stratergic methods of entering international market
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METHODS OF ENTERING
INTERNATIONAL MARKET
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Need of Entering in International Market?
The need to take any form of business beyond the national boundary arises due to
following reasons:
Expansion of the current business.- Tata-Jaguar-Land Rover
Saturation in the current business.
Saturation in the current market.
Disposal of excess production in the domestic market-Export Firms
Non-availability of a product in the domestic market-Import Firms, raw material,
spares, machinery.
Better business opportunity in foreign market- Better Prices.
Acquisition of better technology from overseas market.
Development of better sales & distribution channels in overseas market.
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International Trade
Licensing
Franchising
Joint Ventures
Acquisitions of Existing Operations
Establishing New Foreign Subsidiaries
1. International Business Methods
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Ways of International business ?
Export & Import Disposal of excess
production Production especially for
foreign market. Fulfillment of basic needs
for industry.
Catering increasing demandof domestic market.
Merger & Acquisitions Acquiring new similar
businesses. Forming a coalition for
specific purpose. Searching for new
business opportunities.
Overseas Expansion
Desire & need of a new market.
Reaping the overseas market for
profit.
Saturation of the domestic or thecurrent market.
Overseas Projects Construction Projects likeroads & bridge.
Consultancy Projects. Turnkey operations Management Contracts
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Resource Deployment
Controland
Fo
reignMarketPrese
nce
IndirectExporting
Direct
Exporting
LicensingFranchising
Joint
Ventures
Acquisition/
Wholly-Owned Subsidiary
Production in the
Home Market
Production Abroad
low high
low
high
STRATEGIC ALLIANCE
Market Entry Methods
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International trade is a relatively conservativeapproach involving exporting and/or importing.
The internet facilitates international trade by enabling
firms to advertise and manage orders through their
websites.
There are several methods by which firmscan conduct international business.
International Business Methods
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Licensing allows a firm to provide its technologyin exchange for fees or some other benefits.
Sprint telecommunications in UK
IGA supermarkets in China & Singapore
Franchising obligates a firm to provide a
specialized sales or service strategy, support
assistance, and possibly an initial investment in
the franchise in exchange for periodic fees.
McDonalds, PizzaHut
International Business Methods
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Firms may also penetrate foreign markets byengaging in a joint venture (joint ownership andoperation) with firms that reside in those markets.
Gen Mills cereals sold throughNestles
distributionnetwork
Acquisitions of existing operations in foreign
countries allow firms to quickly gain control overforeign operations as well as a share of the foreignmarket.
P&G bought bleach company in Panama
International Business Methods
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International Business Methods
Firms can also penetrate foreign markets byestablishing new foreign subsidiaries.
In general, any method of conducting businessthat requires a direct investment in foreignoperations is referred to as a direct foreigninvestment (DFI).
The optimal international business method maydepend on the characteristics of the MNC.
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Factors Influencing Entry Mode
Decision
External Factors Target country market factors
Target country environmental factors Target country production factors, e.g. investment and
exchange control regulation
Home country factors
Internal Factors Company product factors
Company resource/commitment factors
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2. Regional Trade Agreements
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Regional Trade Agreements
Regional trade agreements, sometimes referred to as
RTAs, are increasingly important in global trade.
Essentially, a regional trade agreement involves one ormore countries deciding to liberalize the exchange of
goods and services across their borders.
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RTAs are an important exception to the World
Trade Organization's (WTO) multilateral trade
policy, which does not allow any country to bediscriminated against by another country's
trade regime.
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Preferential Trade Areas
First-level RTAs are also called preferential trade areas. A
preferential trade area is created when two countries lowertheir trade barriers with one another, but do not completely
eliminate them. This type of RTA does not involve any type
of integration of the two countries' labor, capital or money
markets. This type of RTA is not allowed by the WTO, andthey can have a harmful effect on multilateral trade
Types of Regional Trade Agreements
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Free Trade Areas
A second-level RTA is called a free trade area, or FTA. This
involves the complete removal of all trade barriers between two
countries, but still does not involve the integration of labor orcapital markets. In this system, each member of the agreement is
allowed to maintain its trade barriers with third parties not
involved in the agreement. FTAs represent 84 percent of all RTAs.
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Customs Unions
Third-level RTAs are also called customs unions. Under
this type of RTA, the member countries must eliminate
all trade barriers between one another, but also adopt the
same trade policy in regard to other countries not a partof the agreement. This is often referred to as a common
external tariff.
However, under this type of RTA capital and labor
markets remain un-integrated. This type of RTA
represents about 8 percent of all RTAs.
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Common Markets
Fourth-level RTAs are called common markets.
In this type of RTA, all barriers between the
movement of labor and physical capital areremoved. Essentially, this allows the movement
of production factors across borders along with
the products produced.
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3. Introduction to the WTO
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WTO: What is it?
An international Organization:
Organization created by the Marrakesh Agreement
Independent from the United Nation system
Replaces the GATT (created in 1947)
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World Trade Organization-
An international organization designed to
supervise and liberalize international trade.
The WTO came into being on January 1,1995, and is the successor to the General
Agreement on Tariffs and Trade (GATT),
which was created in 1947. Responsible fornegotiating and implementing new trade
agreements, around 150 members of WTO
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WTO Objectives:
Raising standards of living
Ensuring full employment Ensuring growth of real income and demand
Expanding production and trade
Sustainable development
Protection of the environment
WTO: What is its purpose?
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WTO Functions:
Administer and implement the WTO agreements
Forum for negotiations
Administer Settlement of Disputes
Administer Trade Policy Review Mechanism
Technical Assistance to developing countries
WTO: What is its purpose?
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Set of rules
The negotiated legal rules included in the various
WTO agreements cover the following topics:
Trade in Goods
Trade in Services
Trade-related aspects of intellectual property rights
Dispute Settlement Trade Policy Reviews
WTO: How does it Works?
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Ministerial Conference
Secretariat
AppellateBody
DisputeSettlement
Panels
Committees Committees
Goods Council Services Council
TRIPSCouncil
CTD (Development)CTE (Environment)CRTA (Regionalism)
BOPBudgetWG (Accessions,
Investment, competition,GovernmentProcurement)
General CouncilTPRB DSB
Director-General
WTO Structure
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Secretariat
About 750 staff
Headed by a Director-General (DG)
Budget 2009: 190 millions Swiss francs + extra-
budgetary funds (about 24 millions Swiss francs)
WTO: How does it work?
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Decision making
Member-driven organisation
Through consensus making
Consensus when no Member formally object to a
decision
WTO: How does it work?