OPTIONS

AVAILABLE AT A

FIRM’S DISPOSAL

METHODS OF ENTRY INTO FOREIGN MARKETS

PRESENTED BY AKARSHA, & KEVYN ~ Batch 31

METHODS OR OPTIONS PREFERRED BY FIRMS

INDIRECT EXPORTING

ACTIVE EXPORTING

PRODUCTION ABROAD

PARALLEL IMPORTS

INDIRECT EXPORTING

EXPORT TRADING COMPANY

(ETC)

EXPORT MANAGEMENT CORPORATION

(EMC)

PIGGY BACKING

EXPORT TRADING COMPANY• ETC IS INTERMEDIARY – WHICH WILL PURCHASE GOOD IN

EXPORTER COUNTRY AS A LOCAL COMPANY- DOMESTIC

TRANSACTION

• WILL HAVE ONE MORE DOMESTIC TRANSACTION IN

IMPORTING COUNTRY.

• SUITABLE OVER SHORT RUN

• HAVING AN ETC AS PARTNER FOR LONG RUN IS POOR

STRATEGY

• CUSTOMERS GOODWILL WILL BE TO ETC RATHER THAN

THE EXPORTER.

• EXPORTER WILL NOT BENEFIT MUCH IN COMPARISON TO

ETC

EXPORT MANAGEMENT CORPORATION• BASED IN EXPORTERS COUNTRY

• MANUFACTURERS AGENT OR REPRESENTATIVE

• DOES NOT TAKE TITLE TO THE GOODS BUT EARNS

COMMISSION ON SALE.

• SMALL ORGANIZATIONS LESS THEN 15 EMPLOYEES

• OFTEN SPECIALIZE IN ONE PRODUCT / ONE COUNTRY

• MIGHT REPRESENT MORE THAN ONE MANUFACTURER

• EMC ACTS AS EXPORT DEPARTMENT OF THE SELLER-

MORE SUPPORT.

PIGGY BACKINGa. PIGGY-BACKING ON THE STRATEGY OF AN EXISTING

CUSTOMER. OR FRANCHISED BUSINESS

b. COLLABORATIVE EXPORTING.

COMPLEMENTARY PRODUCT FROM A SUPPLIER IN THE EXISTING MARKET.

PASSIVE ARRANGEMENT – NOT A STRATEGY TO EXPORTER.

BUT THIS SUPPLIER CAN USE THIS PIGGY-BACKING EXPERIENCE TO UNDERSTAND THE UNKNOWN MARKET. THIS CAN BE ENTRY STRATEGY TO SUPPLIER.

ACTIVE EXPORTING

Agent

Distributor

Marketing Subsidiary

Foreign Sales

Corporation

AGENT• AGENT DOES NOT TAKE TITLE TO THE GOODS

• AGENT WILL HAVE SEVERAL COMPLEMENTARY PRODUCTS RATHER THAN COMPETING PRODUCTS OF ITS PRINCIPALS

• ALL THE SALES FUNCTION IS HANDLED BY THE AGENT. (EX: BID BOND)

• PRODUCT TRAINING, COMPETITION ANALYSIS

• RFQ’S INVOICES SHOULD BE HANDLED PROMPTLY• TIME DIFFERENCES.

• ABILITY TO SELL

• CONTACTS

• KNOWLEDGE OF THE INDUSTRY

• COMPATIBILITY OF ITS OBJECTIVE

• PRODUCT IS NOT STOCK ITEM

• AGENTS COMES UNDER LABOR LAW IN MANY COUNTRIES SINCE THESE ARE SMALL.

• SHORT PRODUCT LIFE CYCLE.

DISTRIBUTOR

• LOCATED IN THE IMPORTING COUNTRY

• TAKES TITLE TO THE GOODS AND EARNS PROFIT ON THE SALES. FREEDOM

FROM EXPORTER

• INTERNATIONAL INVOICE WITH EXPORTER, DOMESTIC INVOICE WITH

CUSTOMERS.

• CARRIES INVENTORY OF THE EXPORTING FIRM.

• PROVIDES AFTER SALES SUPPORT & MIGHT CARRY SPARE PARTS INVENTORY

ALSO.

• WOULD SELL DIRECTLY COMPETING PRODUCTS IN ADDITIONAL TO

COMPLEMENTARY PRODUCTS.

• DISTRIBUTOR TAKES MORE RISKS & WILL HAVE MORE COSTS THAN AGENT

• MOST OF THE TIME PRODUCT IS STOCK ITEM, LONG PRODUCT LIFE, NO

PRESTIGE PRICING STRATEGY.

• GOVERNED BY CONTRACTS LAW.

MARKETING SUBSIDIARY

• OWN SALES OFFICE IN IMPORTING COUNTRY.

• EXPORT HAPPENS BETWEEN TWO LEGAL ENTITIES THAT ARE

PART OF SAME COMPANY.

• TRADE TERMS & PAYMENT TERMS ARE NORMALLY

ELIMINATED.

• NOT JUST VARIABLE COST SALES BUT A FIXED COST SALE.

(INVESTMENTS BY THE COMPANY)

CHALLENGES IN AGENT V/S DISTRIBUTOR DECISION

• SOME COUNTRIES DO NOT ALLOW AGENTS AT ALL

• LOCAL LABOUR LAWS

• A PHYSICAL AFTER SALES SERVICE PRESENCE

• INTERNATIONAL CHAMBER OF COMMERCE MODEL CONTRACTS

PRODUCTION ABROAD

• CONTRACT MANUFACTURING

• LICENSING

• FRANCHISING

• JOINT VENTURE

• SUBSIDIARY

PRODUCTION ABROAD

Contract Manufact-uring – 3M example

LICENSING

• FIRM POSSESSING INTELLECTUAL PROPERTY GRANTING RIGHT

TO ANOTHER FIRM

• COPYRIGHTS, TRADEMARKS, PATENTS, TRADE SECRETS,

DESIGNS, BRAND

• LICENSOR – OWNER OF INTELLECTUAL PROPERTY

• LICENSEE –PARTY THAT GOT GRANT TO USE THE INTELLECTUAL

PROPERTY

• ROYALTY – AMOUNT OF MONEY PAID BY THE LICENSEE TO

LICENSOR

• WHEN THERE IS HIGH TARIFFS OR NON-TARIFF BARRIERS TO

ENTER THE MARKET

• WHEN LICENSOR IS NOT INTERESTED IN ACTIVELY PURSUING

THE MARKET.

• NO CAPITAL INVESTMENT, NO SHIPPING OR TRANSPORTATION

COST

• PIRACY

FRANCHISING

• FIRM POSSESSING ARRAY OF INTELLECTUAL PROPERTY ITEMS GRANT RIGHT

TO ANOTHER FIRM

• FRANCHISOR – OWNER OF THE INTELLECTUAL PROPERTY

• FRANCHISEE – FIRM THAT GOT GRANT TO USE THE INTELLECTUAL PROPERTY

• MANY INTELLECTUAL PROPERTY ARE BUNDLED IN A BUSINESS PACKAGE

• COPYRIGHTS, TRADEMARKS, PATENTS, TRADE SECRETS, BRAND, FORMULA

• MOST FRANCHISES ARE RETAIL ESTABLISHMENTS – LARGE BASE OF

CUSTOMERS

• FAST MARKET EXPANSION FOR FRANCHISOR WITHOUT CAPITAL INVESTMENTS

• LOW SKILL AND TRAINING

• PIGGY-BACKING – TO THE MACHINERY/EQUIPMENT USED

JOINT VENTURE

• ONE OR MORE PARTNERS – CREATION OF NEW CORPORATION

• REDUCTION IN CAPITAL COSTS TO EXPORTER – MINIMIZATION OF FOREIGN RISK

• COMPLEMENTARY PRODUCT LINE AND SIMILAR OBJECTIVE

• LOCAL PARTNER TO TEACH LOCAL WAYS OF BUSINESS

• POLITICAL CONNECTIONS OF LOCAL PARTNER

• FOREIGN INVESTOR ARE MAINLY TECHNOLOGY PROVIDER

• NO ISSUE OF INTELLECTUAL PROPERTY THEFTS

• NATIONALIZATION OF FIRMS

• CHANGE IN OWNERSHIP OF ONE OF THE MAIN FIRM CAN CAUSE EFFECT IN JV

SUBSIDIARY

• WFOE – WHOLLY FOREIGN-OWNED ENTERPRISE – “WOOFIE”

• 100% CAPITAL BY THE INVESTING FIRM

• TOTAL CONTROL OF INVESTMENT

• 56% OF FOREIGN INVESTMENT IN EUROPE IS WOOFIE

• ENTIRE RELOCATION OF A MANUFACTURING FACILITY – LOW CAPITAL

• BENEFICIAL TO THE HOST COUNTRY – INCENTIVE FOR 100%

INVESTMENT TO FIRM

• HIGH RISK EXPOSURE

• NO UNDERSTANDING OF LOCAL CUSTOMS AND REGULATIONS

PARALLEL IMPORTS

• GRAY MARKET INFLUX

• PATENTS – CHINESE MANUFACTURERS FLOODING MARKET

• COPYRIGHT

ISSUES IN METHODS OF ENTRY

FOREIGN TRADE ZONES

USING CORRECT STRATEGY IS IMPORTANT TO AVOID SUPPLYCHAIN AND LOGISTICS ISSUES

MARKET SIZE GROWTH MARKET MARKET SHARE OF EXPORTER

TYPE OF PRODUCT MARKET STRATEGY

WILLINGNESS TO INVOLVE

COUNTRY ATTRIBUTES PRODUCT LIFECYCLE - HORIZON

AGENT V/S DISTRIBUTOR V/S MARKETING SUBSIDIARY

  Agent Distributor Marketing Subsidiary

Market Moderate or No growth Potential

Substanital Growth Potential

Very Substantial Growth Potential

ProductNot stock item;

Made for Particular customer

Stock item; not tailor made

Technology driven; Intellectual property

Price Level

Expensive, operating machinery; no Premium prices

Moderatly priced Premium priced; complicated product.

Life Cycle Short Long Long run and Additional products introduced later.

Service Does not require frequent service

Frequent after Sales Service Sophisticated After Sales Service

Market Position

Does not expect to become dominant

player

Wants to be much more than a Minor

player

When expects to be a Major player in the market

Export Sales

When reasonably well equipped

When preferes to handle with only one

customer.

Does not wish to allow other company to handle it's

MarketingPricing

information

Resonable maount of control over price no control over price Full control of products and

prices

THANK YOU

• QUESTIONS ??