![Page 1: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/1.jpg)
Copyright © 2014 Pearson Education, Inc.
13 Selectingand ManagingEntry Modes
![Page 2: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/2.jpg)
13 - 2Copyright © 2014 Pearson Education, Inc.
Chapter ObjectivesChapter Objectives
• Explain how companies use exporting, importing, and countertrade
• Explain the various means of financing export and import activities
• Describe the different contractual entry modes that are available to companies
• Explain the various types of investment entry modes
• Discuss the important strategic factors in selecting an entry mode
![Page 3: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/3.jpg)
13 - 3Copyright © 2014 Pearson Education, Inc.
Marvel EnterprisesMarvel Enterprises
• Licenses characters for films and products• Earns royalties from licensing agreements
• Licenses characters for films and products• Earns royalties from licensing agreements
![Page 4: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/4.jpg)
13 - 4Copyright © 2014 Pearson Education, Inc.
Exports to the United StatesExports to the United States
Source: Based on data contained in International Trade Statistics 2011 (Geneva, Switzerland: World Trade Organization, November 2011), Table II.30, p. 81–82. Source: Based on data contained in International Trade Statistics 2011 (Geneva, Switzerland: World Trade Organization, November 2011), Table II.30, p. 81–82.
![Page 5: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/5.jpg)
13 - 5Copyright © 2014 Pearson Education, Inc.
Step 1 Step 2
Identify a potential market
Match needs to abilities
Step 3
Initiatemeetings
Developing an Export StrategyDeveloping an Export Strategy
Step 4
Commit resources
![Page 6: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/6.jpg)
13 - 6Copyright © 2014 Pearson Education, Inc.
Degree of Export InvolvementDegree of Export Involvement
Direct exporting(sell to buyers)
Indirect exporting(sell to intermediary)
• Sales representative
• Distributor
• Sales representative
• Distributor
• Agent• Export management company• Export trading company
• Agent• Export management company• Export trading company
![Page 7: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/7.jpg)
13 - 7Copyright © 2014 Pearson Education, Inc.
Avoiding Export BlundersAvoiding Export Blunders
Conduct market researchConduct market research
Obtain export adviceObtain export advice
Hire a freight forwarderHire a freight forwarder
![Page 8: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/8.jpg)
13 - 8Copyright © 2014 Pearson Education, Inc.
Discussion QuestionDiscussion Question
What are the four steps companies can follow when building an export strategy?
![Page 9: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/9.jpg)
13 - 9Copyright © 2014 Pearson Education, Inc.
Answer to Discussion Answer to Discussion QuestionQuestion
First, a firm should identify a potential market through careful market research and analysis. Second, it should match the needs of the market to its ability to satisfy those needs. Third, it should initiate meetings with potential distributors, buyers, and others. Fourth, it should commit human, financial, and physical resources to get the job done.
![Page 10: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/10.jpg)
13 - 10Copyright © 2014 Pearson Education, Inc.
Forms of CountertradeForms of Countertrade
Barter
Counterpurchase
Offset agreement
Switch trading
Buyback
Direct exchange without money
Sale to a nation in return for promise of future purchase from that nation
Offset a hard-currency sale to a nationwith future hard-currency purchase
Sale by a company of an obligation to purchase from a country
Export of industrial equipment in return for products that the equipment produces
![Page 11: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/11.jpg)
13 - 11Copyright © 2014 Pearson Education, Inc.
Barter in ArgentinaBarter in Argentina
Agencia el Universal/El Universal de Mexico/NewscomAgencia el Universal/El Universal de Mexico/Newscom
• Barter (Trueque) in Argentina• Clothing, food, cars, etc.
• Barter (Trueque) in Argentina• Clothing, food, cars, etc.
![Page 12: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/12.jpg)
13 - 12Copyright © 2014 Pearson Education, Inc.
Export/Import FinancingExport/Import Financing
![Page 13: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/13.jpg)
13 - 13Copyright © 2014 Pearson Education, Inc.
High Risk MethodsHigh Risk Methods
Exporter bills importer after merchandise ships
Importer pays exporter before merchandise ships
Open account Advance payment
![Page 14: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/14.jpg)
13 - 14Copyright © 2014 Pearson Education, Inc.
Documentary CollectionDocumentary Collection
Bank acts as intermediary without accepting financial risk
Draft (bill of exchange)
Document that orders an importer to pay an exporter a specificsum of money at a specific time
Bill of lading
Contract between an exporter and shipperspecifying destinationand shipping costsfor merchandise
![Page 15: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/15.jpg)
13 - 15Copyright © 2014 Pearson Education, Inc.
Documentary Collection Documentary Collection ProcessProcess
![Page 16: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/16.jpg)
13 - 16Copyright © 2014 Pearson Education, Inc.
Letter of CreditLetter of Credit
Importer’s bank issues a document stating that the bank will pay the exporter when
exporter fulfills document’s terms
Irrevocable Revocable Confirmed
![Page 17: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/17.jpg)
13 - 17Copyright © 2014 Pearson Education, Inc.
Letter of Credit ProcessLetter of Credit Process
![Page 18: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/18.jpg)
13 - 18Copyright © 2014 Pearson Education, Inc.
Discussion QuestionDiscussion Question
Export/import financing whereby a bank acts as an intermediary without accepting financial risk is called __________.
a. Offset financing
b. Letter of credit
c. Documentary collection
![Page 19: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/19.jpg)
13 - 19Copyright © 2014 Pearson Education, Inc.
Answer to Discussion Answer to Discussion QuestionQuestion
Export/import financing whereby a bank acts as an intermediary without accepting financial risk is called __________.
a. Offset financing
b. Letter of credit
c. Documentary collection
![Page 20: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/20.jpg)
13 - 20Copyright © 2014 Pearson Education, Inc.
LicensingLicensing
Advantages
+ Finance expansion+ Reduce risks+ Reduce counterfeits+ Upgrade technologies
– Restrict licensor’s activities– Reduce global consistency– Lend strategic property
Disadvantages
Company owning intangible property (licensor) grantsanother firm (licensee) the right to use it for a specific time
![Page 21: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/21.jpg)
13 - 21Copyright © 2014 Pearson Education, Inc.
FranchisingFranchising
Advantages+ Low cost and low risk+ Rapid expansion+ Local knowledge
– Cumbersome– Lost flexibilityDisadvantages
Company (franchiser) supplies another (franchisee)with intangible property over an extended period
![Page 22: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/22.jpg)
13 - 22Copyright © 2014 Pearson Education, Inc.
Management ContractManagement Contract
Company supplies another withmanagerial expertise for a
specific period of time
Advantages+ Few assets risked+ Nations finance projects+ Develops local workforce
Disadvantages– Personnel at risk– Create competitor
![Page 23: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/23.jpg)
13 - 23Copyright © 2014 Pearson Education, Inc.
Turnkey ProjectTurnkey Project
Advantages+ Firms specialize in competency+ Nations obtain infrastructure
– Politicized process– Create competitor
Disadvantages
Company designs, constructs, and testsa production facility for a client
![Page 24: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/24.jpg)
13 - 24Copyright © 2014 Pearson Education, Inc.
Discussion QuestionDiscussion Question
In what ways does franchising differ from licensing?
![Page 25: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/25.jpg)
13 - 25Copyright © 2014 Pearson Education, Inc.
Answer to Discussion Answer to Discussion QuestionQuestion
First, franchising gives a company greater control over the sale of its product in a target market than does licensing. Second, franchising is primarily used in the service sector, whereas licensing is common in manufacturing industries. Third, franchising requires ongoing assistance from the franchiser, but licensing normally involves a one-time transfer of property.
![Page 26: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/26.jpg)
13 - 26Copyright © 2014 Pearson Education, Inc.
Wholly Owned SubsidiaryWholly Owned Subsidiary
Facility entirely owned and controlled bya single parent company
Advantages+ Day-to-day control+ Coordinate subsidiaries
Disadvantages– Expensive– High risk
![Page 27: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/27.jpg)
13 - 27Copyright © 2014 Pearson Education, Inc.
Joint VentureJoint Venture
Company created and jointly owned by two or more entities to achieve a common objective
Advantages Reduce risk level
Penetrate markets
Access channels
Disadvantages Partner conflict
Lose control
![Page 28: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/28.jpg)
13 - 28Copyright © 2014 Pearson Education, Inc.
Joint Venture ConfigurationsJoint Venture Configurations
Source: Based on Peter Buckley and Mark Casson, “A Theory of Cooperation in International Business,” in Farok J. Contractor and Peter Lorange (eds.), Cooperative Strategies in International Business (Lexington, MA: Lexington Books, 1988), pp. 31–53.Source: Based on Peter Buckley and Mark Casson, “A Theory of Cooperation in International Business,” in Farok J. Contractor and Peter Lorange (eds.), Cooperative Strategies in International Business (Lexington, MA: Lexington Books, 1988), pp. 31–53.
![Page 29: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/29.jpg)
13 - 29Copyright © 2014 Pearson Education, Inc.
Strategic AllianceStrategic Alliance
DisadvantagesPartner conflict
Create competitor
AdvantagesShare project cost
Tap competitors’ strengths Gain channel access
Entities cooperate (but do not form a separate company) to achieve strategic goals of each
![Page 30: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/30.jpg)
13 - 30Copyright © 2014 Pearson Education, Inc.
Selecting PartnersSelecting Partners
Commitment
Trustworthiness
Cultural knowledge
Valuable contribution
![Page 31: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/31.jpg)
13 - 31Copyright © 2014 Pearson Education, Inc.
Strategic FactorsStrategic FactorsStrategic FactorsStrategic Factors
Cultural environmentCultural environment
Political/Legal environmentsPolitical/Legal environments
Market sizeMarket size
Production and shipping costsProduction and shipping costs
International experienceInternational experience
![Page 32: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/32.jpg)
13 - 32Copyright © 2014 Pearson Education, Inc.
Discussion QuestionDiscussion Question
An investment entry mode that gives a company the most control over day-to-day activities in a host country is called a __________.
a. Joint venture
b. Strategic alliance
c. Wholly owned subsidiary
![Page 33: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/33.jpg)
13 - 33Copyright © 2014 Pearson Education, Inc.
Answer to Discussion Answer to Discussion QuestionQuestion
An investment entry mode that gives a company the most control over day-to-day activities in a host country is called a __________.
a. Joint venture
b. Strategic alliance
c. Wholly owned subsidiary
![Page 34: Copyright © 2014 Pearson Education, Inc. 13 Selecting and Managing Entry Modes](https://reader036.vdocuments.us/reader036/viewer/2022062312/551c4592550346a5458b4765/html5/thumbnails/34.jpg)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher.
Printed in the United States of America.
Copyright © 2014 Pearson Education, Inc.
13 - 34