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Major Ways of Entering Foreign MarketSubmitted BY: Shubha Brota Raha (EMBA 2011-14, SIBM Bangalore)

IndexS.No.TOPICSLIDE NO.1REASONS FOR ENTERING FOREIGN MARKET32EVALUATING COST, BENEFIT AND RISKS43DIFFERENT MODES OF FOREIGN ENTRY54EXPORTING DIRECT & INDIRECT6-95LICENSING106FRANCHISING & KFC11-137CONTRACT MANUFACTURING148MANAGEMENT CONTRACTS159TURNKEY PROJECTS1610FDI WITH/WITHOUT ALLIANCE & NOKIA17-2211FACTORS INFLUENCING MODE OF ENTRY23Reasons for entering foreign marketWorld MarketLocation EconomiesEconomies of ScaleEconomies of ScopeTo seek lower production factor costsTo expand sales and production volumeTo exploit proprietary assetsEvaluating cost, benefit and risksDifferent modes of Foreign EntryEXPORTING -indirect exporting-direct exports-intra-corporate transfers

LICENSING

FRANCHISING

SPECIAL MODES-Contract manufacturing-Management Contracts-Turnkey projects

FDI with alliancesFDI without alliance

ExportingA function of international trade whereby goods produced in one country are shipped to another country for future sale or trade. The sale of such goods adds to the producing nation's gross output. If used for trade, exports are exchanged for other products or services. Exports are one of the oldest forms of economic transfer, and occur on a large scale between nations that have fewer restrictions on trade, such as tariffs or subsidies.Indirect ExportingIndirect exporting means that the firm participates in international business through an intermediary and does not deal with foreign customers or markets.Types of intermediaries:Combination Export Manager (CEM)Export Merchants Export Broker Export Commission House Trading Piggyback Exporting

Direct ExportingDirect exporting means that the firm works directly (without intermediaries) with foreign customers or markets with the opportunity to develop a relationship Export without intermediaries through own exporting departments: Export department.Export Sales Subsidiary

Exporting Pros and ConsLicensingIn this agreement, the international company, the licensor, agrees to make available to another company abroad , the licensee, use of its:Patents and trademarksManufacturing processKnow-howTrade secretsManagerial and technical services.

FranchisingFranchising is a form of licensing.Transfer of technology, business system, brand name, trademark and other property rights.Franchisor: developed the business, lends the names and brands.Franchisee: buys the rights (fees or royalties) to operate the business under the name of the franchisorFranchisor examples are Mc Donalds, KFC, Dominos etc.KFC Foreign Entry through FranchisingYum! Brandsis the largest restaurant group in the world. Kentucky Fried Chicken, or KFC, is the dominant subsidiary of Yum! Brands and what KFCs product focus in the fast food industry is fried chicken. KFC is very successful in the fast food industry internationally. According to KFC official website description, There are more than 15,000 KFC outlets in 105 countries and territories around the world.KFC is the largest restaurant chain in China, with 4,563 outletsKFC sales in the United States in 2013 were estimated at $4.22 billion by TechnomicJapan is the third-largest market for KFC after China and the United States with 1,200 outletsKFCs local cultural strategyKFC has another important strategy that has contributed to their global success called local cultural strategy. Local cultural strategy means KFC spend much of their time and resources on analyzing the local consumption eating habits. According to the eating habits, KFC will create and produce related cultural fast food. Customers will directly benefit from the perceived value derived from KFCs menu. The local cultural strategy helps KFC to increase customer loyalty. The best example where the local cultural strategy was implemented is KFC restaurants in the China. There are more than 4,000 KFC outlets in 80 cities in China. In order to be successful, KFC incorporated more than 30 different menu items in order to complement the local cultural strategyContract ManufacturingContractual agreement between a company and a foreign producer under which the foreign producer manufactures the companys product

The company controls promotion and distribution

E.g. Pharmaceutical industry.

Management ContractsIt is a long term agreement, in which the legal owners of the property and real estate enter into a contract with an outsider firm to run and operate the business.

The Firm gets regular payments as well as comissions.

Turnkey ProjectsThe international company engages in the design and construction of the entire operation, once it is finished, the management goes to local personnel in exchange of a substantial fee.

Airports, dams, electric power stations, roads, factory complexes: steel mills, refineries, chemical plants and automobile plants.

FDI without alliancesCompanies enter the international market through FDI , invest their money, establish manufacturing and marketing facilities through ownership and control.

Greenfield strategy- the term Greenfield refers to starting of the operations of a company from scratch in a foreign market.FDI with alliancesStrategic alliance is a cooperative and collaborative approach to achieve the larger goals.Role of alliancesMany complicated issues are solved through alliancesThey provide the parties each others strengthsHelps in developing new products with the interaction of 2 or more industriesMeet the challenges of technological revolution.Managing heavy outlayBecome strong to compete with a multinational company.

FDI with alliancesModes of FDI through alliances are:Mergers and acquisitionsJoint venturesMerger : The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. e.g. On 19 June 2006, Nokia andSiemens AGannounced the companies would merge their mobile and fixed-line phone network equipment businesses, creatingNokia Siemens Networks. Each company has a 50% stake in the infrastructure company, headquartered inEspoo, Finland. About 20,000 Nokia employees transferred to this new company.Acquisition : When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. e.g. HDFC Bank acquisition of Centurion Bank of Punjab for $2.4 billionNokias acquisition of Intellisync Corp, Sega.com, Navteq, Enpocket, etc

FDI & NokiaFDIs that are undertaken to strengthen the existing market structure or explore the opportunities of new markets can be called 'market-seeking FDIs.' 'Resource-seeking FDIs' are aimed at factors of production which have more operational efficiency than those available in the home country of the investor. FDI activities may also be carried out to ensure optimization of available opportunities and economies of scale. In this case, the foreign direct investment is termed as 'efficiency-seekingFor Nokia it was more or less a mix of all of the above three motives. Some of the key examples for NOKIA can be listed as follows: Mergers, Collaborations and Acquisitions by NokiaNokia Mergers & AcquisitionOn 22 September 2003, Nokia acquired Sega.com, a branch ofSegato develop the NokiaN-Gagedevice.On 16 November 2005, Nokia agreed to acquireIntellisync Corporation, a provider of data and PIM synchronization software,[87]completing the acquisition on 10 February 2006.On 19 June 2006, Nokia andSiemens AGannounced the companies would merge their mobile and fixed-line phone network equipment businesses, creatingNokia Siemens Networks.Each company has a 50% stake in the infrastructure company, headquartered inEspoo, Finland. About 20,000 Nokia employees transferred to this new company.Nokia Mergers & AcquisitionIn 2007, Nokia agreed to acquireNavteq, a U.S.-based supplier of digital mapping data, for $8.1 billion[4][93]and finalized the acquisition on 10 July 2008.In September 2008, Nokia acquired OZ Communications, a privately held company with approximately 220 employees headquartered in Montreal, Canada. On 8 August 2006, Nokia agreed to acquire online music distributorLoudeyeCorporation for approximately US$60 millionIn July 2007, Nokia acquired all assets ofTwango, a comprehensive media sharing solution for organizing and sharing photos, videos and other personal mediaIn September 2007, Nokia agreed to acquireEnpocket, a supplier of mobile advertising technology and services

Nokia Mergers & AcquisitionOn 24 July 2009, Nokia agreed to acquire certain assets of Cellity, a privately owned mobile software company,[96]completed on 5 August 2009.In September 2009, Nokia acquired certain assets of Plum Ventures, Inc to complement Nokia's Social Location services.[98]In March 2010, Nokia acquired Novarra, a mobile web browser firm.In April 2010, Nokia acquiredMetaCarta, a local search technology firm.[100]In 2012, Nokia acquiredSmarterphone, a developer of an operating system forfeature phones, and the imaging companyScaladoFactors influencing mode of entryEntry ModeDegree of ControlSystemic RiskDissemination RiskResource CommitmentExportLowLowLowLowCountertradeLowLowLowLowContract ManufacturingMediumMediumLow to MediumLowLicensingLowLowHighLowFranchisingLow to MediumLowMediumLowManagement ContractMediumLowMediumLowTurnkeyLowLowLowLowJoint VentureMedium-highMedium-highMedium to highMedium to highWholly Owned SubsidiaryHighHighLowHighTHANK YOUthank youBy: SHUBHA BROTA RAHA (EMBA 2011-14, SIBM BAMGALORE)