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

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

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

Degree of Export Involvement Direct exporting (sell to buyers) Indirect exporting (sell to intermediaries) Sales representatives Distributors Agents Export management companies Export trading companies Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e

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

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

Export/Import Financing Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall International Business 5e

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall