STRATEGY OF INTERNATIONAL BUSINESS WEEK 9 STRATEGY OF INTERNATIONAL BUSINESS (Export And Import, Foreign direct investment and collaboration Strategies)

Strategies in international business Expansion into foreign markets can be achieved via the following mechanisms Export/import Foreign direct investment Collaboration

Exports & Imports Exporting refers to the sale of goods or services produced by a company based in one country to customers in a different country Importing is the purchase of goods or services by a company based in one country from sellers that reside in another

Environmental Factors Influencing Export and Import Operations

Exporting Exporting commonly requires coordination among four players: • Exporter • Importer • Transport provider • Government

Advantages of Exporting Lower investment way to enter foreign markets Lower risk way to enter foreign markets Expands sales Achieves scale economies Diversifies sales

Characteristics of Exporters The probability of a company’s becoming an exporter increases with company size, but the extent of exporting does not directly correlate with size Companies export to increase sales revenues, use excess capacity, and diversify markets

Phases of Export Development

Pitfalls of Exporting Adjusting financial Management the currency and credit process export require adept financial management Adjusting customer management Greater range of services Adjusting for information technology A catalog of additional stumbling block

Designing an Export Strategy As a company establishes its export business plan, it must: assess export potential obtain expert counseling select a country or countries where it will focus its exports formulate its strategy determine how to get its goods to market

The International Transaction Chain

Types of importers Those looking for any product around the world to import and sell. Those looking for foreign sourcing to get their products at the cheapest price. Those using foreign sourcing as part of their global supply chain.

Types of imports Industrial and consumer goods to independent individuals and companies. Intermediate goods and services that are part of the firm’s global supply chain.

Strategic Advantages of Imports Specialization of Labor Global Rivalry Local Unavailability Diversification of Operating Risks

The Import Process Two important factors to be considered: 1.Import broker – service company Provides access to several suppliers or producers, arrange transportation and insurance 2. Customs agencies Assess and collect duties, as well as ensure that import regulations

The Export Process Direct: products or services are sold to an independent party outside of the exporter’s home country. Indirect exports: products or services are sold to an intermediary in the domestic market, which then sells the goods in the export market.

Indirect Selling Exporters may deal directly with: agents or distributors in a foreign country indirectly through third-party intermediaries, such as export management companies other types of trading companies

Direct Selling Through distributors who usually deal with retailers instead of end users To retailers and end users Internet marketing is a new form of direct exporting that is allowing many small- and medium-sized companies to access export markets as never before

Export Documentation Key export documents are: pro forma invoice commercial invoice bill of lading consular invoice certificate of origin shipper’s export declaration export packing list

Why Exporting May Not Be Feasible When production abroad is cheaper than at home When transportation costs to move goods or services internationally are too expensive When companies lack domestic capacity When products and services need to be altered substantially to gain sufficient consumer demand abroad When governments inhibit the import of foreign products When buyers prefer products originating from a particular country

Foreign Direct Investment Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel. Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise. Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment.

Methods for Making FDI The advantages of acquiring an existing operation include: adding no further capacity to the market avoiding start-up problems easier financing Companies may choose to build if: no desired company is available for acquisition acquisition will lead to carry-over problems acquisition is harder to finance

General Motives for Collaborative Arrangements To Spread and Reduce Costs To Specialize in Competencies To Avoid or Counter Competition To Secure Vertical and Horizontal Links To Gain Knowledge Click for Video

International Motives for Collaborative Arrangements Gain location-specific assets Overcome legal constraints Diversify geographically Minimize exposure in risky environments

Types of Collaborative Arrangements Companies have a wider choice of operating form when there is less likelihood of competition Internal handling of foreign operations usually means more control and no sharing of profits MNEs want returns from their intangible assets

Licensing A company (the licensor) grants intangible property rights to another company (the licensee) to use in a specified geographical area for specific period of time. Licensing agreements may be: exclusive or nonexclusive used for patents, copyrights, trademarks, and other intangible property Licensing often has an economic motive, such as the desire for faster start-up, lower costs, or access to additional resources

Franchising Franchising includes providing an intangible asset (usually a trademark) and continually infusing necessary assets Many types of products and many countries participate in franchising Franchisors face a dilemma: the more standardization, the less acceptance in the foreign country the more adjustment to the foreign country, the less the franchisor is needed

Management Contracts Management contracts are used primarily when the foreign company can manage better than the owners

Turnkey Operations Turnkey operations are: Most commonly performed by construction companies Often performed for a governmental agency

Joint Ventures Joint ventures may have various combinations of ownership The type of legal organization may be a partnership, a corporation, or some other form permitted in the country of operation When more than two organizations participate, the joint venture is sometimes called a consortium

Equity Alliances An equity alliance is a collaborative arrangement in which at least one of the collaborating companies takes an ownership position (almost always minority) in the other(s). Equity alliances help solidify collaboration

Collaborative Strategy and Complexity of Control

How to Dissolve a Joint Venture

Problems of Collaborative Arrangements The major strains on collaborative arrangements are due to five factors: Relative importance to partners Divergent objectives Control problems Comparative contributions and appropriations Differences in culture

Managing Foreign Arrangements The evolution to a different operating mode may: be the result of experience necessitate costly termination fees create organizational tensions

Negotiating Process In technology agreements: seller does not want to give information without assurance of payment buyer does not want to pay without evaluating information

Performance Assessment When collaborating with another company, managers must: continue to monitor performance assess whether to take over operations