1. Selecting and Managing Entry Modes

2. © Prentice Hall, 2006International Business 3e Chapter 13 - 2 Chapter Preview Discuss the essential aspects of exporting Define each form of countertrade Explain each type of export/import financing Describe the advantages and disadvantages of each contractual entry mode Identify the pluses and minuses of each investment entry mode Identify strategic factors in selecting entry modes

3. © Prentice Hall, 2006International Business 3e Chapter 13 - 3 Developing an Export Strategy Step 1 - Identify a potential market Step 2 - Match needs to abilities Step 3 - Initiate meetings Step 4 - Commit resources

4. © Prentice Hall, 2006International Business 3e Chapter 13 - 4 Degree of Export Involvement Direct exporting (sell to buyers) - Sales representatives - Distributors Indirect exporting (sell to intermediary) - Agents - Export management companies - Export trading companies

5. © Prentice Hall, 2006International Business 3e Chapter 13 - 5 Avoiding Export Blunders Conduct market research Obtain export advice Consider a freight forwarder

6. © Prentice Hall, 2006International Business 3e Chapter 13 - 6 Forms of Countertrade Barter - Direct exchange without money Counterpurchase - Sale to a country in return for promise of future purchase from it Offset agreement - Offset a hard-currency sale to a nation with future hard- currency purchase Switch trading - Sale by a company of obligation to purchase from a country Buyback - Export of industrial equipment in return for products the equipment produces

7. © Prentice Hall, 2006International Business 3e Chapter 13 - 7 High-Risk Approaches Advance payment - Importer pays exporter for merchandise before it ships Open account - Exporter ships merchandise and later bills importer

8. © Prentice Hall, 2006International Business 3e Chapter 13 - 8 Documentary Collection Bank acts as intermediary without accepting financial risk - Draft (bill of exchange) Document that orders importer to pay exporter a specified sum of money at a specified time - Bill of lading Contract between exporter and shipper specifying destination and shipping costs for merchandise

9. © Prentice Hall, 2006International Business 3e Chapter 13 - 9 Letter of Credit Importer’s bank issues a document stating that the bank will pay the exporter when exporter fulfills document’s terms - Irrevocable - Revocable - Confirmed

10. © Prentice Hall, 2006International Business 3e Chapter 13 - 10 Licensing Company owning intangible property (licensor) grants another firm (licensee) the right to use it for a specified time - Advantages Finance expansion Reduce risk Reduce counterfeits Upgrade technologies - Disadvantages Restrict licensor’s future Reduce global consistency Lend strategic property

11. © Prentice Hall, 2006International Business 3e Chapter 13 - 11 Franchising Company (franchiser) supplies another (franchisee) with intangible property over an extended period - Advantages Low cost and low risk Rapid expansion Local knowledge - Disadvantages Cumbersome Lost flexibility

12. © Prentice Hall, 2006International Business 3e Chapter 13 - 12 Management Contract Company supplies another with managerial expertise for a specific period of time - Advantages Few assets risked Nations finance projects Develops local workforce - Disadvantages Personnel at risk Create competitor

13. © Prentice Hall, 2006International Business 3e Chapter 13 - 13 Turnkey Project Company designs, constructs and tests a production facility for a client - Advantages Firms specialize in core competency Nations obtain infrastructure projects - Disadvantages Politicized process Create competitor

14. © Prentice Hall, 2006International Business 3e Chapter 13 - 14 Wholly Owned Subsidiary Facility entirely owned and controlled by a single parent company - Advantages Day-to-day control Coordinate subsidiaries - Disadvantages Expensive High risk

15. © Prentice Hall, 2006International Business 3e Chapter 13 - 15 Joint Venture Separate company created and jointly owned by two or more independent entities to achieve a common business objective Forward Backward Buyback Multistage - Advantages Reduce risk level Penetrate markets Access channels Protect interests - Disadvantages Partner conflict Lose control

16. © Prentice Hall, 2006International Business 3e Chapter 13 - 16 Strategic Alliance Entities cooperate (but do not form a separate company) to achieve strategic goals of each - Advantages Share project cost Tap competitors’ strengths Gain channel access Protect interests - Disadvantages Create competitor Partner conflict

17. © Prentice Hall, 2006International Business 3e Chapter 13 - 17 Entry Modes: Strategic Factors Cultural environment Political/Legal environments Market size Production and shipping costs International experience