© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 Market Entry and Expansion

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 -

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Firms in smaller markets may be born global Born global firms: Export

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Export Modes of export

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Export management companies (EMC) Two primary forms of operation

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Both parties must recognize:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Trading companies The most famous trading companies are the _________ of Japan Reasons for the success of the Japanese sogoshosha:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Export trading companies (ETCs)

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Firms participating in trading companies by joining or forming them need to:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International International success depends on market demand

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International E-commerce Various methods to market products over the Internet:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Concerns for a firm using e-commerce:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Legal concerns for e-commerce:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing Licensing agreement: The recipient firm is the licensee Advantages of licensing Royalty income provides additional return on R&D investments already incurred

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing Disadvantages of licensing

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing Principal issues in negotiating licensing agreements:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing The licensor should cover : Transfer costs: R&D costs: Opportunity costs:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing Licensee compliance in the agreement should address: Specification of term, termination, and survival of rights

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing Trademark licensing

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing The licensor and licensee may run into difficulty if:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Franchising Product/trade franchising emphasizes the product or commodity to be sold Reasons for the international expansion of franchise systems:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing and Franchising Franchising concerns For successful growth, companies adopt master franchising system Master franchising system:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreign Direct Investment (FDI) International investment flows that acquire properties and plants Portfolio investment:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Major Foreign Investors Multinational corporations through their investment: Foreign direct investors bring with them imports on an ongoing basis

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reasons for FDI Marketing factors

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reasons for FDI Derived demand:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reasons for FDI Government incentives Fiscal incentives: Financial incentives: Non-financial incentives

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Perspective on Foreign Direct Investors Positive perspectives:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A Perspective on Foreign Direct Investors Negative perspectives:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Ownership Can be limited either through outright legal restrictions or through measures designed to make foreign ownership less attractive Joint ventures

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Ownership Advantages 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

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Ownership Strategic alliances Can be formed, adjusted, and dissolved rapidly The most successful alliances are those that:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Ownership Management contract Supplier brings together a package of skills that: Provides:

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Types of Ownership Lowers the risk of participating in an international venture and allows operational control Government consortia Research consortia: