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Chapter 9Market Entry and Expansion
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Stimuli to Internationalize• In business activities, a variety of stimuli
are responsible for firms taking steps in a given direction
• The major motivations for firms to go international have been differentiated into proactive and reactive• Proactive motivations -
• Reactive motivations -
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Going International
• Firms in smaller markets may be born global• Born global firms:
• Export•
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Going International
• Export • Modes of export
• • •
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Going International
• Export management companies (EMC)•
• Two primary forms of operation• •
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Going International• Both parties must recognize:
• • •
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Going International
• Trading companies• The most famous trading companies are the
_________ of Japan• Reasons for the success of the Japanese
sogoshosha:•
• • •
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Going International
• Export trading companies (ETCs)•
•
•
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Going International
• Firms participating in trading companies by joining or forming them need to:•
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Going International
• International success depends on market demand •
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Going International
• E-commerce•
• Various methods to market products over the Internet:• •
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Going International
• Concerns for a firm using e-commerce:•
•
•
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Going International
• Legal concerns for e-commerce:• • • •
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Licensing and Franchising
• Are market expansion alternatives used by all types of firms, large and small
• They offer flexibility and reflect the needs of the firm and the market
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Licensing• Licensing agreement:
• The recipient firm is the licensee• Advantages of licensing
•
• Royalty income provides additional return on R&D investments already incurred
•
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Licensing• Ongoing licensing cooperation and support enables the
licensee to benefit from new developments•
• Allows a firm to test a foreign market without major investment of capital or management time
• Preempts a market for competition, especially if the licensor’s resources permit full-scale involvement only in selected markets
•
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Licensing• Disadvantages of licensing
• • •
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Licensing
• Principal issues in negotiating licensing agreements:•
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Licensing• The licensor should cover :
• Transfer costs:
• R&D costs:
• Opportunity costs:
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Licensing• Licensee compliance in the agreement should
address:• • •
• Specification of term, termination, and survival of rights
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Licensing
• Trademark licensing•
•
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Licensing• The licensor and licensee may run into
difficulty if:•
•
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Franchising• A situation under which a parent
company (the franchiser) grants another independent entity (the franchisee) the right to do business in a specified manner
•
• The major forms of franchising are:• • •
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Franchising
• Product/trade franchising emphasizes the product or commodity to be sold
•
• Reasons for the international expansion of franchise systems:• • •
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Licensing and Franchising
• Franchising concerns• • •
• For successful growth, companies adopt master franchising system• Master franchising system:
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Foreign Direct Investment (FDI)
• International investment flows that acquire properties and plants
• Portfolio investment:
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Major Foreign Investors
• Multinational corporations through their investment:• •
• Foreign direct investors bring with them imports on an ongoing basis
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Reasons for FDI
• Marketing factors• • • • •
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Reasons for FDI
• Derived demand:
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Reasons for FDI• Government incentives• Fiscal incentives:
• Financial incentives:
• Non-financial incentives• • •
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A Perspective on Foreign Direct Investors
• Positive perspectives:• • •
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A Perspective on Foreign Direct Investors
• Negative perspectives:• • • • • •
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Types of Ownership
• Full ownership•
•
• A major concern is the “fairness” of ____________, or transfer of profits, and the extent to which firms reinvest into their foreign operations
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Types of Ownership• Can be limited either through outright legal
restrictions or through measures designed to make foreign ownership less attractive
• Joint ventures• • •
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Types of OwnershipAdvantages of joint ventures
• Pooling of resources• • The partner’s knowledge of the local market• • Tap local capital markets
Disadvantages of joint ventures• Different levels of control are required• • Disagreements over business decisions•
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Types of Ownership• Strategic alliances•
• Can be formed, adjusted, and dissolved rapidly
•
• The most successful alliances are those that:
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Types of Ownership
• Management contract• Supplier brings together a package of skills
that:•
• Provides:• • •
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Types of Ownership• Lowers the risk of participating in an
international venture and allows operational control
• Government consortia• •
• Research consortia: