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EXPORTING ?

Chapter 12: The Firm’s Market-Entry Strategies. EXPORTING ?. FRANCHISING?. DIRECT INVESTMENT ?. TURNKEY?. LICENSING ?. SUB-CONTRACTING ?. TOPIC PLAN. The firm’s foreign business strategy Exporting Contracting (licensing, leasing etc) Joint ventures Wholly-owned company

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EXPORTING ?

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  1. Chapter 12: The Firm’s Market-Entry Strategies EXPORTING ? FRANCHISING? DIRECT INVESTMENT ? TURNKEY? LICENSING ? SUB-CONTRACTING ?

  2. TOPIC PLAN • The firm’s foreign business strategy • Exporting • Contracting (licensing, leasing etc) • Joint ventures • Wholly-owned company • Advantages and disadvantages of various market entries • Strategic FDI plan issues

  3. Export-import Management • Company business strategies • Domestic strategies • Investment in product development • Expand domestic market share • Diversify into new industry. • Foreign business strategies • Exporting • International contracting • Foreign Direct Investment/Foreign production

  4. The Firm’s Foreign Business Strategy Steps(Figure 12.1) • 1.The firm’s evaluation • Competitive advantages and disadvantages • 2.Selection of a target (geographic) market. • 3.Selection of product to make/sell in target market • 4.Selection of market-entry mode: • Exporting/Contracting/Foreign Direct Investment • 5.Business plan development and execution. • 6.Monitoring and evaluation of results.

  5. Exporting • World Exports of Goods (US $6,1862billion in 2000) have declined in relative importance compared to foreign production (US$ 15,680 billion in 2000) • Most likely mode for serving a foreign market for a domestic firm starting in international business. • The Business Plan (Export marketing plan) • Many global companies combine exports and FDI.

  6. EXPORTS : Advantages • Least costly and risky • L/C payment • Specialisation, economies of scale. • Open to any size or kind of firm

  7. EXPORTS : Disadvantages • Production costs in the home country may be HIGHER • Transport costs may make exporting uneconomical. • Trade barriers in target markets. • Divided loyalties of O/S agents.

  8. Types of International Exporters • The Casual Exporter • Domestic firms that do not do international business on a regular basis(< 5% of T/O) • The Small Scale Exporter • 5-20% of turnover • The Experienced/Global Exporter • high ratio of its turnover through involvement in worldwide business deals(Exports +FDI)

  9. Licensing • Licensor grants rights to intangible property to a Licensee in exchange for a royalty payment. • Time and territorial limits • Advantages: • Speed of execution. • Low risk/investment cost • Brand recognition • Preliminary cooperation which may be expanded into FDI

  10. Licensing : Disadvantages • Isolation from the market • Lack of managerial control • Limited life. • Risk of technology loss

  11. Franchising • A Franchisor sells limited brand use rights,products and services to a Franchisee in return for a lump sum payment and a share of the Franchisee’s profits. • 20% of US franchise systems have foreign operations (Japan,Canada,UK,Australia) -Domino vs.Pizza Haven(200 in 7 years); -Dunkin’Donuts vs.Donut King • Low market entry costs and risks. • Quality control is difficult due to big number of Franchisees and geographic location.

  12. Subcontracting • Supply arrangement between a principal and a subcontractor • Advantages: • Low investment cost • Speed • Stable processing cost and quality • Control of sales and marketing • Can become the basis for later alliance • Disadvantages: • Risk of non-delivery or late delivery

  13. Contract for the construction of operating facilities that are transferred for a fee to the owner after commissioning Advantages : high economic returns less risky than FDI Disadvantages lack of long-term market presence. loss of control over technology the client may turn into a competitor TURNKEY OPERATIONS

  14. JOINT VENTURES • A legal entity jointly owned by two or more legally distinct organisations which share in the J.V.’s decision-making activities. • Various options • 2 companies from the same country • Foreign/Local • 2 or > companies setting a j.v. in a third country

  15. JOINT VENTURES(cont.) • Advantages : • Partner’s local knowledge • Cost/risk sharing • Host government legislation • Low risk of nationalisation. • Disadvantages : • Technology control risk . • Less control over subsidiaries . • Management control conflicts

  16. Wholly Owned subsidiaries • A firm owns 100 percent of the stock. • Trend in the motor-car sector(e.g.India,China) • Advantages : • complete management control. • Optimum security for technology. • “Internalisation” economies. • Disadvantages : • High costs and risks • Long lead time to first sale(especially for" Greenfield”)

  17. China:Joint ventures versus Wholly Owned

  18. Strategic FDI Plan Issues • Investment location evaluation • See Matrix on next slide • Strategic organisation • International group • Business/product units • Functional units • Global matrix

  19. Investment Location Evaluation

  20. Strategic FDI Plan Issues • Financial Management and Control • Investment decisions • Financing decisions • Global money management • Global Sourcing Strategy • Outsourcing • Global Human Resource Strategies

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