Ib (modes Of Entry)

Entry Modes of International Business By: Manish Saran L2S2, Sec-D

Globalization Is Gaining Speed The world economy is becoming a single, interdependent system

Export Domestic product sold abroad

Import Foreign product sold domestically

Categorizing Economies High Income Countries: ØPer capita income greater than $9,386

Middle Income Countries: ØPer capita income between $765 and $9,386

Low Income Countries: ØPer capita income of less than $765

Does It Make Sense to Go International? Is there internati onal demand for the firm’s product?

YES

Can the product be modified to fit a foreign market?

NO

NO

YES

Is the foreign business climate suited to imports?

YES

NO NO

Does the firm have or can it get the necessa ry skills and knowled ge to do business abroad? YES

Stay Domestic

Go International

Factors included in making foreign market entry decisions Ø Degree of control Ø Level of resource commitment Ø Degree of dissemination risk Possibility of a foreign partner firm obtaining technology or other know-how from the home-country firm and exploiting it for its own commercial advantage. For example, Japanese companies quickly assimilated RCA’s color TV technology once RCA licensed it to a number of Japanese companies.

Degree of Export Involvement ØDirect exporting (sell to buyers) üSales representatives üDistributors

ØIndirect exporting (sell to intermediaries) üAgents üExport management companies üExport trading companies

Licensing Company owning intangible property (licensor) grants another firm (licensee) the right to use it for a specified

Advantages

Disadvantages

Ø Ø Ø Ø

Finance expansion Reduce risk Reduce counterfeits Upgrade technologies

Ø Restrict licensor’s future Ø Reduce global consistency Ø Lend strategic property

Franchisin g

Company (franchiser) supplies another (franchisee) with intangible property (brand aspects such as trademarks,

Advantages

Disadvantages

Ø Low cost and low risk Ø Rapid expansion Ø Local knowledge

Ø Cumbersome Ø Lost flexibility

Management Contract

Company supplies another firms with managerial expertise for a specific period of time

Advantages ü ü ü

Few assets risked Nations finance projects Develops local workforce

Disadvantages ü Personnel at risk ü Create competitor

Turnkey Project Company designs, constructs, and tests a production facility for a client

Advantages

üFirms

specialize in core competency üNations obtain infrastructure Projects

Disadvantages üPoliticized process üCreate

competitor

Wholly Owned Subsidiary Facility entirely owned and controlled by a single parent company

Advantages ØDay-to-day ØCoordinate

control subsidiaries

Disadvantages ØExpensive Ø High risk

Joint Venture Separate company created and jointly owned by two or more independent entities to achieve a common business objective

Advantages üReduce risk level üPenetrate markets üAccess channels üProtect interests

Disadvantag es ü

Partner conflict

Strategic Alliance

Entities cooperate (but do not form a separate company) to achieve strategic goals of each

Advantages

üShare project cost üTap competitors’ strength üGain channel access üProtect interests

Disadvantages üCreate competitor üPartner conflict

Risk, Control, Experience

Factors Influencing Choice of Foreign Market Entry Mode