1. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 0 Chapter Five Export Expansion

2. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 1 Entry Modes for Foreign Markets Exporting Indirect exporting via piggybacking, consortia, export management companies, trading companies Direct exporting, using market country agent or distributor Direct exporting, using own sales subsidiary Direct marketing, including mail order and telemarketing Strategic alliance Distribution alliance Manufacturing alliance R & D alliance Joint venture Wholly owned manufacturing subsidiary Assembly Full-fledged manufacturing Research and development Acquisition Licensing Technical licensing Contract manufacture Original equipment manufacture Management contracts Turnkey contracts Franchising Exhibit 5.1 Source: Adapted with permission from Root, Entry Strategies for International Markets, Revised and Expanded. The New Lexington Press, Simon and Schuster International Business and Professional Group, p.16

3. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 2 Internationalization STEP 1: EXPANSION INTO CULTURALLY SIMILAR MARKETS STEP 2: RANDOM ENTRIES FAR-OFF STEP 3: SHIFT FROM EXPORTS TO LICENSING AND FDI STEP 4: FULL-FLEDGED MNC

4. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 3 Entry Barriers Tariff Barriers - Nontariff Barriers- Government regulations on business Quotas/voluntary restraint agreements Local monopolies Slow or complex trade procedures Stringent product standards Local content requirements Access to technology, supplier channels Regional trade agreements (NAFTA, EU)

5. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 4 Entry Barriers (Con’t.) Natural Barriers- Brand loyalty Nationalistic attitudes Country-of-origin biases

6. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 5 Direct Exporting Functions Product Shipment 1.Transportation to the border 2.Clearing through customs Local Distribution 1.Finding a distributor 2.Screening distributors 3.Personal visit 4.Negotiating a contract Getting paid 1.Checking creditworthiness 2.Getting paid in local currency 3.Hedging against currency losses 4.Converting funds to home currency 5.Repatriating the funds Legal Issues 1.Export license 2.Hiring an agent 3.Transfer of title/ownership 4.Insurance After-sales support 1.Service 2.Parts and supplies 3.Training of locals 4.Creating a sales subsidiary Source: Adapted from Root, 1987, p.6 Exhibit 5.2

7. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 6 Principal Documents Used in Exporting Exhibit 5.3 Foreign Customer 1.Pro forma invoice 2.Acceptance of purchase orders 3.Ocean (airway) bill of lading 4.Certificate (or policy) of insurance 5.Packing list Exporting manufacturer 1.Purchase order 2.Letter of credit or draft (trade) acceptance Freight forwarder 1.Shipper’s letter of instructions 2.Domestic (inland) bill of lading 3.Packing list 4.Commercial invoice 5.Letter of credit (original copy) U.S. Government 1.Export Declaration 2.Export license (strategic goods and shipments to designated unfriendly nations) Foreign Governments 1.Certificate of origin 2.Customs invoice 3.Consular invoice Exporter’s bank 1.Exporter’s draft 2.Commercial invoice 3.Consular invoice 4.Insurance certificate 5.Ocean (airway) bill of lading Source: Adapted from Root, 1987, p.71. ©1987 by Jossey-Bass, Inc., Publishers. First published by Lexington Books. All rights reserved required by

8. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 7 International Price Escalation Effects (in U.S. Dollars) Exhibit 13.1 cont. Source: Becker, 1970. Reprinted by permission of Butterworth-Heinemann, Ltd.., and the authors.

9. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 8 International Price Escalation Effects (in U.S. Dollars) Exhibit 13.1 Source: Becker, 1970. Reprinted by permission of Butterworth-Heinemann, Ltd.., and the authors.

10. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 9 International Price Escalation Effects (in U.S. Dollars) Exhibit 13.1 cont. Source: Becker, 1970. Reprinted by permission of Butterworth-Heinemann, Ltd.., and the authors.

11. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 10 International Price Escalation Effects (in U.S. Dollars) Exhibit 13.1 Source: Becker, 1970. Reprinted by permission of Butterworth-Heinemann, Ltd.., and the authors.

12. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 11 Criteria for Choosing Distributors Exhibit 5.4 Previous experience (products handled, area covered, size) Services offered (inventory, repairs, after-sales service) Marketing support (advertising and promotional support) Financial strength Relations with government Cooperativeness Whether or not handling competing products Source: Adapted from Root, 1987, p63-65

13. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 12 Master Foreign Distributorship Agreement Checklist Source: Adapted from Hall, 1993, pp.65-66. Courtesy of Unz & Co. Exhibit 5.5

14. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 13 Master Foreign Distributorship Agreement Checklist Exhibit 5.5 cont. Source: Adapted from Hall, 1993, pp.65-66. Courtesy of Unz & Co.

15. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 14 Letter of Credit Model Exhibit 5.6 Exporter seller beneficiary Importer’s bank Importer buyer account party Exporter’s bank 7. Remits payment 5. Presents documents 3. Advises of L/C 2. L/C application 6. Sends documents 7. Pays bank or gets loan United States Overseas 4. Shipment of goods 1. Purchase and agreement 7. Remits payment 5. Presents documents for negotiation 3. Opens L/C

16. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 15 Master Foreign Agency Appointment Checklist Exhibit 5.7 Source: Adapted from Hall, 1993, pp67-68. Courtesy of Unz & Co.

17. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 16 Master Foreign Agency Appointment Checklist Source: Adapted from Hall, 1993, pp67-68. Courtesy of Unz & Co. Exhibit 5.7 cont.

18. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 17 Exhibit 5.8 Source: Adapted with permission from Ayal and Zif, p.88. ©1979 by the American Marketing Association. Market Factors Affecting Choice of Expansion Path

19. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 18 Waterfall versus Sprinkler Expansion Strategies WATERFALL: GRADUAL MOVE INTO OVERSEAS MARKETS. SPRINKLER: ENTRY INTO SEVERAL COUNTRY MARKETS SIMULTANEOUSLY.

20. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 19 Waterfall Advantages: SIMPLER IN TERMS OF CULTURAL DISTANCE. LEVERAGES MANAGERIAL SKILLS LEARNED. LOWER RESOURCE DEMANDS. LESS RISK EXPOSURE.

21. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 20 Waterfall Disadvantages: TOO SLOW IN FAST MOVING MARKETS. LOSES FIRST-MOVER ADVANTAGES.

22. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 21 Sprinkler Advantages: MUCH QUICKER WAY TO MARKET PENETRATION. GENERATES FIRST-MOVER ADVANTAGE. PRE-EMPTS COMPETITIVE COUNTERMOVES. APPROPRIATE RESPONSE TO HYPERCOMPETITION.

23. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 5 - 22 Sprinkler Disadvantages: REQUIRES GREATER MANAGERIAL AND FINANCIAL RESOURCES. RISK EXPOSURE HIGHER. REQUIRES QUICK COUNTRY RESEARCH (INTERNET).