Entry Strategies: International Business - PDF

Entry Strategies International Business  Entry Strategies Market entry strategy is influenced by the firm and product characteristics and the domestic and international market characteristics.  Foreign Market Entry and Operations...

Entry Strategies International Business  Entry Strategies Market entry strategy is influenced by the firm and product characteristics and the domestic and international market characteristics.  Foreign Market Entry and Operations Strategies Contractual Agreement Production facility in foreign Exporting Licensing & Franchising. market. Direct Exporting. Assembly Operations. Strategic Alliance. Wholly owned Indirect Exporting. Contract Manufacturing. manufacturing facility. Joint Ventures. Mergers and Acquisitions  Direct exporting In direct exporting, the firm becomes directly involved in marketing its products in foreign markets, because the firm itself performs the export task (rather than delegating it to others).  Direct exporting To implement a direct exporting strategy, the firm must have representation in the foreign markets. This can be achieved in a number of ways: – Sending international sales representatives into the foreign market. – Selecting local representatives or agents to prospect the market. – Using independent local distributors who will buy the products to resell them in the local market. – Creating a fully owned commercial subsidiary to have a greater control over foreign operations.  Indirect exporting The market-entry technique that offers the lowest level of risk and the least market control is indirect export, in which products are carried abroad by others. The firm is not engaging in international marketing and no special activity is carried on within the firm; the sale is handled like domestic sales  Indirect exporting There are several different methods of indirect exporting: – The simplest method is to deal with foreign sales through the domestic sales organisation. – A second form of indirect exporting is the use of international trading companies with local offices all over the world. – A third form of indirect exporting is the export management company located in the same country as the producing firm and which plays the role of an export department.  Example The mumbai based American Dry Fruits (ADF) which began selling a range of packaged foods liked Chutneys, Spices, Canned vegetables, ready to eat dals, etc under different brand names later moved to other countries with large Indian population.  Licensing & Franchising Licensing is another way to enter a foreign market with a limited degree of risk. Under international Licensing, a firm in one country permits a firm in another country to use its intellectual property( Patents, trade marks etc).  Licensing & Franchising Franchising is a business model in which many different owners share a single brand name. A parent company allows entrepreneurs to use the company's strategies and trademarks; in exchange, the franchisee pays an initial fee and royalties based on revenues. The parent company also provides the franchisee with support, including advertising and training, as part of the franchising agreement.  Licensing & Franchising Licensing is similar to franchising except that the franchising organisation tends to be more directly involved in the development and control of the marketing programme.  Licensing & Franchising The major drawback of licensing is the problem of controlling the licensee due to the absence of direct commitment from the international firm granting the licence. After few years, once the know- how is transferred, there is a risk that the foreign firm may begin to act on its own and the international firm may therefore lose that market.  Example ITC Hotels and ITT Sheraton corporation had an agreement under which ITC Hotel’s Welcom group franchised two of its hotels in Bangkok and Hong kong to ITT Sheraton holding, in exchange, the franchise for Sheraton in India. Later, partners decided to set up a joint venture with Sheraton having major stake to manage all new ITC hotel projects in India.  Strategic Alliance It is an arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project. A strategic alliance is less involved and less permanent than a joint venture, in which two companies typically pool resources to create a separate business entity.  Strategic Alliance In a strategic alliance, each company maintains its autonomy while gaining a new opportunity. A strategic alliance could help a company develop a more effective process, expand into a new market or develop an advantage over a competitor, among other possibilities.  Example An oil and natural gas company might form a strategic alliance with a research laboratory to develop more commercially viable recovery processes. A clothing retailer might form a strategic alliance with a single clothing manufacturer to ensure consistent quality and sizing. A major website could form a strategic alliance with an analytics company to improve its marketing efforts.  Contract Manufacturing In contract manufacturing, the firm’s product is produced in the foreign market by local producer under contract with the firm. Because the contract covers only manufacturing, marketing is handled by a sales subsidiary of the firm which keeps the market control.  Contract Manufacturing Contract manufacturing obviates the need for plant investment, transportation costs and custom tariffs and the firm gets the advantage of advertising its product as locally made. Contract manufacturing also enables the firm to avoid labour and other problems that may arise from its lack of familiarity with the local economy and culture.  Example Balsara’s private label manufacturing activity is focused on the supply of children’s toothpaste formulations. Balsara’s empahsis on Private lable products and contract manufacturing has resulted in increased business from North American and European Markets.  Assembly Operations Assembling is a compromise between exporting and foreign manufacturing. The firm produces domestically all or most of the components or ingredients of its product and ships them to foreign markets to be put together as a finished product.  Assembly Operations By shipping CKD (completely knocked down), the firm is saving on transportation costs and also on custom tariffs which are generally lower on unassembled equipment than on finished products. Another benefit is the use of local employment which facilitates the integration of the firm in the foreign market.  Example Notable examples of foreign assembly are the automobile and farm equipment industries. In similar fashion, Coca-Cola ships its syrup to foreign markets where local bottle plants add the water and the container. Wholly owned manufacturing facility. Companies with long term and substantial interest in the foreign market normally establish wholly owned manufacturing facilities there. A number of factors like trade barriers, difference in the production and other costs encourage the establishment of production facilities in the foreign markets.  Joint Ventures Foreign joint ventures have much in common with licensing. The major difference is that in joint ventures, the international firm has an equity position and a management voice in the foreign firm. A partnership between host- and home-country firms is formed, usually resulting in the creation of a third firm.  Mergers and Acquisitions From a legal point of view, a merger is a legal consolidation of two companies into one entity, whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner