Mergers and Acquisitions as a Mode of Entry
Introduction: Entry Modes: How are Mergers and Acquisitions different? The mode of entry is a fundamental decision a firm makes when it enters a new market. The mode of entry affects how a firm faces the challenges of entering a new country and deploying new skills to produce and/or market its products successfully. A firm entering a foreign market faces an array of choices to serve the market. According to Johnson and Tellis 2008 the entry mode choices can be grouped in 5 classifications: 1. Export: a firm’s sales of goods/services produced in the home market and sold in the host country through an entity in the host country. 2. License and franchise: a formal permission or right offered to a firm or agent located in a host country to use a home firm’s proprietary technology or other knowledge resources in return for payment. 3. Alliance: agreement and collaboration between a firm in the home market and a firm located in a host country to share activities in the host country. 4. Joint venture: shared ownership of an entity located in a host country by two partners, one located in the home country and the other located in the host country. 5. Ownership based entry modes: partial or complete ownership of an entity located in a host country by a firm located in the home country to manufacture or perform value addition or sell goods/services in the host country. Examples of this mode of entry are Mergers and Acquisitions –M&As-. The key attribute that distinguishes the different modes of entry is the degree to which they give a firm control over its key marketing resources. At one end of the spectrum is the export of goods, which has the lowest degree of control. Licenses, franchises, and various forms of joint venture provide a progressively increasing degree of control for the firm; at the other end of the spectrum, ownership-based entries, such as wholly owned subsidiaries, afford the highest control Johnson and TellisI, 1). Two opposing theories suggest