• Use contractual safeguards to guard against the risk of opportunism by a partner.
• Agree in advance to swap skills and technologies that the other covets, thereby ensuring
a chance for equitable gain.
• Cross-licensing agreements
• Extract a significant credible commitment from the partner in advance.
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Strategic Alliances 5 of 5
Making Alliances Work continued
• Managing the Alliance
• Be sensitive to cultural differences.
• Build trust.
• Build relational capital.
• Learn from the alliance partner and apply the knowledge within one’s own organization.
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