International bussiness 6th griffin pustay chapter 12

Chapter Objectives • Discuss how firms analyze foreign markets • Outline the process by which firms choose their mode of entry into a foreign market • Describe forms of exporting and

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chapter 12

Strategies for Analyzing and Entering

Foreign Markets

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Chapter Objectives

• Discuss how firms analyze foreign

markets

• Outline the process by which firms

choose their mode of entry into a foreign market

• Describe forms of exporting and the

types of intermediaries available to assist firms in exporting their goods

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Chapter Objectives (continued)

• Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing

• Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising

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Chapter Objectives (concluded)

• Analyze contract manufacturing,

management contracts, and turnkey projects as specialized entry modes for international business

• Characterize the greenfield and

acquisition forms of FDI

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Foreign Market Analysis

• Assess alternative markets

• Evaluate the respective costs, benefits, and risks of entering each

• Select those that hold the most potential for entry or expansion

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Table 12.1 Critical Factors in Assessing

New Market Opportunities

• Competitor analysis

• Potential target markets

• Relevant trends

• Explanation of change

• Success factors

• Strategic options

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Map 12.1 A Tale of Two Chinas

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• Logistical complexities

• Potential conflicts with distributors

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Forms of Exporting

Indirect exporting

Intracorporate transfers Direct

exporting

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Figure 12.2a Indirect Exporting

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Figure 12.2b Direct Exporting

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Figure 12.2c Intracorporate Transfers

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Additional Considerations for Exporting

Governmental policiesMarketing concernsLogistical considerationsDistribution issues

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Types of Export Intermediaries

Export Management Company

International trading company

Other intermediaries Webb-Pomerene association

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Export Management Company

An export management company (EMC)

is a firm that acts as its client's export department by managing the legal, financial, and logistical details of exporting, and providing advice about consumer needs and available distribution channels in the foreign markets the exporter wants to

penetrate

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Webb-Pomerene Association

A Webb-Pomerene Association is a group of

U.S firms that operate within the same industry and that are allowed by law to coordinate their export activities without fear of violating U.S

antitrust laws

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Five Largest Soga Soshas

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Other Intermediaries

Manufacturers’ agentsManufacturers’ export agentsExport and import brokers

Freight forwarders

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International Licensing

Licensing is when a firm, called the licensor,

leases the right to use its intellectual property—technology, work methods, patents, copyrights, brand names, or trademarks—to another firm,

called the licensee, in return for a fee.

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Figure 12.3 The Licensing Process

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Basic Issues in International Licensing

• Set the boundaries of the agreement

• Establish compensation rates

• Agree on the rights, privileges, and

constraints conveyed in the agreement

• Specify the duration of the agreement

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• Avoid tariffs, NTBs, restrictions on foreign investment

• Licensee provides knowledge of local markets

Disadvantages

• Limited market opportunities/profits

• Dependence on licensee

• Potential conflicts with licensee

• Possibility of creating future competitor

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A franchising agreement allows an independent

entrepreneur or organization, called the

franchisee, to operate a business under the name

of another, called the franchisor, in return for a

fee

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Basic Issues in International Franchising

• Does a differential advantage exist in the

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Yum! Brands Franchise

Opportunities

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• Avoid tariffs, NTBs, restrictions on foreign investment

• Maintain more control than with licensing

• Franchisee provides knowledge of local market

Disadvantages

• Limited market opportunities/profits

• Dependence on franchisee

• Potential conflicts with franchisee

• Possibility of creating future competitor

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Specialized Entry Modes for

International Business

Contract Manufacturing

Turnkey Project Management Contract

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• Focus firm’s resources on other elements of the value chain

Disadvantages

• Reduced control (may affect quality, delivery schedules, etc.)

• Reduce learning potential

• Potential public relations problems

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Management Contracts

Advantages

• Focus firm’s resources on its area

of expertise

• Minimal financial exposure

Disadvantages

• Potential returns limited by contract expertise

• May unintentionally transfer proprietary knowledge and

techniques to contractee

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Turnkey Projects

Advantages

• Focus firm’s resources on its area of expertise

• Avoid all long-term operational risks

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Foreign Direct Investment

Advantages

• High profit potential

• Maintain control over operations

• Acquire knowledge of local market

• Avoid tariffs and NTBs

• Vulnerability to restrictions on foreign investment

• Greater managerial complexity

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Foreign Direct Investment

(continued)

• Building new facilities (the greenfield strategy)

• Buying existing assets in a foreign country (acquisition strategy)

• Participating in a joint venture

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Acquisition Strategy

A second FDI Strategy is the

acquisition of an existing firm

conducting business in the host

country

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photocopying, recording, or otherwise, without the prior written permission of the publisher Printed in the United

States of America

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