entering international markets

7/30/2019 Entering International Markets

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Entering

International

Market


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Market Entering a Foreign Country

Reasons

New geographic markets for existing products

By entering a new market

increased sales

diversified sales

higher brand awareness

business stability and avoidingcrisis

gain experience


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Entering a Foreign Country

Forms of Entry Export

Franchising

Joint venture

Strategic alliance

Subsidiary

Greenfield investment Merger & Acquisition

Licensing


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EXPORTING

Exporting. Exporting is appropriate strategy when one of more of

the following conditions prevail.

a. The volume of foreign business is not large enough tojustify production in the foreign market.

b. Cost of production in the foreign market is high.

c. The foreign market is characterized by productionbottlenecks like infrastructural problems, materialsupplies etc.

d. There are political or other risks of investment in theforeign country.

e. The company has no permanent interest in the foreignmarket or there is no guarantee of the market

available for a long period.


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f. Foreign investment is not favored by the foreign

country concerned.

g. Licensing or contact manufacturing is not a better

alternative.

Export marketing requires.

a. An understanding of target market environment.

b. The use of marketing research & the identification ofmarket potential.

c. Decisions concerning product design, pricing,

distributions & channels, advertising &

communication.


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Export Related Problems

Arranging transportation.

Transport rate determination.

Handling documents.

Distribution co-ordination.

Obtaining insurance. Providing technical advice.

Advertising.

Marketing information.

Trade restrictions.

Competition overseas.

Government red tape.

Product liability.


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EXAMPLES


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Franchising

Franchising

A marketing system revolving around a two-

party agreement, whereby the franchisee

conducts business according to the terms specified

by the franchisor

Franchisee

An entrepreneur whose power is limited by a

contractual agreement with a franchisor

Franchisor

The party in the franchise contract that specifies

the methods to be followed and the terms to be

met by the other party


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The Pros and Cons of Franchising

Advantages

Probability of success

Proven line of business

Pre-qualification of

franchisee

Overall lower failure rates

Training

Franchisor-provided

Financial assistance

Loans & loan guarantees

Operating benefits

Location feasibility study

Marketing assistance

Quick start-up time

Limitations

Franchise costs

Initial franchise fee

Investment costs

Royalty payments

Advertising costs

Restrictions on business operations

Products sold

Hours of operation

Restrictions on

expansion/growth Franchisor only source of

supplies

Loss of independence

Lack of franchisor support Termination/renewal clauses


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3 Types Of Franchising


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A product distribution franchise model is very much

like a supplier-dealer relationship.

Typically, the franchisee merely sells the franchisors

products. However, this type of franchise will also

include some form of integration of the business

activities.

PRODUCT DISTRIBUTION

FRANCHISES


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PRODUCT DISTRIBUTION

FRANCHISES

Examples of famous product distribution franchise:


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BUSINESS FORMAT

FRANCHISING

In a business format franchise, the integration of the

business is more complete.

The franchisee not only distributes the franchisors

products and services under the franchisors trade

mark, but also implements the franchisors format

and procedure of conducting the business.


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BUSINESS FORMAT FRANCHISING -

outlet in

Sale, Australia

outlet in

Marseille, France


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MANAGEMENT

FRANCHISE

A form of service agreement.

The franchisee provides the management expertise,

format and/or procedure for conducting the business.


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Famous Examples


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Licensing.

Licensing is an agreement that permits foreigncompany to use industrial property (i.e. patents,

trademarks & copyrights), technical know-how & skills

(i.e. feasibility studies, manuals, technical advice),

architectural & engineering design or any combination

of these in a foreign market.

o Licensing is not only restricted to tangible products.

Licensing offers several advantages.o It allows company to spread out its research &

development & investment cost while enabling it to

receive incremental income with negligible expenses.


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Why Licensing should be used?

o Trade barriers.

o When capital is scares.

o When country is sensitive to foreign ownership.

o It allows quick & easy way to enter the market.

o When transportation cost is high.

o A company can avoid substantial risk & other

difficulties with licensing.o Benefits from brand Licensing.

o Brand Licensing receives an intangible benefits also.

o Brand is extended into new product categories in

which trademark owner has no expertise.


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Negative aspects of Licensing.

o Reduced profit with reduced risk.

o Manufacturer may be nurturing competitor.

o When licensee performs poorly.

o Agreement can also prevent the licensor from enteringthat market directly.

o Inconsistent product quality can injure the reputation

of the product.

o Even when exact product formulations are followed,licensing can still sometimes can damage the products

image Psychologically.


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Examples:


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Joint Venture.

o A joint venture is a simply a partnership at corporate

level & it can be domestic or international.

o A joint venture is an enterprise formed for a specific

business purpose by two or more investors sharingownership & control.

There are two separate overseas process.

1. Natural or non political investment process.

In this process technology supplying firm gains a foot

hold in an unfamiliar market by acquiring a partner

that can contribute local knowledge & marketing sill.


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2. The second investment process occurs when the local

firms political leverage, through government

persuasion, halts or reverses the natural economic

process.

Partners committed to joint ventures is a function of

perceived benefits (satisfaction & economic

performance.) of the relationship.


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Joint venture enjoy certain advantages.

o Joint ventures substantially reduces the amount ofresources (Money & Personnel).

o Joint venture strategy is the only way other than

through licensing that a firm can enter a foreign

market.o MNCs manage risks by structuring joint venture

sharing arrangements.

o Sometimes social rather than legal circumstances

require a joint venture to be formed.o Joint venture can also work to satisfy social, economic

& political circumstances.


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Joint venture limitations.

o If the partners to the joint venture have notestablished clear cut decision making policy.

o Whenever two individuals or organizations work

together there are bound to be conflicts.

o Reasons.

Cultural problem.

Divergent goals.

Disagreement over production & marketing

strategies.

We contribution by one or other partners.

o Problem is matter of control.


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EXAMPLES


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Subsidiaries

Forms of Subsidiaries

Ownership

Majority stake = 50.1% to 99.9 % of stock or voting

right

Wholly owned subsidiary = entirely owned and

controlled by parent company

Structure

Greenfield = start-ups Acquisition = takeovers

Gloria Armesto, Alina Sachapow


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Subsidiaries

Greenfield

Establishment of new production facilities such as

offices, buildings, plants and factories

Movement of intangible capital

Greenfield FDI directly adds to production capacity in

the host country, contributes to capital formation and

employment generation

Gloria Armesto, Alina Sachapow


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Subsidiaries

Greenfield

Advantages Disadvantages

No restructuring or adaptation

costs

Much time, money and resources

necessaryFull control over technology,

employees etc.

No direct local knowledge,

networks etc.

More flexibility in human resources,

suppliers, logistics, plant layout,

manufacturing technology

Government incentives


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Subsidiaries

Cross border Mergers and Acquisitions

Merger: Merging of capital, assets and liabilities of

existing enterprises

Acquisition: Partial or full takeover of an existing

company

FDI through M&A does not directly add to capital

stock of host country

Horizontal

same industry

Vertical

client-supplier or buyer-seller relationships


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Subsidiaries

Acquisition

Advantages Disadvantages

Existing knowledge, local networks

and distribution channels

Restructuring might require many

resources

Production can start right away Integration is costly and time

intensive, might not be supported

by employees

Less competitors Hard to consolidate different values

and norms

Faster access to market Outdated equipment, plants, brand

names, unmotivated workforce

Better adapted equipment to local

conditions


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Strategic Alliance.

o A relatively new organizational form of market entry& competitive co-operation is strategic alliance.

o Strategic alliance may be the result of mergers,

acquisitions, joint ventures & licensing agreements.o Unlike joint ventures which requires two or morepartners to create a separate entity, a strategicalliance does not necessarily require a new legalentity.

o Strategic alliance may be more of a contractualarrangement where by two or more partners agree toco-operate with each other & utilize each partnersresources & expertise to achieve rapid global marketpenetration.


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entering international markets

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