Chapter 13- Entry and Expansion Flashcards
Why is managerial commitment important?
Commitment from management during international expansion is extremely important because foreign market penetration requires long term commitment and dedication.
What is an unsolicited order?
an unplanned business opportunity that arises from the results of another firm’s activities.
What are accidental exporters?
They are companies that unintentionally export their product unintentionally (participate in international trade), due to active outside demand rather than gradual internal planning.
What are the two types of motivations to go abroad?
Proactive and reactive. Proactive motivations include searching to take advantage of new foreign markets by selling your unique product, reaching economies of scale, taking advantage of tax benefits, entering a place where you will have a technological advantage, profit advantages. Reactive motivations are the result of outside environmental pressures that force a company to expand internationally. These include competition, shrinking and/or saturated domestic market, overproduction, proximity to customers and ports. Those companies who participate in foreign trading due to proactive motivations are usually more successful.
What is psychological distance?
When countries seem further than they actually are. A measure of physical and mental distance. i.e. canada seems closer than mexico.
What are the differences between indirect and direct involvement? Which one is usually more beneficial to the company?
Direct involvement involves the firm directly dealing with foreign customers or firms. Indirect involvement involves using an intermediary to handle international relationships. Direct involvement is more cost beneficial (cuts out the middle man). Many firms can accidentally become indirect exporters if their product is being bought and then sold in a different country.
What is the transaction cost theory?
The idea that transactions (particularly business exchanges) takes resources and causes expenses. This theory explains why direct involvement makes more sense from a cost perspective.
What are EMCs?
An EMC is an Export Management Company, which is a domestic company that specializes in international business services acting either as a commission representative (agent) or a distributor.
What is an agent in an EMC?
An agent is someone who develops sales and business strategies for companies looking to expand internationally. They help a company expand internationally. Their goal is to increase sales volume since they are paid by commission.
What is a distributor?
A distributor works for EMCs and is an intermediary for a firm looking to purchase from another firm abroad. The distributor takes title for the goods and assumes the selling risk. Therefore, their goal is to sell (distribute) those products at as high of a profit margin possible.
Why would a domestic firm use a distributor?
Greatly reduces risk for the domestic firm because the distributor assumes all risk and title for those goods so the domestic firm basically has a guaranteed sales base whether or not all of the firm’s products are sold abroad. However, by using a distributor the firm is not establishing a good long-term goal by missing out on the opportunity to gain international sales experience.
What is a ETC?
ETC is an Export Trading Company. Lots of companies band together to make foreign trading easier. Lessen the burden of each company. Small and medium-sized companies can penetrate foreign markets with much less cost. Banks are also allowed to provide capital to an ETC leading to more transactions and easier receipt of title of good.
What is a licensing agreement?
The agreement of firm to another allowing them to use their intellectual property in exchange for compensation, called a royalty?
Why is licensing an appealing form of international business?
It is low risk, and does not require the company to actually enter a foreign country. Opportunity to exploit research that has already been done. And earn profits through royalties. However in the long run, if the company wants to enter a foreign market they will face competition from the companies that have licensed their technology.
What is franchising and what are some of the problems with it?
Franchising is a form of licensing that gives an individual ownership of a company’s products and the exclusive right to sell those products in a specific area. With international franchising government cooperation is very important as piracy is a large issue. The franchisee must strike a balance between creating a level of standardization to be globally recognized, while catering to the local market and culture.
