Read the case: International Expansion at Lear Corporation [[here|/static/files/MBI/Module%2021/International%20Expansion%20at%20Lear%20Corporation.pdf]] !Entry Modes: Illustration * Assess the motivations for a firm or venture to expand internationally !Learning objectives * Assess the set of entry modes that a firm may use, and what makes them more or less appropriate !Session preparation Lear is a large corporation, which is helpful because it allows us to see the full range of choices in action. Increasingly, we also see relatively small ventures expand rapidly into a large number of countries. Pay special attention to the range of entry modes employed. !Discussion questions 1. Does Lear “have what it takes” to be a successful international competitor? Why or why not? 2. Why did Lear utilize so many different entry modes? * Why acquisitions in Europe? * Why joint ventures in South America, China, and Canada? ** ** South America: *** Jointventures for seating, ** China *** ** Canada *** Joint venture with NHK Spring Company, Ltd. of Japan in 1987 for seating ** Pro's: *** Access to local partner's knowledge *** Sharing development costs and risks *** Politically acceptable ** Con's: *** Lack of control over technology *** Inability to engage in global strategic coordination *** Inability to realize location and experience economies * Why greenfield entries in Australia and Brazil? ** Wholly owned subsidary: *** Protection of technology *** Ability to engage in global strategic coordination *** Ability to realize location and experience economies ** In Australia, an aggressive “import substitution” policy through the 1970s had protected long-established local manufacturers including Ford and GM (Holden) and their suppliers. ** a joint venture with Trambusti in Brazil was to produce seating for Fiat. ** Also, South American nations ''encouraged foreign automobile industry production in order to attract investment and jobs''. ''Cooperative agreements between governments, firms, and labor had resulted in lower vehicle prices and increased demand'' ** a forecast by the Economist Intelligence Unit had South American automotive sales growing by 1.7 million units, or nearly 90%, between 1999 and 2004 ** The macro-economic environment was very uncertain by the early 2000s. Argentina was facing a severe economic crisis brought about by fiscal and currency difficulties. Nevertheless, several manufacturers, including GM, Ford, Volkswagen, Fiat, Peugeot and Renault, had recently upgraded existing facilities in the region. * Brazil: ** The Argentinean and Brazilian joint ventures were 51% and 65% owned by Lear, respectively. Lear had the option to acquire the remaining stakes in each of these ventures. In addition, Lear had a 31% interest in Probel, S.A., a Brazilian automotive seat and furniture manufacturer. ** ''Greenfield:'' *** In 2000 Lear was selected as a seat and interior supplier for the modular plants set up by GM (Blue Macaw) and Chrysler (Dakota) in southern Brazil. It established new, wholly-owned facilities to service these programs. ** In addition, Brazil had attracted several investments in new modular assembly plants where selected suppliers were invited to assemble complete subsystems in facilities adjacent to the auto assembly line. These investments by GM (Blue Macaw), Ford (Amazon), DaimlerChrysler (Dakota) and Volkswagen were considered important as experiments that may reshape the organization of assembly plants elsewhere in future ** Gilardini also provided Lear with operations in Poland, Brazil and Argentina where Fiat built cars ** This had motivated vehicle manufacturers to broaden their reach. In particular, they had focused attention on South America and Asia, where vehicle production was forecast to continue increasing in the medium to long term. ** The early 1990’s were a period of general economic strength in the region as witnessed by increased per capita GDP - particularly in Brazil and Argentina ** Additionally, economic integration among South American markets, in the form of Mercosur, the Andean International Expansion at Lear Corporation Page 7 Pact and the G-3 accord, ''reduced the cost of production in the region by lowering import tariffs'' and allowing components built in member countries to be considered local content. Answers & issues: * Why are [[Exporting]] and [[Licensing]] not used? ** Exporting is not possible because: *** Production of the chairs needs to follow integration extremely close. *** Time sensitivity is very important 3. Did Lear have the right strategy for Japan? For China? Why? * China: ** September 1996 saw Lear announce its first expansion into China. Lear entered into a 50-50 joint venture with Jiangling Motors to form Jiangling-Lear Interior Systems Co. Ltd. Jiangling made light trucks for Isuzu and Ford. Lear increased its presence in China through joint ventures in 1998 with automaker Chang’an Automobile and with Shanghai GM suppliers Shanghai Car Carpet and Shanghai Vehicle Awning. ** ''Joint ventures are requiring the highest degree of similarity between the companies.'' Not the right strategy * Japan: ** In September 2000 it acquired Ikeda Bussan, a Japanese supplier of automotive seating. ** ''An acquisition requires also a very high degree of distance'' ** //In Japan, Lear had three small design centers. The first two were established in 1999. The third was a joint venture established with NHK in 2000// ** Probably having an american company try to enter the Japanese market would be very tough. 4. What geographic regions are most and least desirable for further expansion? Why? 5. Should Lear continue with an aggressive international expansion strategy? Should it reorganize and thoroughly consolidate its recent investments first?