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X International Marketing Tentamen > Part III > Flashcards

Part III Flashcards

1
Q

What is an entry mode?

A

An arrangement for the entry of a company’s products and services into a new foreign market

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2
Q

What are the 3 main types of entry mode?

A
  • export
  • intermediate
  • hierarchical
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3
Q

What are the 3 different rules for selecting an entry mode?

A
  • Naive rule
  • Pragmatic rule
  • Strategy rule
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4
Q

What is the naive rule?

A

the decision-maker uses the same entry strategy for all countries, it ignores markets’ heterogeneity

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5
Q

What is the pragmatic rule?

A

decision-maker uses a workable entry mode for each foreign market. Start with a low-risk entry mode. Not all potential alternatives are investigated

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6
Q

What is the strategy rule?

A

all alternative entry modes are systematically compared and evaluated before any choice is made

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7
Q

How do products move to another country using the export mode?

A

HQ (production company) > agent/importer/distributor > retail chain > End customer

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8
Q

How do products move to another country using the intermediate mode?

A

HQ (production company A) + HQ (production company B) > Joint venture (new firm C) > Retail chain > End customer

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9
Q

How do products move to another country using the hierarchical mode?

A

HQ Production company > Foreign sales subsidiary > Retail chain > End customer

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10
Q

What are transaction costs?

A

The ‘friction’ between buyer and seller that is explained by opportunistic behavior

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11
Q

What is opportunistic behavior?

A

Self-interest with guile, misleading, distortion, disguise, and confusion

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12
Q

What is transaction cost analysis?

A

this concludes that if the ‘friction’ between buyer and seller is higher than through an internal hierarchical system the firm should internalize

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13
Q

What are externalizing leads to transaction costs? (4)

A
  • search costs
  • contracting costs
  • monitoring costs
  • enforcement costs
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14
Q

What is externalization?

A

doing business through an external partner (importer, agent, distributor)

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15
Q

What is internalization?

A

integration of an external partner into one’s own organization

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16
Q

What are elements that may result in conflicts and opportunistic actions? (5)

A
  • Stock size of the intermediary
  • Extent of technical and commercial service to be carried out by the export intermediary
  • Division of marketing costs between producer and the export intermediary
  • Fixing prices
  • Fixing of commissions to agents
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17
Q

What is opportunistic behavior from the export intermediary? (2)

A
  • Exaggerating advertising and consumer service costs

* Manipulate information on market size and competitor prices to obtain lower ex-works prices from the product

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18
Q

What is opportunistic behavior from the producer?

A
  • Threatening to use different intermediaries or change entry mode
  • Tap the export intermediary for the market knowledge and customer contracts in order to internalize (do it themselves)
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19
Q

What 4 factors influence the entry mode?

A
  • Internal factors
  • External factors
  • Desired mode factors
  • transaction-specific factors
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20
Q

What are internal factors that influence the entry mode? (3)

A
  • Firm size
  • International Experience
  • Product/service
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21
Q

What are external factors that influence the entry mode? (6)

A
  • Sociocultural distance between home country and host country
  • Country risk / demand uncertainty
  • Market size and growth
  • Direct and indirect trade barriers
  • Intensity of competition
  • Small number of relevant export intermediaries available
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22
Q

How is ‘size’ an internal factor that influences the entry mode?

A

Size is an indicator of the firm’s resources availability. Increasing resources = increased international involvement.

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23
Q

How is ‘international experience’ an internal factor that influences the entry mode?

A

International experience reduces the costs and uncertainty of serving a market.
It increases the probability of firms committing resources to foreign markets.

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24
Q

How is the ‘product/service’ an internal factor that influences the entry mode?

A

Products with high value/ weight ratio are typically used for direct exporting.
Soft services/products are more likely to choose a hierarchical entry mode than hard services

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25
Q

How is the ‘sociocultural distance between the home country and host country’ an external factor that influences the entry mode?

A

The greater the sociocultural difference between the countries –> firms will favor entry modes that involve relatively low resource commitments and high flexibility

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26
Q

How is the ‘country risk/demand uncertainty’ an external factor that influences the entry mode?

A

Firm risks inventory, receivables, exchange rate risk, political risk. When there is a high country risk the firm will favor more flexible entry modes that have low resource commitments

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27
Q

How are the ‘market size and growth’ an external factor that influences the entry mode?

A

A large country will have a higher growth rate and management will be more likely to commit more resources and consider a wholly-owned sales subsidiary

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28
Q

How are the ‘direct and indirect trade barriers’ external factors that influence the entry mode?

A

Tariffs or quotas on the import of foreign goods and components favor the establishment of local production or assembly operations

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29
Q

How is ‘the intensity of competition’ an external factor that influences the entry mode?

A

The greater the intensity of competition in host market, the more the firm will favor entry modes that involve low resource commitments

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30
Q

How is the ‘small number of relevant intermediaries available’ an external factor that influences the entry mode?

A

when there is a small number bargaining firms will favor use of hierarchical modes in order to reduce the scope for opportunistic behavior

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31
Q

What are the desired mode characteristics that influence the entry mode? (3)

A
  • Risk-averse
  • Control
  • Flexibility
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32
Q

How is ‘risk-averse’ a desired mode characteristic that influences the entry mode?

A

Decision-makers that are risk-averse prefer export modes or intermediate modes because these typically entail low levels of financial and management commitment

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33
Q

How is ‘control’ a desired mode characteristic that influences the entry mode?

A

when there is a low level of control there will be minimal resource commitment

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34
Q

How is ‘flexibility’ a desired mode characteristic that influences the entry mode?

A

hierarchical modes are the least flexible and often need for a large investment of equity

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35
Q

What is the transaction-specific factor that influences the entry mode?

A

Tacit nature of know-how

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36
Q

What does tacit mean?

A

understood or implied without being stated

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37
Q

What are the 3 major export channels?

A
  • Indirect export
  • Direct export
  • Cooperative export
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38
Q

What is indirect export?

A

Manufacturing firm does not take direct care of exporting but another domestic company performs these activities without the firm’s involvement in foreign sales

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39
Q

What is direct export?

A

The producing firm takes care of exporting activities and is in direct contact with the first intermediary in the foreign market, firm’s involvement in foreign sales to distributors

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40
Q

What is cooperative export?

A

Involves collaborative agreements with other firms concerning the performance of exporting functions

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41
Q

What does partner mindshare mean?

A

the level of mindshare that the manufacturer’s product occupies in the mind of the export partner

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42
Q

What are the 3 drivers of mindshare?

A
  • commitment and trust
  • collaboration
  • mutuality of interest and common purpose
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43
Q

What are the 5 main entry modes for indirect exporting?

A
  • export buying agent
  • Broker
  • Export management company
  • Trading company
  • Piggyback
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44
Q

What is an export buying agent?

A

a representative of foreign buyers who is located in the exporter’s home country. The agent offers services to foreign buyers such as identifying potential sellers and negotiating prices

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45
Q

What is the function of a broker?

A

to bring a buyer and seller together. The broker is a specialist in performing the contractual function and does not handle the products themselves

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46
Q

What is an export management company/export house?

A

Are specialist companies set up to act as the ‘export department’ for a range of non-competing companies

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47
Q

What are the advantages of an export management company? (3)

A
  • Export management companies can spread the selling and administration costs over more products and companies.
  • They deal with the necessary documentation and their knowledge of foreign markets is useful
  • Allow companies to gain wider exposure of their products in foreign markets
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48
Q

What are the disadvantages of an export management company? (4)

A
  • Selection of markets may be made on the basis of what is best for the EMC rather than for the company
  • When paid in commission EMCs might focus on short term sales
  • EMCs may be tempted to carry too many product ranges
  • EMCs may carry competitive products
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49
Q

What is the role of a trading company?

A

to find a buyer quickly for products taken in exchange

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50
Q

What areas do trading companies play a role in? (8)

A
  • Shipping
  • Warehousing
  • Finance
  • Planning
  • Resource development
  • Insurance
  • Consulting
  • Real estate
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51
Q

What is the piggyback method?

A

Making use of someone else’s international distribution organization. Most often an SME wants to export (rider) and deals which a larger company (carrier) that already operates in foreign markets.

52
Q

What is the piggyback method typically used for?

A

unrelated companies that are non-competitive but related and complementary

53
Q

What is an advantage of the piggyback method to the carrier?

A

Can broaden its product range or fill a gap in their product line without having to develop or manufacture new products

54
Q

What is a disadvantage of the piggyback method to the carrier?

A

It is not certain if the rider maintains the quality of the product that is sol

55
Q

What is an advantage of the piggyback method to the rider?

A

They can export without having to establish their own distribution systems

56
Q

What is a disadvantage of the piggyback method to the rider?

A

They have to give up control over the marketing of its products

57
Q

What does direct export mean?

A

The manufacturer sells directly to an importer, agent or distributor located in the foreign target market

58
Q

What is the definition of distributors?

A

Independent companies that stock the manufacturer’s product. They have the freedom to choose their customers and price

59
Q

What is the definition of agents?

A

An independent company that sells on to customers on behalf of a manufacturer

60
Q

Which 5 sources may help a firm find an intermediary?

A
  • Potential customers
  • Recommendations from institutions like trade associations and chambers of commerce
  • Commercial agents
  • Poaching a competitor’s agent
  • Advertising in trade papers
61
Q

3 principles that apply to the law of agency in all nations

A
  • An agent cannot take delivery of the principal’s goods at an agreed price and resell them for a higher price without permission
  • Agents must maintain strict confidentiality
  • Principal is liable for damages to 3rd parties for wrongs committed by an agent
62
Q

In which two groups can agent incentives be grouped into?

A
  • High powered incentives (HPI)

* Low powered incentives (LPI)

63
Q

What does high-powered incentives mean?

A

Immediate, typically monetary, rewards for accomplishing specific tasks, bonus payments for exceeding sales quota, rewards for volume sold (short-term bonding)

64
Q

What does low-powered incentives mean?

A

Motivators, often non-monetary, do not involve immediate rewards, enable the agent to earn increased profits through continued participation in the relationship (long-term bonding)

65
Q

What two factors are the international distribution partners evaluated on?

A
  • Performance of the distributor partner

* General attractiveness of the market where the partner operates

66
Q

What are export marketing groups?

A

groups of mostly SMEs attempting to enter export markets for the first time.

67
Q

What is a motive for SMEs to join a marketing group?

A

the opportunity of effectively marketing a complementary product program to larger buyers.

68
Q

What is an advantage of a marketing group?

A

Shared costs and risks of internationalization. Provide a complete product line or system sales to the customer

69
Q

What is a disadvantage of a marketing group?

A

The risk of unbalanced relationships. Participating firms are reluctant to give up their complete independence

70
Q

Why are intermediate entry modes distinguished from export modes?

A

because they are primarily vehicles for the transfer of knowledge and skills between partners in order to create foreign sales

71
Q

What is contract manufacturing?

A

Manufacturing is outsourced to an external partner specialized in production and production technology

72
Q

What is licensing?

A

A certain right is given e.g. the right to manufacture a certain product based on a patent against some agreed royalty

73
Q

Why is contract manufacturing necessary?

A

to control product quality and meet the company’s standards

74
Q

What are the two main approaches to licensing?

A
  • ‘Stand-alone’ licensing agreement

* ‘Licensing plus’ licensing agreement

75
Q

What does the stand-alone licensing agreement include?

A

serves primarily to specify the legal basis for the transfer of rights and enable the licensor to earn royalties. License gee can finance the licensor’s ongoing inventive activities

76
Q

What does the licensing plus licensing agreement include?

A

Licensor uses license as a means not only to extracted royalties but also to support eh longer-term relationship with the licensee

77
Q

What is a licensing agreement?

A

An arrangement wherein the licensor gives something of value to the license in exchange for certain performance and payments for the license

78
Q

What is over-licensing?

A

Undermine a product by allowing too many products under a license

79
Q

What is cross-licensing?

A

A mutual exchange of knowledge and/or patents

80
Q

What rights can a license give you? (5)

A
  • Right to use a patent covering a product or process
  • Right to use manufacturing know-how
  • Right to use technical advice and assistance
  • Right to use marketing advice and assistance
  • Right to use trademark/trade name
81
Q

What is lump sum not related to payment? (related to licensing)

A

sum paid at the beginning of an agreement

82
Q

What is minimum royalty? (related to licensing)

A

guarantee that at least some annual income will be received by licensor

83
Q

What is running royalty? (related to licensing)

A

percentage of the normal selling price or a fixed sum of money for units output

84
Q

What are reasons for licensing out (licensor)? (3)

A
  • Concentrating on core competences
  • Not enough resources for foreign investment
  • Product reaches end of life cycle in home country
85
Q

What are reasons for licensing in? (3)

A
  • Very often initiated by the licensee
  • Can boost the profit on the short-term but affect long-term profits
  • Lower development costs
86
Q

What is franchising?

A

Here the franchisor gives a right to the franchisee against payment e.g. right to use total business concept, including use of trademark, against some agreed royalty

87
Q

What are the two main types of franchising?

A
  • Product and trade name franchising

* Business format franchising

88
Q

What is product and name franchising?

A

Similar to trademark licensing, supplier makes contracts with dealers to buy or sell products or product lines

89
Q

What is business format franchising?

A

Market entry mode that involves a relationship between entrant (franchisor) and a host country entity, in which the former transfers under contract, a business package or format

90
Q

TRUE or FALSE

In direct franchising, there is a sub franchisor/ master franchisee involved?

A

FALSE

this master franchisee is involved in indirect franchising

91
Q

What is the meaning of joint venture?

A

An equity partnership typically between two partners. It involves two ‘parents’ creating the ‘child’ (the joint venture acting in the market)

92
Q

What are reasons to set up a joint venture? (3)

A
  • Technology or management skills can lead to new opportunities
  • Quicker market entry
  • Restriction on foreign owenership
93
Q

What are the two types of joint ventures?

A
  • Contractual non-equity joint venture

* Equity joint venture

94
Q

What is a contractual non-equity joint venture?

A

Two or more companies form a partnership to share the costs of investment, risks, and profit

95
Q

What is an equity joint venture?

A

Creation of a new company in which foreign and local investors share ownership and control

96
Q

What is a strategic alliance?

A

A non-equity cooperation

97
Q

What are the 3 types of value chain partnerships?

A
  • Upstream based collaboration
  • Downstream based collaboration
  • Upstream/downstream based collaboration
98
Q

What is an upstream-based collaboration?

A

Two companies work together on research and development and/or production

99
Q

What is a downstream-based collaboration?

A

Two companies work together on marketing, distribution, sales and/or services

100
Q

What is an upstream/downstream based collaboration

A

Two companies have different but complementary competencies at each end of the value chain

101
Q

What are the 7 stages in the joint-venture formation?

A
  1. Joint-venture objectives
  2. Cost-benefit analysis
  3. Selecting partners
  4. Develop business plan
  5. Negotiation of joint venture agreement
  6. Contract writing
  7. Performance evaluation
102
Q

What do you do during the joint-venture objectives step in the joint-venture formation process?

A

Establish strategic objectives of the joint venture and specify time period for achieving objectives
(e.g. entering new markets, reducing manufacturing costs, developing and diffusing technology)

103
Q

What do you do during the cost-benefit analysis step in the joint-venture formation process?

A

Evaluate advantages and disadvantages of joint venture compared with alternative strategies for achieving objectives in terms of: financial commitment, synergy,k management commitment, risk reduction, control, long-run market penetration, other advantages

104
Q

What is an X coalition?

A

The partners in the value chain divide the value chain activities between them

105
Q

What is Y coalition?

A

Each partner contributes with complementary product lines or services and takes care of all value chain activities within its own product line

106
Q

What do you do during the selecting partners step in the joint-venture formation process? (5)

A
  • Make a profile of desired features of candidates
  • Identifying joint-venture candidates and drawing up a shortlist
  • Screening and evaluating possible joint-venture partners
  • Initial contact/ discussions
  • Choice of partner
107
Q

What do you do during the develop a business plan step in the joint-venture formation process?

A

Achieve a broad agreement on different issues like ownership, management, production, and marketing

108
Q

What do you do during the negotiation of the joint venture agreement step in the joint-venture formation process?

A

Final agreement on the business plan

109
Q

What do you do during the contract writing step in the joint-venture formation process?

A

Incorporation of agreement in legally binding contract, allowing for subsequent modifications to the agreement

110
Q

What do you do during the performance evaluation step in the joint-venture formation process?

A

Establish control systems for measuring joint venture performance

111
Q

What is a hierarchical mode?

A

The firm owns and controls the foreign entry mode / organization

112
Q

What are domestic-based sales representatives?

A

This sales representative resides in the home country of the manufacturer and travels abroad to perform the sales function

113
Q

What does a foreign branch mean?

A

An extension of a legal part of the manufacturer (often called a sales office). Taxation of profits takes place in the manufacturer’s country

114
Q

What is a subsidiary?

A

A local company owned and operated by a foreign company under the laws and taxation of the host country

115
Q

What are two reasons for choosing sales subsidiaries?

A
  • Possibility of transferring greater autonomy, control and responsibility to these subunits, being close to the customer
  • Tax advantage: establish subsidiaries in countries with a lower business income tax than in the home country
116
Q

How is the salary of an agent determined?

A

Based on a contract with minimum annual commission, a percentage of the annual sales

117
Q

How is the salary of a subsidiary determined?

A

A fixed salary per annum, but will be paid a bonus if they fulfill certain sales objectives

118
Q

What are the 4 main reasons for establishing some kind of local production?

A
  • To defend existing business
  • To gain new business
  • To save costs
  • To avoid government restrictions
119
Q

What are the 4 subsidiary growth and integration strategies?

A
  • Integration
  • Separation
  • Assimilation
  • Marginalization
120
Q

What happens in the subsidiary growth strategy Integration?

A

Values of the mother company are maintained in the subsidiary and the subsidiary develops high level of external contact

121
Q

What happens in the subsidiary growth strategy Separation?

A

The culture of the mother company is maintained but the subsidiary limits its external embeddedness to local actors, especially suppliers

122
Q

What happens in the subsidiary growth strategy Assimilation?

A

Lack of mother company culture maintenance and a high level of external embeddedness, subsidiary acts more on its own and assimilates into the local region with its own cultures and values

123
Q

What happens in the subsidiary growth strategy Marginalization?

A

Head quarters culture is not established in the subsidiary and the subsidiary also limits its external embeddedness

124
Q

What are region centers?

A

The regional headquarters will usually stimulate and coordinate the sales in the whole region

125
Q

What 3 things does the coordination role consist of?

A
  • country and business strategies are mutually coherent
  • one subsidiary does not harm another
  • adequate synergies are fully identified and exploited across businesses and countries
126
Q

What are 3 strategic motives that affect the head quarters location?

A
  • Mergers and acquisitions
  • Internationalization of leadership and ownership
  • Strategic renewal

X International Marketing Tentamen (5 decks)

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