Tacit Knowledge – Information that is intuitive and difficult to articulate or codify in writing; Ex. swimming or riding a bike (you would want to show a person v. just tell them if they’ve never done these things before
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Tacit Knowledge – Information that is intuitive and difficult to articulate or codify in writing; Ex. swimming or riding a bike (you would want to show a person v. just tell them if they’ve never done these things before)
• Can be gained through personal experience or interaction
• Shared knowledge might be dispersed throughout the company
Codified Knowledge – Information that can be easily captured in the form of text, tables, or diagrams; Ex. Jamba Juice recipes, procedures, etc. on how to make smoothies
• Product specifications, scientific formulas and computer programs are examples of codified knowledge
First Mover Advantages versus Pioneering Costs
First Mover Advantages: this is the advantage gained by the first business/company to enter into a new market, can achieve huge market potential and growth as a result
Pioneering Costs: costs the firm has to bear that a later entrant can avoid; can arise when the business system in a foreign country is so different from that in a firms home market that the enterprise has to devote considerable time efforts and expense to learning the rules of the game.)
Externalities
knowledge ‘spillovers’- general knowledge related to a specific industry or idea; comes from sheer concentration of intellectual talent, and a network of informal contacts that allows firms to benefit from each other’s knowledge generation.
Basic Entry Decisions:
• Which foreign markets – Choose markets close to home and easily moved to
• Timing the entry – First mover advantage for new entrants can lead to brand becoming synonymous with the solution of a problem; Ex. Apple iPod is synonymous with mp3 players/portable music problem in the mind of the consumers
o Switching costs for customers implemented by first mover can further solidify customer use/base
o First mover mistakes can end up benefiting later entrants
• Scale of entry – Do we want to enter a foreign market on a very large scale? (Show up and make a large statement) Or should we show up slowly? Resources may determine this for you
Strategic Commitments
Decision that has a long-term impact and is difficult to reverse such as entering a foreign market on a large scale; can have important influence on the nature of competition in a market; limits a company’s strategic flexibility.
Exporting – The sale of products produced in one country to residents of another country
• Direct exporting – Company conducts all phases of the sale and transfer of the merchandise to a buyer
• Indirect exporting – Firm hires the expertise of someone else to facilitate the exchange
for a fee; Advantage of knowledge/expertise in foreign market; Disadvantages:
o Limits access to local information
o Lack of control over intermediaries Advantages:
• Avoids the costs of establishing manufacturing operations in the host country
• Minimizes risk and investment
• Rapid speed of entry
• May realize experience curve and location economies Disadvantages:
• Current production location may not have location economies
• Transportation costs
• Trade barriers and tariffs
• Company viewed as an outsider
• May not learn about customers and competitors
• Exchange rate risk Conditions Favouring Exporting:
• Limited sales potential in target country
• Little product adaptation required
• High target country production costs
• Liberal import policies
• High political risk
Turnkey Projects – When a firm agrees to set up an operating plant for a foreign client and then hand over the “keys” when the plant is fully operational (staff, licenses, etc.); Ex. Enron turnkey plants in India
Advantages:
• Can earn a return on knowledge asset
• Less risky than conventional FDI Disadvantages:
• Arrangement does not create long-term interest in the foreign country
• May create a competitor
Licensing – Allows for another company/person to use your name, production process, etc. for a fee; tends to be a limited (usually short term) agreement; Ex. purchase of ASU apparel off campus would be purchase of licensed clothing – someone went out a obtained legal approval of producing ASU products (i.e. Walmart); An arrangement in which the owner of an intellectual property (the licensor) grants another firm (the licensee) the right to use that intellectual
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