Factors affecting Home-to-Host
Penk is a calculator manufacturing industry in the United States, and it is seeking to extend its market base to Mexico. However, Penk has limited knowledge of the nature of Mexico’s market. Therefore, Penk is seeking both a Manufacturing alliance and a joint venture with Brain, a Mexican calculator manufacturing company. Penk will take a minority share of 49%. A co alliance allows an agreement between two firms from different countries to corporate in value-chain activities (Waggoner). The goal of the alliance is to introduce complementary strengths in the manufacture of calculators through collective participation. Internal factors
Company size
Penk is a large firm. Therefore it can absorb the risks and high costs involved in its expansion into the Mexican market. Accordingly, Penk can accommodate high-control and resource commitment modes.
Level of control
Since Penk results on co alliance and joint venture, the two conditions limit penk’s degree of management control.
Risks
Risks associated with market entry modes affect entry mode decisions (Debashish Barua). Penk’s entry mode, co alliance and joint venture are risky. Risks result from the high commitment of resources. However, these entry modes have high returns.
Level of control
The level of control matches the mode of entry (Debashish Barua). Penk’s methods of entry limit its degree of management control.
External factors.
Market size.
The market size of a host country dictates the entry mode. Mexico constitutes a potential market growth rate with high sales potential. This market size favors Penk’s entry mode.
Cultural distance.
There exists a significant cultural distance between the United States and Mexico. Therefore, Penk’s entry modes justify the need to minimize cultural uncertainties by retaining its flexibility and avoiding high ownership levels.
Competitive environment
Competitive forces such as threats to new entrants, suppliers’ bargaining power, and rivalry among competitors determine market entry modes (Debashish Barua). For these reasons, Penks appreciates Brain’s knowledge of the business environment.
Business environment of foreign markets
. Factors such as political stability and economic fluctuations are the determinants towards market entry (Debashish Barua) the need for local knowledge forces the firm to undertake both co alliance and a joint venture.
Transactional factors
Tacit nature of Know-how
Tacit know-how is the natural characteristics of the partner that is not transferrable through contract. For example, it is difficult to transfer skills and knowledge to Brain.
Opportunistic behavior
Tacit firms pose a difficult environment in contract transfers with external partners. For example, it is difficult to transfer skills and knowledge from one partner to the other.
Production technologies
Technological changes are crucial. The success of busInesses relies on certain physical facilities (M. E. Agwu). For example, in our case, a reliable power supply is a requirement.
Works Cited
Debashish Barua, Anders Pehrsson. http://www.diva-portal.org/smash/get/diva2:723695/fulltext01. 2014. Market entry modes strategies.
- E. Agwu, H. N. Onwuegbuzie. https://link.springer.com/article/10.1186/s13731-018-0093-4. 26 September 2018. Effects of international marketing environments on entrepreneurship development.
Waggoner, Dena. https://www.referenceforbusiness.com/management/Int-Loc/Joint-Ventures-and-Strategic-Alliances.html. JOINT VENTURES AND STRATEGIC ALLIANCES.