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Marketing Internacional > 4 - penetration in foreign markets > Flashcards

4 - penetration in foreign markets Flashcards

1
Q

There are 3 generic forms of entry into foreign markets:

A
  1. Exporting
  2. Contractual agreements
  3. Foreign direct investment
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2
Q

Factors that influence the choice of the way of entering foreign markets:

A
  1. internal factors
    - firm size & international experience
  2. external factors
    - sociocultural distance between home country & host country
    - country risk/demand uncertainty
    - market size & growth
    - direct & indirect trade barriers
    - intensity of competition
    - small number of relevant export intermediaries available
  3. desired mode characteristics
    - risk averse
    - control
    - flexibility
  4. transaction-specific behaviour
    - tacit nature of know-how
    - opportunistic behaviour
    - transaction costs
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3
Q

The scale of entry in a foreign market

A
  1. entering a market on a large scale requires more significant resources
  2. entering a market on a small scale allows business owners to learn about the new market and limit risk
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4
Q

The more relevant and critical factor in the choice of foreign market entry is

A

the degree of control the firm wants to maintain over the venture

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5
Q

TYPES OF CONTROL MODES

A
  1. LOW CONTROL ENTRY MODES
  2. MODERATE CONTROL ENTRY MODES
  3. HIGH CONTROL ENTRY MODES
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6
Q

Low-control modes:

A

exporting, countertrade and global sourcing

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7
Q

Moderate control modes:

A

contractual relationships such as licensing, franchising and collaborative agreements

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8
Q

High-control modes:

A

equity joint ventures and foreign direct investment.

They require substantial resource commitments by the focal firm. It is physically tied to the foreign market for the long term.

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9
Q

Control is related with…

A

the resource commitment,
the flexibility and
the risk.

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10
Q

In addition to control, the specific characteristics of the product can strongly influence the choice of foreign market entry modes:

A
  • Fragility: Fragile and perishable goods are expensive and impractical to ship long distances.
  • Perishability
  • Ratio of value to weight: Products with a low value/weight ratio are expensive to ship long distances.
  • Complex products require significant support and after-sales services.
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11
Q

On Indirect exporting:

A

The firm sells its products in foreign markets through other companies.

It is the simplest form of exporting.

  • ADVANTAGES: This alternative is the one that presents the least risk to the exporting company.
  • DISADVANTAGES: The exporting company has less control of operations and a very high dependence on its intermediaries.
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12
Q

On Direct exporting:

A
  • assumes the company itself develops most of the activities related to the export process
  • implies greater control by the company, as well as greater investment of resources, both financial and human
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13
Q

Trading company

A
  • companies specialised in a large number of foreign markets, maintaining a wide network of connections in them
  • once they have located the potential suppliers, they put in contact with the buyers, they are responsible for carrying out the relevant administrative procedures
  • Japan is the country in which trading companies have the greatest presence
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14
Q

Two common types of contractual entry modes:

A

LICENCING: it is an arrangement in which the owner of intellectual property grants another firm the rights to use that property
FRANCHISING: it is an advanced form of licensing in which one firm allows another the right to use an entire business system in exchange for fees, royalties or other forms of compensation

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15
Q

Licencing

A

specifies the nature of the relationship between owners of intellectual property, the licensor, the user of the property, the licensee

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16
Q

On joint ventures

A
  • it’s a partnership between 2 or more companies to develop a business
  • decision-making, benefits and risk are shared based on the proportional contribution of each parties
  • the local partner contributes the use of its factory or other facilities, knowledge of the local language & culture, market navigation know-how, useful connections to the host country government
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17
Q

Advantages of joint ventures

A
  • share costs and risks of entry
  • reality of market is checked
  • take advantage of relationships the partner has with other companies
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18
Q

Disadvantages of joint ventures

A
  • difficulties in selecting a suitable partner
  • possibility of friction between the parties due to cultural differences
  • possibility of opportunistic behaviour by partner
19
Q

FDI has several key features

A
  1. represents substantial resource commitment
  2. implies local presence & operations
  3. firms invest in countries that provide specific comparative advantages
  4. entails substantial risk & uncertainty
  5. direct investors must deal more intensively with language & cultural variables in the host market
20
Q

Modes of foreign direct investment

A
  1. Joint venture
  2. Acquisitions
  3. Greenfields
21
Q

Foreign direct investment is

A

the most advanced & complex & riskiest foreign entry modes: involves establishment of manufacturing plants, marketing subsidiaries or other facilities

22
Q

advantages & disadvantages of DIRECT EXPORTING

A

ADVANTAGES: greater sales potential, greater possibility for benefits, important learning and knowledge process

DISADVANTAGES: higher required investment, less flexibility, greater risk assumed, greater resources needed
- although the company controls the evolution of the flow of exports, contact with foreign buyers can be carried out through intermediaries

23
Q

alternatives depending on risk - EXPORT RISKS

A
  1. Exchange Rate Fluctuations
  2. High inflation
  3. Revolution or wars
  4. Exchange controls
  5. Not determining if your product will sell
  6. Difficulties to obtain export financing
  7. Transfer risk
  8. Sovereign risk
24
Q

alternatives depending on risk - LICENCING RISKS

A

1- A licensee can become the licensor’s competitor
2- The licensee may suddenly ask for contributions
3- Loss of control of the licensee manufacture and marketing operations and practices leading to loss of quality
4- having the trademark and reputation ruined by an incompetent partner
5- Lower income than in other entry modes

25
Q

alternatives depending on risk - JOINT VENTURE RISKS

A
  1. Not finding the right partner
  2. The local partner might gain the know-how to produce its own competitive product
  3. Lack of clarity regarding the obligations and responsibilities of each of the partners
  4. Clash in the management styles and techniques of different partners, leading to frequent conflict
  5. Imbalance of the capital and the resources invested by the partners
  6. Ineffective resolution of conflicts
26
Q

alternatives depending on risk - FDI RISKS

A
  1. The transfer risk
  2. The impossibility of converting currencies
  3. The exchange rate risk
  4. The risk of war or political violence
  5. The sovereign risk
  6. Confiscation, Expropriation and Nationalisation risk
27
Q

Global integration

A

Recognising the similarities between international markets and integrating them into the overall global strategy

28
Q

Forces for ‘global coordination/integration’

A
  1. removal of trade barriers
  2. global accounts/customers
  3. relationship management/network organisation: As we move towards global markets it is becoming increasingly necessary to rely on a network of relationships with external organisations
  4. standardised worldwide technology
  5. worldwide markets
  6. ‘global village’: The term ‘global village’ refers to the phenomenon in which the world’s population shares commonly recognized cultural symbols.
  7. worldwide communication
  8. global cost drivers: These are categorized as ‘economies of scale’ and ‘economies of scope’.
29
Q

5 MISTAKES TO AVOID WHEN GOING GLOBAL

A
  1. NOT HAVING A STRATEGY/PLAN
  2. NOT DOING ENOUGH RESEARCH ON YOUR TARGET MARKET
  3. UNDERESTIMATING THE IMPORTANCE OF CULTURAL DIFFERENCES
  4. GOING AT IT ALONE (& ignoring key local players)
  5. EXPECTING A ROI TO SOON
30
Q

on NOT HAVING A STRATEGY/PLAN

A
  • COMPANY:
    Is our company ready to expand to foreign markets? Is our business stable enough? What are our main weaknesses? Is there demand for our good/service in this country?
    - TARGET MARKET
    What elements make a foreign market attractive for our company? Which markets should we target? Are we capable of entering several markets at once?
    - ORGANIZATION
    What kind of organizational and operational processes do we need to put in practice? Do we have the necessary managerial skills?
    - FINANCING
    How will we finance our expansion? Do we have the required resources to manage our international and domestic activities?
31
Q

on NOT DOING ENOUGH RESEARCH ON YOUR TARGET MARKET

A

✦LOCAL INDUSTRY TRENDS
✦KEY PLAYERS: competitors, suppliers and partners
✦MARKET DYNAMICS: distribution channels, marketing channels
✦CULTURE & traditions
✦REGULATIONS: taxes, legal customs

32
Q

on UNDERESTIMATING THE IMPORTANCE OF CULTURAL DIFFERENCES

A

assume that your business model can be duplicated across international markets without adapting to local marketing channels, consumer behaviour and product references

33
Q

on EXPECTING A ROI TO SOON

A

LONG TERM STRATEGY

expanding to new markets involves adapting to the new country, building new relationships and reputation, as well as analyzing and understanding the dynamics of the local business environment

34
Q

different entry alternatives

A 
Direct exporting
Indirect exporting
Licensing
Franchising
Partnering
Joint ventures
Buying a company
35
Q

Draw graph of entry alternatives based on degree of ownership & control

A

.

36
Q

indirect exporting

A

Indirect exporting involves an organization sells to an intermediary in its own country. This intermediary then sells the goods to the international market and takes on the responsibility of organizing paperwork and permits, organizing shipping and arranging marketing.

37
Q

direct exporting

A

Direct exporting involves an organization selling goods directly to a customer in an international market. Organizations can sell to a wide range of customers, some of whom act as intermediaries in the target market.

38
Q

licencing and franchising

A

This chapter is best exemplified through the McDonald’s chain, which in some parts of the world acts as a franchise while in some parts of the world, someone else sells their brand under their license. This is also the case in Croatia, where McDonald’s gave his license to a company claiming to be their brand in Croatia. In that way, they have less authority, less cost, less profit, but also less risk. While in some countries they independently represent their franchise, they depend entirely on themselves and all the risk of doing business is on them, positive or negative.

39
Q

licencing

A

The basic definition of trademark licensing is rather straightforward, if somewhat legalistic. A license is an agreement through which a licensee leases the rights to a legally protected piece of intellectual property from a licensor — the entity which owns or represents the property — for use in conjunction with a product or service.

40
Q

franchising

A

Franchising is the practice of using another firm’s successful business model. For the franchiser, the franchise is an alternative to building “chain stores” to distribute goods that avoids the investments and liability of a chain. The franchiser’s success depends on the success of the franchisees. The franchisee is said to have a greater incentive than a direct employee because he or she has a direct stake in the business.

41
Q

contract manufacturing

A

Under contract manufacturing, a company doing international marketing contracts with firms in foreign countries to manufacture or assemble the products while retaining the responsibility of marketing the product.

42
Q

joint venture

A

Business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task

43
Q

greenfield investment

A

FDI in which parent company creates a subsidiary in a different country, building its operations from the ground up

44
Q

acquisition

A

Corporate transaction where one company purchases a portion or all of another company’s shares or assets

  • horizontal (Disney-Pixar)
  • vertical (Ikea)
  • concentric (Sony)
  • conglomerate

Marketing Internacional (8 decks)

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