1. Market Entry and Expansion
Principles of
International
Marketing
9th Edition
Chapter 9
Market Entry and Expansion

2. Exhibit 9.1 - A Model of International Entry and Expansion

3. Stimuli to Internationalize
In business activities, a variety of stimuli push and pull firms along the international path.
The major motivations for firms to go international have been differentiated into proactive and reactive.
Proactive motivations represent stimuli to attempt strategic change.
Reactive motivations influence firms that respond to environmental shifts by changing their activities over time.

4. Motivations for Going International
Proactive Motivations: intioated strategies
Profit advantage
Unique products
Technological advantage
Exclusive information
Tax benefit
Economies of scale
Reactive Motivations : responding to envioronement
Competitive pressures
Overproduction
Declining domestic sales
Excess capacity
Saturated domestic markets
Proximity to customers and ports

5. Exhibit 9.3 - Change Agents in the Internationalization Process
Internal
Enlightened management (professional one)
New management
Significant internal event developing new product
External
Foreign demand
Competition( responding)
Domestic distributors
Service firms (accounting Offices)
Business associations (chamber of commerce)
Governmental activities
Export intermediaries - Export management companies and Trading companies

6. International Entry Strategies
Exporting
Importing
Licensing
Franchising
Foreign Direct
Investment
Interfirm
Cooperation

7. Going International Export - Modes of export Direct & Indirect export.
Export - Modes of export
Direct & Indirect export.
Through market intermediaries.
Selling goods to a domestic firm who in turn sells abroad.
Key of corporate export stages
Wearne Interest
Trial Evaluation
Demand adaptation

8. Exporting and Importing
Firms can export and import using two methods:
Indirect involvement means that the firm participates in international business through an intermediary and does not deal with foreign customers or markets.
Direct involvement means that the firm works with foreign customers or markets with the opportunity to develop a relationship. .

9. International Intermediaries
Importers and exporters often use international intermediaries who provide assistance in:
Documentation
Financing
Transportation
Identification of foreign suppliers and trading companies
Providing business contacts

10. Export Management Companies
Firms that specialize in performing international business services for other companies are known as export management companies (EMCs)
The two primary roles of EMCs are:
Agents
Distributors

11. Trading Companies
Trading companies help firms by importing, exporting, countertrading, investing, and manufacturing.
The sogashosha of Japan are the most powerful trading companies in the world for four reasons:
They efficiently gather, evaluate, and translate market information into business opportunities.
Economies of scale give them preferential treatment.
They operate around the world, not just Japan.
They have vast quantities of capital.

12. Facilitators
Facilitators are entities outside the firm that assist in the process of going international by supplying knowledge and information.
Private sector facilitators include:
Banks
Accounting firms
Consulting firms
Public sector facilitators include:
Departments of commerce
Export-Import Banks
Educational Institutions

13. Going International E-commerce
E-commerce
The ability to offer goods and services over the Web.
Various methods to market products over the internet:
Development of corporate websites.
Business-to-consumer and consumer-to-business forums.

14. Licensing and Franchising
Licensing
Under a licensing agreement, one firm, known as the licensor, permits another to use its intellectual property in exchange for compensation designated as a royalty.

15. Benefits and Costs of Licensing
It requires neither capital investment nor detailed involvement with foreign customers.
It capitalizes on research and development already conducted.
It helps avoid host country regulations applicable to equity ventures.
Costs
It is a very limited form of foreign market participation.
It does not guarantee a basis for future expansion.
The licensor may create its own competitor.

16. Licensing and Franchising
Principal issues in negotiating licensing agreements:
The scope of the rights conveyed - Involves specifying the technology, know-how, or show-how to be included, the format, and guarantees.
Compensation - Covering transfer, R&D, and opportunity costs.

17. Licensing and Franchising
Principal issues in negotiating licensing agreements:
Licensee compliance, which should address:
Export control regulations.
Confidentiality of the intellectual property and technology provided.
Dispute resolution.
Specification of term, termination, and survival of rights.

18. Franchising
Franchising is the granting of the right by a parent company to another independent entity to do business in a prescribed manner.
The major forms of franchising are:
Manufacturer-retailer systems such as car dealerships,
Manufacturer-wholesaler systems such as soft drink, companies
Service-firm retailer systems such as fast-food outlets.
To be successful, the firm must offer unique products or propositions, and a high degree of standardization.

19. Foreign Direct Investment (FDI)
Foreign direct investment - Investments to create or expand a long-term interest in an enterprise with some degree of control.
Portfolio investment - The purchase of stocks and bonds internationally.

20. Foreign Direct Investment
Firms are categorized as:
Resource seekers - Search for natural and human resources.
Market seekers - Search for better opportunities to enter and expand within markets.
Efficiency seekers - Attempt to obtain the most economic sources of production.

21. Foreign Direct Investment
Reasons for FDI
Marketing factors
Growth and profit motivations.
Wider market access to maintain and increase sales.
Circumvent barriers to trade.
Local customers preference for domestic goods and services.
Obtain low-cost resources and ensure their supply.
Derived demand - Results when businesses move abroad and encourage their suppliers to follow them, creating a chain or pattern of direct investment in a market.

22. Foreign Direct Investment
Reasons for FDI
Government incentives
Fiscal incentives - Specific tax measures designed to attract the foreign investor.
Financial incentives - Special funding for land or buildings, loans and guarantees, wage subsidies.
Non-financial incentives - Guaranteed government purchases; protection from competition through tariffs, import quotas, and local content requirements; and investments in infrastructure facilities.

23. The Impacts of Foreign Direct Investment on Host Countries
Positive Impact
capital information
technology and management skills transfer
regional and sectoral development
internal competition ,reducing costs and prices
favorable effect on balance of payments
increased employment
Negative Impact
industrial dominance
technological dependence on investors
disturbance of economic plans (balance of payment)
cultural change (change Agent)
interference by home government of multinational corporation (such as labor union )

24. Foreign Direct Investment
Types of ownership - Full ownership
Result of ethnocentric considerations or one of the principles.
May be desirable, but is not necessary for success internationally.
A major concern is the “fairness” of profit repatriation, or transfer of profits, and the extent to which firms reinvest into their foreign operations.

25. Foreign Direct Investment
Types of ownership - Joint ventures
Collaborations of two or more organizations for more than a transitory period.
Partners share assets, risks, and profits, though equality of partners is not necessary.
The 3 reasons for establishing a joint venture are:
Government policy or legislation.
One partner’s needs for another partner’s skills.
One partner’s needs for another partner’s attributes or assets.

26. Foreign Direct Investment
Advantages of joint ventures
Pooling of resources.
Better relationships with local organizations.
The partner’s knowledge of the local market.
Minimize exposure to political risk.
Tap local capital markets.
Disadvantages of joint ventures
Different levels of control are required.
Difficulty in maintaining the relationship.
Disagreements over business decisions.
Disagreements over profit accumulation and distribution (profit repatriation).

27. Foreign Direct Investment
Types of ownership - Strategic alliances
Arrangement between two or more companies with a common business objective.
Can be formed, adjusted, and dissolved rapidly.
Formed for market development, spreading the cost and risk inherent in production, and blocking or co-opting competitors.

28. Contractual Agreements
Strategic alliance partners may join forces for R&D, marketing, production, licensing, cross-licensing, cross-market activities, or outsourcing.
Contract manufacturing allows the corporation to separate the physical production of goods from the R&D and marketing stages.
Management contracts involve selling one’s expertise in running a company while avoiding the risk or benefit of ownership.
A turnkey operation is a contractual agreement that permits a client to acquire a complete system following its completion.

29. Foreign Direct Investment
Types of ownership - Government consortia
Takes place at the industry level; characterized by government support or subsidization.
A reflection of escalating cost and a governmental goal of developing or maintaining global leadership in a particular sector.
Research consortia - Pool their resources for research into technologies.