1. Entering New Market Outside Home Country
Presented by GROUP 1
Jatin Gala
Rajesh Jain
Komal Parikh
Meghana Patil
Rohit Rajas
Sangeeta Ramdas
Nishit Shah

2. Deciding How to enter the market.
An entry strategy should reflect an analysis of market potential, company stabilities and the degree of marketing involvement and the commitment the management is prepared to make.
Approaches could either require minimal investment and be limited to infrequent exporting or large investments of capital and management effort to capture and maintain a permanent, specific share of world markets. – BOTH APPROACHES CAN BE PROFITABLE.
Look at factors of commitment,
risk, control and profit potential.

3. Entry Strategies – Criteria for Selection
- Speed of Market Entry Desired:
Setting up a WOS vis-à-vis Agent / Distributor to ensure quick / effective distribution in the foreign market.
Costs (to include direct as well as indirect):
Indirect like inland freights, strikes, disruptions to output, lack of power supply, irregularity of raw materials.
Flexibility Required:
Appointment of agent / distributor required only where it is deemed unlikely that there will be much future expansion by the company
directly into that market.

4. Entry Strategies – Criteria for Selection
Risk Factors:
Risk may be diminished by minimizing the investment stake in the
company by accepting local joint venture partner etc. Also important
are third country risks – boycotts (Arab world for Israel )
Investment Payback Period:
Short term pay back realized from licensing and franchising deals
whereas joint ventures or wholly owned subsidiaries will tie up capital for a number of years.
Long-term profit Objectives:
Related to the growth envisaged
in that market for the years ahead.

5. Basic foreign expansion Entry Decisions
A firm contemplating foreign expansion must make three decisions
Which markets to enter
When to enter these markets
What is the scale of entry

6. Which foreign markets Favorable
Politically stable developed and developing nations
Free market systems
No dramatic upsurge in inflation or private- sector debt
Unfavorable
Politically unstable developing nations with a mixed or command economy or where speculative financial bubbles have led to excess borrowing

7. Timing of entry Advantages in early market entry: Disadvantages:
First-mover advantage
Build sales volume
Move down experience curve and achieve cost advantage
Create switching costs
Disadvantages:
First mover disadvantage - pioneering costs
Changes in government policy

8. Scale of entry Large scale entry Small scale entry:
Strategic Commitments - a decision that has a long-term impact and is difficult to reverse
May cause rivals to rethink market entry
May lead to indigenous competitive response
Small scale entry:
Time to learn about market
Reduces exposure risk

9. Entry Strategies FOREIGN MARKET ENTRY MANUFACTURING AT HOME
ABROAD
INVESTMENT
ENTRY
CONTRACTUAL
OVERSEAS
ASSEMBLY/
MIXING
EXPORTING
ACQUISITION/
SELF-BUILT
OTHER DIRECT
ENTRY
LICENSING/
FRANCHISING
CONTRACT
MANUF.
DIRECT
INDIRECT
TURNKEY
PROJECTS
MGT
CONTRACTS
“PIGGY-
BACKING”
JOINT
VENTURES

10. Entry modes Licensing &Franchising Exporting
Use of Agents/Distributors Turnkey Projects
Joint Ventures
Wholly Owned Subsidiaries
Contract Manufacturing
FDI
Mergers & Acquisitions
Strategic Alliances

11. Licensing & Franchising
Under International Licensing , a firm in one country (the licensor ) permits a firm in another country (The licensee) to use its intellectual property (such as patents, trademarks, copyrights, technology, technical know how, marketing skill or some other specific skill) –Walt Disney, Nike
Franchising
It is a form of licensing in which a parent company (the franchiser ) grants another independent entity (the franchisee) the right to do business in prescribed manner. This right can take the form of selling the franchisors products, using its name, production and marketing techniques, or general business approach.eg Coca Cola supplying syrup to the bottlers.
Forms of franchising
Manufacturer – Retailer systems (Automobile dealerships).
Manufacturer- Wholesaler systems. (Soft drink companies)
Service firm –Retailer systems (Lodging services and fast food outlets)

12. Licensing
Means of establishing foothold in foreign markets without large capital outlays
Patented rights / trademark rights and rights to use technological processes are granted in foreign licenses
Confers only a right to use a company specific and patent-protected process in manufacturing.
Right is conveyed in the transferal of original blueprints and designs.
In its simplest form, it may involve the transmittal of original designs.
Important criteria = “KNOW –HOW” agreements.

13. Advantages Licensing Capital requirement is scarce
Import restrictions forbid other means of entry
A country is sensitive to foreign ownership or
When it is necessary to protect patents and trademarks against cancellation or non use.
Increases the income on products developed as a result of expensive research.
To retain a market to which export is no longer viable cost of import prohibitions, quotas, duties, transportation costs, lack of production facilities etc.
To make possible the rapid exploitation of new ideas on world markets before competitors get into the act.
For the licensor it becomes easier to handle more export markets this way.
Licensing is a viable option where manufacture near to the customers base is required.

14. Licensing Disadvantages
The firm has less control over the licensee than if they were to set up their own facility.
The danger of fostering competition
The fact that there is often a ceiling to licensing income per product, sometimes about 5% on the selling price, innovating products at least could rate higher rewards if marketed in other ways.
The licensee may prove less competent than expected at marketing or other management activities, hence the licensor may find his commitment is greater than expected. Eventually costs may grow faster than income.
Negotiations with licensee and or the local govt are costly and often protracted.

15. Franchising
Is a rapidly growing form of licensing in which the franchisor provides a standard package of products, systems and management services and the franchisee provides market knowledge, capital and personal involvement in management.
Potentially the franchise system provides an effective blending of skill centralization and operational decentralization
In England – for eg – annual franchised sales of fast foods is nearly 2 Billion US $ , which accounts for 30% of all foods eaten outside the home.
- eg Beijing KFC has the highest sales volumes of any KFC store in the world.

16. Franchising TYPES OF FRANCHISE AGREEMENTS:
A) MASTER franchise – gives the franchisee the rights to a specific area with the authority to sell or establish sub franchises.
( eg Mc’Donalds)
B) LICENSING franchise – right to use a product / good / service or any other asset for a fee
( eg Coco Cola licenses local bottlers in a an area or region to manufacture and market Coco – Cola using syrup sold by Coco Cola. Rental car companies often enter foreign market by licensing a local franchisee to operate a rental system under a trade mark of the parent company. )

17. Franchising

18. Franchising Advantages:
Reduces costs and risk of establishing enterprise
Disadvantages:
May prohibit movement of profits from one country to support operations in another country
Quality control

19. Contract Manufacturing
A company may manufacture locally to capitalize on low cost labor, avoid high import taxes, reduce high cost of transportation, gain access to ease in availability of Raw material.
This method is suitable for firms that have high marketing skills but having relatively poor manufacturing
facilities.
When host govt deliberately
blocks all other modes,
this mode is suitable.

20. Contract Manufacturing
Advantages
The company does not have to commit resources for setting up production facilities.
It frees the company from the risks of investing in foreign countries.
If idle production capacity is readily available in the foreign market , it enables the marketer to get started immediately.
The cost of product obtained by contract manufacturing is lower than if it were manufactured by the international firm.
Risk involved is less.
It may enable the international firm to enlist national support.
Disadvantages
Loss of potential profits from manufacturing
Less control over manufacturing process
Risk of developing potential competitors.
Not suitable for high tech products involving technical secrets.

21. Direct Exporting From home country
This means is the easiest and most common
Risks and financial losses can be minimized ( over indirect exporting )
Early motives are to skim the cream form the market or gain business to absorb overheads.
Forms:
Export department
Overseas sales branch or subsidiary
Traveling representative
Foreign based distributors / agents – who would buy the goods and own it – might be given exclusive rights to represent the manufacturer.

22. Exporting Why Exporting (Direct or indirect Exporting)
The volume of foreign business is not large enough to justify production in the foreign market.
Cost of production in foreign market is high.
The foreign market is characterised by production bottle necks like infrastructural problems, problems with material supplies,etc.
There are political or other risks of investment in the foreign country.
The company has no permanent interest in foreign market concerned, or there is no guarantee of the market available for a long period.
Foreign investment is not favoured by the foreign country concerned.
Licensing or contract manufacturing is not a better alternative.
Under utilised capacity exists.
Why not exporting
Policies of some governments discriminate against imports.
Foreign production economical

23. Exporting Advantages:
Avoids cost of establishing manufacturing operations
May help achieve experience curve and location economies
Disadvantages:
May compete with low-cost location manufacturers
Possible high transportation costs
Tariff barriers
Possible lack of control over marketing reps

24. Turnkey Contracts
These are common in international business in the supply , erection and commissioning of plants , as in the case of refineries , steel mills , cement and fertilizer plants, etc. construction projects as well as franchising agreements.
It is an agreement by the seller to supply a buyer with a facility fully equipped and ready to be operated by the buyer’s personnel, who will be trained by the seller. There term is sometimes used in fast food franchising when franchiser agrees to select a store site , build the store, equip it, train the franchisee and employees, and sometimes even arrange for the financing.

25. Turnkey projects Advantages: Can earn a return on knowledge asset
Less risky than conventional FDI
Disadvantages:
No long-term interest in the foreign country
May create a competitor
Selling process technology may be selling competitive advantage as well

26. Joint Venture
A joint venture is simply a partnership at corporate level, and it can be domestic or International. JV is an enterprise formed for a specific business purpose by two or more investors sharing ownership and control. Can be defined as “The commitment for more than a short duration of funds, facilities and services by two or more legally separate interests to an enterprise for their mutual benefit” JV’s go deeper than mere trade relationships since it concentrates on the deliberate alliance of resources between two independent organizations in order to mutually improve their market growth potential.

27. Joint Ventures
Eg Time Warner Entertainment and Taiwan Pan Asia Investment Company have formed a joint venture called Tai Hua International Enterprise Co. Ltd for purpose of providing products and services to Taiwan’s emerging cable TV industry.
JV’s are of TWO TYPES:
Joint Equity Venture
Contractual joint Venture.

28. Joint Ventures Joint Equity Venture
Wherein each of the respective partners contributes a sum either in equity or technological know-how in return for a given stake in the operation of a joint venture.
Are open ended and not fixed.
Suffer in that the absorption of local equity capital from the foreign market will dilute the company / country equity base.

29. Joint Ventures Four factors associated with JV’s:
are established , separate legal entities
they acknowledge intent by the partners to share in the management of the JV
they are partnerships between legally incorporated entities such as companies , chartered organizations or governments
equity positions are held by each of the partners.

30. Joint Ventures Contractual Joint Venture
Commonly referred to as industrial co-operation (ICA’s coined by the UN)
Unlike joint-equity ventures the investment stake may be say in technology on one side only.
The duration is well defined and laid down in the contract which designates the respective tasks and responsibilities of each party over the period of a joint venture.
Eg – Boeing pressed by capacity shortages, averted an operational crisis by turning to its rival LOCKHEED for a loan of 600 workers.

31. Joint Ventures Advantages: Benefit from local partner’s knowledge.
Shared costs/risks with partner.
Reduced political risk.
Disadvantages:
Risk giving control of technology to partner.
May not realize experience curve or location economies.
Shared ownership can lead to conflict

32. Consortia Are developed for pooling financial and managerial
resources and to lessen risks.- eg for huge construction
projects.
Similar to a JV except for the following two
characteristics:
They typically involve a large number of participants
They frequently operate in a country or market in which none of the participants is currently active.

33. Wholly owned subsidiary
Subsidiaries could be Greenfield investments or
purchase (acquisition or merger)
Advantages
No risk of losing technical competence to a competitor
Tight control of operations.
Realize learning curve and location economies.
Disadvantage
Bear full cost and risk
14-33

34. Branch
Subsidiary
1. Branches are simple to set up.
1. Usually incorporated as a limited company.
2. Parents firm looks after the accounting procedure.
2. Independently audited. However there is no need to disclose accounts to host country norms.
3.Branch profits are taxed at head office even if they are not repatriated.
3. Carries local identity & can procure govt. grants as per local norms.
4.Assets can be transferred from parent to branch without tax liability, however special tax rules apply depending on the country.
4. It can raise capital and is entitled to sell shares to outsiders.

35. Merger & Acquisition Merger Acquisition
When 2 companies join together to become one entity.
One or both lose their identity.
Example. Air India – Indian Airlines.
Acquisition
Take effective control over assets or management of another company.
Entity does not change.
Example. Tata – Corus.

36. Merger & Acquisition Advantages Disadvantages
Economies of scale, which reduces unit costs
Reduces competition if a rival is taken over.
New skills and specialist departments are added to the business.
It is easier to raise money for a larger business
Disadvantages
Clashes of culture between different types of businesses can occur
May be a conflict of objectives between different businesses

37. Foreign Direct Investment (FDI)
Foreign direct investment (FDI) or foreign investment
refers to long term participation by country A into country B.
Advantages
Causes a flow of money into the economy which stimulates economic activity
Employment will increase
Technology transfer and improvement in quality of products
Disadvantages
Inflation may increase slightly
Domestic firms may suffer if they are relatively uncompetitive

39. Strategic Alliances
Alliance may be in the areas of production, distribution, marketing and research and development. Eg Sony and Philips ally to compete with another alliance led by Toshiba in developing DVDs
Almost all major Airlines have joined one of the three strategic groups: Star, Sky team and One World.

40. Characteristics of a strategic alliance
Independence of
Participants
Benefits
Technology
Products
Control
Ongoing
Contributions
Shared
Benefits
Markets
Cooperation
14-23

41. Structuring the alliance to reduce opportunism

42. Alliances are popular High cost of technology development
Company may not have skill, money or people to go it alone
Good way to learn
Good way to secure access to foreign markets
Host country may require some local ownership

43. Strategic Alliances Advantages: Disadvantages:
Facilitate entry into market
Share fixed costs
Bring together skills and assets that neither company has or can develop
Establish industry technology standards
Disadvantages:
Competitors get low cost route to technology and markets

44. Advantages and disadvantages of entry modes