12-1 chapter 12 strategies for analyzing and entering foreign markets international business, 6th...
TRANSCRIPT
12-1
chapter 12
Strategies for Analyzing and Entering
Foreign Markets
International Business, 6th E
dition
Griffin & Pustay
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12-2
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
• Product-market dimensions
• Major product-market differences
• Structural characteristics of national market
• 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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Figure 12.1 Choosing a Mode of Entry
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Exporting
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
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Motivations for Exporting
Proactive Reactive
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Forms of Exporting
Indirect exporting
Intracorporatetransfers
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 policies
Marketing concerns
Logistical considerations
Distribution 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
• Mitsubishi Corporation
• Mitsui & Company
• Marubeni
• Sumitomo Group
• Itochu Corporation
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Other Intermediaries
Manufacturers’ agents
Manufacturers’ export agents
Export 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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Licensing
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
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Franchising
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 domestic market?
• Are these success factors transferable to foreign locations?
• Has franchising been a successful domestic strategy?
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Yum! Brands Franchise Opportunities
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Franchising
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
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Specialized Entry Modes for International Business
Contract Manufacturing
TurnkeyProject
ManagementContract
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Contract Manufacturing
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
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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
Disadvantages
• Financial risks
– Cost overruns
• Construction risks
– Delays
– Problems with suppliers
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Foreign Direct Investment
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
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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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Greenfield Strategy
• Best site
• Modern facilities
• Economic development incentives
• Clean slate
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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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