Foreign Market Analysis Assess alternative markets Evaluate the respective costs, benefits, and risks of entering each market Select those that hold the most potential Where to find data ©2004 Prentice Hall

Factors in Assessing New Market Opportunities * look at page 338 Product-market dimensions Major product-market differences Structural characteristics of the national product market Competitor analysis Potential target markets Relevant trends Explanation of change Success factors Strategic options ©2004 Prentice Hall

Evaluating Costs, Benefits, and Risks Direct cost – easy to compute Opportunity cost – what we forego by investing in one country and not another Benefits – profits, lower costs, beating competitors to market, access to new technology, circumventing trade barriers Risks – what if we make a mistake? ©2004 Prentice Hall

Choosing a Mode of Entry Exporting Decision Factors: Ownership advantages Location advantages Internalization advantages Other factors Need for control Resource availability Global strategy International Licensing International Franchising Specialized Modes Foreign Direct Investment ©2004 Prentice Hall

Exporting Advantages Relatively low financial exposure Permit gradual market entry Acquire knowledge about local market Avoid restrictions on foreign investment Disadvantages Vulnerability to tariffs and NTBs Logistical complexities Potential conflicts with distributors ©2004 Prentice Hall

Motivations for Exporting Proactive motivations: pull a firm into foreign markets as a result of opportunities available there Reactive motivations: push a firm into foreign markets because opportunities are decreasing in the domestic market ©2004 Prentice Hall

Forms of Exporting Indirect exporting Direct exporting Intracorporate transfers ©2004 Prentice Hall

©2004 Prentice Hall

Export Intermediaries – the specialists Export Management Company Webb-Pomerene Association International Trading Company Other intermediaries –manufacturers agents; export and import brokers; freight forwarders ©2004 Prentice Hall

Figure 12.3 The Licensing Process LICENSOR Leases the right to use its intellectual property Earns new revenues with relatively low investment LICENSEE Uses the intellectual property to create products for local sale Pays a royalty back to the licensor Basic Issues Set the boundaries of the agreement Establish compensation rates Agree on the rights, privileges, and constraints Specify the duration of the agreement ©2004 Prentice Hall

Licensing Advantages Low financial risks Low-cost way to assess market potential Avoid tariffs, NTBs, restrictions on foreign investment Licensee provides knowledge of local markets Disadvantages Limited market opportunities/ profits Dependence on licensee Potential conflicts with licensee Possibility of creating future competitor ©2004 Prentice Hall

Franchising Advantages Low financial risks Low-cost way to assess market potential Avoid tariffs, NTBs, restrictions on foreign investment Maintain more control than with licensing Franchisee provides knowledge of local market Disadvantages Limited market opportunities/ profits Dependence on franchisee Potential conflicts with franchisee Possibility of creating future competitor ©2004 Prentice Hall

Specialized Entry Modes Contract Manufacturing - Nike Management Contract - Hilton Turnkey Project – Pepsi in Russia ©2004 Prentice Hall

Contract Manufacturing Advantages Low financial risks Minimize resources devoted to manufacturing Focus firm’s resources on other elements of the value chain Disadvantages Reduced control (may affect quality, delivery schedules, etc.) Reduce learning potential Potential public relations problems ©2004 Prentice Hall

Management Advantages Focus firm’s resources on its area of contracts Minimal financial exposure Disadvantages Potential returns limited by contract expertise May unintentionally transfer proprietary knowledge and techniques to contractee ©2004 Prentice Hall

Turnkey Projects Advantages Focus firm’s resources on its area of expertise Avoid all long-term operational risks Disadvantages Financial risks Cost overruns Construction risks Delays Problems with suppliers ©2004 Prentice Hall

Foreign Direct Investment Building new facilities (the greenfield strategy) Buying existing assets in a foreign country (acquisition strategy) Participating in a joint venture ©2004 Prentice Hall

Foreign Direct Investment Advantages High profit potential Maintain control over operations Acquire knowledge of local market Avoid tariffs and NTBs Disadvantages High financial and managerial investments Higher exposure to political risk Vulnerability to restrictions on foreign investment Greater managerial complexity ©2004 Prentice Hall

Greenfield Strategy Best site Modern facilities Economic development incentives Clean slate ©2004 Prentice Hall