1. 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

2. 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

3. 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

4. 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

5. 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

6. 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
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7. Forms of Exporting Indirect exporting Direct exporting
Intracorporate transfers
©2004 Prentice Hall

8. ©2004 Prentice Hall

9. 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

10. 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

11. 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

12. 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

13. Specialized Entry Modes
Contract Manufacturing - Nike
Management Contract - Hilton
Turnkey Project – Pepsi in Russia
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14. 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

15. 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

16. 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

17. 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

18. 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

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