1. International Market Entry Modes

2. Learning Objectives Objectives:
Explain the international market entry methods
Discuss whether being a market pioneer or a fast follower is more useful
Discuss channel members available to companies that export or manufacture overseas

3. Pioneers vs. Fast Followers
Can gain and maintain competitive edge in new market
Overall pioneers may not perform as well in the long run as followers
Most successful when
High entry barriers exist
Firm has sufficient size, resources, and competencies
Followers
Many become followers by default
May be advantage to let pioneer take initial risks
Most successful when
Few legal, technological, cultural, or financial barriers
Sufficient resources or competencies to overwhelm the pioneer’s early advantage

4. Entering Foreign Markets
Nonequity modes of market entry
Exporting
Selling some regular production overseas
Requires little investment
Relatively free of risk
Indirect exporting
Direct exporting
Equity modes of market entry
Wholly owned subsidiary
Joint venture
Strategic alliance

5. Indirect Exporting…
Exporting of goods and services through various home-based exporters
Manufacturers’ export agents
sell for manufacturer
Export commission agents
buy for overseas customers
Export merchants
purchase and sell for own accounts
International firms
use the goods overseas

6. Indirect Exporting Disadvantages
Commission to export agents, commission agents, export merchants
Foreign business can be lost if exporters decide to change their sources and supply
Firm gains little experience from transactions

7. Direct Exporting Sales company option
Exporting of goods and services by the producing firm
Sales company option
Business established to market goods and services
Internet has made direct exporting much easier
Cost of trial low

8. Franchising Franchising
franchising is a contractual relationship between franchiser (owner of the company) and franchisee (buyer of a brand name). The franchiser allows the franchisee to use its trademark along with certain business systems and processes in exchange for a fee.[
Form of licensing in which one firm contracts with another to operate a certain type of business under an established name according to specific rules
Franchiser provides a standard package of products, systems, and management services
Franchise provides market knowledge, capital, and personal involvement in management

9. An increasingly popular type of franchise is….
Master franchise
Gives the franchisee the rights to a specific area with the authority to sell or establish subfranchises

10. Contracts Management Contract Contract Manufacturing
Arrangement by which one firm provides management in all or specific areas to another firm.
 Management contracts involve not just selling a method of doing things (like franchising or licensing) but involve actually doing them.
These tasks can include technical support, personnel management, marketing, sales training and accounting.
Contract Manufacturing
Arrangement in which one firm contracts with another to produce products to its specifications but assumes responsibility for marketing

11. Equity-Based Modes of Entry
Wholly Owned Subsidiary
Joint Venture
Strategic Alliance

12. Wholly Owned Subsidiary
build a new plant (greenfield investment)
where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. In addition to building new facilities, most parent companies also create new long-term jobs in the foreign country by hiring new employees. 
acquire a going concern
purchase distributor, to obtain a distribution network familiar with products

13. Joint Venture… Joint Venture
Cooperative effort among two or more organizations that share common interest in business enterprise
corporate entity formed by international company and local owners
corporate entity formed by two international companies for the purpose of doing business in a third market
a corporate entity formed by a government

14. Joint Venture Disadvantages Profits shared
If law allows no more than 49% foreign ownership, lose control
Control with minority ownership is possible if
Take 49% of shares and give 2% to local law firm or trusted national
Take in local majority partner (sleeping partner)
Management contract
Can enable the global partner to control many aspects of a joint venture even when holding only a minority position

15. Strategic Alliances…
Partnerships between competitor, customers, or suppliers that may take various forms
Aims to achieve
Faster market entry and start-up
Access to new
Products
Technologies
Markets
Cost-savings by sharing
Costs
Resources
Risks

16. Channel of Distribution
Links producer with foreign user
Product and its title pass from producer to user

17. Channel of Distribution Members: Indirect Exporting
Indirect Export Channel Members
Sell for manufacturer
Buy for overseas customers
Buy and sell for own account
Purchase on behalf of foreign middlemen or users

18. Indirect Exporting Exporters that sell for the manufacturer
Manufacturers’ export agent
Acts as the international representative for various noncompeting domestic manufacturers
Export management companies (EMC)
Acts as the export department for noncompeting manufacturers
International trading companies
Acts as agent for some companies and as wholesaler for others

19. Indirect Exporting: International Trading Companies
Japan: Sogo Shosha
Originally established by the zaibatsu, centralized, family- dominated economic groups
Korean: chaebol
Owned by Korean conglomerates
Export trading companies (ETC)
U.S. firm established principally to export domestic goods and services

20. Indirect Exporting… Exporters that buy for their overseas customers
Export commission agents
Represent overseas purchasers, such as import firms and large industrial users
Paid commission by the purchaser for acting as resident buyer

21. Indirect Exporting… Exporters that buy and sell for their own account
Export merchants
Purchase products directly from the manufacturer and then sell, invoice, and ship them in their own names
Cooperative exporters/piggyback exporters
Established international manufacturers that export other manufacturers’ goods as well as their own
Webb-Pomerene Associations
Organizations of competing firms that have joined together for the sole purpose of export trade

22. Indirect Exporting
Exporters that purchase for foreign users and middlemen
Large foreign users
Buy for their own use overseas
Export resident buyers
Perform essentially the same functions as export commission agents but more closely associated with a foreign firm

23. Direct Exporting Distribution Channel Members
Manufacturer’s agent
Independent sales representative of noncompeting suppliers
Distributor/wholesale importer
Independent importer that buys for own account for resale
Retailer
Frequently direct importer
Trading company
Firm that develops international trade and serves as intermediary between foreign buyers and domestic sellers and vice versa