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ENTRY AND EXPANSION CHAPTER 13 Copyright © 2011 John Wiley & Sons Visit for the latest in business news stories.

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Presentation on theme: "ENTRY AND EXPANSION CHAPTER 13 Copyright © 2011 John Wiley & Sons Visit for the latest in business news stories."— Presentation transcript:

1 ENTRY AND EXPANSION CHAPTER 13 Copyright © 2011 John Wiley & Sons Visit for the latest in business news stories.

2 Chapter 13 Learning Objectives 1. Learn how firms gradually progress through an internationalization process 2. Understand the strategic affects of internationalization of the firm 3. Study the various modes of entering international markets 4. Understand the role and functions of international intermediaries 5. Learn about the opportunities and challenges of cooperative market development 6. Understand how firms can overcome market barriers by either building competitive capabilities from scratch or through acquisition 7. Observe a model linking managerial commitment, international expansion, and corporate concerns 2 Czinkota: International Business, 8e Chapter 13

3 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 3 Czinkota: International Business, 8e The Role of Management Sensitivity Toward Foreign Environments Market Development Activity InnovationResearch

4 Chapter 13 Steps in developing international commitment 1. Become aware of international business opportunities 2. 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 Czinkota: International Business, 8e The Role of Management

5 Proactive Motivations Reactive Motivations Chapter 13 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) Motivations to Go Abroad 5 Czinkota: International Business, 8e

6 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. Focus on Entrepreneurship: An International Bug 6 Chapter 13 Czinkota: International Business, 8e

7 Strategic Affects of Going International Chapter 13 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 Czinkota: International Business, 8e

8 Telecom Companies Find New Revenue in Global Markets Chapter 13 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 Czinkota: International Business, 8e

9 Entry Development Strategies for Exporting and Importing Chapter 13 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 Czinkota: International Business, 8e

10 How a Trade Intermediary Can Offer Assistance Chapter Knows foreign market competitive conditions 2. Has personal contacts with potential foreign buyers 3. Evaluates credit risk associated with foreign buyers 4. Has sales staff to call on current foreign customers in person 5. Assumes responsibility for physical delivery of product to foreign buyer 10 Czinkota: International Business, 8e

11 Chapter 13 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 Czinkota: International Business, 8e Export Management Companies

12 Tradewinds Global Chapter 13 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 Czinkota: International Business, 8e

13 Chapter 13 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 Czinkota: International Business, 8e Trading Companies

14 Chapter 13 Supply knowledge and information, but do not participate in the transaction Come from both the private and public sector Private sector facilitators include: 14 Czinkota: International Business, 8e Private-Sector Facilitators Distributors Other Firms in the Industry Other Business Associations Chambers of Commerce Banks and Other Service Firms

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

16 Chapter 13 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 Czinkota: International Business, 8e Licensing

17 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. Focus on Culture: TV Program Licenses are International 17 Chapter 13 Czinkota: International Business, 8e

18 Chapter 13 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 Czinkota: International Business, 8e Franchising

19 Chapter 13 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 Czinkota: International Business, 8e Inter-firm Cooperation

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

21 Stateless Corporations Chapter 13 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 Czinkota: International Business, 8e

22 Chapter 13 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 Czinkota: International Business, 8e Managerial Considerations

23 Chapter 13 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 Czinkota: International Business, 8e Full Ownership

24 A Comprehensive View of International Expansion Chapter 13 Alternate Strategies Trading Export/ Import Licensing/ Franchising Local Presence Alliances Ownership Concerns Information Mechanics Communication Sales Effort Service Regulations Motivation Proactive Reactive Stages of Management Commitment Aware Interested Trial Evaluation Adaptation 24 Czinkota: International Business, 8e Domestic Focus Multi- National Focus Intermediaries EMC Trading Companies Facilitators

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