© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 9 Market Entry and Expansion

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit A Model of International Entry and Expansion

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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: –Reactive motivations:

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Why Firms go International Proactive Stimuli Profit advantage Technological advantages Economies of scale Reactive Stimuli Competitive pressures Stable or declining domestic sales Saturated domestic markets

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exhibit Change Agents in the Internationalization Process Internal Enlightened management Significant internal event External Foreign demand Domestic distributors Business associations Export intermediaries - Export management companies and Trading companies

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Export –The innate or start-up exporters play a growing role in an economy’s international trade involvement. –Stages involved in the gradual internationalization:

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Export - Modes of export –Direct export. – –Selling goods to a domestic firm who in turn sells abroad.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Export management companies (EMC) – –Two primary forms of operation –Both parties must recognize the delegation of responsibilities, the costs associated with these activities, and the need for information sharing and cooperation.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Trading companies –The most famous trading companies are the sogoshosha of Japan. –Reasons for the success of the Japanese sogoshosha: Their vast transaction volume provides them with cost advantages. They had access to capital, both within Japan and in the international capital markets.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International Export trading companies (ETCs) –Designed to improve the export performance of small- and medium-sized firms. – –Reduces the antitrust threat to joint export efforts to enable firms to share the cost of international market entry. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International E-commerce –The ability to offer goods and services over the Web. –Various methods to market products over the internet:

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Going International E-commerce concerns - Firms must be ready to: – –Have the regulatory and customs-handling expertise to deliver internationally. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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. –Advantages of licensing

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing and Franchising –Advantages of licensing Ongoing licensing cooperation and support enables the licensee to benefit from new developments. Allows a firm to test a foreign market without major investment of capital or management time. Increases protection of intellectual property rights.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing and Franchising –Disadvantages of licensing Licensor creates its own competitor.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing and Franchising Principal issues in negotiating licensing agreements: –The scope of the rights conveyed - –Compensation -

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing and Franchising Principal issues in negotiating licensing agreements: –Licensee compliance, which should address: –Dispute resolution. –Specification of term, termination, and survival of rights.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing and Franchising Trademark licensing –Permits use of the names or logos of designers, literary characters, sports teams, and movie stars on merchandise such as clothing. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing and Franchising Franchising –A situation under which a parent company (the franchiser) grants another independent entity (the franchisee) the right to do business in a specified manner. – –The major forms of franchising are manufacturer- retailer systems, manufacturer-wholesaler systems, and service firm–retailer systems.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing and Franchising Franchising – –Reasons for global franchising are market potential, financial gain, and saturated domestic markets.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Licensing and Franchising Franchising concerns –The need for standardization. – –Government intervention. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreign Direct Investment (FDI) Foreign direct investment - Portfolio investment - Foreign direct investors often bring with them imports on an ongoing basis.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Firms are categorized as: –Resource seekers - –Market seekers - –Efficiency seekers - Foreign Direct Investment

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreign Direct Investment Reasons for FDI –Marketing factors –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.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Reasons for FDI –Government incentives Fiscal incentives - Financial incentives - Non-financial incentives - Foreign Direct Investment

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Positive perspectives on foreign direct investors – –Transfer technology and managerial skills. – Foreign Direct Investment

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Negative perspectives on foreign direct investors –Drain resources from host countries. – –Discourage local technology development. – –Create new competition for local firms. Foreign Direct Investment

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreign Direct Investment Types of ownership - Full ownership –Result of ethnocentric considerations or one of the principles. – –A major concern is the “fairness” of profit repatriation, or transfer of profits, and the extent to which firms reinvest into their foreign operations. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreign Direct Investment Types of ownership - Joint ventures – –Partners share assets, risks, and profits, though equality of partners is not necessary. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreign Direct Investment Advantages of joint ventures – –Better relationships with local organizations. – –Minimize exposure to political risk. – Disadvantages of joint ventures –Different levels of control are required. – –Disagreements over business decisions. –

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreign Direct Investment Types of ownership - Strategic alliances –Arrangement between two or more companies with a common business objective. – –Formed for market development, spreading the cost and risk inherent in production, and blocking or co- opting competitors.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreign Direct Investment Types of ownership - Strategic alliances –Management contract Provides organizational skills that are not available locally, expertise that is immediately available, and management assistance that would be difficult and costly to replicate locally.

© 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Foreign Direct Investment Types of ownership - Government consortia – –A reflection of escalating cost and a governmental goal of developing or maintaining global leadership in a particular sector. –Research consortia -