The Investigation of Volkswagen's Entry Strategy in China's Car Market

MA MANAGEMENT DISSERTATION
XIAOFENG WEN
(2) Acquisition, which means acquiring an established firm in the host country.
All the entry modes have advantages and disadvantages, hence trade-offs are
inevitable when selecting an entry mode. Peng (2006) and Hill (2005) states that the
factors influenced entry modes selection are:
Resources and capabilities: The amount of resources required by each entry mode
is very different. For example, wholly owned subsidiary is the most expensive mode,
if a firm cannot afford it; it has to go with other cheaper modes, such as licensing and
franchising.
Amount of control: Different modes of entry give different degree of control over
the subsidiaries. For example, in franchising and licensing, quality control is difficult,
and amount of control in joint venture depends on the level of ownership, wholly
owned subsidiaries give the most control in decision-making.
Risk of losing technology: Managers are afraid to lost technology to their local
partners when some high risk of losing technology modes is selected. For examples,
in licensing, the licensees very often reproduce technology; joint venture partners
may also learn technology from the firm; technology risk is probably lowest in
wholly owned subsidiary.
Familiarity with the host country: if the firm is not familiar with the host country,
it is probably better to choose joint venture, in that way the firm can benefit from the
local partner’s local knowledge.
Figure2.2 Modes of entering foreign markets
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