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Importing and Exporting Exporting is one of the least risky form of international business activity-limited financial exposure Establish a direct salesand distribution systems or hire intermediaries • Foreign distributors • Export management companies • Export trading companies
LICENSING • Licensing is a contractual agreement whereby one company makes a legally protected asset available to another company in exchange for royalties, license fees, or some other form of compensation. • Widely used in fashion industry. • The only cost is signing the agreement and policing its implementation. • Two key advantages: Licensing enables companies to circumvent tariffs, quotas or other export barriers Licensees are granted considerable autonomy and are free to adapt the licensed goods to local tastes. Ex. Disney ($15 billion annual revenues from licensed merchandise)
LICENSING • Keydisadvantages: Offers limited market control. May have a short life
Special Licensing Arrangements Contract manufacturing requires a global company to provide technical specifications to a subcontractor or local manufacturer. • Cost saving • Focus on core competencies • Advanced skills
Special Licensing Arrangements Franchising a contractual business between a parent company and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee. • Minimize costs • Bypass trade restrictions • Executed with less localization than licensing.
INVESTMENT Foreign Direct Investment figures reflect investment flows out of the home country as companies invest in or acquire plants in, equipments, or other assets. Minority or majority shares in joint ventures, Minority or majority equity stakes in another company, Acquisition.
Joint Ventures Joint Venture is an entry strategy for a single target country in which partners share ownership of a newly created business entity • Risk sharing • Gaining market knowledge • Achieving synergy
Investment via Ownership or Equity Stake Majority or 100% ownership by the investing firm • Start-up of new operations -Greenfield operations/investment (starting from scratch, including setting up facilities, labor recruiting and training, and providing management team) • Merger and acquisition of an existing enterprise (fast, but finding the right company is difficult, integrating management styles and removing former owners may be a problem)
Global Strategic Partnerships • The participants remain independent subsequent to the formation of the alliance –independence of participants • The participants share the benefits of the alliance as well as control over the performance of assigned tasks –shared benefits • The participants make ongoing contributions in technology, products, and other key strategic areas – ongoing contributions Calls for continuous transfer of technology or skills among partners
Global Strategic Partnerships Success Factors Mission: to create win-win situations Strategy: strategy must be thought out up front to avoid conflicts Governance: discussion and consensus must be the norms Culture: a shared set of values Organization: innovative structures and designs Management: conflicting issues must be identified in advance
Choosing between Alternatives Companies competing with each other directly in the same foreign markets may not make the same choice of entry modes. CASE There are many factors that influence what might be the best choice for a company to in foreign market at a specific time. Marketing Strategy variables Organization Specific variables Target Country variables Industry Specific variables