Chapter 8: International Strategy 257This new knowledge and expertise often is necessary to facilitate the building of new
facilities, establishing distribution networks, and learning how to implement marketing
strategies that can lead to competitive success in the new market.^101 Importantly, while
taking these actions, the firm seeks to maintain control over the technology, marketing,
and distribution of its products. Research also suggests that when the country risk is high,
firms prefer to enter with joint ventures instead of greenfield investments. However, if
firms have previous experience in a country, they prefer to use a wholly owned greenfield
venture rather than a joint venture.^102
China has been an attractive market for foreign retailers (e.g., Walmart) because
of its large population, the growing economic capabilities of Chinese citizens, and the
opening of the Chinese market to foreign firms. For example, by 2005 more than 300
foreign retailers had entered China, many of them using greenfield ventures. Of course,
China is a unique environment, partly because of its culture, but more so because of the
government control and intervention. Good relationships with local and national gov-
ernment officials are quite important to foreign firms’ success in China. Because of these
complexities and the challenges they present, foreign retailers’ success in this market has
been mixed despite the substantial opportunities that exist there. Expansion, however, is
going to be more difficult, given how popular the online retailer Alibaba and its affiliates
and competitors have become. Thus great care should be exercised when selecting the
best mode for entering particular markets, as we discuss next.^1038-4f Dynamics of Mode of Entry
Several factors affect the firm’s choice about how to enter international markets. Market
entry is often achieved initially through exporting, which requires no foreign manufac-
turing expertise and investment only in distribution. Licensing can facilitate the product
improvements necessary to enter foreign markets, as in the Komatsu example. Strategic
alliances are a popular entry mode because they allow a firm to connect with an experi-
enced partner already in the market. Partly because of this, geographically diversifying
firms often use alliances in uncertain situations, such as an emerging economy where
there is significant risk (e.g., Venezuela). However, if intellectual property rights in the
emerging economy are not well protected, the number of firms in the industry is growing
fast, and the need for global integration is high, other entry modes such as a joint venture
(see Chapter 9) or a wholly owned subsidiary are preferred.^104 In the final analysis though,
all three modes—export, licensing, and strategic alliance—can be effective means of
initially entering new markets and for developing a presence in those markets.
Acquisitions, greenfield ventures, and sometimes joint ventures are used when firms
want to establish a strong presence in an international market. Aerospace firms Airbus
and Boeing have used joint ventures, especially in large markets, to facilitate entry, while
military equipment firms such as Thales SA have used acquisitions to build a global pres-
ence. Japanese auto manufacturer Toyota has established a presence in the United States
through both greenfield ventures and joint ventures. Because of Toyota’s highly efficient
manufacturing processes, the firm wants to maintain control over manufacturing when
possible. As such, it is opening a new regional center to bring together supplier coordina-
tion and regional North American research in Michigan as well as opening a new North
American headquarters facility in Texas.^105 Both acquisitions and greenfield ventures are
likely to come at later stages in the development of a firm’s international strategies.
Thus, to enter a global market, a firm selects the entry mode that is best suited to its
situation. In some instances, the various options will be followed sequentially, beginning
with exporting and eventually leading to greenfield ventures. In other cases, the firm may
use several, but not all, of the different entry modes, each in different markets. The deci-
sion regarding which entry mode to use is primarily a result of the industry’s competitive