A firm considering foreign expansion must first decide which markets to enter, when to enter them, and on what scale. Then the firm must decide on the entry mode. The firm's strategy, product, and competition all play parts in making that decision.
When a firm's competitive advantage is based on technological competence, a wholly owned subsidiary will often be the preferred entry mode because it reduces the risk of losing control over that competence. A wholly owned subsidiary is also beneficial when the firm seeks global strategic coordination, seeking to use profits from one country to support competitive attacks in another. Once a firm has decided to establish a wholly owned subsidiary, the choice will be between creating a greenfield venture and acquiring an existing firm or operation.
Read the overview below and complete the activities that follow.
The choice between acquisitions and greenfield ventures is not an easy one. The firm must make a series of decisions, and each decision will help it make the appropriate choice. Answer the questions and then decide if the strategy presented is the correct one.
Your firm manufactures and sells a line of telecommunications equipment, and you have decided this is the time to expand into foreign markets. You have grown your domestic business by buying out struggling businesses and leveraging their products with your management talent. You have gained a reputation for leaving the corporate culture intact in those businesses. Your management team has examined several countries and selected a developed country in Western Europe as a logical target. You believe your domestic competitors are also looking at foreign markets, and you feel you must act sooner rather than later to maintain your competitive edge at home and abroad. While your product is not new to the world, you have had success domestically by appealing to specific niches often ignored by competitors.
1. By acquiring an established enterprise, a firm can rapidly ________________________________.
Select a response.build its presence in the foreign market, increase its dominance in supply chains and manufacturing processes, repay the funds it borrowed to expand its markets
2. Firms will make acquisitions to _______________________, which is particularly important in markets that are rapidly globalizing.
Select a response.maximize the exposure to risk and therefore profit, avoid government regulations on the environment and labor, preempt competitors
3. Many acquisitions fail because ___________________________________.
Select a response.the entrenched management moves too quickly to capitalize on the new management approaches, anticipated synergies run into roadblocks and take longer to realize than planned, the firm spends too long in due diligence and the opportunities evaporate
4. The big advantage of _____________________________ is that it gives the firm a much greater ability to create the kind of organizational culture and operations it wants.
Select a response.acquiring a single firm in a foreign market, a greenfield venture in a foreign country, acquiring a number of smaller firms and combining them into one large firm
5. If a firm is entering a country where there are no incumbent competitors, ______________________ is preferred.
Select a response.realizing something is wrong and staying away from that market, a limited partnership acquisition, a greenfield venture
1). By acquiring an established enterprise, a firm can rapidly build its presence in the foreign market.
2). Firms will make acquisitions to maximize the exposure to risk and therefore profit which is particularly important in markets that are rapidly globalizing.
3). Many acquisitions fail because anticipated synergies run into roadblocks and take longer to realize than planned.
4). The big advantage of a greenfield venture in a foreign country is that it gives the firm a much greater ability to create the kind of organizational culture and operations it wants.
5). If a firm is entering a country where there are no incumbent competitors, a greenfield venture is preferred.
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