•Entering foreign markets

10-3

Figure 10.1 Export modes

10-4

Indirect export modes

• Sale is like a domestic sale• Most appropriate for firms with limited

international expansion objectives• Appropriate for firms using international sales

as a means of disposing of surplus production

10-5

Definitions

• Export buying agent: a representative of foreign buyers who is located in the exporter’s home country and provides services such as identifying potential sellers and negotiating prices

• Broker: an agent, based in the home country, who is a specialist in performing contractual functions but does not actually handle the products sold or bought?

• Piggyback: an indirect mode of export which entails an inexperienced SME ‘riding’ on the capabilities of a larger company already experienced in foreign markets

10-6

Figure 10.1 Export modes

International Business: Strategy, Management, and the New Realities 7

Direct Exporting

• Contracting with intermediaries located in the foreign market to perform export functions.

• The foreign intermediaries serve as an extension of the exporter, negotiating on behalf of the exporter and assuming such responsibilities as local supply-chain management, pricing, and customer service.

• It gives the exporter greater control over the export process and potential for higher profits, as well as allowing a closer relationship with foreign buyers.

• However, exporter must dedicate more time, personnel, and corporate resources in developing and managing export operations.

10-8

Direct entry modes

Export via distributors

Export via agents

10-9

Definitions

• Distributor: An independent company that stocks the manufacturer’s product, but has substantial freedom to choose its own customers and price

• Agent: An independent company that sells on to customers on behalf of the manufacturer, does not stock the product, and earns profits from commission paid by the manufacturer

• Hierarchical modes: The entry modes by which the firm completely owns and controls the foreign entry mode

12-10

Hierarchical modes

Domestic-based representatives

Resident sales representatives

Foreign sales subsidiary

Sales and production subsidiary

Region centres

12-11

Figure 12.1 Domestic-based sales representatives/

manufacturer’s own sales force

12-12

Figure 12.1 Residentsales representatives/

sales subsidiary

12-13

Figure 12.1 Sales and production subsidiary

12-14

Figure 12.1 Region centre

12-15

Definitions

• Domestic-based sales representative: sales representative that resides in the home country of the manufacturer and travels abroad to perform the sales function?• Subsidiary: a local company owned and

operated by a foreign company under the laws and taxation of the host country?

International Business: Strategy, Management, and the New Realities 16

Company-Owned Foreign Subsidiary

• The firm sets up a sales office or a company-owned subsidiary that handles marketing, physical distribution, promotion, and customer service activities in the foreign market.

• The firm undertakes major tasks directly in the foreign market, such as participating in trade fairs, conducting market research, searching for distributors, and finding and serving customers.

• Would pursue this route if the foreign market seems likely to generate a high volume of sales or has substantial strategic importance.

12-17

Summary of domestic-based sales representatives

Advantages• Better control of sales• Close contact with

customers

Disadvantages• High travel expenses• Too expensive for

markets far from home

12-18

Summary of foreign sales, sales and production subsidiary

Advantages• Full control of operation• Market access• Market knowledge• Reduced transport

costs• Access to raw materials

Disadvantages• High initial capital

investment• Loss of flexibility• High risk• Taxation problems

12-19

Summary of region centres

Advantages• Synergies on

regional/global scale• Scale efficiency• Ability to leverage

learning on cross-national scale

Disadvantages• Potential for increased

bureaucracy• Limited national level

responsiveness• Missing communication

between head office and centre

12-20

Summary of acquisition

Advantages• Quick access to

– Distribution channels– Labour force– Management

experience– Local knowledge– Local contacts– Established brand

names

Disadvantages• Expensive option• High risk• Integration concerns

12-21

Summary of greenfield investment

Advantages• Optimum format

possible• Optimum technology

possible

Disadvantages• High investment cost• Slow entry of new

markets

9-22

Figure 9.1 All factors affecting decision