Lecture International business - Chapter 13: Selecting and managing entry modes

In this chapter, you will learn how a firm can achieve its objectives through exporting, importing, and countertrade. You will also: Understand the ways in which a firm finances its import and export activities, explore various contractual and investment entry modes, and examine the strategic factors in selecting an entry mode.

13 Selecting

and Managing Entry Modes

• Explain how companies use exporting, importing, and countertrade

• Explain the various means of financing export

and import activities

• Describe the different contractual entry modes

that are available to companies

• Explain the various types of investment entry

modes

• Discuss the important strategic factors in

selecting an entry mode

• Licenses characters for films and products

• Earns royalties from licensing agreements

Source: Based on data contained in International Trade Statistics 2011 (Geneva, Switzerland: World Trade Organization, November 2011), Table II.30, p 81–82

Step 4

Commit resources

• Export management company

• Export trading company

• Agent

• Export management company

• Export trading company

Conduct market research

Obtain export advice

Hire a freight forwarder

First, a firm should identify a

potential market through careful

market research and analysis

Second, it should match the

needs of the market to its ability

to satisfy those needs Third, it

should initiate meetings with

potential distributors, buyers, and

others Fourth, it should commit

human, financial, and physical

resources to get the job done.

Barter Counterpurchase

Offset agreement

Switch trading

Buyback

Direct exchange without money

Sale to a nation in return for promise of future purchase from that nation

Offset a hard-currency sale to a nation with future hard-currency purchase

Sale by a company of an obligation to purchase from a country

Export of industrial equipment in return for products that the equipment produces

Agencia el Universal/El Universal de Mexico/Newscom

• Barter (Trueque) in Argentina

• Clothing, food, cars, etc.

Export/Import Financing

Open account

Advance payment

destination and shipping costs for merchandise

Documentary Collection Process

Letter of Credit Process

– Restrict licensor’s activities

– Reduce global consistency

– Lend strategic property

Disadvantages

Company owning intangible property (licensor) grants

another firm (licensee) the right to use it for a specific time

Company supplies another with managerial expertise for a specific period of time

Advantages

+ Few assets risked

+ Nations finance projects

+ Develops local workforce Disadvantages

– Personnel at risk

– Create competitor

Advantages + Firms specialize in competency

+ Nations obtain infrastructure

– Politicized process

– Create competitor

Disadvantages

Company designs, constructs, and tests

a production facility for a client

In what ways does

franchising differ

from licensing?

First, franchising gives a

company greater control over the

sale of its product in a target

market than does licensing

Second, franchising is primarily

used in the service sector,

whereas licensing is common in

manufacturing industries Third,

franchising requires ongoing

assistance from the franchiser,

but licensing normally involves a

one-time transfer of property.

Facility entirely owned and controlled by

a single parent company

Company created and jointly owned

by two or more entities to achieve a

common objective Advantages

Joint Venture Configurations

Disadvantages

Partner conflict Create competitor

Advantages

Share project cost

Tap competitors’ strengths

Gain channel access

Entities cooperate (but do not form a

separate company) to achieve strategic

goals of each

Cultural environment Political/Legal environments

Market size Production and shipping costs

International experience

International experience

An investment entry mode

that gives a company the

most control over

day-to-day activities in a host

An investment entry mode

that gives a company the

most control over

day-to-day activities in a host

All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher

Printed in the United States of America.

Copyright © 2014 Pearson Education, Inc