Choosing the mode of entry
For many companies, going global may be a matter of survival: there may simply not be enough domestic demand to keep them in business.
Selecting a mode of entry into a foreign market is among the most crucial strategic decisions a company can make. Weighing all factors and choosing the proper method can result in huge competitive advantages or it can cripple the organisation.
Here is an overview of possible modes of entry, each with its own pros and cons.
1. Acquisition of existing company
A merger may mean short-term cash, but not necessarily future stability. Half of merged entities never achieve their projected financial and market goals. Acquiring a company also means acquiring existing business, synergy and staff problems. And, bottom line, should the acquisition be financed by cash or stock?
Pros
- Established market
- Skilled workers available
- Licences are “grandfathered” in
- Technology, clients and vendors instantly acquired
- Negotiations usually occur at top level, target handles licensing and compliance
- Instant branding
- Reduction of competition
- Increased knowledge base.
Cons
- Hidden surprises?
- Which employees are politically connected, and with whom?
- “Favours” and concessions are assumed
- Technology often outmoded, vendors usually chosen for reasons other than merit
- Branding often not part of HQ’s ideals
- Acquisition often expensive and time-consuming
- Blending of corporate cultures
- Necessity to train local management (and HQ’s management)
- Potential tax and legal problems.
2. Greenfield investment
A greenfield investment starts with bare ground and builds up from there. Coca Cola, McDonald’s and Starbucks are great examples of US firms that have invested in greenfield projects around the world.
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