In countries where a fully owned subsidiary is permitted, an MNC wishing total control of its operations can start its own product or service business from scratch, or it may acquire an existing firm in the host country. Philip Morris acquired the Swiss food firm Jacobs Suchard to gain an early inside track in the European Common Market and to continue its diversification away from its aging tobacco business. With this move, PM became the second U.S. company, after Mars, to assure itself a place in Europe's food industry. Such acquisitions by MNCs allow rapid entry into a market with established products and distribution networks and pro- vide a level of acceptability not likely to be given to a “foreign” firm. These advantages offset, somewhat, the greater level of risk stemming from the larger capital investments, compared with other entry strategies.
At the highest level of risk is the strategy of starting a business from scratch in the host country - that is, establishing a new wholly owned foreign manufacturing or service company or subsidiary with products aimed at the local market or targeted for export. Japanese automobile manufacturers - Honda, Nissan, and Toyota - have successfully used this strategy in the United States to get around American import quotas.
This strategy exposes the company to the full range of risk, to the extent of its investment in the host country As evidenced by events in South Africa and China, political instability can be devastating to a wholly owned foreign subsidiary. Add to this risk a number of other critical environmental factors - local attitudes toward foreign ownership, currency stability and repatriation, the threat of expropriation and nationalism - and you have a high-risk entry strategy that must be carefully evaluated and monitored. There are advantages to this strategy, however, such as full control over decision making and efficiency as well as the ability to integrate operations with overall companywide strategy
Exhibit 6-7 summarizes the advantages and critical success factors of these entry strategies which must be taken into account when selecting one or a combination of strategies depending on the location, the environmental factors and competitive analysis discussed here, and the overall strategy in which the company approaches world markets.
Complex situational factors face the international manager as she or he considers strategic approaches to world markets; along with which entry strategies might be appropriate, as illustrated in the accompanying Comparative Management in Focus: Strategic Formulation for the EU Market.
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