Chapter 12 The firm’s market-entry strategies
description
Transcript of Chapter 12 The firm’s market-entry strategies
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–1
Chapter 12The firm’s market-entry strategies
EXPORTING
? FRANCHISING?
TURNKEY?
LICENSING ?
DIRECT
INVESTMENT
?
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–2
Lecture plan
• The firm’s foreign business strategy
• Exporting
• Contracting (licensing, leasing etc)
• Joint ventures
• Wholly-owned company
• Advantages and disadvantages of various market entries
• Strategic FDI plan issues
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–3
Export-import management
Company business strategies• Domestic strategies
– investment in product development – expand domestic market share – diversify into new industry.
• Foreign business strategies– exporting– international contracting
– foreign direct investment/foreign production
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–4
The firm’s foreign business strategy
1. JV = Joint Venture2. WOC = Wholly-Owned Company Source: adapted from R. Grosse & D. Kujawa,
International Business, Irwin, 1992
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–5
Exporting
• World exports of goods ($US8880 billion in 2004) have declined in relative importance compared to foreign production ($US17,580 billion in 2003).
• Most likely mode for serving a foreign market for a domestic firm starting in international business.
– the business plan (export marketing plan)
– many global companies combine exports and FDI
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–6
Exports: advantages
• Least costly and risky
– L/C payment• Specialisation, economies of scale.• Open to any size or kind of firm
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–7
Exports: disadvantages
• Production costs in the home country may be higher.
• Transport costs may make exporting uneconomical.
• Trade barriers in target markets
• Divided loyalties of O/S agents
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–8
Types of international exporters
• Casual exporter– domestic firms that do not do international
business on a regular basis (< 5% of T/O)• Small-scale exporter
– 5–20% of turnover• Experienced/global exporter
– high ratio of its turnover through involvement in worldwide business deals (exports + FDI)
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–9
Licensing
• Licensor grants rights to intangible property to a Licensee in exchange for a royalty payment.
• Time and territorial limits
• Advantages:
– speed of execution
– low risk/investment cost
– brand recognition
– preliminary cooperation which may be expanded
into FDI
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–10
Licensing: disadvantages
• Isolation from the market
• Lack of managerial control
• Limited life
• Risk of technology loss
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–11
Franchising
• A franchisor sells limited brand use rights, products and services to a franchisee in return for a lump sum payment and a share of the franchisee’s profits.
• 20% of US franchise systems have foreign operations (Japan, Canada, UK, Australia)
- Domino’s Pizza vs Pizza Haven (200 in 7 years);
- Dunkin’ Donuts vs Donut King
• Low market entry costs and risks
• Quality control is difficult due to big number of franchisees and geographic location.
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–12
Subcontracting
• Supply arrangement between a principal and a subcontractor
• Advantages
– low investment cost
– speed
– stable processing cost and quality
– control of sales and marketing
– can become the basis for later alliance
• Disadvantages
– risk of non-delivery or late delivery
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–13
Turnkey operations
• Contract for the construction of operating facilities that are transferred for a fee to the owner after commissioning
• Advantages • high economic returns• less risky than FDI
• Disadvantages• lack of long-term
market presence• loss of control over
technology• client may turn into a
competitor
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–14
Joint ventures
• A legal entity jointly owned by two or more legally distinct organisations which share in the JV’s decision-making activities
• Various options
– 2 companies from the same country
– foreign/local
– 2 or more companies setting up a JV ina third country
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–15
Joint ventures cont.
• Advantages– partner’s local knowledge– cost/risk sharing– host government legislation– low risk of nationalisation
• Disadvantages – technology control risk – less control over subsidiaries – management control conflicts
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–16
Wholly-owned subsidiaries
• A firm owns 100% of the stock• Trend in the motor-car sector (e.g. India, China)• Advantages
– complete management control– optimum security for technology– ‘internalisation’ of operations
• Disadvantages – high costs and risks – long lead time to first sale (especially for
‘Greenfield’ operations)
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–17
China: joint ventures vs wholly owned
0
5
10
15
20
25
US$ Bln
Joint Venture 2 1.7 6 17 21 18
Wholly Owned 0 1 4 8 12 16
88 90 92 94 96 97
Source: adapted from UNCTAD, World Investment Report 1999
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–18
Strategic FDI plan issues
• Investment location evaluation– see matrix on next slide
• Strategic organisation– international group– business/product units– functional units– global matrix
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–19
Investment location evaluation
Variable 1 2 3 4 5
Weight Country A
Country B
1 x 2 1 x 3
Political 1 9 4 9 4
Economic 3 5 6 15 18
Automotive 4 3 4 12 16
Personnel 2 2 3 4 6
Total 10 19 17 40 44
Source: Fig. 12.3, p.298
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Copyright 2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea..
12–20
Strategic FDI plan issues
• Financial management and control– investment decisions– financing decisions– global money management
• Global sourcing strategy– outsourcing
• Global human resource strategies