Slide 1Amity School of Business
Production in Home Country
Indirect
Selling to a foreign firm or a buying agent in India.
Exporting through a merchant intermediary, i.e. an export house, a trading house etc. International marketing intermediaries involved in trading operations are known by different names in different countries such as Soga Shosha in Japan, Commercializadoras in Latin America, Export Management Company and Export Trading Company in the USA Exports
Complementary (Piggybacking)
Industry Drivers
Obsolete contracting approaches
Enhanced IT effectiveness
Supplementary IT resources
Shortened implementation time
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Immature markets
Insurance in emerging economies is in nascent stage with limited data available for assessing market performance Very limited access to experienced insurance talent High administrative and procurement costs associated with targeting underinsured and rural markets Lack of infrastructure to support insurance processes
Cultural differences
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Challenging regulatory environments
Insurance industry in emerging markets is evolving and with regulations changing as the markets evolve. Insurers will need to change their business model to adapt to changing regulations
In many emerging markets, foreign companies cannot register for operating an insurance business independently (e.g., foreign players need to partner with a domestic company to enter Indian market)
Huge investment costs
In order to be successful in emerging markets, companies need to place huge investments as the infrastructure for selling insurance is underdeveloped
Distribution channels in emerging countries are not well established
Existing products may not work well in emerging economies, so investments may be required to launch new products in order to attract consumer. This also increases risk tremendously
In emerging markets, unlike developed markets, insurance companies sometimes have to compete with government/ quasi government firms
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Currency devaluation, volatility and instability necessitates financial sophistication in matching revenues to expenses in foreign currency and/or use of hedging instruments Optimal financial leverage is often difficult to determine in new markets Limits on remittance, currency transfer restrictions and inconvertibility to domestic currency disrupt the stream of revenue back to home country
Operational Risks
Reputational Risks
Entry and exit can damage a company’s reputation in the emerging market and potential future markets Increased incidence of corruption can expose a company with loose governance to penalties at home and abroad
Risks to emerging market entry
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Patchy legal and regulatory regimes tend to favor incumbents Ineffective regulatory institutions unable to ensure fair market practices
Political Risks
Expropriation or nationalization of company capital and assets resulting in total loss of investment Negative government actions against foreign companies – taxation, discrimination, etc Contract repudiation such as payment default or unilateral termination War or civil strife affecting physical operations, employees, and supply chain function
Talent Risks
Labor markets can be restrictive, limiting access to necessary talent and resources Use of experts can be expensive with fewer candidates possessing emerging market experience
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In addition to strategic characteristics, the authors isolated specific strategies for success that are positively correlated with certain characteristics found in emerging markets.
Successful business strategies for entering emerging markets have the following elements in common:
Market/Country Characteristics
Diversification
High Per Capita GDP Low Insurance Penetration Low Trade Openness
Growth
High Per Capita GDP Strong Market Competition Low Insurance Penetration Low Stock Market Turnover Low Trade Openness High Corruption Ratings
Business Focus
Success Strategies
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Franchising is when one company (the franchiser) supplies another (the franchisee) with intangible property and assistance over an extended period of time.
Franchisers typically receive compensation as flat fees or royalty payments for use of an asset, which is commonly a brand name or trademark.
Franchising is a low-cost and low-risk entry mode into new markets, allows for rapid geographic expansion, and makes use of local managers’ cultural knowledge.
Yet, managing franchisees across several nations can become cumbersome
Franchising
Avoid tariffs, NTBs, restrictions on foreign investment
Maintain more control than with licensing
Franchisee provides knowledge of local market
Disadvantages
Possibility of leakage of trade secrets
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Patents
Trademarks
Copyrights
Technology
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Licensing is when a company owning intangible property (the licensor) grants another firm (the licensee) the right to use that property for a specific period of time.
Licensors receive royalty payments based on a percentage of revenue generated by property such as patents, copyrights, designs, formulas, trademarks, and brand names.
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Avoid tariffs, NTBs, restrictions on foreign investment
Licensee provides knowledge of local markets
Disadvantages
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Franchising
Can use the brand name and logo of the parent company. So has a readymade and informed customer base.
Support from the parent company in regards to training, marketing.
Semi-monopoly in a particular area
Franchisee have to pay royalty from the profit and will have a greater control by the parent company than in the case of a license.
Licensing
In most cases licensee is not allowed to use the logo, exceptions are there
Loosely knit relationship between licenser and licensee. No or very less support from licensor.
Complete monopoly in the market.
However in case of license monetary benefits are more, as licensee can keep the profit with him and has more freedom of operation.
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Expand sales when the domestic market is saturated.
Diversify sales to better match cash inflows with cash outflows.
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Direct Exports
Direct exporting involves selling directly to buyers in a target market.
Direct exports represent the most basic mode of exporting, capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution.
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Provide support services to a manufacturer regarding local advertising, local sales presentations, customs clearance formalities, legal requirements.
Manufacturers of highly technical services or products such as production machinery, benefit the most form sales representation.
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Importing Distributors
Importing distributors purchase product in their own right and resell it in their local markets to wholesalers, retailers, or both.
Importing distributors are a good market entry strategy for products that are carried in inventory, such as toys, appliances, prepared food
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Indirect Exports
Indirect exporting is selling to intermediaries who resell to the target market.
Indirect exports is the process of exporting through domestically based export intermediaries. The exporter has no control over its products in the foreign market.
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Export merchants are wholesale companies that buy unpackaged products from suppliers/manufacturers for resale overseas under their own brand names.
The advantage of export merchants is promotion.
One of the disadvantages for using export merchants result in presence of identical products under different brand names and pricing on the market, meaning that export merchant’s activities may hinder manufacturer’s exporting efforts.
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Confirming Houses
These are intermediate sellers that work for foreign buyers. They receive the product requirements from their clients, negotiate purchases, make delivery, and pay the suppliers/manufacturers.
An opportunity here arises in the fact that if the client likes the product it may become a trade representative.
A potential disadvantage includes supplier’s unawareness and lack of control over what a confirming house does with their product.
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Export Trading Company
An export trading company (ETC) provides more services than those directly related to exporting.
These provide support services of the entire export process for one or more suppliers.
The typical ETC offers its client import, export, and counter trade services, access to distribution channels, storage facilities, new trade and investment projects, and manufacturing services.
Attractive to suppliers that are not familiar with exporting as ETCs usually perform all the necessary work.
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Export Management Company
An export management company (EMC) exports on behalf of an indirect exporter and operates contractually as an agent or distributor.
Unlike ETCs, they rarely take on export credit risks and carry one type of product, not representing competing ones.
Usually, EMCs trade on behalf of their suppliers as their export departments
Market research
Appoint overseas distributors
Handle shipping, export documentation, shipping, insurance, financing...
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Disadvantages
Logistical complexities
Joint Venture
A joint venture is a separate company that is created and jointly owned by two or more independent entities to achieve a common objective.
A joint venture can reduce risk by sharing the investment with other parties, help penetrate international markets that are otherwise off-limits, and provide access to another party’s distribution channels.
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Disadvantages
Strategic Alliance
Strategic alliance is when two or more entities cooperate (but do not form a separate company) to achieve the strategic goals of each.
Alliances may be formed for short or long periods, and can be formed between a company and its suppliers, buyers, and competitors.
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A strategic alliance can allow firms to share the cost of an international investment project, tap competitors’ specific strengths, and access distribution channels.
Yet, conflict among partners may undermine cooperation, and an alliance may create a future competitor in a target market or even globally.
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Share project cost
Tap competitors’ strengths
Gain channel access
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Turnkey Project
Turnkey project is when a company designs, constructs, and tests a production facility for a client.
These projects are often large-scale utility projects in host countries.
They usually transfer special process technologies or facility designs to a client.
Turnkey projects let a firm specialize in its core competency to exploit international opportunities, and allow a nation to obtain the latest infrastructure from the world’s leading companies.
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Turnkey projects may be awarded for political reasons rather than for technological know-how, and can create future international competitors.
Typical examples of turnkey projects are: supply, erection and commissioning of boilers, power plants, transmission lines, sub-stations, plants for manufacture of cement, sugar, textiles and chemicals.
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Wholly Owned Subsidiaries
Wholly owned subsidiaries are entirely owned and controlled by a single parent company.
A wholly owned subsidiary gives a company total control over day-to-day local operations and valuable technologies, processes, and other intangibles. It also lets a firm coordinate activities of all its various national subsidiaries.
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Management contract is when one company supplies another with managerial expertise for a specific period of time.
The supplier of expertise is compensated with either a lump-sum payment or a fee based on sales.
Management contracts are used to transfer specialized knowledge of technical managers and business management skills.
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Management contracts involve not just selling a method of doing things but involve 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.
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Management Contract
Company supplies another with managerial expertise for a specific period of time
Advantages