market entry methods exporting/importing direct indirect contractual entry modes licensing...
TRANSCRIPT
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Market Entry Methods
Exporting/Importing Direct Indirect
Contractual Entry Modes Licensing Franchising Management Contracts Turnkey Projects
Investment Entry Modes Wholly-Owned
Subsidiary Joint Venture Strategic Alliance
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Exporting
Selling and shipping products across borders Easiest and most common first step All size companies use this strategy Direct exporting: Company actively seeks
exporting Indirect exporting: Casual exporting which
uses agents or intermediaries
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Advantages: Risk of loss minimized because not much is
invested Product can remain unchanged Can be used to get rid of excess inventory or gain
additional sales
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Disadvantages: May not make the most of an opportunity Strongly dependent on exchange rates
Examples: Producer sells to Wal-Mart which ships overseas Stora Enso sells paper products to Canada
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Intermediaries
Agents Representatives of one or more indirect exporters
in a target market Export Management Company
Exports products on behalf of exporters Export Trading Company
Provides services to indirect exporters
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Licensing
Domestic company allows foreign company to use trademarks, patents, copyrights, processes, or technical knowledge for a fee
Establishes foothold in foreign market without a big investment
Favorite strategy of small to medium size companies
Often use in addition to exporting
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Advantages: Foothold in foreign marketing without big
investment Formal agreement in licensing contract Avoids import restrictions
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Disadvantages: Hard to protect intellectual property May be least profitable means of entry
Examples: Nestle makes food products with Disney
characters
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Franchising
Franchisor provides standardized products and management processes while franchisee provides capital, management personnel and knowledge of local markets
Fastest growing market entry strategy More than 30,000 franchises throughout the
world
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Advantages: Allows skills to be located with franchisor while
operations are spread over franchisees Expands company quickly with little investment by
franchisor Foreign laws are friendly because of local
ownership
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Disadvantages: Must share profits Poor franchisee can ruin image
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Management Contracting
Company sells management skills and runs a foreign operation
Main advantage is that it’s low risk Main disadvantage is that there is low profit potential
and lack of a long-term presence in market Example: DBS Asia (Thailand) awarded a contract
to Favorlangh Communication (Taiwan) to set up and run digital tv programming in Taiwan
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Turnkey Operation
One company designs, constructs and tests a production facility for a client firm for a fee
Often used by governments Ex: Turkey’s government had two
consortiums of international firms build four hydroelectric dams
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Wholly-Owned Subsidiary
Domestic company owns 100% of the stock of another company
Can buy an existing business (easiest method that takes advantages of existing strengths) or start from scratch
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Advantages: Can take advantage of low cost labor Avoid high import taxes Can gain access to raw materials May cut transportation costs to market
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Disadvantages: High investment High risk May suffer backlash from country Many countries restrict foreign direct investment
Examples Nike Stora Enso
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Joint Ventures
Legal agreements between two or more companies to conduct business together
Separate company is created and jointly owned
Creates an alliance that combines strengths and accomplishes goals more efficiently
2nd most frequently used strategy behind exporting
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Advantages: Less capital investment required from each
partner Shared risks Access to skills of partner With a local partner may allow access to markets
which are forbidden to foreigners
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Disadvantages: Shared control complicates decision making Agreements require frequent review Could create competitor Share revenue
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Strategic Alliance
Relationship between two companies to cooperate to achieve strategic goals
Similar to joint venture except a new company is not formed
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Unz & Co. Guide to Exporting http://www.unzco.com/basicguide/toc.html
Small Business Administration Guide http://www.sba.gov/OIT/info/Guide-To-Exporting/
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Inc. equivalents
Canada, Japan, England – Ltd. (limited) France, Belgium – Sarl Spain, Mexico, Portugal and Brazil – S.A. Germany, Switzerland – GmbH Netherlands – N.V. Italy – Srl Denmark – A/S
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What method of market entry is this??
A company from Singapore is working with businesses in Kenya to help organize and run hospitals
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A British toy company allows a Japanese company to create clothing and school supplies with one of the British company’s doll characters on the products.
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An example of this would be Nike making shoes in Asia and Honda producing cars in the United States.
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A small food-packaging firm cannot afford to sell in other countries, so it asks an export agent to obtain orders for the company.
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A Vietnamese company decides to obtain assistance from an Israeli company to share production costs and profits of a chemical manufacturing enterprise.
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An Italian restaurant is planning to allow a company in New Zealand to operate several restaurants using the same name and menu items.
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A company in Egypt has purchased 51 percent of the stock of a company in Peru.
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A disadvantage of this entry method is that it is strongly dependent on exchange rates between countries and may not make the most of of an international opportunity.
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Advantages to this method are that it requires less capital, and risks are shared
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Which method of entry is the costliest?
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Which method of entry is the easiest and most common first step for businesses to go international?
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Which is the fastest growing market entry method with over 30,000 possibilities worldwide?