Presentacin de PowerPoint

HOW ENTER TO THE INTERNATIONAL MARKET?GILDER FRANZ INGA CALCINA CESAR ALEJANDRO MORENO ALVAREZ

HOW ENTER TO THE INTERNATIONAL MARKET?Before embarking on new territory its important to understand the specific countrys culture, customs, needs, and unspoken rules that will ultimately help you better tailor your concept for that market.It is essential, before entering a foreign market to clearly identify the motivations behind your decision to explore entering the international marketplace. Examine what your domestic marketing strategy has been and how the domestic plan employed by your company on a local level needs to be tailored to be positively received in the proposed international territory.Here are five tips to help prepare your business to enter the international market:

FIVE TIPS TO HELP PREPARE YOUR BUSINESS TO ENTER THE INTERNATIONAL MARKET:Educate yourself on the customs and business etiquette of the international market. Gather historical data on the countrys currency value fluctuation and import/export timelines. Become an expert on the countrys laws governing business.Conduct focus groups to test the waters in the prospective international market. Find out what your competition has done in the same territory.

A firm contemplating foreign expansion must make four questions.

Which markets to enter?When to enter these markets?What is the scale of entry?Which is the best mode of entry?BASIC FOREIGN EXPANSION ENTRY DECISIONS

BASIC MARKET ENTRY DECISION- WHICH MARKET?

200 nation-statesDifferent long-run profit potential for firms.Size of marketPurchasing power (present wealth).Future wealth

Benefits cost & risks trade off rank marketsFuture economic growth rates.Free market system & countrys capacity for growth.Stable and developingmarkets without upsurge in inflationrates or private-sector debtBASIC MARKET ENTRY DECISION- WHICH MARKET?Value an international business can create in a market.Suitability of product for market.Nature of indigenous competition.Not widely available & satisfies an unmet need.Greater value translates into an ability to charge higher prices & build sales volume more rapidly.BASIC MARKET ENTRY DECISION- WHICH MARKET?PROCESS OF COUNTRY EVALUATION & SELECTION

BASIC MARKET ENTRY DECISION TIMING OF ENTRY?Early entryFirm enters foreign market before other foreign firms

First mover advantageAbility to preempt rivals & capture demand by establishing strong brand name.Build sales volume and ride down the experience curve with a cost advantage.Create switching cost that tie customers into products & services

BASIC MARKET ENTRY DECISION TIMING OF ENTRY?First mover disadvantages.Pioneering costs.Time & effort in learning the rules of the game.Mistakes due to ignorance.Liability of being a foreigner.Costs of promoting & establishing a product educating customers (KFC in China -> benefit to McDonalds)SCALE OF ENTRY?Large scale entryRequires commitment of significant resources & implies rapid entry (Dutch ING spend billions to acquire US operations)

Strategic commitment.Decision that has long term impact & is difficult to reverse (entering market on large scale).Change the competitive playing field & unleash number of changes e.g. how competitors might react.Can limit strategic flexibilitySCALE OF ENTRY?Small Scale Entry:

Advantages:Time to learn about the market.Limits company exposure.Disadvantages:May be difficult to build market share.Difficult to capture first-mover

BASIC MARKET ENTRY DECISIONSDiscussion based on developing country considerations.Can use MNEs to learn & bench mark against.Can focus on niches the MNE ignores or cant serve.Can piggyback with MNEs (eg; Jollibee)

WHICH FOREIGN MARKET ENTRY MODE?

EXPORTINGThe commercial activity of selling and shipping goods to a foreign country.

The most common overseas entry approach for small firms.EXPORTINGExporting can be either.direct or indirect.In direct exporting the company sells to a customer in another country.In contrast, indirect exporting usually means that the company sells to a buyer (importer or distributor) in the home country who in turn exports the productEXPORTINGThe Internet is becoming increasingly important as a foreign market entry method.Initially, Internet marketingfocused on domestic sales,however, a surprisingly large number of companies started receiving orders from customers in other countries, resulting in the concept of:international Internet marketing (IIM).EXPORTINGAdvantages:Easy implementation of strategy.Less investment abroad which helps small firms also to enter international business.Minimal risks.Casual international marketing effort.Firm may manufacture in centralized location & export to other national markets to realize scale economies from global sales volume (Sony/TV, Matsushita/VCR, Samsung/Chips)EXPORTINGDisadvantages:Susceptibility to trade barriers.Logistical difficulties.Less suitable for service products.Susceptibility to exchange-rate fluctuation.Not appropriate if other lower cost manufacturing locations exist.High transport costs can make exporting uneconomical especially bulk productsCONTRACTUAL AGREEMENTSContractual agreements are long-term, non-equity associations between a company and another in a foreign market

Approaches:Licensing.Franchising.Contract manufacturing.Management contracting.Turnkey projects

LICENSINGAn arrangement whereby a licensor grants the rights to intangible property to another entity for a specified period and in return, the licensor receives a royalty fee from the licensee.Offers know-how, shares technology, and shares brand name with licensee; licensee pays royalties; lower-risk entry mode; permits access to markets

LICENSING..Advantages:Helps company to spread out its R&D & investment costs with incremental income.Little additional capital or time investment.Legitimate means of capitalizing on intellectual property in a foreign market.Receive royalties for granting the rights to intangible property to licensee for specified period (patents, inventions, formulas, processes, designs, copyrights, trademarks)

LICENSING.Disadvantages:Inconsistent product quality may effect product image negatively.The agreement generally prohibits the originating firm from exploiting the assets in particular foreign markets.Does not give firm tight control over manufacturing, marketing & strategy to realize experience curve & location economies.Firms can lose control over the competitive advantage of their technological know-how.Solution: Cross licensing agreementsFRANCHISINGFranchising is a specialized form of licensing in which the franchisor not only sells intangible property to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does businessLonger-term commitments

FRANCHISINGAdvantages:Important way of gaining foreign returns on certain kinds of customer-service and trade name assets.Limited financial commitment.Involves longer term commitment than licensing. Primarily used by service firms (McDonalds)

FRANCHISINGAdvantages:Franchiser sells intangible property (trademark) & insists franchisee agrees to abide by strict business rules (location, methods, design, staffing, supply chain).Royalty payments that are some percentage of franchisees revenues.Firm relieved of many costs & risks of opening new market.FRANCHISING..Disadvantages:No manufacturing so no location economies & experience curve.May inhibit the ability to take profits out of one country to support competitive attacks in another.Risk of worldwide reputation if no quality control.Firm can set up master franchise in each country subsidiary which is JV (McDonalds & local firm)

TURNKEY PROJECTSA product or service which can be implemented or utilized with no additional work required by the buyer (just by 'turning the key')".The contractor agrees to handle every detail of the project for a foreign client, including the training of operating personnelTURNKEY PROJECTAdvantages:A way of earning great economic returns from the know-how & exporting process technology.This strategy is useful where FDI is limited by host government regulations.Less risky than FDI in countries with unstable political and economic environment.Means of exporting process technology (chemical, pharmaceutical, petroleum, mining)TURNKEY PROJECTDisadvantages:Firm has no long term interest in the country can take minority equity interest in company.Firm may inadvertently create a competitor (middle east oil refineries).If firms process technology is a source of competitive advantage, then selling technology is also selling competitive advantage to potential competitorsCONTRACT MANUFACTURINGContract manufacturing is a process that establish a working agreement between two companies.As part of the agreement, one company will custom produce parts or other materials on behalf of their client.CONTRACT MANUFACTURINGAdvantages:The client does not have to maintain manufacturing facilities, purchase raw materials, or hire labor in order to produce the finished goods so less capital investment is required.Helps to achieve benefits of economies of scale.Helps to achieve location economiesCONTRACT MANUFACTURINGDisadvantages:Less management control.Potential security or confidentiality issues.Complexity.Potential quality issues

MANAGEMENT CONTRACTINGA management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee.

MANAGEMENT CONTRACTINGManagement contracts involve not just selling a method of doing things (as with franchising or licensing) but involves actually doing them.A management contract can involve a wide range of functions, such as technical operation of a production facility, management of personnel, accounting, marketing services and training.MANAGEMENT CONTRACTINGAdvantages:Management contracts are often formed where there is a lack of local skills to run a project.It is an alternative to foreign direct investment as it does not involve as high risk and can yield higher returns for the company when foreign government actions restrict other entry methods.MANAGEMENT CONTRACTINGDisadvantages:Loss of control.Time delays.Loss of flexibility.Loss of quality.Compliance

STRATEGIC ALLIANCECooperative agreements between potential or actual competitors.A strategic international alliance (SIA) is a business relationship established by two or more companies to cooperate out of mutual need and to share risk in achieving a common objective.SIAs are sought as a way to shore up weaknesses and increase competitive strengths.Licensing, Joint venture, consortia, etc.STRATEGIC ALLIANCESFirms enter SIAs for several reasons:Opportunities for rapid expansion into new markets.Access to new technology.More efficient production and innovation.Reduced marketing costs.Strategic competitive moves.Access to additional sources of products and capitalSTRATEGIC ALLIANCES- JOINT VENTURESA JV entails establishing a firm that is jointly owned by two or more otherwise independent firms.

JOINT VENTUREFour Characteristics define joint ventures:JVs are established, separate, legal entities.The acknowledged intent by the partners to share in the management of the JV.There are partnerships between legally incorporated entities such as companies, chartered organizations, or governments, and not between individuals.Equity positions are held by each of the partners.STRATEGIC ALLIANCES- CONSORTIAConsortia are similar to joint ventures and could be classified as such except for two unique characteristics:They typically involve a large number of participantsThey frequently operate in a country or market in which none of the participants is currently active.Consortia are developed to pool financial andmanagerial resources and to lessen risks.JOINT VENTURESAdvantages:Smaller investment.Local marketing and production/ procurement of expertise from local partner.Better understanding of the host country.Typically 50/50 with contributed team of managers to share operating controlJOINT VENTURESAdvantages:Firm benefits from local partners knowledge of competitive conditions, culture, language, political system & business systemSharing market development costs & risks with local partnerIn some countries, political considerations make JVs the only feasible entry modeJOINT VENTURESDisadvantages:Risk of giving control of technology to the partners.Shared ownership arrangement can lead to conflicts and battles of control between the investing firms.

STRUCTURING THE ALLIANCE TO REDUCE OPPORTUNISM

WHOLLY OWNED SUBSIDIARYThe firm owns 100% of the stockThe firm can either set up aGreen-field venture orIt can acquire an established firm in the host nation

WHOLLY OWNED SUBSIDIARYAdvantages:Reduces the risk of loosing control over technological competence.Tight control over operations.Helps to achieve location economies.

WHOLLY OWNED SUBSIDIARYDisadvantages:Larger commitment and risk.Most costly method.Risk of national expropriation.

thanks