1. Entry and expansion CHAPTER 13
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Copyright © John Wiley & Sons

2. Chapter 13 Learning Objectives
Learn how firms gradually progress through an internationalization process
Understand the strategic affects of internationalization of the firm
Study the various modes of entering international markets
Understand the role and functions of international intermediaries
Learn about the opportunities and challenges of cooperative market development
Understand how firms can overcome market barriers by either building competitive capabilities from scratch or through acquisition
Observe a model linking managerial commitment, international expansion, and corporate concerns
Chapter 13 Learning Objectives 2
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Czinkota: International Business, 8e

3. Market Development Activity Sensitivity Toward Foreign Environments
The Role of Management
Dynamism and commitment of managers are essential for international operations
The issue of managerial commitment is a critical one because foreign market penetration requires:
Going international means that a fundamental strategic change is taking place
Market Development Activity
Sensitivity Toward Foreign Environments
Research
Innovation 3
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Czinkota: International Business, 8e

4. The Role of Management Steps in developing international commitment
Become aware of international business opportunities
Determine the degree and timing of the firm’s internationalization
International orientation grows over time
Management is often too preoccupied with short-term issues to engage in long-term planning
Unsolicited orders – Unplanned business opportunities that arise as a result of another firm’s activities
Accidental exporters – Firms which participate in international trade due to active outside demand rather than inside planning 4
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Czinkota: International Business, 8e

5. Motivations to Go Abroad
Proactive Motivations
Reactive Motivations
Profit advantage
Unique products
Technological advantage
Exclusive information
Tax benefit
Economies of scale
Competitive pressures
Overproduction
Declining domestic sales
Excess capacity
Saturated domestic markets
Proximity to customers and ports (physical and psychological distance) 5
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Czinkota: International Business, 8e

6. Focus on Entrepreneurship: An International Bug
Tierra Dynamic, a Phoenix-based environmental cleanup company, has successfully entered world markets. First, the company developed a bacteria that eats spilled hydrocarbons at an accelerated rate and then discovered a void in the world market for the bacteria. Next the company identified locations needing cleanup and found local partners in those locations. The company then set up shop on foreign soil to take advantage of these market opportunities. 6
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Czinkota: International Business, 8e

7. Strategic Affects of Going International
Wide range of Issues to Consider:
Service delivery
Strategic considerations such as government regulation compliance
Start-up issues such as communication with customers
Operational matters such as information flows and mechanics
Companies must determine their preparedness for internationalization by assessing strengths and weaknesses
Understanding the changes in risk and profitability can help management overcome the cost of going international 7
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Czinkota: International Business, 8e

8. Telecom Companies Find New Revenue in Global Markets
As the nation’s economy has faltered in 2008 and 2009, many U.S. companies have started looking overseas both to cut costs and to increase growth. While the downturn has had an impact beyond our borders, surveys of U.S.-based multinationals indicate only a slowing of the meteoric pace of globalization that has characterized this decade to date. In other words, their overseas expansion continues in earnest.
For telecom agents feeling the squeeze on domestic business, helping more U.S. companies go global or improve their global operations by supporting their telecommunications infrastructure requirements may be an opportunity they can no longer afford to ignore.
Source: Phone Plus Magazine: 8
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9. Entry Development Strategies for Exporting and Importing
Indirect involvement – Use of an intermediary to deal with foreign customers or firms
Direct involvement – Working with foreign customers or markets with the opportunity to develop a relationship
Transaction cost theory – Firms will evaluate and compare the costs of integrating an operation internally as compared to the cost of going global
Some firms are born global, starting out with an international orientation or quickly developing one 9
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Czinkota: International Business, 8e

10. How a Trade Intermediary Can Offer Assistance
Knows foreign market competitive conditions
Has personal contacts with potential foreign buyers
Evaluates credit risk associated with foreign buyers
Has sales staff to call on current foreign customers in person
Assumes responsibility for physical delivery of product to foreign buyer 10
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Czinkota: International Business, 8e

11. Export Management Companies
EMCs specialize in performing services as commission representatives or distributors
EMC Roles:
Agent – Developing foreign business and sales strategies
Distributor – Purchasing products and assuming trading risk
Compensation of EMCs
Fee for activities performed as a retainer
Price break for international sales
Power Conflicts Between EMCs and Clients
Once a foreign market is penetrated, the EMC faces the continuous problem of retaining a client
Clear arrangements must be made to avoid or minimize conflict 11
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12. Tradewinds Global
Tradewinds Global is an export management company representing the export sales of North American manufacturers into international markets. The company serves as a liaison and consultant between the manufacturer who is looking to expand into foreign markets and foreign buyers seeking to purchase consumer goods from U.S. and Canadian manufacturers.
Located in Oahu, Hawaii, Tradewinds is ideally situated to facilitate trade between North American firms and those within the emerging economies in Southeast Asia.
Source: Tradewinds Web Site: 12
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Czinkota: International Business, 8e

13. Trading Companies
Concept made popular by the European trading houses from earlier centuries
Japanese sogoshosha is the most successful trading company
Expansion of Trading Companies
An export trading company allows businesses to band together to export or offer export services
Export trading company legislation is designed to improve the export performance of small and medium-sized firms
Banks can participate in ETCs, allowing better access to capital and making trading transactions easier to accomplish 13
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Czinkota: International Business, 8e

14. Private-Sector Facilitators
Supply knowledge and information, but do not participate in the transaction
Come from both the private and public sector
Private sector facilitators include:
Distributors
Other Firms in the Industry
Banks and Other Service Firms
Chambers of Commerce
Other Business Associations 14
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Czinkota: International Business, 8e

15. Public-Sector Facilitators
Small Business Administration
U.S. Department of Commerce
Export-Import Bank
State and Local Organizations
Educational Institutions 15
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Czinkota: International Business, 8e

16. Licensing International Licensing:
A firm permits another to use its intellectual property for a royalty
Does not require capital investment or detailed involvement
Exploits research and development that has already been conducted
Avoids host-country regulations and cultural problems
Allows a company to test the market
Trademark licensing – Permits the names or logos to be used on products in exchange for payment
Disadvantages:
Limited form of foreign market participation
May actually hinder future expansion
A company could create its own future competitor 16
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17. Focus on Culture: TV Program Licenses are International
With the privatization of many state-run television enterprises during the 1980s, most markets abroad have relied on American-produced TV shows to fill their airtime because of a lack of knowledge and skills to create television programs independently. Over time, the situation abroad has changed, and local stations have become more adept at developing and producing their own programming. 17
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Czinkota: International Business, 8e

18. Franchising
Granting the right by a parent company (the franchisor) to an independent entity (the franchisee) to do business
Major forms of franchising:
Manufacturer-retailer systems (e.g. car dealerships)
Manufacturer wholesaler systems (e.g. soft drink companies)
Service-firm retailer systems (e.g. fast-food outlets)
Keys to Success
Offer unique products or selling propositions
Offer a high degree of standardization
Be adaptable to local circumstances
Reasons for the international expansion:
Market potential
Financial gain
Saturated domestic markets 18
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Czinkota: International Business, 8e

19. Inter-firm Cooperation
Strategic Alliances with suppliers, customers, competitors, and companies in other industries
Reasons for Interfirm Cooperation
Market development
To share risks
To share resource requirements
To block and co-opt competitors
Types of Interfirm Cooperation
Informal Cooperation – Partners work together without a binding agreement
Contractual Agreements – Joint efforts in specific areas or for outsourcing 19
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Czinkota: International Business, 8e

20. Types of Inter-firm Cooperation
Contractual Agreements
Informal Cooperation
Equity Participation
Joint Venture
Consortia 20
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Czinkota: International Business, 8e

21. Stateless Corporations
In the 1990s, a new type of company emerged in global business: The stateless corporation developed products in several countries, practiced diversity, and had shareholders on numerous continents long before traditional companies adopted these practices. These companies established joint ventures, partnerships, and other significant changes in operations to take advantages of the benefits of going global. These benefits include:
Solving trade problems
Avoiding political problems
Side-stepping regulatory hurdles
Winning technology breakthroughs
By taking advantage of the benefits of global operations, these companies set the stage for today’s multinational corporations.
Source: AllBusiness: 21
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22. Managerial Considerations
Find the right partner first
The more formal the arrangement, the greater the care that needs to be taken in negotiating the agreement
The cultures of the two parties must be blended
Must be able to adjust to changing market conditions
Must consider government attitudes and policies 22
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Czinkota: International Business, 8e

23. Full Ownership
Company may believe that no outside entity should have an impact on corporate decision making (ethnocentric view)
Ownership decision could be based on financial concerns
Consider how important total control is to success
Increasingly, the international environment is hostile to full ownership by MNCs 23
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24. A Comprehensive View of International Expansion
Domestic
Focus
Concerns
Information
Mechanics
Communication
Sales Effort
Service
Regulations
Stages of Management Commitment
Aware
Interested
Trial
Evaluation
Adaptation
Alternate Strategies
Trading
Export/ Import
Licensing/ Franchising
Local Presence
Alliances
Ownership
Motivation
Proactive
Reactive
Multi-National Focus
Intermediaries
EMC
Trading Companies
Facilitators 24
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Czinkota: International Business, 8e