Post on 18-Dec-2015
15
Entry ModesEntry Modes
International Businessby Ball, McCulloch, Frantz,
Geringer, and Minor McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
This chapter covers:
•Market pioneering
versus fast following
•International market
entry methods
•Forms of piracy
•Channel members for
export or overseas
manufacture
•Structural trends in
wholesaling and
retailing
Chapter ObjectivesChapter Objectives
Appreciate the debate on whether being a market pioneer, or a fast follower, is most useful
Understand the international market entry methods
Identify two different forms of piracy and discuss which might be helpful and harmful to firms doing international business
Discuss channel members available to companies that export or manufacture overseas
15-2
Pioneers vs. Fast FollowersPioneers vs. Fast Followers Pioneers
Can gain and maintain a competitive edge in a new market
Overall pioneers may not perform as well in the long run as followers
Most successful when High entry barriers
exist Firm has sufficient
size, resources and competencies
15-3
Followers Many become
followers by default Sometimes an
advantage to let the pioneer take the initial risks
Most successful when Low entry barriers
exist Sufficient resources
or competencies to overwhelm the pioneers’ early advantage
Modes of EntryModes of Entry
Trade Export Subcontracting Countertrade
Transfer Licensing Franchising
15-4
Foreign Direct Investment Wholly Owned
Subsidiary Joint Venture Contract
Manufacturing Management
Contract M&A
ExportingExporting
Most firms begin involvement in overseas business by exporting Selling some of their
regular production overseas
Requires little investment
Relatively risk free Means of getting a feel
for international business without a large commitment
Direct or indirect15-5
Indirect ExportingIndirect Exporting
Exporting of goods and services through various types of home-based exporters Manufacturers’ export agents - sell for
manufacturer Export commission agents - buy for
overseas customers Export merchants - purchase and sell
for own accounts International firms - use the goods
overseas15-6
Indirect ExportingIndirect Exporting
Disadvantages Most exporters
require a commission
Business can be lost if exporter changes source of supply
Firms gain little international experience
15-7
Direct ExportingDirect Exporting
The exporting of goods and services by the exporting firm Sales company
A business established for the purpose of marketing goods and services, not production
Imports its own name from the parent and invoices in local currency
The Internet has made direct exporting much easier Cost of trial very low
15-8
ExportingExporting
Turnkey Project – the export of Technology Management expertise Capital equipment
After a trial run, the facility is turned over to the purchaser
Exporter of a turnkey project may be A contractor that specializes in designing and
erecting plants in a particular industry A company that wishes to earn money from its
expertise The producer of a factory
15-9
TransferTransfer
Licensing Firm will grant
another firm the right to use any kind of expertise for one or more of the licensor’s products
Licensee pays fixed sum when signing and pays royalties of 2%-5% of sales over the life of the contract
15-10
Licensing has become more popular because Courts have begun
upholding patent infringement claims
Patent holders have become more vigilant in suing violators
Foreign governments have been pressed to enforce their patent laws
TransferTransfer
Franchising A special kind of
licensing Permits the
franchisee to sell products or services under a highly publicized brand name and well-proven set of procedures with a carefully developed and controlled marketing strategy
Fast food most numerous
15-11
Foreign Direct InvestmentForeign Direct Investment
Four distinct alternatives available for foreign manufacturingWholly owned subsidiaryJoint ventureContract manufacturingManagement contract
Utilized by both manufacturing and service operations
Providing management expertise for a fee
15-12
Wholly Owned SubsidiaryWholly Owned Subsidiary
A company that wishes to own a foreign subsidiary outright may
Start from the ground up by building a new plant
Acquire a going concern
Currently the preference of foreign investors
Purchase its distributor, obtaining a distribution network familiar with its products
15-13
In 2000 96% of the money spent by foreign investors was used for acquiring American firms
Sometimes it is not possible to have a wholly owned subsidiary Host government may
not permit it Firm may lack capital or
expertise May be disadvantageous
tax-wise or otherwise
Joint VentureJoint Venture
A Joint Venture may be a corporate entity formed
by an international company and local owners
a corporate entity formed by two international companies to do business in a third market
a corporate entity formed by a government agency and an international firm
a cooperative undertaking between two or more firms of a limited-duration project
15-14
Joint VentureJoint Venture
If government requires local participation, firm must engage in joint ventures with local owners
Strong nationalistic sentiment may cause foreign firm to try to lose its identity by joining with local investors
Companies may enter joint ventures to acquire expertise, tax benefits or additional capital
15-15
Disadvantages Profits must be shared If law forbids no more
than 49% foreign ownership, lose control
Control with minority ownership is possible if Take 49% of shares and
give 2% to local law firm or trusted national
Take in local majority partner (sleeping partner)
Management contract
Management ContractManagement Contract
Arrangement under which a company provides managerial know-how in some or all functional areas to another party for a fee
Used in Firms in which they have no ownership Joint ventures
Enables the global partner to control many aspects of a joint venture even when holding only a minority position
May also earn income by selling inputs manufactured in home plant
Wholly owned subsidiaries To siphon off some of subsidiary’s profits
15-16
Contract ManufacturingContract Manufacturing
Means to enter foreign market without investing in facilities One firm contracts with
another to produce products to its specifications but markets products itself
Subcontract assembly work or production of parts to independent companies overseas FDI without investment
15-17
Strategic AlliancesStrategic Alliances
Partnerships between competitor, customers, or suppliers
Also referred to as competitive alliances, competitive collaborations, or coopetition
Reasons firms form strategic alliances Expanding global competition The growing cost of research, product
development, and marketing The need to move faster in carrying
out global strategies15-18
Strategic AlliancesStrategic Alliances
Alliances may be Joint
Ventures
Pooling alliances driven by
similarity and integration
Trading alliances driven
by contribution of
dissimilar resources
Mergers and acquisitions
are not considered
alliances
15-19
Future of Alliances Many fail or are taken
over by one of the partners
Different strategies, operating practices, organizational cultures
Allow a partner to acquire technological or other competencies
Regardless, will continue to be important strategic tool
International Channels International Channels of Distribution Membersof Distribution Members
Indirect Exporting Distribution Members Exporters that sell for
the manufacturer
Exporters that buy for their overseas customers
Exporters that buy and sell for their account
Exporters that purchase for foreign users15-20
International ChannelsInternational Channels of Distribution Members of Distribution Members
Indirect Exporting Exporters that sell for the manufacturer
Manufacturers’ export agents
Act as the international representatives for various noncompeting domestic manufacturers
Export management companies
Act as the export department for noncompeting manufacturers
International trading companies
Act as agents for some companies and as wholesaler for others
Indirect ExportingIndirect Exporting
International Trading Companies (cont’d) Sogo Shosha
The largest of the Japanese trading companies
Originally established by the zaibatsu (centralized, family-dominated economic groups)
15-22
Korean general trading companies
Owned by huge Korean conglomerates called chaebol
Export trading companies
Allows American businesses to join together to export goods and services without violating antitrust regulations
Indirect ExportingIndirect Exporting Exporters that buy for
their overseas customers Export commission
agents Represent overseas
purchasers, such as import firms and large industrial users
These agents are paid a commission by the purchaser for acting as resident buyers in industrialized nations
15-23
Indirect ExportingIndirect Exporting
Exporters that buy and sell for their own account Export merchants
Purchase products directly from the manufacturer and then sell, invoice, and ship them in their own names
Cooperative exporters Established international manufacturers that sell
the products of other companies in foreign markets along with their own
Webb-Pomerene Associations Organizations of competing firms that have joined
together for the sole purpose of export trade15-24
Indirect ExportingIndirect Exporting
Exporters that purchase for foreign users and middlemen Large foreign users
Buy for their own use overseas Export resident buyers
Perform essentially the same functions as export commission agents but more closely associated with a foreign firm
May be official buying representative or an employee
15-25
International ChannelsInternational Channels of Distribution Members of Distribution Members
Direct Exporting Distribution Members
Manufacturer’s agents
Distributors or wholesale importers
Retailers
Trading companies15-26
Direct ExportingDirect Exporting
Manufacturer’s agents Represent various
noncompeting foreign suppliers, and take orders in those firm’s names
Distributors or wholesale importers Independent merchants
that buy for their own account
15-27
Retailers Frequently direct
importers Trading companies
Develop trade and serve as intermediaries between foreign buyers and domestic sellers and vice versa
Relatively unknown in the U.S. but important world wide
SBA Exporting GuidelinesSBA Exporting GuidelinesAdvantages DisadvantagesAdvantages Disadvantages
enhance domestic competitiveness
increase sales and profits gain global market share reduce dependence on
existing markets exploit corporate
technology and know-how extend the sales potential
of existing products stabilize seasonal market
fluctuations enhance potential for
corporate expansion sell excess production
capacity gain information about
foreign competition
Your business may have to
develop new promotional material
subordinate short-term profits to long-term gains
incur added administrative costs
allocate personnel for travel
wait longer for payments modify your product or
packaging apply for additional
financing obtain special export
licenses
How to Locate an Importer, AgentHow to Locate an Importer, Agent
or Distributor in a Foreign Country or Distributor in a Foreign Country U.S. Federal and State Government Offices Abroad The
USDA's Foreign Agricultural Service (FAS) and the U.S. Department of Commerce have trade contact services for American exporters
Direct Mail — Write a letter to a company requesting that it represent your product
Personal Visits — Once you receive a few prospective distributors, plan a trip to that country
Trade Shows & Exhibitions — Trade shows and exhibitions are perhaps the best source for finding distributors
Foreign Magazines and Newspapers — Placing "distributor wanted" or "representative wanted" advertisements in foreign publications can generate responses
IBT Turnkey Project Facility
Turnkey Project Facility
PROPOSAL - I BICYCLE RESEARCH & DEVELOPMENT CENTRE, LUDHIANA (INDIA)PROPOSAL FOR SETTING UP OF BICYCLE ASSEMBLY PLANT ON TURNKEY BASIS(BOUGHT OUT 25%)Capacity : 100,000 Units (Roadster Model) per annumTotal cost of the Project : US$ 1,159,000Duration: 36 to 42 months