Entering Foreign Markets

Chapter 10 Entering Foreign Markets
On the topic of international business, entering foreign markets is one of the most important factors. Chapter 10 focuses on three dimensions: where, when and how. Entering foreign markets is basically trying to succeed in an unfamiliar environment, when is not always easy, and can be really challenging. When firms are entering a foreign market they can face a lot of disadvantages, including different or new rules that they might not have had before in their own country. They also must compete with the already established local firms.
Where to Enter
As for location, there are two things to consider when entering foreign markets. These two things are strategic goals and cultural and institutional distances. “Location specific advantages are the benefits a firm reaps from features specific to a particular place” (Peng, 2016, p.151). With location, there are going to be certain parts of the world that just naturally attract foreign entrants simply because of the location. For instance, San Diego airport is located right near downtown, which is a good location for business. Locations like these will automatically hold an advantage over other locations. Depending on what a firms goals are, there are going to be different location specific advantages. Cultural and intuitional distances are also considered when entering foreign markets. Cultural distance are the differences between two cultures along recognizable measurements and institutional distances are the similarities or dissimilarities between the regulatory, normative, and cognitive institutions of two countries. It is more common for business to succeed between countries that share a language, rather than countries without a common language.
When to Enter
As for timing, many firms search for first mover advantages, which are benefits that accrue to firms that enter the market first and the later entrants do not like. However, there are also late mover advantages, which are benefits that accrue to firms that enter the market later and that the early entrants do not like. There are different advantages to these two types of movers. First mover advantages include technological leadership, preemption of scarce resources, establishment for entry barriers, and avoidance of clash with dominant firms and relationships with key stakeholders. The advantages of late movers include opportunity to free ride on the first mover investments, resolution of technological market uncertainties and the first movers difficulty to adapt to market changes. (Peng, 2016, p.154)
How to Enter
When a firm is going to enter a market, large or small, there are first steps that determine whether that firm should pursue an equity or a non-equity mode of entry. The scale of entry is the quantity resources committed to entering the market. Typically equity modes indicate larger commitments and non-equity modes indicate smaller entries. Non-equity entry modes include the following: direct and indirect exports, licensing and franchising, turnkey projects, research and development, and co-marketing. Equity entry modes include the following: minority joint ventures, majority joint ventures, 50/50 joint ventures, greenfield projects, and acquisitions. Firms are not limited to only one single entry mode, and they actually can change over time.
References
Peng, M. W., (2016). Global 3: Global business. (3rded.) Boston: Cengage Learning.
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