Unit 6 Reaching Global Markets – Means of International Expansion and Restrictions to Trade

Ways to grow and enter foreign markets

Entry strategies Licensing Franchising Contract manufacturing (outsourcing) Invest directly (FDI) Enter a joint venture (JV) or strategic alliance Merge or acquire

Totally owned facilities Licensing Totally owned facilities

Franchising FRANCHISOR Fast and controlled distribution (expansion) No/low cost of operations (construction, rent, overheads, etc.) More capital for production and marketing Standards ensured by franchise agreement % sales, fees and royalties = cash income BUT Hassle of franchisees Checking standards, quality, and ethics Cannibalization or competition Lawsuits FRANCHISEE Easy entry with limited capital Business experience available Market awareness and advertising Guidance (?) Lower cost of some expenses through group buying within franchise organization Competition (unfair) Lack of control – strict agreements Ongoing fees, royalties and share of gross sales = pressure on operating margins Not uniform contracts

Contract manufacturing

Foreign direct investment

Joint venture (JV) / strategic alliance Feud between Takara (no. 2) and Bandai (no.1). Takara had sold barbie dolls, altered for Japanese tastes, under license from Mattel since 1982. Barbies sold directly by Mattel had been unpopular. But Mattel terminated the agreement abruptly because it felt Takara wasn’t trying hard enough to sell OTHER Mattel toys, and also was leaking Mattel secrets to another American toymaker with which it had a relationship. Takara claims Mattel/Bandai JV copied the barbie that Takara developed under license from Mattel, which cost them 19 months and $590,00 in development costs. Ma Ba = Mattel-Bandai JV. Takara Barbie had round face, big eyes, small lips. Different from American versio. Takara sold 6 million dolls, selling $33million worth of Barbie dolls. They paid Mattel 1.8million in license royalties. But Takara cut a deal to work with Hasbro to manufacture and market Transformer toys in 1984 (contract manufacture). Problem was Mattel toys did not sell well in Japan (Masters of the univese, verti-bird helicopters, pop up pictures). Mattel blamed Takara for not getting the programs on TV that would have helped sell the toys. Mattel approached Takara many times bewteen 1983 to 1985 to launch a JV, but Takara refused (probably due to non-compete with Hasbro). 1984 Barbie sales: $26 million. Tansformer sales: $165 million.

Mergers Popco Popco

Restricting trade and growth

Ways to restrict trade Tariff: a tax, also called an import duty Dumping Import quota Embargo Foreign exchange control Currency devaluation

Give 3 reasons why a government would want to restrict trade In your groups… Give 3 reasons why a government would want to restrict trade

Protect growing industries Protect health Why restrict trade? Protect growing industries Protect health Stabilize credit rating of country

Meet domestic demand Protect jobs Raise prices Retaliation Why restrict trade? Meet domestic demand Protect jobs Raise prices Retaliation

Tariff Import duty: tax levied on a particular foreign product entering a country to discourage competition Revenue: imposed to generate income Protective: imposed to protect domestic industry from competition

Dumping High volume below market rates Anti-dumping duty Fair trade practice claim Where do you lodge the complaint?

Import Quota Keeps the domestic price of sugar higher than the world market price. For instance the world market price is about half that of the domestic US price, which protects US sugar producers.

Embargo

Foreign Exchange (forex) control

Currency devaluation

Remaining questions

Does chasing low labor costs = exploitation?

Value in network coordination

Value in cooperation

Will services industries save developed economies?

Business and politics

Business and politics

Business and politics