Multinational Enterprises and Modes to Entry
There are several different modes of entry that multinational enterprises (MNEs) may choose when expanding overseas: direct and indirect export, joint venture, acquisition, franchising, licensing, partnering, greenfield venture, and direct investment. The two most common modes are exporting and partnering.
Exporting is the easiest way of entering a foreign market, which is why many organizations choose it for expansion. Exporting involves selling services and products that are produced in the home country in foreign countries. The major benefit of this entry mode is that it enables companies to evade the expense of settling the operation process in the new place. However, it is necessary to arrange the distribution and marketing channels in a foreign country. Also, business owners have to take care of advertising their products and services in the foreign market. The biggest disadvantage of exporting is the cost of transportation. Sometimes, it may be too expensive to take the goods to a different country. Also, a complicated transporting system may lead to significant environmental issues.
Another popular entry mode is partnering. Such a strategic alliance with a partner in the foreign country presupposes signing a contract between two or more companies that includes a set of regulations necessary to be taken by each of the parties to reach a common goal. An advantage of partnering is that a local organization has a better understanding of the market and customers’ culture. A disadvantage of this entry mode is that there is not enough control. Thus, the partners’ aims may not coincide.
Alliances
Due to the innovations in international marketing strategies, organizations started considering forming cross-border alliances. However, it soon became evident that alliances with foreign subsidiaries had limitations, and acquisitions became popular. Both of these choices have advantages and disadvantages.
It is best to create an alliance when an organization wants to edge into a related venture or a new geographic market (Bleeke and Ernst). To check whether the alliance is the best option for one’s company, a CEO needs to analyze the value that a potential partner may bring. Another opportunity for creating an alliance is when a company is so small that it cannot afford to enter the market due to the lack of financial resources. An example of a successful alliance is Crédit Suisse-First Boston (Bleeke and Ernst). This joint venture helped both organizations to bolster their positions in the Eurobond market First Boston secured access to corporate issuers of bonds whereas Crédit Suisse suggested the opportunity to place issues with European investors (Bleeke and Ernst).
What concerns acquisitions, it is best to create them for core enterprises and existing geographic regions (Bleeke and Ernst). However, it is highly important to bear in mind the adverse outcomes driven by acquiring ventures in new geographic regions. An example of a failed acquisition is between a British service company and a Canadian electronics manufacturer (Bleeke and Ernst). Because the UK firm had no experience in the North American market, it suffered considerable losses whereas the Canadian company returned its previous profits.
Work Cited
Bleeke, Joel, and David Ernst. “The Way to Win in Cross-Border Alliances.” Harvard Business Review, Nov.-Dec. 1991, Web.