Chapter 8 Flashcards
Global marketers have to make a multitude of decisions regarding the entry mode which may include:
- the target product/market
- the goals of the target markets
- the mode of entry
- The time of entry
- A marketing-mix plan
- A control system to check the performance in the entered markets
A crucial step in developing a global expansion strategy in the selection of potential target market is the entry decision process.
Target Market Selection
Initial screening procedure include:
- Select indicators and collect data. 2. Determine importance of country indicators.
- Rate the countries in the pool on each indicator.
- Compute overall score for each country.
is the institutional arrangement by which a firm gets its products, technologies, human skills, or other resources into a market.
Entry Mode
Decision Criteria for the mode entry
Market size and growth
Risks
Government Regulation
Competitive Environment
Local Infrastructure
Company Objectives
Need for control
Internal resources, assets and capabilities
Transaction Cost
The most common method of buying and selling goods internationally
Exporting and Importing
Types of Exporting
- Direct Exporting
- Indirect Exporting
- Cooperative Exporting
Why companies Export?
- Gain Experience
- Expand Sales
- Diversify Sales
Advantage of Exports
- Avoids cost of establishing manufacturing operations
- May help achieve experience curve and location economies
Disadvantages of Exports
- May compete with low cost location manufacturers
- Possible high transportation cost
- Tariff Barriers
- Possible lack of control over marketing reps.
Developing an export strategy
STEP 1: Identify a potential market STEP 2: Match needs to abilities
STEP 3: Initiate meetings
STEP 4: Commit resources
practice by which a company sells its products directly to buyers in the target market. Typically, these companies rely on either local sales representatives or distributors.
Direct Exporting
(whether an individual or an organization) represents only its own company’s products, not those of other companies.
Sales Representative
promote those products in many ways, such as by attending trade fairs and making personal visits to local retailers and wholesalers.
Sales Representatives
who take ownership of the merchandise when it enters their country. As owners of the products, they accept all the risks associated with generating local sales.
They sell either to retailers and wholesalers or to end users through their own channels of distribution.
Distributors
It occurs when a company sell its products to intermediaries who then resell to buyers in a target market.
Indirect Exporting
There are several types of intermediaries, the most common include:
agents
export management companies (EMC) and export trading companies (ETC).
Individuals or organizations that represent one or more indirect exporters in a target market
Agents
typically receive compensation in the form of commission on the value of sales.
Agents
A company that exports products on behalf of an indirect exporter.
Export Management Companies
operates contractually, either as an agent (being paid through commissions based on the value of sales) or as a distributor (taking ownership of the merchandise and earning a prof its from its resale.
EMC
A company that provides services to indirect exporters in addition to the activities directly related to client’s exporting activities.
Export Trading Companies
EMC vs ETC
Whereas an EMC is restricted to export related activities, and ETC assists its clients by providing import, export, and counter trade services; developing and expanding distribution channels; providing storage facilities; financing trading and investment projects; and even manufacturing products.
Selling goods and services that are paid for, in whole or in part, with other services is called
Countertrade
Types of Countertrade
- Buyback
- Barter
- Counterpurchase
- Offset
- Switch trading
is the exchange of goods and services directly for other goods and services without the use of money.
It is the oldest form of countertrade.
Barter
is the sale of goods and services to a country that promises to make future purchase of as specific product from that country.
This type of agreement is designed to allow country to earn back some currency that it paid for original imports.
Counterpurchase
is an agreement that a company will offset a hard-currency sale to a nation by making hardcurrency purchase of an unspecified product from the nation in the future. It differs from a counterpurchase in that this type does not specify the type of product that must be purchased, just the amount that will be spent. Such an arrangement gives a business greater freedom in fulfilling its end of a countertrade deal.
Offset
is a countertrade whereby one company sells to another its obligation to make a purchase in a given country.
Switch Trading
is the export of industrial equipment in return for products produced by that equipment. This practice usually typif ies long-term relationships between companies involved.
Buyback
Contractual entry modes
- Licensing
- Franchising
- Management Contracts
- Turnkey projects
is a contractual entry mode in which a company that owns intangible property (the licensor) grants another firm (the licensee) the right to use that property for a specified period of time.
Licensing
is the party that receives a license.
Licensee
party that grants the license.
Licensor
Advantage of licensing
-Low Financial Risk
-Low-cost ways to assess market potential
-Avoid tariffs, NTBs, restrictions on foreign investment
- licensee provides knowledge of local markets
Disadvantage of Licensing
-Limited Market Opportunities/ Profits
- Dependence on Licensee
- Potential conflicts with Licensee
- Possibility of creating future competitor
is an arrangement in which the franchisor gives the franchisee the right to distribute and sell the franchisor’s goods or services and use its business name and business model for a specified period, and possibly covering ageographical area.
Franchising
is the owner of the business that provides the product/service.
The franchisor
the person who receives the rights to use the franchisor’s business name, model, etc.
franchisee
Advantage of Franchising
Less Risk
Training and Support
Brand Recognition
Access to Funding
Disadvantage of Franchising
Cost
Lack of Control
Negative Halo Effect
Growth Challenges
Restriction on Sale
Poor Execution
one company supplies another with managerial expertise for a specific period of time.
Management Contract
Such contracts are commonly found in the public utilities sectors of developed and emerging markets
Management Contracts
Two types of knowledge can be transferred through management contracts
(1) the specialized technical knowledge of managers and
(2) the business management skills of general managers.
When one company designs, constructs, and tests a production facility for a client, the agreement is called .
a turnkey (build-operate-transfer) project
derived from the understanding that the client, who normally pays a f lat fee for the project, is expected to do nothing more than simply “turn a key” to get the facility operating
Turnkey Project
is the outsourcing of part of the manufacturing process of a product to a third-party.
Contract Manufacturing
an outsourcing of certain production activities that were previously performed by the manufacturer to a third-party.
Contract Manufacturing
Pros to Contract Manufacturing
- Low Financial Risk
- Minimize Resources devoted to manufacturing
- Focus firm’s resources on other elements of the value chains
Cons to Contract Manufacturing
- Reduce Control Quality
- Reduce Learning potential
- Potential public relations problems
entail direct investment in plant and equipment in a country coupled with ongoing involvement in the local operation.
Investment Entry Modes
The three common forms of i investment entry:
wholly owned subsidiaries,
joint ventures, and
strategic alliance.
is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.
A joint venture (JV)
Joint Venture Configurations
Forward Integration Joint Venture - Backward Integration Joint Venture - Buyback Joint Venture -
Multistage Joint Venture
In this type of joint venture, the parties choose to invest together in downstream business activities further along in the “value system” that are normally performed by others.
Forward Integration JV
This type of joint venture signals a move by each company into upstream business activities earlier in the value system that are normally performed by others.
Backward Integration JV
is formed when each partner requires the same component in its production process.
It might be formed when a production facility of a certain minimum size is needed to achieve economies of scale but neither partner alone enjoys the demand to warrant building it.
A buyback joint venture
often results when one company produces a good service required by another.
A multistage joint venture
Advantages of JV
- Benefit from local partner’s knowledge
- Shared cost/risk with partner
- Reduced political risk
Disdvantages of JV
- Risk of giving control of technology to partner
- May not realize experience curve or location economies
- Shared ownership can lead to conflict
is a facility entirely owned and controlled by a single parent.
A wholly owned subsidiary
Companies can establish a wholly owned subsidiary either by
(1)forming a new company and constructing entirely new facilities ( such as factories, offices and equipment) or
(2) by purchasing an existing company and internalizing its facilities.
Advantage of Wholly Owned Subsidiaries
Managers have complete control over day-to-day operations in the target market and access to valuable technologies, processes, and other intangible properties within the subsidiary.
A wholly owned subsidiary is a good mode of entry when a company wants to coordinate the activities of all its national subsidiaries.
Disdvantage of Wholly Owned Subsidiaries
They can be expensive undertakings because companies must typically finance investments internally or raise funds in financial markets.
Risk exposure is high because a wholly owned subsidiary requires substantial company resources.
is a company that belongs to another company, which is usually referred to as theparent companyor theholding company.
subsidiary
is used to describe the relationship between two entities wherein one owns less than a majority stake in the other’s stock.
affiliate
is an arrangement between two companies to undertake a mutually beneficial project while each retains its independence
strategic alliance
Advantages of Strategic Alliance
- Speed up the entry into a new market:
- Enhance sales:
- Learn new skills and technology: 4. Divided fixed costs and resources: 5. Innovative products and services: 6. Enhanced distribution channels: 7. Easy to get into the international market:
- Builds the image of the brand:
Disadvantages of Strategic Alliance
- Poor Management of the business alliances:
- Poor Communication:
- Benefits are unequal:
- The risk to reputation:
- Barriers in work culture and language:
- Risks of conflicts:
- Vulnerability:
- Legal issues:
Possible exit strategies
Liquidation or walkaway
Family succession
Selling the business
Taking the company public
Bankruptcy
