UNIT - 2.

Modes of entering global business

Modes of Entering Global Business
When companies seek to expand beyond their domestic markets and enter the global business arena, they have
several modes of entry to choose from. The selection of an appropriate mode depends on various factors such as the
company's goals, resources, level of risk tolerance, and the nature of the target market. The following sections explore
the most common modes of entering global business, along with detailed examples, advantages, disadvantages, and
case studies.

1. Exporting
1.1 Definition and Overview
Exporting is the simplest and most common mode of entering global business, where a company sells its products or
services to customers in foreign countries. This can be done directly, through a distributor, or via online platforms.

1.2 Types of Exporting

Direct Exporting: The company sells directly to the foreign market without intermediaries.

Indirect Exporting: The company sells through intermediaries such as agents, distributors, or export management
companies.

Intracorporate Transfers: Intracorporate transfers involve the export of goods and services between subsidiaries
or divisions of the same company located in different countries. This method is common among multinational
corporations (MNCs) with global operations, allowing for the efficient allocation of resources and coordination of
activities across borders.

Example: Toyota Motor Corporation transfers automotive parts from its manufacturing plants in Japan to its assembly
plants in the United States and Europe, facilitating global production and distribution.
Example: Apple’s Direct Exporting Strategy
Apple Inc. initially entered international markets through direct exporting. The company sold its iPhones, iPads, and
other products directly to foreign customers via its online store and physical Apple stores in select countries.

1.3 Advantages of Exporting

Low Investment: Requires minimal investment compared to other entry modes.

Risk Mitigation: Less exposure to political and economic risks of the foreign market.

Market Testing: Allows companies to test foreign markets without significant commitment.

1.4 Disadvantages of Exporting

Limited Control: Less control over marketing, distribution, and customer service in the foreign market.

Tariff and Non-Tariff Barriers: Exporting is subject to tariffs, quotas, and other trade barriers.

Transportation Costs: High shipping and logistics costs can reduce profit margins.

1.5 Case Study: Nike’s Exporting Success

Nike, the global sportswear giant, initially expanded internationally through exporting. By leveraging its brand reputation
and demand for its products, Nike successfully penetrated markets in Europe and Asia. The company’s direct exporting
strategy allowed it to build a global presence with relatively low investment.

2. Licensing
2.1 Definition and Overview
Licensing is a contractual arrangement where a company (licensor) grants a foreign firm (licensee) the rights to
produce and sell its products, use its brand name, or exploit its intellectual property in exchange for a fee or royalty.

2.2 Types of Licensing

Product Licensing: Allowing a foreign company to produce and sell a product using the licensor's brand and
technology.

Trademark Licensing: Granting rights to use the licensor’s trademark in the foreign market.

UNIT - 2. Modes of entering global business 1

 Franchising: A specialized form of licensing where the franchisor provides the franchisee with a complete business
model.

Example: Disney’s Licensing Strategy

The Walt Disney Company licenses its characters, logos, and trademarks to various companies around the world. For
example, Disney licenses its characters to apparel manufacturers, toy companies, and theme parks in foreign markets.
2.3 Advantages of Licensing

Low Risk: Licensing involves low financial risk and no need for significant capital investment.

Market Access: Provides access to foreign markets that may have trade barriers or strict regulations.

Income Generation: Generates revenue through royalties and licensing fees.

2.4 Disadvantages of Licensing

Loss of Control: The licensor has limited control over the quality, marketing, and distribution of the licensed
products.

Intellectual Property Risks: There is a risk of intellectual property theft or misuse by the licensee.

Limited Profit Potential: Licensing fees and royalties may be lower than the profits generated from direct sales.

2.5 Case Study: Coca-Cola’s Licensing Success

Coca-Cola has successfully expanded its global presence through licensing agreements. In many countries, Coca-Cola
licenses local bottlers to produce and distribute its beverages. This strategy has allowed Coca-Cola to rapidly expand
its global footprint without significant investment in foreign operations.

3. Wholly Owned Subsidiaries

3.1 Definition and Overview
A wholly owned subsidiary is a company fully owned and controlled by a parent company. This mode of entry involves
the parent company establishing or acquiring a new entity in the foreign market, with complete control over its
operations.
3.2 Types of Wholly Owned Subsidiaries

Greenfield Investment: The parent company builds a new facility or operation from scratch in the foreign market.

Acquisition: The parent company acquires an existing company in the foreign market to gain immediate market
presence.

Example: Toyota’s Greenfield Investment in the U.S.

Toyota Motor Corporation established wholly owned subsidiaries in the United States through greenfield investments.
Toyota built manufacturing plants in Kentucky and other states, allowing it to produce vehicles locally and meet the
demand in the North American market.
3.3 Advantages of Wholly Owned Subsidiaries

Full Control: The parent company has complete control over the subsidiary’s operations, strategy, and decision-
making.

Profit Retention: All profits generated by the subsidiary are retained by the parent company.

Brand Consistency: Ensures consistent branding, quality, and customer experience across all markets.

3.4 Disadvantages of Wholly Owned Subsidiaries

High Investment Cost: Establishing or acquiring a subsidiary requires significant capital investment.

High Risk: The parent company assumes all the financial and operational risks associated with the subsidiary.

Complex Management: Managing a wholly owned subsidiary in a foreign market can be complex and resource-
intensive.

3.5 Case Study: Walmart’s Acquisition of Flipkart

In 2018, Walmart acquired a 77% stake in Flipkart, an Indian e-commerce company, for $16 billion, making it a wholly
owned subsidiary. This acquisition allowed Walmart to enter the rapidly growing Indian e-commerce market and
compete with Amazon. The acquisition also provided Walmart with access to Flipkart’s established customer base,
technology, and market knowledge.

UNIT - 2. Modes of entering global business 2

 4. Franchising
4.1 Definition and Overview
Franchising is a mode of entry where a company (franchisor) grants a foreign entity (franchisee) the rights to operate a
business under the franchisor’s brand name, using its business model, trademarks, and products in exchange for fees
and royalties.
4.2 Types of Franchising

Product/Trade Name Franchising: The franchisee is allowed to sell specific products under the franchisor’s brand
name.

Business Format Franchising: The franchisee operates the entire business following the franchisor’s model,
including branding, operations, and marketing.

Example: McDonald’s Global Franchise Expansion

McDonald’s is one of the most successful examples of global franchising. The company has expanded to over 100
countries through franchising, allowing local entrepreneurs to operate McDonald’s restaurants under its brand name
and business model.
4.3 Advantages of Franchising

Rapid Market Expansion: Franchising allows for rapid expansion into multiple markets with relatively low capital
investment.

Local Adaptation: Franchisees can adapt the business model to local tastes and preferences while maintaining
brand consistency.

Shared Risk: The franchisee assumes the financial risk of establishing and operating the business, reducing the
risk for the franchisor.

4.4 Disadvantages of Franchising

Limited Control: The franchisor has limited control over the daily operations of the franchisee, which can affect
brand consistency.

Profit Sharing: Profits are shared between the franchisor and franchisee, reducing the overall financial gain for the
franchisor.

Quality Assurance: Ensuring consistent quality and customer experience across all franchises can be challenging.

4.5 Case Study: Domino’s Pizza in India

Domino’s Pizza entered the Indian market through a franchising agreement with
Jubilant FoodWorks in 1995. The franchisee adapted Domino’s menu to cater to Indian tastes, offering a variety of
vegetarian pizzas and introducing regional flavors. This localization strategy, combined with Domino’s global brand
reputation, contributed to the company’s success in India, making it one of the largest pizza chains in the country.

5. Strategic Alliances
5.1 Definition and Overview
Strategic alliances involve collaboration between two or more companies to achieve mutually beneficial goals while
remaining independent. Unlike joint ventures, strategic alliances do not require the formation of a new legal entity.
5.2 Types of Strategic Alliances

Equity Alliances: Partners invest in each other’s companies, often leading to partial ownership.

Non-Equity Alliances: Partners collaborate without any equity investment, typically through contracts and
agreements.

Global Strategic Alliances: Partners from different countries collaborate to achieve global objectives.

Example: Renault-Nissan-Mitsubishi Alliance

The Renault-Nissan-Mitsubishi Alliance is a strategic alliance between three automotive companies, allowing them to
share technology, resources, and market access while remaining independent. The alliance has led to cost savings,
increased global market share, and joint development of electric vehicles.
5.3 Advantages of Strategic Alliances

Resource Sharing: Partners can share resources, technology, and expertise, leading to cost savings and
innovation.

UNIT - 2. Modes of entering global business 3

 Market Access: Provides access to new markets and customers through the partner’s established presence.

Risk Mitigation: Sharing risks among partners reduces the financial and operational burden on each company.

5.4 Disadvantages of Strategic Alliances

Conflicts of Interest: Differences in objectives, management styles, and corporate cultures can lead to conflicts.

Limited Control: Each partner retains control over its own operations, which can lead to coordination challenges.

Dependence on Partner: The success of the alliance depends on the partner’s performance, which can be
unpredictable.

5.5 Case Study: Starbucks and Tata Global Beverages Strategic Alliance
Starbucks and Tata Global Beverages formed a strategic alliance to source and roast coffee beans in India. This
partnership allowed Starbucks to ensure a steady supply of high-quality coffee while supporting Tata’s goal of
promoting Indian coffee globally. The alliance also facilitated Starbucks’ entry into the Indian market, where it
successfully established a strong presence.

6. Mergers and Acquisitions (M&A)

6.1 Definition and Overview
Mergers and acquisitions (M&A) involve the consolidation of companies through the purchase (acquisition) of one
company by another or the combination (merger) of two companies to form a new entity. M&A is a common mode of
entering global business for companies seeking rapid market expansion.

6.2 Types of Mergers and Acquisitions

Horizontal Merger: Involves the merger of two companies operating in the same industry and at the same stage of
production.

Vertical Merger: Involves the merger of companies operating at different stages of production within the same
industry.

Conglomerate Merger: Involves the merger of companies operating in unrelated industries.

Acquisition: One company purchases another company and fully integrates it into its operations.

Example: Microsoft’s Acquisition of LinkedIn

In 2016, Microsoft acquired LinkedIn for $26.2 billion, marking one of the largest technology acquisitions in history. The
acquisition allowed Microsoft to expand its presence in the professional networking and social media space, while
LinkedIn benefited from Microsoft’s resources and technology.
6.3 Advantages of Mergers and Acquisitions

Rapid Market Entry: M&A allows companies to quickly enter new markets and gain market share.

Synergies: Combining the strengths and resources of both companies can lead to cost savings, innovation, and
competitive advantage.

Increased Market Power: M&A can increase the company’s market power and influence in the industry.

6.4 Disadvantages of Mergers and Acquisitions

Integration Challenges: Integrating two companies with different cultures, systems, and processes can be complex
and challenging.

High Costs: M&A involves significant financial costs, including the purchase price, legal fees, and integration
expenses.

Regulatory Scrutiny: M&A deals are subject to regulatory approval, and antitrust concerns can delay or block the
transaction.

6.5 Case Study: Vodafone’s Acquisition of Hutchison Essar

In 2007, Vodafone acquired a controlling stake in Hutchison Essar, an Indian telecommunications company, for $11.1
billion. The acquisition allowed Vodafone to enter the rapidly growing Indian mobile market and compete with local and
international telecom operators. However, the acquisition also faced challenges related to regulatory approval,
integration, and market competition.

UNIT - 2. Modes of entering global business 4

 7. Specialised Modes of Entry
Specialized modes of entry are tailored approaches that companies use to enter global markets, often involving
specific contractual arrangements with foreign partners.
7.1 Contract Manufacturing
Contract manufacturing involves a company outsourcing the production of its goods to a foreign manufacturer, often in
a country with lower labor costs. The company retains control over product design, branding, and marketing, while the
foreign manufacturer handles production.
Example: Nike Inc. contracts with manufacturers in countries like Vietnam and China to produce its athletic footwear,
allowing Nike to focus on design, marketing, and distribution.
7.2 Management Contracts
Management contracts involve a company providing managerial expertise and operational control to a foreign partner
in exchange for a fee. The company does not invest in physical assets but leverages its management skills to generate
revenue.
Example: Marriott International enters into management contracts with hotel owners in foreign markets, where Marriott
manages the hotel's operations while the owner retains ownership of the property.
7.3 Turnkey projects
Definition and Overview
Turnkey projects are contracts where a company (contractor) agrees to design, construct, and fully equip a facility,
then hand it over to the client (owner) in a ready-to-operate condition. This mode is commonly used in industries such
as construction, engineering, and manufacturing.
Types of Turnkey Projects

Industrial Turnkey Projects: Involves the construction and setup of industrial plants, such as refineries or factories.

Infrastructure Turnkey Projects: Includes the construction of infrastructure, such as highways, airports, or power
plants.

Example: Dubai Metro Turnkey Project

The Dubai Metro is an example of a turnkey project where international contractors were responsible for the design,
construction, and installation of the metro system, handing it over to the Dubai government in a ready-to-operate state.
Advantages of Turnkey Projects

Risk Transfer: The contractor assumes the risks associated with the design and construction of the facility.

Cost Certainty: The client has a clear understanding of the total cost upfront, reducing the risk of cost overruns.

High-Quality Delivery: The contractor is responsible for delivering a fully operational facility that meets the client’s
specifications.

Disadvantages of Turnkey Projects

Limited Flexibility: The client has limited input during the design and construction phases, which can lead to
dissatisfaction.

High Initial Costs: Turnkey projects require significant upfront investment, which can be challenging for smaller
companies.

Dependency on Contractor: The success of the project depends on the contractor’s ability to deliver on time and
within budget.

Case Study: Reliance Jamnagar Refinery Turnkey Project

Reliance Industries Limited commissioned the construction of the world’s largest oil refinery in Jamnagar, India, through
a turnkey project. The project involved international contractors who were responsible for the design, construction, and
commissioning of the refinery. The successful completion of the project allowed Reliance to become a major player in
the global oil and gas industry.

8. Foreign Direct Investment (FDI)

Foreign Direct Investment (FDI) involves a company investing directly in physical assets or ownership stakes in a
foreign country. FDI provides the company with greater control over its international operations and is often used for
long-term strategic growth.

UNIT - 2. Modes of entering global business 5

 8.1 Greenfield Strategy
The Greenfield strategy involves a company establishing new facilities from scratch in a foreign country. This approach
provides complete control over the investment but requires significant capital and time.
Example: BMW built a new manufacturing plant in Spartanburg, South Carolina, to produce vehicles for the North
American market. The Greenfield investment allowed BMW to tailor the facility to its specifications and control all
aspects of production.
8.2 Acquisition Strategy
The acquisition strategy involves a company purchasing an existing company or assets in a foreign country. This
approach provides immediate access to the market, customer base, and infrastructure, but it may involve higher costs
and integration challenges.
Example: In 2016, Anheuser-Busch InBev acquired SABMiller, creating one of the largest beer companies globally. The
acquisition allowed AB InBev to expand its global presence, particularly in emerging markets like Africa and Latin
America.
8.3 Joint Venture
8.3.1 Definition and Overview
A joint venture (JV) is a strategic alliance where two or more companies from different countries collaborate to form a
new, jointly-owned business entity. This mode of entry is commonly used to share resources, technology, and market
knowledge.
8.3.2 Types of Joint Ventures

Equity Joint Ventures: Partners invest capital and share ownership in the newly formed entity.

Contractual Joint Ventures: Partners collaborate without forming a new legal entity, often through contracts.

Example: Sony Ericsson Joint Venture

In 2001, Sony Corporation and Ericsson formed a joint venture, Sony Ericsson, to produce and market mobile phones.
The partnership combined Sony’s expertise in consumer electronics with Ericsson’s telecommunications technology.
8.3.3 Advantages of Joint Ventures

Shared Risk and Cost: Partners share the financial and operational risks and costs of entering a new market.

Local Expertise: Access to the local partner’s market knowledge, distribution channels, and regulatory expertise.

Resource Synergy: Combines the strengths and resources of both partners, leading to innovation and competitive
advantage.

8.3.4 Disadvantages of Joint Ventures

Complex Management: Joint ventures require complex coordination and management, which can lead to conflicts.

Cultural Differences: Differences in corporate culture, management style, and objectives can create challenges.

Profit Sharing: Profits must be shared with the partner, reducing the potential financial gain for each company.

8.3.5 Case Study: Tata Starbucks Joint Venture

In 2012, Starbucks entered the Indian market through a joint venture with Tata Global Beverages, forming Tata
Starbucks Limited. The partnership allowed Starbucks to leverage Tata’s local market knowledge and expertise while
maintaining its brand identity. This joint venture enabled Starbucks to successfully navigate the complexities of the
Indian market and establish a strong presence.

Conclusion
The modes of entering global business are diverse, each with its own set of advantages, disadvantages, and strategic
implications. Companies must carefully evaluate their resources, objectives, and market conditions before selecting the
most appropriate mode of entry. From exporting and licensing to joint ventures, wholly owned subsidiaries, and
mergers and acquisitions, each mode offers unique opportunities and challenges in the global marketplace.
Understanding the intricacies of these entry modes, along with real-life case studies, provides valuable insights for
businesses looking to expand their global presence. By learning from the successes and challenges of other
companies, businesses can make informed decisions that maximize their potential for success in the international
arena.

UNIT - 2. Modes of entering global business 6

 Differences
Differentiation between Modes of Entering Global Business
The table below provides a detailed comparison between exporting, franchising, licensing, joint ventures, strategic
alliances, subsidiaries, and mergers & acquisitions. Multiple points of differentiation are provided to ensure clarity and
depth of understanding.

Strategic Mergers
Criterion Exporting Franchising Licensing Joint Ventures Subsidiaries
Alliances Acquisit

Permitting a
A partnership
Allowing a foreign A business
between two or The
foreign entity to company to arrangement A company
more consolid
Selling goods operate a manufacture where two or owned and
companies to of compa
produced in business using and sell your more parties operated in a
Definition achieve through v
one country to your brand, products using agree to pool foreign country
strategic types of
another. processes, and your resources for a by the parent
objectives financial
business technology, specific company.
without forming transacti
model. brand, or project.
a new entity.
process.

Franchisee The licensee

Ownership is No ownership
The exporting owns and has ownership Ownersh
shared is shared;
company operates the of the Full ownership changes
between the companies
Ownership retains full business but operations, but by the parent compani
partners based remain
ownership of adheres to not the company. combine
on the independent
its products. franchisor's intellectual one.
agreement. entities.
guidelines. property.

Licensor has
The exporting Control is
Franchisor has limited control
company has shared Control is
significant over how the The acqu
limited control between the shared, but
control over licensee Full control by company
over the partners, typically more
Control operations, operates but the parent full contr
distribution and requiring autonomy than
brand, and can enforce company. post-me
marketing in coordination in joint
quality quality and acquisitio
the foreign and ventures.
standards. usage
market. compromise.
standards.

Moderate risk;
Moderate risk; High risk due to Moderate to
dependent on
Relatively low; dependent on shared high risk, High risk due to
the licensee’s High risk
main risks are the decision- depending on large
ability to failure ca
Risk related to franchisee's making and the degree of investment and
adhere to to signifi
exchange rates performance potential integration and market
agreements financial
and tariffs. and adherence conflicts of coordination exposure.
and market
to guidelines. interest. required.
conditions.

Generally low; Varies; Very high

Moderate; Low to High; includes
costs are investment may High; involves involves
includes initial moderate; investment in
associated with be in establishing purchasi
Investment franchise fees, includes initial shared
production, technology, and maintaining another
Requirement setup costs, licensing fees resources,
shipping, and distribution, or operations in a company
and ongoing and potential management,
market shared foreign country. integratin
royalties. support costs. and operations.
research. resources. operation

Moderate; Slow; du
Moderate; Moderate to Slow; involves
setting up Moderate to diligence
Fast, especially dependent on slow; setting up full
franchises can slow; aligning negotiati
Speed of for well- finding suitable establishing operations,
take time due strategies and and integ
Market Entry established licensees and agreements which can be
to training and operations take
exporters. setting up and operations time-
local requires time. consider
agreements. takes time. consuming.
adaptation. time.

Market Limited; often Requires Requires High; success High; requires Very high; Very high
Knowledge relies on local understanding understanding depends on knowledge of requires in- requires
Requirement partners for of the franchise of the licensing mutual both markets depth market extensive
market market and market and understanding and strategic knowledge and market a
knowledge. local alignment. company

UNIT - 2. Modes of entering global business 7

 local consumer production of the market operational knowled
behavior. capabilities. and partners. expertise. successf
integratio

High;
Moderate; Low;
agreements Low; me
High; can Moderate; flexibility is High; alliances subsidiaries are
can be flexible, and
easily scale up flexibility is limited by the can be a long-term
but are acquisitio
Flexibility or down based limited by need for adjusted or commitment
dependent on often diff
on market franchise consensus terminated as with high
licensor- and cost
conditions. agreements. between needed. operational
licensee reverse.
partners. costs.
relationship.

High; revenue High; can lead

Generally Moderate; Very high
potential is High; shared to significant High; profits
moderate; dependent on potential
linked to the revenues can revenue flow directly
Revenue depends on licensing fees significa
franchisee's be substantial if increases if the back to the
Potential export volume and market revenue
success and the venture is alliance parent
and market acceptance of growth, b
market successful. achieves its company.
demand. the product. also high
expansion. strategic goals.

Moderate; Low; requires Very high

Low; requires High; requires Varies;
requires resources for Very high; involves
minimal significant dependent on
training, managing requires full substant
Resource resources management the depth of
support, and licensing operational and resource
Commitment beyond time and the alliance and
brand agreements management commitm
production and shared resources
management and ensuring resources. integratio
shipping. resources. shared.
resources. compliance. managem

High; requires
Moderate; Moderate; Very high
detailed legal Moderate;
involves involves High; involves involves
Low; primarily agreements, requires legal
franchise licensing navigating complex
concerned with clear agreements to
Legal agreements, agreements, foreign laws, negotiati
export governance define the
Complexity local laws, and intellectual taxation, and regulator
regulations and structures, and terms and
adherence to property laws, regulatory approval
tariffs. conflict scope of the
brand and compliance. integratio
resolution alliance.
standards. compliance. challeng
mechanisms.

Moderate; Shared; brand Shared; the

Limited; brand Strong; the Strong; the Very stro
brand presence presence brand presence
visibility brand is brand is fully the merg
is tied to the depends on the is a
Brand depends on directly controlled and acquired
licensee’s joint venture's combination of
Presence distribution and associated with managed by often ben
marketing and success and the alliance
local market the franchisee’s the parent from com
distribution market partners'
presence. business. company. recogniti
efforts. penetration. strengths.

Moderate;
High; Very high;
licensing High; cultural Very high
franchising High; requires subsidiaries
Moderate; agreements differences can mergers
requires understanding must navigate
cultural need to create involve
Cultural adaptation to of both local cultural
differences can consider challenges in significa
Sensitivity local cultural partners' norms, labor
impact export cultural decision- cultural
norms and cultures and practices, and
success. differences in making and integratio
consumer markets. consumer
production and operations. challeng
preferences. behavior.
marketing.

U.S. companies Disney

Sony Ericsson Toyota Motor Tata Mot
exporting McDonald’s licensing its Renault-Nissan
joint venture Corporation’s acquisitio
Examples agricultural franchising its characters to strategic
between Sony subsidiary in Jaguar L
products to brand in India. foreign toy alliance.
and Ericsson. the U.S. Rover.
China. manufacturers.

Mergers and Acquisitions

Definition:
Mergers and acquisitions (M&A) involve consolidating companies through various financial transactions. A merger
occurs when two companies combine to form a new entity, while an acquisition is when one company purchases
another, leading to its integration into the acquiring company.

UNIT - 2. Modes of entering global business 8

 Ownership:
Ownership changes hands as the merging or acquiring company integrates the target company into its operations. In
mergers, ownership is shared in the new entity, whereas, in acquisitions, the acquiring company gains full ownership of
the acquired company.
Control:
Post-M&A, the acquiring company gains full control of the integrated operations. In mergers, control is shared based on
the terms of the merger agreement, and new management structures are often established.
Risk:
M&A involves high risk due to the potential for significant financial loss if the integration fails. Challenges include
cultural clashes, operational integration issues, and financial difficulties. The risks are compounded by the complexities
of due diligence and negotiation processes.
Investment Requirement:
The investment required for M&A is very high. This includes costs for purchasing the target company, legal fees,
integration expenses, and potential costs related to restructuring. The substantial financial outlay is necessary for both
acquiring and merging companies.
Speed of Market Entry:
M&A generally involves a slow entry process. The timeline includes extensive due diligence, negotiation, regulatory
approvals, and integration efforts. The process can be lengthy and complex, depending on the size and nature of the
companies involved.
Market Knowledge Requirement:
Very high; successful M&A requires comprehensive knowledge of the target company's market, operations, and
financial health. Thorough due diligence is critical to understanding the risks and benefits associated with the merger
or acquisition.
Flexibility:
Flexibility is low, as mergers and acquisitions are often complex and costly to reverse. Once completed, significant
resources and time are invested in making the integration successful, and undoing the transaction can be difficult.
Revenue Potential:
M&A offers very high revenue potential, as the combined entity can benefit from increased market share, operational
efficiencies, and synergies. However, this potential is accompanied by higher risks and the need for successful
integration to realize the expected benefits.
Resource Commitment:
The resource commitment for M&A is very high, involving extensive financial resources for the transaction, significant
management time for integration, and operational resources to align the combined entities effectively.
Legal Complexity:
Mergers and acquisitions are legally complex, requiring detailed negotiations, regulatory approvals, and compliance
with various legal requirements. The complexity involves addressing antitrust laws, contract negotiations, and
integration challenges.
Brand Presence:
The brand presence is often very strong post-M&A. The merger or acquisition can enhance brand recognition and
market position through combined resources and market reach. However, successful brand integration is essential for
maximizing these benefits.
Cultural Sensitivity:
Very high; M&A often involves significant cultural integration challenges. Differences in corporate cultures,
management styles, and employee expectations must be addressed to ensure a smooth transition and successful
integration of the merged or acquired entities.
Examples:

Tata Motors’ acquisition of Jaguar Land Rover is a notable example. Tata Motors purchased these luxury car brands
to expand its global presence and leverage the established market position and expertise of the acquired brands.

Disney's acquisition of Pixar exemplifies how acquiring a well-established company can enhance content creation
capabilities and innovation in the entertainment industry.

This text format provides a comprehensive overview of mergers and acquisitions, covering various aspects relevant to
the topic.

UNIT - 2. Modes of entering global business 9

 2. International business analysis
International business analysis is the process of evaluating and understanding the complex factors that influence
businesses operating across borders. This analysis involves examining various criteria, including political, economic,
social-cultural, and technological factors, to assess risks, opportunities, and strategies. The following sections will
explore the different aspects of international business analysis in detail, using relevant case study examples to illustrate
each point.

1. Political Environment Analysis

1.1. Government Stability

Overview: Understanding the stability of the government in a foreign market is crucial. Political instability can lead
to risks such as expropriation, nationalization, and changes in regulations that can affect business operations.

Case Study: Venezuela - The political instability in Venezuela has led to significant challenges for international
businesses, including the risk of nationalization and currency controls, which have affected companies like General
Motors, which had its assets seized by the Venezuelan government.

1.2. Trade Policies

Overview: Trade policies, including tariffs, quotas, and trade agreements, directly impact international business
operations. These policies can either facilitate or hinder trade between countries.

Case Study: US-China Trade War - The imposition of tariffs by the U.S. on Chinese goods and the subsequent
retaliation by China has affected various industries, including technology and agriculture, leading to increased costs
and supply chain disruptions.

1.3. Legal Environment

Overview: The legal environment includes laws and regulations related to business operations, intellectual property
rights, labor laws, and environmental regulations. Understanding the legal framework is essential for compliance
and avoiding legal risks.

Case Study: Apple Inc. in the European Union - Apple's legal challenges in the EU, particularly regarding antitrust
laws and tax regulations, highlight the importance of understanding and adapting to different legal environments in
international markets.

1.4. Political Risk

Overview: Political risk refers to the likelihood of political events impacting business operations, such as changes in
government, civil unrest, or war. Companies must assess and manage these risks to protect their investments.

Case Study: Nestlé in Nigeria - Nestlé has faced political risks in Nigeria, including threats from militant groups and
changing government policies, which have affected its operations and market strategies.

1.5. International Relations

Overview: The diplomatic relationships between countries can influence international business. Positive relations
can lead to favorable trade agreements, while strained relations may result in sanctions or trade barriers.

Case Study: Coca-Cola in Russia - Coca-Cola's operations in Russia have been influenced by the U.S.-Russia
relations, particularly during periods of sanctions and political tensions, affecting its market presence and
profitability.

1.6. Corruption and Bureaucracy

Overview: Corruption and bureaucracy can pose significant challenges for international businesses, leading to
increased costs, delays, and legal risks. Companies must navigate these issues carefully to ensure smooth
operations.

Case Study: Siemens Bribery Scandal - Siemens faced a major scandal involving bribery in multiple countries,
leading to significant fines and legal challenges, underscoring the importance of adhering to anti-corruption laws in
international business.

UNIT - 2. Modes of entering global business 10

 2. Economic Environment Analysis

2.1. Economic Stability

Overview: Economic stability, including factors like inflation, exchange rates, and GDP growth, is critical for
assessing the viability of entering a foreign market. Companies must evaluate these factors to forecast demand and
profitability.

Case Study: Argentina’s Economic Crisis - The economic instability in Argentina, characterized by hyperinflation
and currency devaluation, has posed significant challenges for companies like Procter & Gamble, which had to
adjust pricing strategies and operations to cope with the economic turmoil.

2.2. Market Size and Growth Potential

Overview: Understanding the market size and growth potential is essential for evaluating the opportunities in a
foreign market. Companies must assess consumer demand, income levels, and market saturation to determine the
potential for growth.

Case Study: Amazon in India - Amazon's entry into the Indian market was driven by the country's large population
and growing middle class, which offered significant growth potential. However, the company had to adapt its
business model to suit local preferences and regulations.

2.3. Exchange Rate Fluctuations

Overview: Exchange rate fluctuations can have a significant impact on the profitability of international businesses,
affecting pricing, costs, and competitiveness. Companies must manage currency risks through hedging and other
financial strategies.

Case Study: Toyota’s Operations in the US - Toyota’s profitability in the U.S. has been affected by fluctuations in
the yen-dollar exchange rate, leading the company to adopt currency hedging strategies to mitigate the impact on
its earnings.

2.4. Inflation and Interest Rates

Overview: Inflation and interest rates influence the cost of borrowing, consumer purchasing power, and overall
economic conditions. Companies must consider these factors when planning investments and pricing strategies in
foreign markets.

Case Study: Starbucks in Brazil - Brazil's high inflation rates have impacted Starbucks’ pricing strategies, leading
to increased prices for consumers and affecting sales volumes.

2.5. Income Distribution and Consumer Behavior

Overview: Income distribution and consumer behavior vary across countries, affecting demand for products and
services. Companies must understand the local consumer base and tailor their offerings accordingly.

Case Study: Unilever in Indonesia - Unilever’s success in Indonesia is attributed to its understanding of the local
consumer behavior, particularly the preference for affordable products due to income distribution patterns.

2.6. Labor Market Conditions

Overview: Labor market conditions, including labor costs, availability of skilled labor, and labor laws, influence the
cost and efficiency of operations in foreign markets. Companies must assess these factors when planning
international expansion.

Case Study: Nike’s Manufacturing in Vietnam - Nike's choice of Vietnam as a manufacturing hub was influenced
by the availability of cheap labor and favorable labor market conditions, allowing the company to maintain
competitive pricing.

3. Social-Cultural Environment Analysis

3.1. Cultural Norms and Values

Overview: Understanding cultural norms and values is critical for successful international business operations.
Companies must adapt their products, marketing strategies, and business practices to align with local cultures.

UNIT - 2. Modes of entering global business 11

 Case Study: McDonald's in India - McDonald's adapted its menu to suit Indian cultural norms by offering
vegetarian options and avoiding beef, which is taboo in many parts of India, leading to its success in the market.

3.2. Language and Communication

Overview: Language and communication barriers can pose challenges in international business, affecting
marketing, negotiations, and customer service. Companies must invest in language training and localization to
overcome these challenges.

Case Study: KFC in China - KFC’s success in China is partly due to its efforts to localize marketing and
communication, including translating its brand name and adapting its advertising to resonate with Chinese
consumers.

3.3. Social Structures and Class Systems

Overview: Social structures and class systems influence consumer behavior and purchasing power. Companies
must understand the social dynamics of the market to target the right audience and position their products
effectively.

Case Study: L'Oréal in Brazil - L'Oréal’s success in Brazil is attributed to its understanding of the country's social
structure, particularly targeting the growing middle class with affordable luxury products.

3.4. Religious Beliefs and Practices

Overview: Religious beliefs and practices can significantly impact consumer preferences and business operations.
Companies must respect religious sensitivities and adapt their offerings accordingly.

Case Study: Nestlé in the Middle East - Nestlé’s operations in the Middle East involve strict adherence to halal
standards, ensuring that its products meet the religious requirements of Muslim consumers.

3.5. Demographic Trends

Overview: Demographic trends, including age distribution, urbanization, and population growth, influence demand
for products and services. Companies must analyze these trends to identify market opportunities and tailor their
strategies.

Case Study: PepsiCo in Africa - PepsiCo’s expansion in Africa is driven by the continent's young and growing
population, offering significant opportunities for long-term growth.

3.6. Consumer Preferences and Lifestyle

Overview: Consumer preferences and lifestyle choices vary across cultures, affecting demand for products and
services. Companies must adapt their offerings to align with local tastes and preferences.

Case Study: Apple in Japan - Apple’s success in Japan is partly due to its understanding of local consumer
preferences, including the emphasis on quality and design, which align with Japanese values.

4. Technological Environment Analysis

4.1. Technological Infrastructure

Overview: The availability and quality of technological infrastructure, including internet connectivity,
telecommunications, and transportation, influence the efficiency of international business operations. Companies
must assess the technological landscape before entering a market.

Case Study: Amazon in India - Amazon’s expansion in India was supported by the country's growing internet
penetration and mobile usage, enabling the company to reach a large and diverse customer base through its e-
commerce platform.

4.2. Innovation and R&D

Overview: Innovation and research and development (R&D) capabilities are critical for maintaining a competitive
edge in international markets. Companies must invest in innovation to adapt to local market needs and stay ahead
of competitors.

Case Study: Samsung in South Korea - Samsung’s investment in R&D and innovation has enabled it to dominate
the global electronics market, with South Korea serving as a hub for cutting-edge technology development.

UNIT - 2. Modes of entering global business 12

 *4.
1. Intellectual Property Protection**

Overview: Intellectual property (IP) protection is vital for safeguarding innovations and competitive advantages.
Companies must assess the strength of IP laws and enforcement in foreign markets to protect their assets.

Case Study: Microsoft in China - Microsoft’s struggles with software piracy in China highlight the challenges of
protecting intellectual property in markets with weak IP enforcement, leading the company to adopt new strategies,
including cloud-based services.

4.4. Technological Adoption and Trends

Overview: The rate of technological adoption and emerging trends, such as automation, artificial intelligence, and
digitalization, influence market dynamics and business strategies. Companies must stay ahead of technological
trends to remain competitive.

Case Study: Tesla in the United States - Tesla’s success in the U.S. is driven by its early adoption of electric
vehicle technology and its focus on innovation, positioning the company as a leader in the growing electric vehicle
market.

4.5. E-commerce and Digital Platforms

Overview: The rise of e-commerce and digital platforms has transformed international business, enabling
companies to reach global audiences with ease. Companies must leverage these platforms to expand their market
reach and enhance customer engagement.

Case Study: Alibaba in Global Markets - Alibaba’s success as a global e-commerce giant is attributed to its
innovative use of digital platforms and technology, enabling it to connect buyers and sellers across borders.

4.6. Cybersecurity and Data Protection

Overview: Cybersecurity and data protection are critical concerns for international businesses, especially with the
rise of digital transactions and data-driven decision-making. Companies must invest in robust cybersecurity
measures to protect sensitive information and comply with data protection regulations.

Case Study: Facebook’s Data Privacy Issues - Facebook’s data privacy challenges, particularly in the wake of the
Cambridge Analytica scandal, underscore the importance of cybersecurity and data protection in maintaining
consumer trust and complying with international regulations.

5. Environmental and Ethical Considerations

5.1. Environmental Regulations and Sustainability

Overview: Environmental regulations and sustainability concerns are increasingly important in international
business. Companies must comply with environmental laws and adopt sustainable practices to reduce their
ecological footprint and meet consumer expectations.

Case Study: IKEA’s Sustainability Initiatives - IKEA’s commitment to sustainability, including using renewable
energy and sourcing sustainable materials, has helped the company maintain a positive brand image and comply
with environmental regulations in various markets.

5.2. Corporate Social Responsibility (CSR)

Overview: Corporate Social Responsibility (CSR) involves companies taking responsibility for their impact on
society and the environment. CSR initiatives can enhance a company's reputation and build consumer loyalty in
international markets.

Case Study: TOMS Shoes - TOMS Shoes’ one-for-one giving model, where the company donates a pair of shoes
for every pair sold, has resonated with consumers globally and strengthened the brand's reputation for social
responsibility.

5.3. Ethical Business Practices

Overview: Ethical business practices, including fair labor practices, anti-corruption measures, and transparency,
are critical for maintaining a positive reputation and avoiding legal risks in international markets. Companies must
adhere to ethical standards to build trust with stakeholders.

UNIT - 2. Modes of entering global business 13

 Case Study: The Rana Plaza Disaster - The collapse of the Rana Plaza factory in Bangladesh, which housed
several international garment brands, highlighted the importance of ethical business practices, particularly in
supply chain management, leading to increased scrutiny and calls for better labor standards.

6. Legal Environment Analysis

Legal factors are a critical component of international business analysis, as they encompass the laws, regulations, and
legal systems that govern business operations in different countries. Understanding these factors is essential for
compliance, risk management, and strategic decision-making in international markets.

6.1. Regulatory Compliance

Overview: Regulatory compliance refers to adhering to the laws and regulations specific to a country or region.
This includes industry-specific regulations, environmental laws, labor laws, and consumer protection regulations.
Companies must ensure compliance to avoid legal penalties and reputational damage.

Case Study: Google's GDPR Compliance in the European Union - Google faced significant challenges in
complying with the General Data Protection Regulation (GDPR) in the European Union, which imposes strict rules on
data privacy and security. The company had to overhaul its data management practices and policies to avoid heavy
fines and legal action.

6.2. Intellectual Property Rights (IPR)

Overview: Intellectual property rights protect inventions, designs, brands, and creative works from unauthorized
use. In international business, protecting IPR is crucial to maintaining competitive advantage and avoiding
infringement disputes.

Case Study: Apple vs. Samsung Patent Dispute - The legal battle between Apple and Samsung over smartphone
patents is a prominent example of the importance of IPR in international business. The dispute, which spanned
several countries, involved claims of patent infringement and led to significant financial and strategic implications
for both companies.

6.3. Contract Law

Overview: Contract law governs the creation, execution, and enforcement of agreements between parties. In
international business, understanding the differences in contract law across jurisdictions is essential to ensure that
contracts are legally binding and enforceable.

Case Study: BP and TNK-BP Joint Venture in Russia - The joint venture between BP and the Russian consortium
TNK highlighted the complexities of contract law in international business. Disputes over management control and
profit distribution led to legal battles and ultimately the dissolution of the joint venture.

6.4. Employment Law

Overview: Employment law covers the rights and obligations of employers and employees, including issues related
to wages, working conditions, discrimination, and termination. Companies operating internationally must navigate
varying employment laws to manage their workforce effectively.

Case Study: Walmart in Germany - Walmart faced significant challenges in Germany due to differences in
employment law, particularly regarding labor unions and employee rights. The company’s failure to adapt to the
local labor environment contributed to its eventual exit from the German market.

6.5. Anti-Corruption and Bribery Laws

Overview: Anti-corruption and bribery laws aim to prevent unethical practices in business transactions. In
international markets, companies must comply with local anti-corruption laws and international regulations like the
U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act.

Case Study: Siemens Bribery Scandal - Siemens was involved in one of the largest bribery scandals in corporate
history, with allegations of bribing officials in multiple countries to win contracts. The company faced significant
legal and financial penalties, highlighting the importance of adhering to anti-corruption laws in international
business.

6.6. Dispute Resolution Mechanisms

UNIT - 2. Modes of entering global business 14

 Overview: Dispute resolution mechanisms, such as arbitration and mediation, are essential for resolving conflicts in
international business. Companies must understand the available mechanisms and choose the most appropriate
method to resolve disputes efficiently and effectively.

Case Study: ExxonMobil vs. Venezuela Arbitration Case - ExxonMobil sought arbitration against Venezuela after
the government expropriated its assets during the nationalization of the oil industry. The arbitration process,
conducted under the International Centre for Settlement of Investment Disputes (ICSID), resulted in a significant
compensation award for ExxonMobil, demonstrating the importance of dispute resolution mechanisms in protecting
international investments.

Conclusion
International business analysis is a multifaceted process that requires a thorough understanding of various political,
economic, social-cultural, technological, environmental, and ethical factors. Companies must carefully evaluate these
criteria to identify opportunities, mitigate risks, and develop strategies for successful international expansion. By
considering real-life case studies, businesses can learn valuable lessons and apply best practices to navigate the
complexities of global markets effectively.

UNIT - 2. Modes of entering global business 15