1. The Firm’s Market-Entry Strategies
Chapter 12:
The Firm’s Market-Entry Strategies
EXPORTING ?
FRANCHISING?
DIRECT INVESTMENT ?
TURNKEY?
LICENSING ?
SUB-CONTRACTING ?

2. TOPIC PLAN The firm’s foreign business strategy Exporting
Contracting (licensing, leasing etc)
Joint ventures
Wholly-owned company
Advantages and disadvantages of various market entries
Strategic FDI plan issues

3. Export-import Management
Company business strategies
Domestic strategies
Investment in product development
Expand domestic market share
Diversify into new industry.
Foreign business strategies
Exporting
International contracting
Foreign Direct Investment/Foreign production

4. The Firm’s Foreign Business Strategy Steps(Figure 12.1)
1.The firm’s evaluation
Competitive advantages and disadvantages
2.Selection of a target (geographic) market.
3.Selection of product to make/sell in target market
4.Selection of market-entry mode:
Exporting/Contracting/Foreign Direct Investment
5.Business plan development and execution.
6.Monitoring and evaluation of results.

5. Exporting
World Exports of Goods (US $6,1862 billion in 2000) have declined in relative importance compared to foreign production (US$ 15,680 billion in 2000)
Most likely mode for serving a foreign market for a domestic firm starting in international business.
The Business Plan (Export marketing plan)
Many global companies combine exports and FDI.

6. EXPORTS : Advantages Least costly and risky L/C payment
Specialisation, economies of scale.
Open to any size or kind of firm

7. EXPORTS : Disadvantages
Production costs in the home country may be HIGHER
Transport costs may make exporting uneconomical.
Trade barriers in target markets.
Divided loyalties of O/S agents.

8. Types of International Exporters
The Casual Exporter
Domestic firms that do not do international business on a regular basis(< 5% of T/O)
The Small Scale Exporter
5-20% of turnover
The Experienced/Global Exporter
high ratio of its turnover through involvement in worldwide business deals(Exports +FDI)

9. Licensing
Licensor grants rights to intangible property to a Licensee in exchange for a royalty payment.
Time and territorial limits
Advantages:
Speed of execution.
Low risk/investment cost
Brand recognition
Preliminary cooperation which may be expanded into FDI

10. Licensing : Disadvantages
Isolation from the market
Lack of managerial control
Limited life.
Risk of technology loss

11. Franchising
A Franchisor sells limited brand use rights,products and services to a Franchisee in return for a lump sum payment and a share of the Franchisee’s profits.
20% of US franchise systems have foreign operations (Japan,Canada,UK,Australia)
-Domino vs.Pizza Haven(200 in 7 years);
-Dunkin’Donuts vs.Donut King
Low market entry costs and risks.
Quality control is difficult due to big number of Franchisees and geographic location.

12. Subcontracting
Supply arrangement between a principal and a subcontractor
Advantages:
Low investment cost
Speed
Stable processing cost and quality
Control of sales and marketing
Can become the basis for later alliance
Disadvantages:
Risk of non-delivery or late delivery

13. TURNKEY OPERATIONS
Contract for the construction of operating facilities that are transferred for a fee to the owner after commissioning
Advantages :
high economic returns
less risky than FDI
Disadvantages
lack of long-term market presence.
loss of control over technology
the client may turn into a competitor

14. JOINT VENTURES
A legal entity jointly owned by two or more legally distinct organisations which share in the J.V.’s decision-making activities.
Various options
2 companies from the same country
Foreign/Local
2 or > companies setting a j.v. in a third country

15. JOINT VENTURES(cont.) Advantages : Disadvantages :
Partner’s local knowledge
Cost/risk sharing
Host government legislation
Low risk of nationalisation.
Disadvantages :
Technology control risk .
Less control over subsidiaries .
Management control conflicts

16. Wholly Owned subsidiaries
A firm owns 100 percent of the stock.
Trend in the motor-car sector(e.g.India,China)
Advantages :
complete management control.
Optimum security for technology.
“Internalisation” economies.
Disadvantages :
High costs and risks
Long lead time to first sale(especially for" Greenfield”)

17. China:Joint ventures versus Wholly Owned

18. Strategic FDI Plan Issues
Investment location evaluation
See Matrix on next slide
Strategic organisation
International group
Business/product units
Functional units
Global matrix

19. Investment Location Evaluation
Variable 1 2 3 4 5
Weight
CountryA
CountryB
1x2
1x3
Political 9
Economic 6 15 18
Auto-
Motive 12 16
Personnel
TOTAL 10 19 17 40 44

20. Strategic FDI Plan Issues
Financial Management and Control
Investment decisions
Financing decisions
Global money management
Global Sourcing Strategy
Outsourcing
Global Human Resource Strategies