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

Exhibit 9.1 - A Model of International Entry and Expansion

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.

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

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

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

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

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. .

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

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

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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 )

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.

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.

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).

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.

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.

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.