1. Selecting and Managing Entry Modes
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2. International Business 5e
Chapter Preview
Discuss the essential aspects of exporting
Define each form of countertrade
Explain each type of export/import financing
Describe the advantages and disadvantages of each contractual entry mode
Identify the pluses and minuses of each investment entry mode
Identify strategic factors in selecting entry modes
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

3. Developing an Export Strategy
Step 1
Step 2
Step 3
Step 4
Identify a potential market
Match needs to abilities
Initiate
meetings
Commit resources
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

4. Degree of Export Involvement
Direct exporting
(sell to buyers)
Indirect exporting
(sell to intermediaries)
Sales representatives
Distributors
Agents
Export management companies
Export trading companies
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International Business 5e

5. Avoiding Export Blunders
Conduct market research
Obtain export advice
Consider a freight forwarder
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

6. International Business 5e
Forms of Countertrade
Barter
Counterpurchase
Offset agreement
Switch trading
Buyback
Direct exchange without money
Sale to a country in return for promise of future purchase from it
Offset a hard-currency sale to a nation
with future hard-currency purchase
Sale by a company of an obligation to purchase from a country
Export of industrial equipment in return for products the equipment produces
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

7. Export/Import Financing
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International Business 5e

8. International Business 5e
High-Risk Approaches
Advance payment
Importer pays exporter
for merchandise
before it ships
Open account
Exporter ships
merchandise and
later bills importer
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

9. Documentary Collection
Bank acts as intermediary without accepting financial risk
Draft (bill of exchange)
Bill of lading
Document that orders an importer to pay an exporter a specified sum of money at a specified time
Contract between an exporter and shipper
specifying destination
and shipping costs
for merchandise
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

10. Documentary Collection Process International Business 5e
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

11. International Business 5e
Letter of Credit
Importer’s bank issues a document stating that the bank will pay the exporter when exporter fulfills document’s terms
Irrevocable
Revocable
Confirmed
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International Business 5e

12. Letter of Credit Process
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

13. Licensing Advantages Disadvantages
Company owning intangible property (licensor) grants
another firm (licensee) the right to use it for a specified time
Advantages
Finance expansion
Reduce risk
Reduce counterfeits
Upgrade technologies
Restrict licensor’s future
Reduce global consistency
Lend strategic property
Disadvantages
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

14. Franchising Advantages Disadvantages
Company (franchiser) supplies another (franchisee)
with intangible property over an extended period
Advantages
Low cost and low risk
Rapid expansion
Local knowledge
Cumbersome
Lost flexibility
Disadvantages
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

15. Management Contract Company supplies another with
managerial expertise for a
specific period of time
Advantages
Few assets risked
Nations finance projects
Develops local workforce
Disadvantages
Personnel at risk
Create competitor
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

16. Turnkey Project Advantages Disadvantages
Company designs, constructs, and tests
a production facility for a client
Advantages
Firms specialize in core
competency
Nations obtain infrastructure
projects
Politicized process
Create competitor
Disadvantages
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International Business 5e

17. Wholly Owned Subsidiary
Facility entirely
owned and controlled
by a single parent company
Advantages
Day-to-day control
Coordinate subsidiaries
Disadvantages
Expensive
High risk
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

18. International Business 5e
Joint Venture
Separate company created and jointly owned by two or more independent entities to achieve a common business objective
Forward • Backward • Buyback • Multistage
Advantages
Reduce risk level
Penetrate markets
Access channels
Protect interests
Disadvantages
Partner conflict
Lose control
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

19. Tap competitors’ strengths International Business 5e
Strategic Alliance
Entities cooperate (but do not form a separate company) to achieve strategic goals of each
Advantages
Share project cost
Tap competitors’ strengths
Gain channel access
Protect interests
Disadvantages
Create competitor
Partner conflict
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

20. Entry Modes: Strategic Factors
Cultural environment
Political/Legal environments
Market size
Production and shipping costs
International experience
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

21. Risk, Control, Experience
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

22. International Business 5e
Chapter Review
Discuss the essential aspects of exporting
Define each form of countertrade
Explain each type of export/import financing
Describe the advantages and disadvantages of each contractual entry mode
Identify the pluses and minuses of each investment entry mode
Identify strategic factors in selecting entry modes
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
International Business 5e

23. Selecting and Managing Entry Modes
Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

24. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall
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Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall