1 Management of MNEs/MNCs Course Instructor: Ferdausi Sultana

2 Today’s Topics Mode of International Business: Exports What products/services will you export? What are the advantages of exports? When to decide to engage in exports? Where should you export? How can you export – broad strategies

3 Which mode of international business to take up? The entry mode depends on Ownership advantages of the company Location advantages of the market Internalization advantages –that result from retaining a core competency within the company rather than opting to license, outsource, or sell it

4 Who likes exporting? Companies that have lower levels of ownership advantages either do not enter foreign markets or use low-risk strategies such as exporting.

5 What products will you export? Is it going to be based on acquired advantage? Is it going to be based on natural advantage? Traditionally the lower income countries have relied more on natural advantage rather than the high income countries Manufacturing is a sector that depends on acquired advantage, largely technology which depends in turn on a large number of highly educated people and a large amount of capital to invest in research and development. Lower income countries depend more on natural advantage, although these primary products may encompass large amount of process technology, the products themselves involve little change from year to year.

6 Source: What are the benefits of exports? Reduce Dependence on Existing Domestic Markets. By expanding into foreign markets, the firm will increase its marketing base and reduce internal country competition. Stabililze Market Fluctuations. By expanding into global markets, firms are no longer held captive to economic changes, consumer demands, and seasonal fluctuations within the domestic country. Sell Excess Production Capacity. By exporting, production capacity and length of production runs may increase, thereby decreasing average per unit costs and increasing economies of scale.

7 Source: What are the benefits of exports? Enhance Competitiveness. Exporting is proven to enhance competitive advantage. While the firm will benefit from exposure to new technologies, methods, and processes, the country will benefit from an improved balance fo trade. Create Domestic Jobs. It is estimated that U.S. exports of goods and services supported a total of 1.3 million jobs. Help Reduce the Trade Deficit. Exports represent eight percent of the U.S. Gross Domestic Product (GDP) out of $750 billion of annually traded goods and services.

8 What are the benefits of exports? International Exposure: You may want to ensure that your product is kept up to date by exposure to competition in international markets Source:

9 When to decide to engage in exports Pursuing export markets is recommended in a number of situations: demonstrated international demand for your products higher international prices for your manufactured goods moderate or slow domestic market growth with strong, unsaturated or growing markets abroad competitive pressures in your domestic market reducing prices and margins competitors leveraging their profitability in foreign markets to increase their market share in your domestic market Source:

10 When to decide to engage in exports Pursuing export markets is recommended in a number of situations: relatively low labor or capital costs as compared with foreign manufacturers strategic needs: capital, technology, capacity, partners, government assistance, etc. intangible needs conforming with multi-cultural or internationally oriented corporate culture Source:

11 When to decide to engage in exports Where long production runs are less important, we find a greater prevalence of multiple production units scattered around the world in different countries so as to minimize the cost of transportation through exporting. Thus, when production runs are long, the manager of an international business should better think of exporting.

12 Where to Export: New Products - Development Can you engage in R&D to develop new products? If you can develop new products, then it would be feasible to try to export to those countries that have high adoption tendency? Yes

13 Where to Export: Closeness to Markets and Manufacturing Operations How far are your manufacturing operations from the market you are targeting to export to? If you are close, or if transportation costs are not overwhelmingly high, it would be a good idea to export

14 Where would you export? You may use country similarity (economic, political, cultural) theory in deciding to export. Cultural similarity also helps explain much of the direction of trade. Importers and exporters find it easier to do business in a country they perceive as being culturally similar to their home countries, such as because they speak a common language. However, political relationship and economic agreements among countries may discourage or encourage trade.

15 Is it always the biggies that become exporters? The probability of being an exporter increases with company size, as defined by sales revenues. The biggest companies are the biggest exporters, but small companies are expanding their export capability.

16 Is it always the biggies that become exporters? Small Companies Can Be Successful Exporters: It's a popular misconception that only large companies can succeed overseas. Indeed, many small companies have found that their competitive advantage lies in some form of technological or creative advantage. Many have "unique" or "niche-type" products that are always in demand overseas! An additional reminder is that, export intensity is not positively correlated with company size. –Export Intensity: The percentage exports revenue to total sales revenue.

17 Is it always the biggies that become exporters? Some companies are born-global companies From day one they look for markets and suppliers internationally. Usually these are small to medium sized firms.

18 How to export? Direct selling Indirect selling –Export Management Companies –Export Trading Companies Foreign Trading Companies Direct Selling –Sales representatives –Foreign distributors Direct Selling through the Internet

19 How to export? Direct selling Goods and services are sold to an independent party outside the exporters home country. Indirect selling Goods and services are sold to an intermediary in the domestic market, which then resells the goods and services to the export market.

20 How to export: Indirect Exports Export Management Companies These are usually the export arm of a manufacturer. It uses its own company name, and operates on a contractual basis, usually as an agent of the exporter (manufacturer). They are usually small, entrepreneurial ventures that specialize in a particular product, function or market. They have been criticized on grounds that they do not have enough resources, they are overly controlling and often do not heed to the manufacturers. Usually they are local or have local base.

21 How to export: Indirect Exports Export Trading Companies These are like the EMC but they give more emphasis on the demand side rather than on the supply side. They identify suppliers who can fill orders in overseas markets. Usually these are local or have local partnerships.

22 How to export? Foreign Trading Companies These are usually huge conglomerates with marketing, financial, and distribution arms that permit a truly global reach. Usually these firms can market and distribute products more efficiently than any single producer can. These do not have to be local.

23 How to export: Direct Selling Direct selling involves the use of sales representatives, distributors, or retailers Sales Representatives The sales representatives usually operate on a commission basis. However, they occasionally can be salaried too. They are stationed in key markets around the world. They deal with distributors, retailers or end-users. Usually provide little or no after sales service.

24 How to export: Direct Selling Foreign Distributors Direct selling can be done to foreign distributors In that case usually the distributor carries stock of the direct seller and provides after sales services, if necessary. Usually the distributors that carry the products of a certain firm have specific territories wherein they operate.

25 How to export: Direct Selling In-House Sales Personnel In-House Sales Personnel Some firms decide to use their own in-house sales personnel. These personnel are given the task to monitor activities of foreign distributors/intermediaries. Here the firm must aim to build its own marketing capability

26 Direct Selling through the Internet Direct Selling: Through E-Commerce Internet marketing allows companies --- both large and small --- to engage in direct marketing quickly, easily, and cheaply. Does it not seem like a dream?

27 Please get ready for Case on Alibaba.com on Page 447 Answer the following: Question 1 (first part only) Question 2 Question 4 Question 5 Question 3 is your home assignment. But add eBay along with the given sites and compare and contrast.