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Foreign Market Analysis

Foreign Market Analysis. Assess alternative markets Evaluate the respective costs, benefits, and risks of entering each market Select those that hold the most potential Where to find data. Product-market dimensions Major product-market differences

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Foreign Market Analysis

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  1. Foreign Market Analysis • Assess alternative markets • Evaluate the respective costs, benefits, and risks of entering each market • Select those that hold the most potential • Wheretofinddata ©2004 Prentice Hall

  2. Product-market dimensions Major product-market differences Structural characteristics of the national product market Competitor analysis Potential target markets Relevant trends Explanation of change Success factors Strategic options Factors in Assessing New Market Opportunities * look at page 338 ©2004 Prentice Hall

  3. Direct cost – easy to compute Opportunity cost – what we forego by investing in one country and not another Benefits – profits, lower costs, beating competitors to market, access to new technology, circumventing trade barriers Risks – what if we make a mistake? Evaluating Costs, Benefits, and Risks ©2004 Prentice Hall

  4. Choosing a Mode of Entry Exporting • Decision Factors: • Ownership advantages • Location advantages • Internalization advantages • Other factors • Need for control • Resource availability • Global strategy International Licensing International Franchising Specialized Modes Foreign Direct Investment ©2004 Prentice Hall

  5. Advantages Relatively low financial exposure Permit gradual market entry Acquire knowledge about local market Avoid restrictions on foreign investment Disadvantages Vulnerability to tariffs and NTBs Logistical complexities Potential conflicts with distributors Exporting ©2004 Prentice Hall

  6. Proactive motivations: pull a firm into foreign markets as a result of opportunities available there Reactive motivations: push a firm into foreign markets because opportunities are decreasing in the domestic market Motivations for Exporting ©2004 Prentice Hall

  7. Forms of Exporting • Indirect exporting • Direct exporting • Intracorporate transfers ©2004 Prentice Hall

  8. ©2004 Prentice Hall

  9. Export Intermediaries – the specialists • Export Management Company • Webb-Pomerene Association • International TradingCompany • Other intermediaries –manufacturers agents; export and import brokers; freight forwarders ©2004 Prentice Hall

  10. Figure 12.3 The Licensing Process • LICENSOR • Leases the right to use • its intellectual property • Earns new revenues with • relatively low investment • LICENSEE • Uses the intellectual • property to create • products for local sale • Pays a royalty back to • the licensor • Basic Issues • Set the boundaries of the agreement • Establish compensation rates • Agree on the rights, privileges, and constraints • Specify the duration of the agreement ©2004 Prentice Hall

  11. Advantages Low financial risks Low-cost way to assess market potential 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 Licensing ©2004 Prentice Hall

  12. Advantages Low financial risks Low-cost way to assess market potential 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 Franchising ©2004 Prentice Hall

  13. Specialized Entry Modes • Contract Manufacturing - Nike • Management Contract - Hilton • Turnkey Project – Pepsi in Russia ©2004 Prentice Hall

  14. Advantages Low financial risks Minimize resources devoted to manufacturing 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 Contract Manufacturing ©2004 Prentice Hall

  15. Advantages Focus firm’s resources on its area of contracts Minimal financial exposure Disadvantages Potential returns limited by contract expertise May unintentionally transfer proprietary knowledge and techniques to contractee Management ©2004 Prentice Hall

  16. Advantages Focus firm’s resources on its area of expertise Avoid all long-term operational risks Disadvantages Financial risks Cost overruns Construction risks Delays Problems with suppliers Turnkey Projects ©2004 Prentice Hall

  17. Foreign Direct Investment • Building new facilities (the greenfield strategy) • Buying existing assets in a foreign country (acquisition strategy) • Participating in a joint venture ©2004 Prentice Hall

  18. Advantages High profit potential Maintain control over operations Acquire knowledge of local market Avoid tariffs and NTBs Disadvantages High financial and managerial investments Higher exposure to political risk Vulnerability to restrictions on foreign investment Greater managerial complexity Foreign Direct Investment ©2004 Prentice Hall

  19. Greenfield Strategy • Best site • Modern facilities • Economic development incentives • Clean slate ©2004 Prentice Hall

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