International entry modes http://cnettv.cnet.com/tata-nano/9742-1_53-50000141.html The five-phase relationship model Types of entry modes nExporting (indirect and direct) nInermediate entry modes nHierarchical entry modes intrnationalmarketingimg EXPORTING n- number and type of intermediaries, functions performed – full- service high specialization (clearing goods) PARTNER MINDSHARE (= the measurement of the strength of a relationship between manufacturer and export-partner in terms of trust, commitment, and cooperation … n - drivers: (1) commitment and trust; (2) collaboration; (3) mutuality of interest and common purpose + product, brand and profit n3 major types: a) indirect export – through usually another domestic company – export house, trading company that performs exporting activities b) direct export – company performs exporting activities (majority of or all) itself c) cooperative export – collaborative agreements with other organizations – some exp. activities n n n n Export modes C10NF001 Indirect export modes nLimited international expansion objectives nMinimal resources nGradual market entry nTest of market n n nLittle or no control over the way the product is marketed nNo contact nLittle or no information 1.Export buying agent (export commission house) – the overseas customer's hired purchasing agent operating on basis of orders received from the customer/buyer – scan domestic market 2.Broker – to bring a buyer and seller together; performs a contractual function; does not actually handle the products sold or bought; the broker is paid a commission (cca 5%); commodity specialist 3.Export management company (export house) – „export department“ for a range of companies; conduct business in the name of each manufacturer it represents; knowledge of the market!!!; specialization by geographical area, product or customer type; paid a commission; - competitive products, interest in high profitable products, lower specialization… 4. Trading company – colonial times, Africa and East Asia, in Japan over 50% of whole export; barter – or counter trade, financing 5. Piggyback – non-competitive but related and complementary products; SME with a larger eporting company – full utilization of export facilities of a larger company Direct export modes n DISTRIBUTOR nindependent company that stocks the manufacturer's product nIt has freedom to choose own customer and price nProfit from the differences between seller and buyer price nExclusive representatives = sole distributors in a country nBuy on their own accounts nUsually represents the manufacturer in all aspect of sales and servicing n AGENT nIndependent company that sells on behalf of the manufacturer nUsually it will not see or stock the product nExclusive, semi-exclusive, non-exclusive nCommission on a pre-agreed basis nSells to wholesalers and retailers nGathering some market and financial information- but not always – depends on contract Manufacturer sells directly to the importer located in the foreign market Cooperative export - export marketing groups nFunctions: n - exporting in the name of the association n - consolidating freight, negotiating rates and chartering ships n - performing market research n - appointing selling agents abroad n - obtaining credit information and collecting debts n - setting prices for export n - allowing uniform contracts and terms of sale n - allowing cooperative bids and sales negotiation n nUsually SMEs – more effective n What to look for in an intermediary nSize of firm nPhysical facilities nWillingness to carry inventories nKnowledge/use of promotion nReputation with supplier, customers, and banks nSales performance record nCost of operations nOverall experience nKnowledge of English or other relevant languages nKnowledge of business methods in manufacturer’s country Intermadiate export modes C11NF001 INTERMEDIATE ENTRY MODES n= transfer of skills and knowledge (1)Contract manufacturing – outsourced to an external partner specialized in production and production technology – lower risk, lower costs, appropriate foreign market demand; better interaction with local market, high level of control; high flexibility; product could be exported (2)Licensing – patent covering a product or process, know-how, technical/marketing advice and assistance, use of trade mark/name – concentration on core competences - R&D, lower expertise for overseas, the end of the PLC in home country, government regulations restrict foreign direct investment… (3)Franchising – product and trade name, business format package (trade mark/name, copyright, design, patent, trade secret, business and management know-how, geographic exclusivity, market research for the area…) (4)Strategic alliances/joint ventures – new opportunities, speed up market entry, lower costs compared to solely business; up-stream collaboration – on R&D and/or production; down-stream – marketing, distribution, sales, service - = Y coalition; both streams – X coalition nSeeking for resources: nDevelopment know-how nSales and service expertise nLow-cost production facilities nStrategically critical manufacturing capabilities nReputation and brand equity nMarket access and knowledge nFinancial resources… n? Who is the leading company? n? Double..management? n?Repatriation of profits? n? Shared equity? nMixing different cultures! nDeveloping trust! nProviding and exit strategy! n Contract manufacturing nContract manufacturing n_____ is the term used to refer to manufacturing which is outsourced to an external partner, one that specializes in production and production technology. nFactors encouraging foreign market production nDesirability of being close to foreign customers nForeign production costs are low nTransportation costs may render heavy products non-competitive nTariffs can prevent entry of an exporter’s products nGovernment preference for national suppliers Licensing nthe exchange of rights, such as manufacturing rights, to another in exchange for payment nRights that may be offered in a licensing agreement nPatent covering a product or process nManufacturing know-how not subject to a patent nTechnical advice and assistance nMarketing advice and assistance nUse of a trade mark/trade name License-Image2 Motives for licensing n IN nLicensor firm will remain technologically superior in its product development nLicensor is too small to have financial, managerial or marketing expertise for overseas investment nProduct is at end of product life cycle in advanced countries but stretching product life cycle is possible in less developed countries n n OUT nOpportunity for profit on key components nGovernment regulations may restrict foreign direct investment or, if political risks are high, licensing may be only realistic entry mode nConstraints may be imposed on imports Franchising nthe exchange of rights between a franchisor and franchisee, such as the right to use a total business concept including use of trade marks, against some agreed royalty nTypes: nProduct and trade name franchising nBusiness format ‘package’ franchising Business format ‘packages’ Trade marks/ trade names/ designs Patents and copyrights Business know-how/ trade secrets Geographic exclusivity Store design Market research Location selection Human resources training Supply resources MEV466e7d_SIN200_YUM_RESULTS_1010_11 levis_obchod_prodejna_obleceni Interdependence between franchisor-franchisee nFranchisor-franchisee nFast growth nCapital infusion nIncome stream nCommunity goodwill n nFranchisee-franchisor nTrade mark strength nTechnical advice nSupport services nMarketing resources nAdvertising Joint venture and strategic alliances n- an equity partnership between two or more partners? n nReasons for using joint ventures nComplementary technology or management skills can lead to new opportunities nFirms with partners in host countries can increase speed of market entry nLess developed countries may restrict foreign ownership nCosts of global operations in R&D and production can be shared nEntering new markets n A + B C – JOINT VENTURE A B - STRATEGIC ALLIANCE Factors to consider within the cost/benefit analysis when deciding about JV/SA nFinancial commitment nSynergy nManagement commitment nRisk reduction nControl nLong-run market penetration nResources (own and of partner): critical manufacturing capabilities, low-cost production facilities, reputation/brand equity, market access/knowledge, development know-how, sales and service expertise.. n Collaboration possibilities in the value chain Research and development Production Marketing Sales and services Upstream Downstream Research and development Production Marketing Sales and services Upstream Downstream 1 3 2 Source: Source: Adapted from Lorange and Roos, 1995, p. 16. HIERARCHICAL ENTRY MODES nThe firm completely owns and control foreign market entry mode nAllocation of responsibility and competence between head office and subsidiaries: (1)Domestic-based sales representatives/manufacturer´s own sales force (2)Resident sales representatives/sales subsidiary/sales branch (3)Sales and production subsidiary (4)Region centre (5)Transnational organization(globally integrated) n Type of modes nDomestic-based sales representative ntype of sales representative resides in the home country of the manufacturer and travels abroad to perform the sales function n nsubsidiary na local company owned and operated by a foreign company under the laws and taxation of the host country nREASONS: nTo defend existing business nTo gain new business nTo save costs nTo avoid government restrictions Advantages nBetter control of sales nClose contact with customers Disadvantages nHigh travel expenses nToo expensive for markets far from home Methods of establishing a wholly-owned subsidiary and site selection criteria nMethods: Acquisition and Greenfield investment nCriteria: nInvestment climate nInvestment incentives nOperational costs nWorkforce considerations nCorporate tax advantages nQuality of living nInfrastructure in place nBusiness services available nSufficient office space nPresence of other companies n n Foreign sales, sales and production subsidiary nAdvantages nFull control of operation nMarket access nMarket knowledge nReduced transport costs nAccess to raw materials n nDisadvantages nHigh initial capital investment nLoss of flexibility nHigh risk nTaxation problems Region centres nAdvantages nSynergies on regional/global scale nScale efficiency nAbility to leverage learning on cross-national scale nDisadvantages nPotential for increased bureaucracy nLimited national level responsiveness nMissing communication between head office and centre Acquisition nAdvantages nQuick access to qDistribution channels qLabour force qManagement experience qLocal knowledge qLocal contacts qEstablished brand names nDisadvantages nExpensive option nHigh risk nIntegration concerns n Greenfield investment nAdvantages nOptimum format possible nOptimum technology possible nDisadvantages nHigh investment cost nSlow entry of new markets n n