The strategic choice of one or more of the entry strategies will depend on (1. a critical evaluation of the advantages (and disadvantages) of each in relation to the firm's capabilities, (2. the critical environmental factors, and (3. the contribution that each choice would make to the overall mission and objectives of the company. Exhibit 6-7 summarized the advantages and the critical success factors for each entry strategy discussed. However, when it comes down to a choice of entry strategy or strategies for a particular company, there are more specific factors relating to that firm's situation that must be taken into account. These include factors relating to the firm itself, the industry in which it operates, location factors, and venture-specific factors, as summarized in Exhibit 6-8.
After consideration of the factors for the firm as shown in Exhibit 6-8, as well as what is available and legal in the desired location, some entry strategies will no
doubt fall out of the feasibility zone. With those options remaining, then, strategic planners need to decide which factors are more important to the firm than others. One method is to develop a weighted assessment to compare the overall impact of factors such as those in Exhibit 6-?, relative to the industry the location, and the specific venture on each entry strategy. Specific evaluation ratings, of course, would depend on the country conditions at a given point in time, the nature of the industry, and the focal company.
Based on a study of over 10,000 foreign entry activities into China between 1979 and 1998, Pan and Tse concluded that managers tend to follow a hierarchy of decision-sequence in choosing an entry mode. As depicted in Exhibit 6-9, managers first decide between equity-based and non-equity based. Then, equity modes are split into wholly owned operations and equity joint ventures (EJVs); nonequity modes are divided into contractual agreements and export. Pan and Tse found that the location choice - specifically the level of country risk - was the primary influence factor at the level of deciding between equity and nonequity modes. Host- country government incentives also encouraged the choice of equity mode.
Gupta and Govindarajan also propose a hierarchy of decision factors but consider two initial choice levels. The first is the extent to which the firm will export or produce locally; the second is the extent of ownership control over activities that will be performed locally in the target market. As shown in Exhibit 6-10, there is an array of choice combinations within those two dimensions. Gupta and Govindarajan point out that, among the many factors to take into account, affiance-based entry modes are more suitable under the following conditions:
• Physical, linguistic, and cultural distance between the home and host countries is high.
• The subsidiary would have low operational integration with the rest of the multinational operations
The risk of asymmetric learning by the partner is low
• The company is short of capital
• Government regulations require local equity participation
The choice of entry strategy for McDonald's, for example, varies around the world according to the prevailing conditions in each country With its 4,700 foreign stores, McDonald's is, according to Fortune, “a virtual blueprint for taking a service organization global.” CEO Mike Quinlan notes that, in Europe, the company prefers wholly owned subsidiaries, since European markets are similar to those in the United States and can be run similarly. Those subsidiaries in theUnited States both operate company-owned stores and license out franchises. Approximately 70 percent of McDonald's stores around the world are franchised. In Asia, joint ventures are preferred so as to take advantage of partners' contacts and local expertise and their ability to negotiate with bureaucracies such as the CMnese government. Headed by billionaire Den Fujita, McDonald's has over 1,000 stores in Japan; in China it had 23 stores in 1994, with more planned, in spite of conflicts with the Chinese government, such as when it made McDonald's move from its leased tiananmen Square restaurant. In other markets, such as in Saudi Arabia, McDonald's prefers to limit its equity risk by licensing the name - adding strict quality standards - and keeping an option to buy later. Some of McDonald's implementation policies are given in the next chapter.
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