©2004 Prentice Hall12-1 Chapter 12: Strategies for Analyzing and Entering Foreign Markets...

©2004 Prentice Hall12-1

Chapter 12:Strategies for Analyzing and Entering Foreign Markets

International Business, 4th Edition

Griffin & Pustay


Chapter Objectives_1

Discuss how firms analyze foreign markets

Outline the process by which firms choose their mode of entry into a foreign market

Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods



Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing

Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising



Analyze contract manufacturing, management contracts, and turnkey projects as specialized entry modes for international business

Characterize the greenfield and acquisition forms of FDI


Foreign Market Analysis

Assess alternative markets Evaluate the respective costs, benefits,

and risks of entering each Select those that hold the most

potential for entry or expansion


Table 12.1 Factors in Assessing New Market Opportunities

Product-market dimensions

Major product-market differences

Structural characteristics of the national product market

Competitor analysis Potential target

markets Relevant trends Explanation of

change Success factors Strategic options


Map 12.1 A Tale of Two Chinas


Dole Food Company’s international operations are subject to a variety of costs, benefits, and risks.


Figure12.1 Choosing a Mode of Entry

Exporting

InternationalLicensing

InternationalFranchising

Specialized Modes

Foreign Direct Investment

Decision Factors:Ownership advantagesLocation advantagesInternalization advantagesOther factors

Need for controlResource availabilityGlobal strategy


Map 12.2 Turkey


Exporting

Advantages Relatively low

financial exposure Permit gradual market

entry Acquire knowledge

about local market Avoid restrictions on

foreign investment

Disadvantages Vulnerability to tariffs

and NTBs Logistical

complexities Potential conflicts

with distributors


Motivations for Exporting

Proactive motivations: pull a firm into foreign markets as a result of opportunities available there

Reactive motivations: push a firm into foreign markets because opportunities are decreasing in the domestic market


Forms of Exporting

Indirect exporting Direct exporting Intracorporate transfers


Figure 12.2 Forms of Exporting


Export Intermediaries

Export Management Company Webb-Pomerene Association International Trading Company Other intermediaries


Figure 12.3 The Licensing Process

LICENSOR•Leases the right to use its intellectual property•Earns new revenues with relatively low investment

LICENSEE•Uses the intellectual property to create products for local sale•Pays a royalty back tothe licensor

Basic Issues1. Set the boundaries of the agreement2. Establish compensation rates3. Agree on the rights, privileges, and constraints 4. Specify the duration of the agreement


Licensing

Advantages Low financial risks Low-cost way to

assess market potential Avoid tariffs, NTBs,

restrictions on foreign investment

Licensee provides knowledge of local markets

Disadvantages Limited market

opportunities/ profits Dependence on

licensee Potential conflicts

with licensee Possibility of creating

future competitor


Franchising

Advantages Low financial risks Low-cost way to assess

market potential Avoid tariffs, NTBs,

restrictions on foreign investment

Maintain more control than with licensing

Franchisee provides knowledge of local market

Disadvantages Limited market

opportunities/ profits Dependence on franchisee Potential conflicts with

franchisee Possibility of creating

future competitor


Specialized Entry Modes

Contract Manufacturing Management Contract Turnkey Project


Contract Manufacturing

Advantages Low financial risks Minimize resources

devoted to manufacturing

Focus firm’s resources on other elements of the value chain

Disadvantages Reduced control (may

affect quality, delivery schedules, etc.)

Reduce learning potential

Potential public relations problems


Management

Advantages Focus firm’s resources

on its area of contracts Minimal financial

exposure

Disadvantages Potential returns

limited by contract expertise

May unintentionally transfer proprietary knowledge and techniques to contractee


Turnkey Projects

Advantages Focus firm’s

resources on its area of expertise

Avoid all long-term operational risks

Disadvantages Financial risks

– Cost overruns

Construction risks– Delays– Problems with

suppliers



Building new facilities (the greenfield strategy)

Buying existing assets in a foreign country (acquisition strategy)

Participating in a joint venture


Volkswagon was the first auto manufacturer to open a plant in Mexico



Advantages High profit potential Maintain control over

operations Acquire knowledge of

local market Avoid tariffs and

NTBs

Disadvantages High financial and

managerial investments

Higher exposure to political risk

Vulnerability to restrictions on foreign investment

Greater managerial complexity


Greenfield Strategy

Best site Modern facilities Economic development incentives Clean slate

©2004 Prentice Hall12-1 Chapter 12: Strategies for Analyzing and Entering Foreign Markets...

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