Eleven C h a p t e rC h a p t e r Entering Foreign Markets Part Five Competing in a Global Marketplace

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Enter Which Foreign Markets? There are 188 member-nations of the UN… (4/00) Each one’s attractiveness to a particular firm as a particular market depends on:  The firm’s objectives  A balance of benefits, costs, and risks Slide 11-1

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Timing of Entry Fist-mover advantages Preempt rivals; establish strong brand name; capture demand Build sales volume; ride down experience curve ahead of competitors; cost advantage Create switching costs for that tie customers to 1st mover’s products Establish social ties ahead of following foreign competitors  important in high-context cultures First-mover disadvantages; pioneering costs Time spent to learn dos-don’ts; competitors can learn from 1st mover If 1st mover introducing a new industry, it builds infrastructure 1st mover “trains” customers for followers Break through host country’s adjustment to “foreignness” issues  Regulations may change as a result of 1st mover’s entry Slide 11-2

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Scale of Entry What level of resources to commit? What level of resources can firm afford to commit? A strategic commitment is difficult to reverse  Has a long-term impact  Means that the resources cannot be used elsewhere 1st mover advantages and large scale linked Small scale entry allows learning at low risk Entry in small or large potential market may require the same level of initial resources Slide 11-3

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. External or “arms-length” Modes of Entry Firm does business overseas without investing in owned assets and own human resources in target market  Exporting Sell “domestically” produced products into foreign markets through local independent agents or directly to customers  Turnkey projects Special case of exporting for firms that set up production plants or build facilities for others The “exporting firm” builds the facility overseas, starts it up, turns it over to the host country owner, and then departs Oil firms, construction firms, manufacturers Slide 11-4

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. External or “arms-length” Modes (cont.)  Licensing Licensor grants rights to licensee for use of intangible property over a specified period in return for a fee Intangible property: patents, inventions, formulas, processes, designs, copyrights, trademarks Licensing agreement likely allows licensor quality assurance rights over actual use of intangible asset If licensee sells to consumers using the licensor’s brand name, the license may also give the licensor rights to strategic brand control  Franchising Franchisor, grants franchisee use of intangibles under the condition that franchisee follow strict rules of operating the business Mode of operation is part of the brand image  International strategic alliances Slide 11-5

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. “Internal” Modes of Entry These involve Foreign Direct Investment  Wholly owned subsidiaries Firms owned 100% by a company in a foreign country  International joint ventures Firms that are owned jointly by two or more otherwise independent firms; most IJVs are between two firms One (or more) parent firms are non-resident in the host market Ownership % may vary from majority foreign owned, to 50%- 50% owned, to minority owned by the foreign firm Slide 11-6

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Slide 11-7

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Slide 11-8

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Exporting Promise and Pitfalls Huge revenue and profit opportunities overseas “there for the pickings” Large firms that are proactive about exporting may realize promise  Systematic effort backed by knowledge of overseas markets Smaller firms are reactive and seek overseas markets as an afterthought  Ad-hoc effort on an opportunistic and often naïve basis Exporting involves huge volumes of specialized paperwork Slide 11-9

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Export Performance Improvement Government information sources  In US various parts of the Department of Commerce  In other countries similar organization  Embassies and consulates have commercial sections Export management companies  Act as the export marketing department of firms  Experienced specialists  However, not exclusive Focused export strategy Slide 11-10

Irwin/McGraw-Hill Copyright  2001 The McGraw-Hill Companies, Inc. All rights reserved. Export/Import Financing Service that allows exporter to be assured of payment and importer to be assured of product Banks offer financing intermediary service  Letters of credit: bank guarantee of payment to exporter “bought” by the corresponding importer  Draft or bill of exchange: instructions to bank to pay at a certain time based on certain documentation Carriers also involved in the process  Bill of lading: is a receipt, a contract and a document of title issued to the exporter by the carrier Slide 11-11