Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Exporting, Licensing, and Franchising Chapter 7

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Why Firms Go International PROACTIVE Motivators Profit Unique products Technological advantages Exclusive information Managerial urge Tax Benefit Economies of scale REACTIVE Motivators Competitive pressures Overproduction Declining domestic sales Excess capacity Saturated domestic markets Proximity to customers and ports

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Change Agents in The Internationalization Process FIRM INTERNAL Enlightened management New management Significant internal event FIRM EXTERNAL Demand Other firms Domestic Distributors Banks Chamber of commerce Governmental activities Export Intermediaries –Export Management Companies –Trading Companies

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Export Intermediaries Specialize in bringing firms or their products and services to the global market. Cover the international marketing knowledge and performance gaps of firms. Provide contacts with buyers abroad, call on customers, and handle delivery of goods. Examples of facilitating intermediaries –Export Management Companies –Trading Companies

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Export Management Companies Domestic firms that specialize in performing international marketing services as commission representatives or distributors. Two primary forms of operation –Take title to goods and operate internationally. –Perform service as agents.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Trading Companies The sogoshosha of Japan –Sumitomo, Mitsubishi, Mitsui Reasons for the success of the sogoshosha –Development of information systems to identify market opportunities. –Economies of scale in the vast transaction volume to obtain preferential treatment. –Large internal global markets creating opportunities for barter trade. –Access to vast quantities of capital on a global scale.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Export Trading Companies in the U.S. Bank participation in ETCs allows –better access to capital. –more trading transactions. –easier receipt of title to goods. –a wide variety of possible structures. ETC legislation has improved the performance of small- and medium-sized firms. ETC can –deliver a wide variety of services. –be an agent. –purchase products. –act as a distributor abroad. ETC must balance the demands of the market and the supply of the members to be successful.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Licensing The licensor permits the licensee to use its intellectual property (an intangible) in exchange for a royalty payment. Advantages of licensing –No capital investment, knowledge, or marketing strength. –Huge profit potential, recovered costs. –Minimal risk of government intervention. –A stage in internationalization. –Preempt market entry before competition. –Increasing intellectual property rights protection.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Licensing Compensation Issues Transfer costs R & D costs Opportunity costs

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Reasons for Global Franchising Market potential Financial gain Saturated domestic markets

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Franchising SOURCE: Copyright llona Czinkota, AlA, LLC In 2002 global franchise sales by almost 16,000 franchisors and more than 1 million franchisees were estimated to be close to $1.5 trillion. A licensing arrangement where the licensor grants the licensee the right to do business in a prescribed manner. The franchisee benefits from the reduced risk of implementing a proven concept.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. Franchising Concerns Companies need to know what their special capabilities are. The need for standardization. Protection of the total business system. Government intervention. Selection and training.

Developed by Cool Pictures & MultiMedia PresentationsCopyright © 2004 by South-Western, a division of Thomson Learning. All rights reserved. A Model of the Internationalization Process