Strategies for Analyzing and Entering Foreign Markets

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Strategies for Analyzing and Entering Foreign Markets

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Chapter 12 - 1

Chapter 12

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Strategies for Analyzing and

Entering Foreign Markets

Chapter 12 - 2

Learning Objectives

• Learn how firms analyze foreign markets• Explore how firms choose a mode for

entering a foreign market• Investigate exporting and types of

intermediaries that help export goods• Identify international licensing issues and

pros and cons of licensing

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter 12 - 3

Learning Objectives

• Identify basic international franchising issues and pros and cons of franchising

• Analyze contract manufacturing, turnkey projects, and management contracts as entry modes for international business

• Describe the greenfield and acquisition forms of FDI

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Chapter 12 - 4

Foreign Market Analysis

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Chapter 12 - 5

Assessing Alternative Foreign Markets

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Market Potential

Levels of Competition

Legal and Political Environment

Sociocultural Influences

Chapter 12 - 6

Evaluating Costs, Benefits, and Risks

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Chapter 12 - 7

Potential Costs

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Start-Up Costs

Operating Costs

Forfeit Profits

Delay Profits

Direct

Opportunity

Chapter 12 - 8

Potential Benefits

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Sales and Profits

Foreclosing of Markets

New Technology

Lower Costs

Competitive Advantage

Synergy

Chapter 12 - 9

Potential Risks

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Exchange-Rate Fluctuations

Operating Complexities

Political InstabilityDirect Financial Losses

Chapter 12 - 10

Summary of Discussion

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Chapter 12 - 11

Choosing an Entry Mode

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Chapter 12 - 12

Modes of Entry

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Decision Factors•Ownership•Location•Internalization•Other Factors

1. Need for Control2. Available Resources3. Global Strategy Foreign Direct Investment

Specialized Modes

International Franchising

International Licensing

Exporting

Chapter 12 - 13

Decision Factors

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Ownership Advantages

Location Advantages

Internalization Advantages

Chapter 12 - 14

Other Factors

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Need for Control

Availability of Resources

Overall Global Strategy

Chapter 12 - 15

Summary of Discussion

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Chapter 12 - 16

Exporting to Foreign Markets

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Chapter 12 - 17Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Control Financial Exposure

Enter Markets Gradually

MotivationsProactive(Pull)

Reactive(Push)

Advantages of Exporting

Chapter 12 - 18

Forms of Exporting

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• Indirect Exporting

• Direct Exporting

• Intracorporate Transfers

Chapter 12 - 19

Additional Considerations

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Government Policies

Marketing Concerns

Distribution Issues

Logistical Considerations

Chapter 12 - 20

Export Intermediaries

Export Management Company

Webb-Pomerene Association

International Trading Company

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Chapter 12 - 21

Export Management Company

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Perform Export Department Functions

Act as Commission Agents

Take Title to Goods

Chapter 12 - 22

• Includes firms from same industry

• Coordinates export activities

• Performs promotional activities

• Oversees freight consolidation

• Engages in contract negotiations

• Exports goods for members

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Webb-Pomerene Association

Chapter 12 - 23

International Trading Company

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Research

Transportation

Marketing

Documentation

Distribution

Financing

Chapter 12 - 24

Other Intermediaries

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Manufacturers’Agents

Manufacturers’Export Agents

Export and Import Brokers

Freight Forwarders

Chapter 12 - 25

Summary of Discussion

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Chapter 12 - 26

International Licensing

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Chapter 12 - 27

Basic Issues in International Licensing

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Boundaries of the Agreement

Methods of Compensation

Rights, Privileges, and Constraints

Duration of the Agreement

Chapter 12 - 28

Advantages of International Licensing

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•Low Financial Risk•Market Assessment•Sales Opportunities

Chapter 12 - 29Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

•Limited Opportunities•Potential Litigation•Competitive Issues

Disadvantages of International Licensing

Chapter 12 - 30

Summary of Discussion

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Chapter 12 - 31

International Franchising

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Chapter 12 - 32

Franchising Issues

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•Franchise Elements•Transferability•Franchise Success•Foreign Investors

Chapter 12 - 33

International Franchises

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Opportunities Challenges

Product and System Shared Revenues

Low-Cost Expansion Increased Complexity

Learning Opportunities Quality Control

Chapter 12 - 34

Summary of Discussion

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Chapter 12 - 35

Specialized Entry Modes for International

Business

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Chapter 12 - 36

Contract Manufacturing

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Advantages Disadvantages

Reduced Costs

Distinctive Competence

Location Advantages

Loss of Control

Quality Issues

Unexpected Problems

Chapter 12 - 37Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Management Contracts

• Managerial Assistance• Technical Expertise• Other Services

Chapter 12 - 38

Specialized Strategy

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Turnkey Project B-O-T Project

Design

Construct

Equip

Build

Operate

Transfer

Chapter 12 - 39

Summary of Discussion

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Chapter 12 - 40

Foreign Direct Investment

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Chapter 12 - 41

Foreign Direct Investment (FDI)

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Opportunities Challenges

Increased Control

Profit Potential

Local Production

Complex Operations

Exchange Rates

Government Instability

Chapter 12 - 42Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

• Greenfield

• Acquisitions

• Joint Ventures

Three FDI Methods

Chapter 12 - 43

Strategic Advantages• Select the most useful site

• Construct modern facilities

• Reap economic development incentives

• Start with a clean slate

• Get acclimated to new business culture

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Greenfield Strategy

Chapter 12 - 44

Strategic Disadvantages• Implementation takes time and patience

• Location may be costly or unavailable

• Must deal with government regulations

• Must recruit and train a local workforce

• May be stigmatized as a “foreign firm”

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Greenfield Strategy

Chapter 12 - 45

Acquisition Strategy

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Strategic Advantages

Control Over the Firm’s Resources

Generates Immediate Revenues

Adds No New Capacity to the Industry

Chapter 12 - 46

Acquisition Strategy

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Strategic Disadvantages

Assumes the Firm’s Liabilities

Inherits Unresolved Problems

Requires Substantial Up-Front Spending

Chapter 12 - 47

Joint Ventures

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Joint Ownership

MutualInterests

Chapter 12 - 48

Summary of Discussion

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Chapter 12 - 49

Chapter 12

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Strategies for Analyzing and

Entering Foreign Markets

Chapter 12 - 50Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.

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