MN20603
International market dev and Trade
Lecture 7: MNC’s foreign market entry modes
Objectives
● Motives for internationalising
● Entry modes
◦ Types
◦ Entry mode choice considerations
● Dunning’s eclectic paradigm
● Process of internationalisation: pace and timing
Motives for internationalising
♦ Seeking new markets
e.g HSBC acquired Household to have a presence in the US market and diversify in the
segment of banking (lending to low income consumer)
- Follow-the-customer – internationalising become customers are internationalised e.g
Volkswagen in the US, China to meet demand
♦ Seeking new resources and capabilities – Strategic asset seeking natural resources (oil)
♦ Exploiting differences (arbitrage) – Develop capabilities through exposure 🡪 choose
locations which have unique competitive advantages e.g Silicon Valley
♦ Efficiency seeking – capital-intensive sector, specialisation parts of global value chain to
perform activities more efficiently
♦ Learning new competencies – exposed to market learn ways of doing things 🡪 combine
with existing knowledge to create new capabilities e.g Starbucks in China
♦ Imitate competitors’ strategic moves (others do it or might do it) – internationalise in
response to competitors within their industry especially when small number of players
have high impact the market e.g Dell/Lenovo
Foreign direct investment (FDI)
▪ FDI: a firm invests in foreign assets with the objective of taking (full or partial) control of
them
◦ FDI entry modes
⮚ Mergers and acquisitions (M&As)
⮚ Greenfield investments
⮚ Certain forms of strategic alliances that have equity stakes such as Joint
Ventures
◦ Exporting and contractual entry modes (turnkey contracts, licensing, franchising) are
non-FDI entry modes
1
International market dev and Trade
Lecture 7: MNC’s foreign market entry modes
Objectives
● Motives for internationalising
● Entry modes
◦ Types
◦ Entry mode choice considerations
● Dunning’s eclectic paradigm
● Process of internationalisation: pace and timing
Motives for internationalising
♦ Seeking new markets
e.g HSBC acquired Household to have a presence in the US market and diversify in the
segment of banking (lending to low income consumer)
- Follow-the-customer – internationalising become customers are internationalised e.g
Volkswagen in the US, China to meet demand
♦ Seeking new resources and capabilities – Strategic asset seeking natural resources (oil)
♦ Exploiting differences (arbitrage) – Develop capabilities through exposure 🡪 choose
locations which have unique competitive advantages e.g Silicon Valley
♦ Efficiency seeking – capital-intensive sector, specialisation parts of global value chain to
perform activities more efficiently
♦ Learning new competencies – exposed to market learn ways of doing things 🡪 combine
with existing knowledge to create new capabilities e.g Starbucks in China
♦ Imitate competitors’ strategic moves (others do it or might do it) – internationalise in
response to competitors within their industry especially when small number of players
have high impact the market e.g Dell/Lenovo
Foreign direct investment (FDI)
▪ FDI: a firm invests in foreign assets with the objective of taking (full or partial) control of
them
◦ FDI entry modes
⮚ Mergers and acquisitions (M&As)
⮚ Greenfield investments
⮚ Certain forms of strategic alliances that have equity stakes such as Joint
Ventures
◦ Exporting and contractual entry modes (turnkey contracts, licensing, franchising) are
non-FDI entry modes
1
