entering international markets
TRANSCRIPT
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Entering
International
Market
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Market Entering a Foreign Country
Reasons
New geographic markets for existing products
By entering a new market
increased sales
diversified sales
higher brand awareness
business stability and avoidingcrisis
gain experience
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Entering a Foreign Country
Forms of Entry Export
Franchising
Joint venture
Strategic alliance
Subsidiary
Greenfield investment Merger & Acquisition
Licensing
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EXPORTING
Exporting. Exporting is appropriate strategy when one of more of
the following conditions prevail.
a. The volume of foreign business is not large enough tojustify production in the foreign market.
b. Cost of production in the foreign market is high.
c. The foreign market is characterized by productionbottlenecks like infrastructural problems, materialsupplies etc.
d. There are political or other risks of investment in theforeign country.
e. The company has no permanent interest in the foreignmarket or there is no guarantee of the market
available for a long period.
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f. Foreign investment is not favored by the foreign
country concerned.
g. Licensing or contact manufacturing is not a better
alternative.
Export marketing requires.
a. An understanding of target market environment.
b. The use of marketing research & the identification ofmarket potential.
c. Decisions concerning product design, pricing,
distributions & channels, advertising &
communication.
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Export Related Problems
Arranging transportation.
Transport rate determination.
Handling documents.
Distribution co-ordination.
Obtaining insurance. Providing technical advice.
Advertising.
Marketing information.
Trade restrictions.
Competition overseas.
Government red tape.
Product liability.
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EXAMPLES
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Franchising
Franchising
A marketing system revolving around a two-
party agreement, whereby the franchisee
conducts business according to the terms specified
by the franchisor
Franchisee
An entrepreneur whose power is limited by a
contractual agreement with a franchisor
Franchisor
The party in the franchise contract that specifies
the methods to be followed and the terms to be
met by the other party
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The Pros and Cons of Franchising
Advantages
Probability of success
Proven line of business
Pre-qualification of
franchisee
Overall lower failure rates
Training
Franchisor-provided
Financial assistance
Loans & loan guarantees
Operating benefits
Location feasibility study
Marketing assistance
Quick start-up time
Limitations
Franchise costs
Initial franchise fee
Investment costs
Royalty payments
Advertising costs
Restrictions on business operations
Products sold
Hours of operation
Restrictions on
expansion/growth Franchisor only source of
supplies
Loss of independence
Lack of franchisor support Termination/renewal clauses
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3 Types Of Franchising
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A product distribution franchise model is very much
like a supplier-dealer relationship.
Typically, the franchisee merely sells the franchisors
products. However, this type of franchise will also
include some form of integration of the business
activities.
PRODUCT DISTRIBUTION
FRANCHISES
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PRODUCT DISTRIBUTION
FRANCHISES
Examples of famous product distribution franchise:
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BUSINESS FORMAT
FRANCHISING
In a business format franchise, the integration of the
business is more complete.
The franchisee not only distributes the franchisors
products and services under the franchisors trade
mark, but also implements the franchisors format
and procedure of conducting the business.
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BUSINESS FORMAT FRANCHISING -
outlet in
Sale, Australia
outlet in
Marseille, France
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MANAGEMENT
FRANCHISE
A form of service agreement.
The franchisee provides the management expertise,
format and/or procedure for conducting the business.
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Famous Examples
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Licensing.
Licensing is an agreement that permits foreigncompany to use industrial property (i.e. patents,
trademarks & copyrights), technical know-how & skills
(i.e. feasibility studies, manuals, technical advice),
architectural & engineering design or any combination
of these in a foreign market.
o Licensing is not only restricted to tangible products.
Licensing offers several advantages.o It allows company to spread out its research &
development & investment cost while enabling it to
receive incremental income with negligible expenses.
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Why Licensing should be used?
o Trade barriers.
o When capital is scares.
o When country is sensitive to foreign ownership.
o It allows quick & easy way to enter the market.
o When transportation cost is high.
o A company can avoid substantial risk & other
difficulties with licensing.o Benefits from brand Licensing.
o Brand Licensing receives an intangible benefits also.
o Brand is extended into new product categories in
which trademark owner has no expertise.
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Negative aspects of Licensing.
o Reduced profit with reduced risk.
o Manufacturer may be nurturing competitor.
o When licensee performs poorly.
o Agreement can also prevent the licensor from enteringthat market directly.
o Inconsistent product quality can injure the reputation
of the product.
o Even when exact product formulations are followed,licensing can still sometimes can damage the products
image Psychologically.
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Examples:
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Joint Venture.
o A joint venture is a simply a partnership at corporate
level & it can be domestic or international.
o A joint venture is an enterprise formed for a specific
business purpose by two or more investors sharingownership & control.
There are two separate overseas process.
1. Natural or non political investment process.
In this process technology supplying firm gains a foot
hold in an unfamiliar market by acquiring a partner
that can contribute local knowledge & marketing sill.
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2. The second investment process occurs when the local
firms political leverage, through government
persuasion, halts or reverses the natural economic
process.
Partners committed to joint ventures is a function of
perceived benefits (satisfaction & economic
performance.) of the relationship.
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Joint venture enjoy certain advantages.
o Joint ventures substantially reduces the amount ofresources (Money & Personnel).
o Joint venture strategy is the only way other than
through licensing that a firm can enter a foreign
market.o MNCs manage risks by structuring joint venture
sharing arrangements.
o Sometimes social rather than legal circumstances
require a joint venture to be formed.o Joint venture can also work to satisfy social, economic
& political circumstances.
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Joint venture limitations.
o If the partners to the joint venture have notestablished clear cut decision making policy.
o Whenever two individuals or organizations work
together there are bound to be conflicts.
o Reasons.
Cultural problem.
Divergent goals.
Disagreement over production & marketing
strategies.
We contribution by one or other partners.
o Problem is matter of control.
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EXAMPLES
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Subsidiaries
Forms of Subsidiaries
Ownership
Majority stake = 50.1% to 99.9 % of stock or voting
right
Wholly owned subsidiary = entirely owned and
controlled by parent company
Structure
Greenfield = start-ups Acquisition = takeovers
Gloria Armesto, Alina Sachapow
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Subsidiaries
Greenfield
Establishment of new production facilities such as
offices, buildings, plants and factories
Movement of intangible capital
Greenfield FDI directly adds to production capacity in
the host country, contributes to capital formation and
employment generation
Gloria Armesto, Alina Sachapow
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Subsidiaries
Greenfield
Advantages Disadvantages
No restructuring or adaptation
costs
Much time, money and resources
necessaryFull control over technology,
employees etc.
No direct local knowledge,
networks etc.
More flexibility in human resources,
suppliers, logistics, plant layout,
manufacturing technology
Government incentives
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Subsidiaries
Cross border Mergers and Acquisitions
Merger: Merging of capital, assets and liabilities of
existing enterprises
Acquisition: Partial or full takeover of an existing
company
FDI through M&A does not directly add to capital
stock of host country
Horizontal
same industry
Vertical
client-supplier or buyer-seller relationships
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Subsidiaries
Acquisition
Advantages Disadvantages
Existing knowledge, local networks
and distribution channels
Restructuring might require many
resources
Production can start right away Integration is costly and time
intensive, might not be supported
by employees
Less competitors Hard to consolidate different values
and norms
Faster access to market Outdated equipment, plants, brand
names, unmotivated workforce
Better adapted equipment to local
conditions
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Strategic Alliance.
o A relatively new organizational form of market entry& competitive co-operation is strategic alliance.
o Strategic alliance may be the result of mergers,
acquisitions, joint ventures & licensing agreements.o Unlike joint ventures which requires two or morepartners to create a separate entity, a strategicalliance does not necessarily require a new legalentity.
o Strategic alliance may be more of a contractualarrangement where by two or more partners agree toco-operate with each other & utilize each partnersresources & expertise to achieve rapid global marketpenetration.
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