IB (Modes of Entry)
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Transcript of IB (Modes of Entry)
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Entry Modes of Entry Modes of InternationalInternational
By:Manish SaranL2S2, Sec-D
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Globalization Is Gaining
The world economy is becoming a single, interdependentsystem
ExportDomestic product sold abroad
Import
Foreign product solddomestically
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Categorizing
High Income Countries: Per capita income greater than $9,386
Middle Income Countries: Per capita income between $765 and$9,386
Low Income Countries: Per capita income of less than $765
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Does It Make Sense to Go
YES YES
Is there
internationaldemand
for thefirms
product?
NONO
Stay Domestic
Can theproduct bemodified
to fit aforeign
market?
NONO
YES YES
Is theforeign
businessclimate suited toimports?
NONO
Does thefirm
have orcan it get
thenecessary skills
andknowled
geto do
businessabroad?
YES YES
NONO
YES YES
Go International
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Factors included in making foreignmarket entry decisions
Degree of control Level of resource commitment Degree of dissemination risk
Possibility of a foreign partner firm obtaining technologyor other know-how from the home-country firm andexploiting it for its own commercial advantage. For
example, Japanese companies quickly assimilated RCAscolor TV technology once RCA licensed it to a number ofJapanese companies.
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Degree of Export
Direct exporting (sell to buyers) Sales representatives Distributors
Indirect exporting (sell to intermediaries)
Agents Export management companies
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Licensing
Advantages
Finance expansion Reduce risk Reduce counterfeits Upgrade technologies
Restrict licensors future Reduce global consistency Lend strategic property
Disadvantages
Company owning intangible property (licensor) grantsanother firm (licensee) the right to use it for a
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Franchisin
Advantages Low cost and low risk Rapid expansion Local knowledge
Cumbersome Lost flexibilityDisadvantages
Company (franchiser) supplies another (franchisee)withintangible property (brand aspects such as
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Management
Company supplies another firms with managerialexpertise
Advantages Few assets risked Nations finance projects
Disadvantages Personnel at risk Create competitor
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Turnkey Project
Advantages Firms specialize in corecompetency Nations obtain infrastructureProjects
Politicized process Create competitor
Disadvantages
Company designs, constructs, and tests aproduction
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Wholly Owned Subsidiary
Facility entirely owned and controlled by a singleparent
Advantages Day-to-day control Coordinate subsidiaries
Disadvantages Expensive High risk
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Joint Venture
Separate company created and jointly owned by two ormore independent entities to achieve a common business
Advantages Reduce risk level Penetrate markets Access channels Protect interests
Disadvantages
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Strategic
Disadvantages Create competitor Partner conflict
Advantages Share project cost Tap competitors strength
Gain channel access Protect interests
Entities cooperate (but do not form a separatecompany) to achieve strategic goals of each
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Risk, Control,
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Factors Influencing Choice of Foreign
Market Entry Mode