COUNTRY EVALUATION AND SELECTION

Having understood the overall aspects of PEST in IB environment along with its relationships and connectivity to various Countries Economies – Advanced, Developed, Developing and LDC’s Plus the role of Trade Forum – Like WTO, Trading Blocs- Regional Co-operations like EU, ASEAN, SAARC, etc, Trade Barriers ( Tariff like Taxes and Duties and Non- Tariff like Quotas, Licenses, Certifications, etc) we will need to further concentrate on the following aspects to enable evaluate country selection for Global Operations.

GENERAL FEATURES OR BASIC CONDITIONS OF THE INDUSTRY• Demand Details :(i) Demand – Industry demand/ Overall market size(ii) Growth Rate(iii) Nature of demand (i.e) Derived or Direct Demand ?

Regular or Seasonal ? Cyclic Character ?(iv) Demand Trends(v) Price elasticity of demand(vi) Substitutes(vii) Who are the real consumers ?(viii) Purchase method of consumers

Product Details

• Products and Their Characteristics• Product Mission• Trends in product – market structure

TECHNOLOGY DETAILS- Basic Technologies- Technology Level- Trends in Technology- History of Innovations- Technological Trends – Threats and Opportunities- Role of Technology in Success- How energy intensive is technology

INVESTMENT DETAILS• Cost of Entry and Exit• Typical Asset Patterns in firms• Rate & Type of Obsolescence of assets• Role of Capital / Investment in success• Availability of Capital / Sourcing – Interest Cost/ Foreign

Currency related aspects OTHER GENERAL POINTS- Public policies relating to the industry- Natural and Other Resources- Raw Materials Position- Environmental Impact (Social –Political– Legal )- Energy Requirements- Key Ingredients in success

INDUSTRY ENVIRONMENT• Fragmented Industry ?• Emerging Industry ?• Industry Undergoing a transition to maturity ?• Declining Industry ?• Global Industry ?

INDUSTRY STRUCTURE- Number of players- Total Market and relative shares of the players- Installed production capacity and relative shares of the players- Nature of Competition : Monopoly, Oligopoly, Perfect Competition

or a mixture- Differentiation practiced by various players in the industry

BARRIERS IN THE INDUSTRY

• Entry Barriers• Mobility Barriers• Exit Barriers• Shrinkage Barriers• Technology Barriers• Investment Barriers• Size Barriers• Gestation Barriers

SOURCES OF ENTRY BARRIERS - Economies of scale- Relating to production, technology, marketing channels, R& D, etc.- Product Differentiation- Capital requirements- Absolute cost advantage of the players ( Independent of Size )- Access to distribution channels- Experience curve of the players- Govt. Policies- Technology- Gestation- Cost structure of players- Vertical Integration- Global Reach- Forces shaping competition in the industry

INDUSTRY ATTRACTIVENESS• Industry Potential• The prospects of the industry as a whole• Industry Growth• Industry Profitability• History• Forecasts• Averages and Norms typical of the Industry• Relation of Life Cycle• Basic Determinants of Demand• Likely Future Pattern• Barriers in the Industry• Forces Shaping Competition

INDUSTRY PERFORMANCE

Production – Sales – Profitability – Technological Advancement

COLLABORATIVE STRATEGIES

• Globalization, Liberalization and Privatization facilitates economic progress through various business related strategies known as FOREIGN MARKET ENTRY STRATEGIES. They may be :

1. Licensing 2. Franchising3. Contract Manufacturing4. Management Contract5. Assembly Operations6. Fully Owned Manufacturing Facilities7. Joint Ventures8. Counter Trade9. Mergers and Acquisitions10. Strategic Alliance11. Third Country Location

LICENSING

• Involves Minimal Commitment of Resources• Under International Licensing a firm in one

country ( the licensor ) permits a firm in another country ( the licensee ) to use its INTELLECTUAL PROPERTY – such as patents, trade marks, copy rights, technology, technical know-how, marketing skill or some other specific skill.

• THE MONETARY BENEFIT : Licensor gets Royalty or Fees which the Licensee Pays. However this is regulated by Government in various countries.

FRANCHISING

• Involves minimum commitment of resources.• Franchising – A form of licensing in which a

parent company ( the franchiser ) grants another independent entity (the franchisee) the right to do business in a prescribed manner.

• This right can take the form of selling the franchisor’s products, using its name, production, and marketing techniques, or general business approach.

CONTRACT MANUFACTURING

• A company doing International Business contracts with firms in foreign countries to manufacture or assemble the products while retaining the responsibility of marketing the product or / and materials management (i.e) NON FUNDING ( sourcing approvals ), TQM - quality approvals, inspections, process related techniques, defining the machineries and equipments required, etc.

ADVANTAGES- No resource commitment for setting up production facilities- Free from risk of investing in foreign countries- Idle production capacity in a foreign country can be utilised

immediatley.- Cost of product becomes lower when manufactured through contract

manufacturing system.- Exiting becomes easy if success is not achieved. NOTE- This may not be possible in the case of High Tech Products and

Cases where technical secrets are involved.

MANAGEMENT CONTRACTING

• The firm providing management know how may not have any equity stake in the enterprise being managed.

• The supplier brings together a package of skills that will provide an integrated service to the client without incurring the risk and benefit of ownership.

• Tata Tea in Sri Lanka – Managing no of plantations due to their expertise.

TURNKEY CONTRACTS

• Common in IB related to supply, erection and commissioning of plants, as in the case of oil refineries, steel plants, cement, fertilizer plants, railway projects, construction projects, etc.

• A turnkey operation is an agreement by the seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer’s personnel, who will be trained by the seller.

• However a Turnkey Contractor may subcontract different phases/parts of the project.

Fully Owned Manufacturing Facilities

• Companies with long term and substantial interest in the foreign market normally establish fully owned manufacturing facilities there.

• For example – Coke in India, Pepsi in India entered India initially by supplying the secret ingredients to the bottling plants. Later they bought over the bottling plants.

• Benefits – Population and Market in India and SAARC Countries, Raw Materials like Sugar, Water, Labor, etc. at lower costs and accessibility.

• Higher Profits and Margins with Repatriation Benefits.• LPG Process facilitating the economic and strategic IB

decision through FDI process.• Mahindra and Mahindra in USA – Tractor Division.

ASSEMBLY OPERATIONS

• Economies of Scale of production• Labor Intensive Production activities• Parts and Components• Cost advantage in developing countries/ LDC’s as the

Import Duties are also lower on the parts and components as compared to finished products

• Benefit of opposite countries domestic market and advantage of export benefits also.

• Favorable attitude from a Government for creating employment opportunities and earning foreign exchange through investments and exports.

JOINT VENTURES• A Common IB Strategy through -1. Sharing of ownership and management in an enterprise.2. Licensing/ Franchising agreements.3. Contract Manufacturing.4. Management Contracts.(example ) – Pepsi’s Indian Joint Venture involved Voltas and Punjab Agro Industries Corporation- TOYOTA with Kirloskars.- Maruti Suzuki ( Government – PSU )- Tata Tea with TETLEY for overseas markets -NOTE-Many foreign companies entered the communist, socialist and other developing countries by JOINT VENTURING

COUNTER TRADE

• PEPSICO entered USSR by employing this strategy – Receive Rubles payment for exports ( sell concentrates ) and buy vodka, wine, etc and pay in Rubles.

• India and USSR since many years – Import of Defence related items and export of various items in Rupee Terms.

• A form of International Trade in which certain export and import transactions are directly linked with each other and in which import of goods are paid for by export of goods, instead of money payments.

MERGERS AND ACQUISITIONS

• ( M & A’S) are very important market entry strategy and growth strategy.

• Mittal – Arcelor or Tata – Corus, etc.• Vijay Mallya’s UB Group acquired a small British

Co – Wiltshire Brewery. The attraction of Wiltshire for UB was that the former offered a ready made chain of 300 Pubs through out Britain which could be used for the Marketing of UB’s Brands of Beer like Kingfisher, Kalyani, etc. The UB Group has also gone in for such acquisitions in USA and S. Africa.

STRATEGIC ALLIANCE

• WIDE SCOPE• IMPORTANT FOR TECHNOLOGY

ACQUISITION AND OVERSEAS MARKETING.

• GOOD OPPORTURINTIES FOR INDIAN FIRMS TO ENTER IB.

• EXAMPLE – Airlines, Hotels, Hospitals, Tourism Industry, Banking and Insurance Industry, Film Industry etc.

THIRD COUNTRY LOCATION

• Example – India and Pakistan• It has been the practice earlier to Import or Export

through / Via Arab Countries since the relationship has been bad between both the Countries.

• Israel and Arab Countries• OR In the past India before going in for LPG could not

export directly to many countries – ADVANCED AND DEVELOPED ( except by Foreign MNC’s in India ) and Indian Business Houses used to route the Products through Third Countries with those countries packaging and labeling.

TOYOTAS GLOBALISATION STRATEGIES

• Toyota is a car company that challenges itself in a way that makes the world shudder, Toyota announces it is shooting for 15% of the global market and 50% cost cuts, and everyone goes ‘Ooof!’ It is like getting hit in the solar plexus.”

• If people started living at the South Pole, we would want to open a dealership there.”

• Reaching No 2 slot was a major achievement for toyota, which had begun as a spinning and weaving company during 1918. Ford was reportedly plagued by high labour costs, quality-control problems, lack of new designs and innovations, and a weak economy during the early 21st century, which made it vulnerable to competition.

• Toyota aided by its new product offerings and strong financial muscle had successfully used this scenario to surpass Ford and affect a dramatic increase in its sales figures

• In January 2004, leading global automobile co and Japan’s number one automaker, Toyota Motor Corporation (Toyota), replaced Ford Motors

( Ford), as the world’s second largest automobile manufacturer• Ford had been in that spot for over seven decades

MARKET ENTRY STRATEGIES OF STARBUCKS

• Starbucks is one of the leading international food retailing chains with US $ 4.1 bn revenues for the fiscal year 2002-2003

• It has 7225 outlets the world over• With saturation in the North American markets, starbucks started expanding

internationally. It decided to enter the Asia Pacific rim markets first• Growing consumerism in the Asia Pacific countries and eagerness among the

younger generation to imitate western lifestyles made these countries attractive markets for starbucks

• Starbucks decided to enter the international markets using a three-pronged strategy-joint ventures, licensing and wholly owned subsidiaries. Prior to entering a foreign market, starbucks focused on studying the market conditions for its products in the country. It then decided on the local partner for its business

• Initially, starbucks test marketed with a few stores that were opened in trendy places and the company’s experienced managers from Seattle handled the operations

• After successful test marketing, local baristas(brew masters) were given training for 13 weeks in Seattle. Starbucks did not compromise on its basic principles. It ensued similar coffee beverage line-ups and ‘No Smoking’ rules in all its stores across globe

DRL – DR Reddy’s Laboratories

• STRATEGIES

• Founded – 1984

• Dr Anji Reddy – Farmer’s Family in AP

----------Explain-----------------