IBUS90003 Chap.7 Entry Timing, Licensing, Franchising and Acquisitions
Entry Timing, Licensing, Franchising and Acquisitions
The first half of Week 4 asks two practical questions: when should a firm enter a market, and which detailed mode should it use? On timing, first movers can build advantages that others cannot copy, through learning curves, scale and patents, and can lock in inputs, locations, suppliers and customers before rivals arrive.
They also pay to create the market, risk choosing the wrong design, may face tighter rules and carry heavier pioneering costs, while late movers learn from them and use the infrastructure they built. Who wins locally depends on assets: proprietary technology favours the MNE, proprietary local assets favour the local firm, and mutual dependence points to an alliance.
On modes, the seminar separates non-equity modes, licensing and franchising, from equity modes, greenfield investment and acquisition, each of which can be fully or partly owned. Licensing is a make-or-buy decision about knowledge, and evidence from 119 technology agreements shows licences carrying far less complete technology packages than joint ventures.
Franchising rents a reputation embedded in a trademark, which creates two contract problems, franchisees debasing quality and franchisors failing to enforce, illustrated by McDonald's contract terms.
Greenfield entry means bundling local factors yourself, while acquisition buys a ready-made bundle, so the choice turns on asset fit, integration needs, market dynamism, managerial resources, risk appetite, available targets and law. The evidence on acquisitions is sobering: most fail to add value and many are later divested, which is why brownfield deals and careful asset tests matter.
What this chapter covers
- 01
First-mover advantages and disadvantages
- 02
Who wins: technology against local assets
- 03
Licensing as a make-or-buy decision
- 04
Technology packages in licences and joint ventures
- 05
Franchise contracts and quality control
- 06
Greenfield entry against acquisition
- 07
Brownfields and the record of cross-border deals
Worked example · free
Choose between greenfield and acquisition for a food brand
- 2Test the local assets: retailer relationships and brand loyalty are valuable, hard to buy separately and slow to rebuild through greenfield entry.
- 2Test compatibility and risk: acquisitions often destroy value, so the buyer must check that the target's culture and systems can combine with its own and that managers are available to integrate it.
- 2Recommend acquisition with a clear integration plan, because the local assets are the reason to buy and greenfield entry would struggle to win shelf space.
Key terms
- First-Mover Advantage
- A benefit gained by entering a market before rivals, such as pre-empted inputs, locations and customers or switching costs that lock buyers in.
- Cross-Licensing
- A contract in which two or more parties each grant rights to their own intellectual property to the others.
- Greenfield Investment
- An equity entry in which the MNE builds a new operation and does most of the bundling of imported and local factors itself.
- Brownfield Acquisition
- An acquisition in which most acquired assets are sold or closed, because only a few embedded assets were wanted.
- Free Riding
- A franchisee or imitator profiting from a brand's reputation while cutting the quality that created it.
Entry Timing, Licensing, Franchising and Acquisitions FAQ
Is it always better to enter a market first?
No. Pioneers can lock in resources and customers, but they pay to create demand, may choose the wrong design and carry larger pioneering costs, while late movers can learn from their mistakes.
Why do licences usually carry older technology?
Owners hesitate to license advanced know-how because licensees may become rivals, so they share it mainly with strong patent protection, broad applications or cross-licensing arrangements, which is why licence packages skew towards older, explicit technology.
How does a franchisor protect quality across many outlets?
Contracts set quality, service and cleanliness standards, and owning some outlets gives the franchisor the operating knowledge and the credibility it needs to detect and enforce breaches across the network.
Do cross-border acquisitions usually create value?
Mostly not. In KPMG's study of 107 deals, 17% added value, 30% made no discernible difference and 53% destroyed value, and Porter's data show many acquisitions are later divested.
Exam move
Split revision into three short blocks. For timing, learn the advantages and disadvantages of moving first as two lists and practise applying them to a case firm that entered early or late, with one sentence on which items actually mattered.
For non-equity modes, rehearse when licensing makes sense, the protections for intellectual property and the two franchise contract problems with their fixes; work the McDonald's fee calculation once by hand so you can use the numbers confidently.
For equity modes, memorise the seven factors that shape greenfield against acquisition and the three asset tests, then attach the evidence: the 119-agreement comparison of technology packages and the acquisition outcomes from KPMG and Porter. In exam answers, evidence like this turns an opinion into an argument, so quote the figures accurately.
Finally, practise one full recommendation that combines timing and mode, for example a late entry by acquisition, and justify both choices from the same case facts.
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