Entering Global Markets

Principles of Entry Strategy

1. As a multinational company, it is more effective to found new ventures in foreign markets rather than acquire an existing foreign firm and integrate it into the parent company system. When setting up subsidiaries of multinational companies in global markets, studies have shown that subsidiaries founded by acquisition have a higher rate of exit than those founded as new ventures (Li 336). The higher risks associated with acquiring foreign firms come from the difficulty in integrating the acquired firms into the parent system. The business cultures, organizational structures, and technology differences within the acquired firm and the parent company tend to be great obstacles to overcome. The conveniences of acquiring a foreign firm which include pre-existing relationships with suppliers and customers, the expertise of existing personnel, and obvious familiarity with the local market are not as advantageous as they may seem. Molding the newly acquired firm's business culture into the parent company's formula usually ends in failure.

2. Experience creates and is sometimes the only way to achieve increased market knowledge and uncertainty reduction in foreign markets. Therefore, experience is a big advantage in moving to foreign markets. When choosing a foreign market to enter into, culturally close markets are usually evaluated as potential locations. However, as companies acquire more experience from operating in foreign markets, more distant markets will be regarded as potential locations (Pennings 161).

Li, Jiatao. "Foreign Entry and Survival." Strategic Management Journal 16 (1995): 333-

351. 28 Sept. 2007 .

Pennings, Johannes. "Foreign Entry, Cultural Barriers, and Learning." Strategic