Transcript Slide 1

This chapter covers:
15
•Market pioneering
versus fast following
•International market
entry methods
Entry Modes
•Forms of piracy
•Channel members for
export or overseas
manufacture
•Structural trends in
wholesaling and
retailing
International Business
by Ball, McCulloch, Frantz,
Geringer, and Minor
McGraw-Hill/Irwin
Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Objectives
 Appreciate the debate on whether being a market
pioneer, or a fast follower, is most useful
 Understand the international market entry methods
 Identify two different forms of piracy and discuss
which might be helpful and harmful to firms doing
international business
 Discuss channel members available to companies
that export or manufacture overseas
15-2
Pioneers vs. Fast Followers

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Pioneers
 Can gain and maintain a
competitive edge in a
new market
 Overall pioneers may not
perform as well in the
long run as followers
Most successful when
 High entry barriers exist
 Firm has sufficient size,
resources and
competencies
15-3


Followers
 Many become followers
by default
 Sometimes an advantage
to let the pioneer take the
initial risks
Most successful when
 Low entry barriers exist
 Sufficient resources or
competencies to
overwhelm the pioneers’
early advantage
Modes of Entry

Trade
 Export
 Subcontracting
 Countertrade

Transfer
 Licensing
 Franchising
15-4

Foreign Direct
Investment
 Wholly Owned
Subsidiary
 Joint Venture
 Contract
Manufacturing
 Management
Contract
 M&A
Exporting

Most firms begin
involvement in overseas
business by exporting
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
15-5
Selling some of their regular
production overseas
Requires little investment
Relatively risk free
Means of getting a feel for
international business
without a large commitment
Direct or indirect
Indirect Exporting

Exporting of goods and services through various
types of home-based exporters

Manufacturers’ export agents - sell for
manufacturer

Export commission agents - buy for overseas
customers

Export merchants - purchase and sell for own
accounts

International firms - use the goods overseas
15-6
Indirect Exporting

Disadvantages
 Most exporters
require a commission
 Business can be lost
if exporter changes
source of supply
 Firms gain little
international
experience
15-7
Direct Exporting

The exporting of goods and services by the
exporting firm
 Sales company
A business established for the purpose of
marketing goods and services, not production
 Imports its own name from the parent and invoices
in local currency

 The
Internet has made direct exporting much
easier
 Cost of trial very low
15-8
Exporting

Turnkey Project – the export of



Technology
Management expertise
Capital equipment
After a trial run, the facility is turned over to the
purchaser
 Exporter of a turnkey project may be
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

15-9
A contractor that specializes in designing and erecting
plants in a particular industry
A company that wishes to earn money from its expertise
The producer of a factory
Transfer

Licensing
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
15-10
Firm will grant another
firm the right to use any
kind of expertise for one
or more of the licensor’s
products
Licensee pays fixed sum
when signing and pays
royalties of 2%-5% of
sales over the life of the
contract

Licensing has become more
popular because
 Courts have begun
upholding patent
infringement claims
 Patent holders have
become more vigilant in
suing violators
 Foreign governments
have been pressed to
enforce their patent laws
Transfer

Franchising
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15-11
A special kind of
licensing
Permits the franchisee to
sell products or services
under a highly publicized
brand name and wellproven set of procedures
with a carefully
developed and controlled
marketing strategy
Fast food most numerous
Foreign Direct Investment
 Four distinct alternatives available for foreign
manufacturing
 Wholly owned subsidiary
 Joint venture
 Contract manufacturing
 Management contract
 Utilized by both manufacturing and service
operations
 Providing management expertise for a fee
15-12
Wholly Owned Subsidiary
 A company that wishes to

own a foreign subsidiary
outright may
 Start from the ground up by
building a new plant
 Acquire a going concern
 Currently the preference
of foreign investors
 Purchase its distributor,
obtaining a distribution
network familiar with its
products
15-13

In 2000 96% of the money
spent by foreign investors
was used for acquiring
American firms
Sometimes it is not possible
to have a wholly owned
subsidiary
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Host government may not
permit it
Firm may lack capital or
expertise
May be disadvantageous
tax-wise or otherwise
Joint Venture
 A Joint Venture may be
 a corporate entity formed by
an international company
and local owners
 a corporate entity formed by
two international companies
to do business in a third
market
 a corporate entity formed by
a government agency and an
international firm
 a cooperative undertaking
between two or more firms
of a limited-duration project
15-14
Joint Venture

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
If government requires local
participation, firm must
engage in joint ventures
with local owners
Strong nationalistic
sentiment may cause foreign
firm to try to lose its identity
by joining with local
investors
Companies may enter joint
ventures to acquire
expertise, tax benefits or
additional capital
15-15

Disadvantages
 Profits must be shared
 If law forbids no more
than 49% foreign
ownership, lose control
 Control with minority
ownership is possible if
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Take 49% of shares and
give 2% to local law firm
or trusted national
Take in local majority
partner (sleeping partner)
Management contract
Management Contract
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Arrangement under which a company provides managerial
know-how in some or all functional areas to another party for
a fee
Used in
 Firms in which they have no ownership
 Joint ventures
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Wholly owned subsidiaries
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15-16
Enables the global partner to control many aspects of a joint
venture even when holding only a minority position
May also earn income by selling inputs manufactured in home
plant
To siphon off some of subsidiary’s profits
Contract Manufacturing

Means to enter foreign
market without investing in
facilities


One firm contracts with
another to produce products
to its specifications but
markets products itself
Subcontract assembly work
or production of parts to
independent companies
overseas

15-17
FDI without investment
Strategic Alliances



Partnerships between competitor, customers, or
suppliers
Also referred to as competitive alliances,
competitive collaborations, or coopetition
Reasons firms form strategic alliances
 Expanding global competition
 The growing cost of research, product
development, and marketing
 The need to move faster in carrying out global
strategies
15-18
Strategic Alliances

Alliances may be Joint
Ventures

Pooling alliances driven by
similarity and integration

Trading alliances driven by
contribution of dissimilar
resources

Mergers and acquisitions are
not considered alliances
15-19

Future of Alliances
 Many fail or are taken
over by one of the
partners
 Different strategies,
operating practices,
organizational cultures
 Allow a partner to
acquire technological or
other competencies
 Regardless, will continue
to be important strategic
tool
International Channels
of Distribution Members
 Indirect Exporting
Distribution Members
 Exporters that sell for the
manufacturer
 Exporters that buy for
their overseas customers
 Exporters that buy and
sell for their account
 Exporters that purchase
for foreign users
15-20
International Channels
of Distribution Members
 Indirect Exporting
 Exporters that sell for the manufacturer
 Manufacturers’ export agents
 Act as the international representatives for various
noncompeting domestic manufacturers
 Export management companies
 Act as the export department for noncompeting
manufacturers
 International trading companies
 Act as agents for some companies and as wholesaler
for others
Indirect Exporting
 International Trading
Companies (cont’d)
 Sogo Shosha
 The largest of the
Japanese trading
companies
 Originally established
by the zaibatsu
(centralized, familydominated economic
groups)
15-22
 Korean general trading
companies
 Owned by huge Korean
conglomerates called
chaebol
 Export trading companies
 Allows American
businesses to join
together to export goods
and services without
violating antitrust
regulations
Indirect Exporting

Exporters that buy for their
overseas customers
 Export commission
agents
 Represent overseas
purchasers, such as
import firms and large
industrial users
 These agents are paid
a commission by the
purchaser for acting as
resident buyers in
industrialized nations
15-23
Indirect Exporting

Exporters that buy and sell for their own account



15-24
Export merchants
 Purchase products directly from the manufacturer and
then sell, invoice, and ship them in their own names
Cooperative exporters
 Established international manufacturers that sell the
products of other companies in foreign markets along
with their own
Webb-Pomerene Associations
 Organizations of competing firms that have joined
together for the sole purpose of export trade
Indirect Exporting

Exporters that purchase for foreign users and
middlemen
 Large foreign users


Export resident buyers
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15-25
Buy for their own use overseas
Perform essentially the same functions as export
commission agents but more closely associated with a
foreign firm
May be official buying representative or an employee
International Channels
of Distribution Members
 Direct Exporting
Distribution Members
 Manufacturer’s
agents
 Distributors or
wholesale importers
 Retailers
 Trading companies
15-26
Direct Exporting

Manufacturer’s agents


Represent various
noncompeting foreign
suppliers, and take orders
in those firm’s names
Distributors or
wholesale importers

15-27
Independent merchants
that buy for their own
account

Retailers


Frequently direct
importers
Trading companies


Develop trade and serve
as intermediaries
between foreign buyers
and domestic sellers and
vice versa
Relatively unknown in
the U.S. but important
world wide
SBA Exporting Guidelines
Advantages
Disadvantages
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enhance domestic
competitiveness
increase sales and profits
gain global market share
reduce dependence on existing
markets
exploit corporate technology
and know-how
extend the sales potential of
existing products
stabilize seasonal market
fluctuations
enhance potential for corporate
expansion
sell excess production capacity
gain information about foreign
competition
Your business may have to
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develop new promotional
material
subordinate short-term profits
to long-term gains
incur added administrative
costs
allocate personnel for travel
wait longer for payments
modify your product or
packaging
apply for additional financing
obtain special export licenses
How to Locate an Importer, Agent
or Distributor in a Foreign Country

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U.S. Federal and State Government Offices Abroad The
USDA's Foreign Agricultural Service (FAS) and the U.S.
Department of Commerce have trade contact services for
American exporters
Direct Mail — Write a letter to a company requesting that it
represent your product
Personal Visits — Once you receive a few prospective
distributors, plan a trip to that country
Trade Shows & Exhibitions — Trade shows and exhibitions
are perhaps the best source for finding distributors
Foreign Magazines and Newspapers — Placing "distributor
wanted" or "representative wanted" advertisements in foreign
publications can generate responses
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