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Learning Objectives. Welcome to class of International Market Entry Modes Dr. Satyendra Singh. Learning Objectives. Objectives:. Explain the international market entry methods Discuss whether being a market pioneer or a fast follower is more useful

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learning objectives
Learning Objectives

Welcome to class of

International Market Entry Modes

Dr. Satyendra Singh

learning objectives2
Learning Objectives

Objectives:

  • Explain the international market entry methods
  • Discuss whether being a market pioneer or a fast follower is more useful
  • Identify two different forms of piracy and discuss which might be helpful and harmful to firms doing international business
  • Discuss channel members available to companies that export or manufacture overseas
pioneers vs fast followers
Pioneers

Can gain and maintain competitive edge in new market

Overall pioneers may not perform as well in the long run as followers

Most successful when

High entry barriers exist

Firm has sufficient size, resources, and competencies

Followers

Many become followers by default

May be advantage to let pioneer take initial risks

Most successful when

Few legal, technological, cultural, or financial barriers

Sufficient resources or competencies to overwhelm the pioneer’s early advantage

Pioneers vs. Fast Followers
entering foreign markets
Entering Foreign Markets
  • Nonequity modes of market entry
    • Exporting
      • Selling some regular production overseas
      • Requires little investment
      • Relatively free of risk
      • Indirect exporting
      • Direct exporting
  • Equity modes of market entry
    • Wholly owned subsidiary
    • Joint venture
    • Strategic alliance
indirect exporting
Indirect Exporting…
  • Exporting of goods and services through various home-based exporters
    • Manufacturers’ export agents
      • sell for manufacturer
    • Export commission agents
      • buy for overseas customers
    • Export merchants
      • purchase and sell for own accounts
    • International firms
      • use the goods overseas
indirect exporting7
Indirect Exporting
  • Disadvantages
    • Commission to export agents, commission agents, export merchants
    • Foreign business can be lost if exporters decide to change their sources and supply
    • Firm gains little experience from transactions
direct exporting
Direct Exporting
  • Exporting of goods and services by the producing firm
  • Sales company option
      • Business established to market goods and services
  • Internet has made direct exporting much easier
      • Cost of trial low
exporting
Exporting…
  • Turnkey Project used for export of
    • Technology
    • Management expertise
    • Capital equipment (some cases)
  • After trial run, facility is turned over to purchaser
  • Exporter of a turnkey project may be
    • Contractor that specializes in designing and erecting plants in a particular industry
    • Company that wishes to earn money from its expertise
    • Producer of a factory
exporting10
Licensing

A contractual arrangement: one firm sells access to its patents, trade secrets, or technology to another

Licensee pays fixed sum and sales royalties (2%-5%)

Popular because

Courts have begun upholding patent infringement claims

Patent holders have become vigilant in suing violators

Foreign governments have been pressed to enforce their patent laws

Exporting
franchising
Franchising
  • Franchising
    • Form of licensing in which one firm contracts with another to operate a certain type of business under an established name according to specific rules
contracts
Contracts
  • Management Contract
    • Arrangement by which one firm provides management in all or specific areas to another firm
  • Contract Manufacturing
    • Arrangement in which one firm contracts with another to produce products to its specifications but assumes responsibility for marketing
equity based modes of entry
Equity-Based Modes of Entry
  • Wholly Owned Subsidiary
  • Joint Venture
  • Strategic Alliance
wholly owned subsidiary
Wholly Owned Subsidiary
  • Wholly Owned Subsidiary
      • build a new plant (greenfield investment)
      • acquire a going concern
      • purchase distributor, to obtain a distribution network familiar with products
joint venture
Joint Venture…
  • Joint Venture
    • Cooperative effort among two or more organizations that share common interest in business enterprise
      • corporate entity formed by international company and local owners
      • corporate entity formed by two international companies for the purpose of doing business in a third market
      • a corporate entity formed by a government
joint venture16
Joint Venture
  • Disadvantages
    • Profits shared
    • If law allows no more than 49% foreign ownership, lose control
    • Control with minority ownership is possible if
      • Take 49% of shares and give 2% to local law firm or trusted national
      • Take in local majority partner (sleeping partner)
      • Management contract
        • Can enable the global partner to control many aspects of a joint venture even when holding only a minority position
strategic alliances
Strategic Alliances…
  • Partnerships between competitor, customers, or suppliers that may take various forms
  • Aims to achieve
    • Faster market entry and start-up
    • Access to new
      • Products
      • Technologies
      • Markets
    • Cost-savings by sharing
      • Costs
      • Resources
      • Risks
strategic alliances18
May be Joint Ventures

Pooling alliances driven by similarity and integration

Trading alliances driven by contribution of dissimilar resources

Alternatives to mergers and acquisitions

Future of Alliances

Many fail or are taken over by a partner

Difficult to manage

Different strategies

Different operating practices

Different organizational cultures

Allow partner to acquire technological or other competencies

Regardless, will continue to be important strategic tool

Strategic Alliances
channel of distribution
Channel of Distribution
  • Links producer with foreign user
  • Product and its title pass from producer to user
channel of distribution members indirect exporting
Channel of Distribution Members: Indirect Exporting
  • Indirect Export Channel Members
    • Sell for manufacturer
    • Buy for overseas customers
    • Buy and sell for own account
    • Purchase on behalf of foreign middlemen or users
indirect exporting21
Indirect Exporting
  • Exporters that sell for the manufacturer
    • Manufacturers’ export agent
      • Acts as the international representative for various noncompeting domestic manufacturers
    • Export management companies (EMC)
      • Acts as the export department for noncompeting manufacturers
    • International trading companies
      • Acts as agent for some companies and as wholesaler for others
indirect exporting international trading companies
International Trading Companies

Japan: Sogo Shosha

Originally established by the zaibatsu, centralized, family-dominated economic groups

Korean: chaebol

Owned by Korean conglomerates

Export trading companies (ETC)

U.S. firm established principally to export domestic goods and services

Indirect Exporting: International Trading Companies
indirect exporting23
Indirect Exporting…
  • Exporters that buy for their overseas customers
    • Export commission agents
      • Represent overseas purchasers, such as import firms and large industrial users
      • Paid commission by the purchaser for acting as resident buyer
indirect exporting24
Indirect Exporting…
  • Exporters that buy and sell for their own account
    • Export merchants
      • Purchase products directly from the manufacturer and then sell, invoice, and ship them in their own names
    • Cooperative exporters/piggyback exporters
      • Established international manufacturers that export other manufacturers’ goods as well as their own
    • Webb-Pomerene Associations
      • Organizations of competing firms that have joined together for the sole purpose of export trade
indirect exporting25
Indirect Exporting
  • Exporters that purchase for foreign users and middlemen
    • Large foreign users
      • Buy for their own use overseas
    • Export resident buyers
      • Perform essentially the same functions as export commission agents but more closely associated with a foreign firm
direct exporting distribution channel members
Direct Exporting Distribution Channel Members
  • Manufacturer’s agent
    • Independent sales representative of noncompeting suppliers
  • Distributor/wholesale importer
    • Independent importer that buys for own account for resale
  • Retailer
    • Frequently direct importer
  • Trading company
    • Firm that develops international trade and serves as intermediary between foreign buyers and domestic sellers and vice versa