7 Flashcards
Why do companies opens up in other markets and become international? (5 things)
For the commercial traction, decrease operating cost, boost competitiveness, diversifying risks (having many operations and target markets) and prestige.
Factors which determines the final choice of entry form into a forigen market
Control, risks, and Resources and capabilities.
Control enables organization to
manage, adjust, coordinate its market activities and operations. More control an organization has more authority over decision and performance they have.
Risk in the market is dependent on
the market uncertainty. The higher the uncertainty the higher the risk.
Resources and capabilities determine the organizations entry strategy, in what way?
Less resources they have, lower the degree of resource commitment they get.
Market entry strategies from low involvement and low cost too high involvement and high cost. (5 types)
Exporting, licencing, contract manufacturing, joint venture, & equity stake or acquisition
Choice of startegy depends on
- Vision
- Attitude toward risk
- Available investment capital
- How much control is desired
Advantages of exporting
The ease of implementing the strategy.
Risks are minimal
Most common overseas entry approach for small firms.
It’s a good start and can be used in the future.
Modes of exporting
Indirect, direct and piggyback export
Direct vs indirect export?
Direct exporting does not include intermediatireies (someone not connected to the company) while indirect does.
Piggybacking
A forms of cooperative exports. The rider takes advantage of the carrier’s foreign market experience and distribution channel.
Indirect Export Intermediaries include
Export merchant, Export agent and Export management companies
Licensing is a
A contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation: Patent, Trade secret, Brand name, or Product formulations.
Advantages to Licensing
- Provides additional profitability with little initial investment
- Provides method of circumventing tariffs, quotas, and other export barriers
- Attractive ROI (return on investments)
- Low costs to implement
- Licensees have autonomy to adapt products to local tastes
Disadvantages to Licensing
- Limited market control
- Returns may be lost
- The agreement may be short-lived
- Licensee may become competitor
- Licensee may exploit company resources
SPECIAL LICENSING ARRANGEMENTS (2 types)
Contract manufacturing & Franchising
Franchising
Contract between a parent company-franchisor and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies.
Investment is
Partial or full ownership of operations outside of home country. Forms of investment are joint ventures Minority or majority equity stakes & Acquisition.
Joint Ventures
Entry strategy for a single target country in which the partners share ownership of a newly-created business entity. So Firm A and Firm B, together creates Joint venture C
Joint Ventures advantages
- Allows for risk sharing-financial and political
- Provides opportunity to learn new environment
- Provides opportunity to achieve synergy by combining strengths of partners
- May be the only way to enter market given barriers to entry
Joint Ventures disadvantages
*Requires more investment than a licensing agreement
* Must share rewards as well as risks
* Requires strong coordination
* Potential for conflict among partners
* Partner may become a competitor
Equity Stake or Full Ownership
An equity stake is an investment. Full ownership means that the investor has 100 percent control.
Minority ˂ 50%, Majority˃ 50%
Strategic alliances may be a
contractual arrangement whereby two or
more partners agree to cooperate with each
other and use each partner’s resources and
expertise to penetrate a particular market.
Market Expansion Strategies depends on the choice of to
Seek new markets in existing countries and seek new country markets for already identified and served market segments.
