CASE 9.

1 HOW TO EXPORT HOUSES

NAMES:
PAULA CASTRO BERMUDEZ
DAYANA FALLA QUIJANO
FRANCISCO CORPUS
LUIS SOLENO

Prefabricated houses are not new. Some well-known mail-order retailers started selling
such houses in the USA decades ago. Nearly all houses built today contain some
prefabricated components such as roof trusses, floor trusses, prehung doors, windows, and
so on. The site-built or stick-built housing industry has long realized that using ready-made
components for selected parts of a house results in a significant saving of time and money
in overall construction. Factory-built housing has come a long way since its early trailer
park days back in the 1950s. Dramatic advances in design and technology have transformed
these once small, creaky single-sectioned mobile campers into attractive, spacious, multi-
sectional family dwellings. In 1999, US manufacturers exported $72 million in
prefabricated homes and housing trailers. Prefabricated housing has been gaining in
popularity in the USA and has also been expanding into overseas markets.This is mostly
because of lower transportation costs and improvements in styling and engineering
technology. Prefabricated houses are assembled from components that are manufactured in
an enclosed central production facility. The assembled structures are either fabricated in the
factory into an almost complete module (a modular house) or the components are
transported for assembly to the construction site (panelized, precut, or log homes). Housing
is a highly varied product. Modular structures are the most sophisticated complete types of
all prefabricated buildings, being 95 percent complete when they leave the factory, with
interior and exterior walls, wiring, plumbing, insulation, windows/doors, kitchen/bathroom
appliances/fixtures, heating and cooling equipment, water heater and all other mechanical
items. The entire set-up process usually takes only a few hours and all remaining work on
the building is completed in less than two weeks. An important type of modular housing is
mobile homes. Manufactured housing units (mobile homes) are shipped as single-section
units or as single-wide sections of multi-section structures. Most are built for housing
purposes but some are made for light commercial uses, such as offices, clinics, or
classrooms. Panelized buildings are the most popular type of prefabricated structure for
both domestic and international sales due to ease of transportation via containers. Design
flexibility, cost reduction advantages, and improvements in quality control are just some of
the advantages of using this system for both housing and light commercial applications.
Wall panels, some including doors and windows, are ready for assembly immediately after
delivery to the building site. Addition of the roof and completion of the building takes only
a few days. The precut building is the most basic type of manufactured structure requiring
the least amount of factory fabrication. All the wooden structural members of a building are
precut at the factory with each component numbered or coded to key it to a set of assembly
instructions or blueprints. One advantage of prefabricated housing is quick assembly – only
a few days are needed. Another buying incentive is the lower price achieved through mass
production. Another advantage of the assembly-line approach is better quality control. The
major disadvantage is, of course, the product’s image. There is no prestige in living in a
prefab house, and the uniform look does not enhance consumer perception. Although mass
production has generally negative connotations, it does not appreciably hurt such durables
as refrigerators, automobiles, and sound equipment. Yet, for housing, the negative image is
quite overwhelming. In Japan, where land and housing costs are outrageous, prefab houses
are a necessity for many. One Japanese firm that has acquired technical know-how in
manufacturing prefab houses is Misawa Homes. Ones of its popular designs is House 55.
This model has ten capsules, requiring five large containers for transportation. The model’s
advantage is that rough assembly can be accomplished in only two hours. Another strength
is its price – 20 percent lower than conventional prefab houses and 30 percent lower than
wood houses. The model was exhibited at trade fairs in Europe and received a great deal of
interest. Encouraged, Misawa Homes wanted to export its House 55 houses to Europe and
the USA. Points to consider 1 Do you think that such prefab houses as House 55 can gain
consumer acceptance in the USA and Europe? 2 Even supposing the absence of US
consumers’ negative reactions, are there any factors that pose no problem in Japan and yet
would create difficulties in the USA? 3 What should be Misawa’s strategy to enter overseas
markets with the product? Source: This case was based in part on Patrick MacAuley and
Pat Smeller, “Exporting US Manufactured Housing,” Export America, December 2000, 19–
23.

QUESTIONS

1. Briefly explain these market entry strategies: exporting, licensing, joint venture,
manufacturing, assembly operations, management contract, turnkey operations, and
acquisition.
2. What is cross-licensing or grantback?
3. What are the factors that should be considered in choosing a country for direct
investment?
4. What is an FTZ? What are its benefits?

SOLUTION

1. Exporting is a strategy in which companies without overseas marketing or production

organizations export products from their home countries. Usually, the exported products are
basically the same as those on the domestic market.
Licensing can be a reasonable compromise when a company finds export efficiency is low
but is reluctant to invest directly abroad. Licensing is an agreement that allows foreign
companies to use industrial property rights (patents, trademarks and copyrights), technical
knowledge and skills (such as feasibility studies, manuals, technical advice), architectural
and engineering designs or any combination of these in foreign markets.
Joint venture are another option that companies may consider entering overseas markets. A
joint venture is only a company-level partnership, which can be domestic or international.
For the discussion here, a joint venture is a joint venture with partners from more than one
country.
 Manufacturing, a manufacturing process (called sourcing) involves manufacturing
operations in the host country, where there are not many sales, but the purpose is to export
from the company’s home country to other country.
Assembly operations, is a variant of the manufacturing strategy. In this strategy, each
country or region produces parts or components in order to obtain the revenue of each part
or component. The country’s comparative advantage.
Management contract, The management contract can be used as a reasonable strategy for
the lowest investment and political risk to enter the market.
Turnkey operations, is an agreement of the seller to provide the buyer with fully-equipped
equipment and prepare to be operated by the buyer’s personnel, who will be trained by the
buyer’s personnel. Internationally Marketing, usually with giants projects sold to the
government or government operating companies.
Acquisition, When manufacturers want to quickly enter foreign markets and maintain
maximum control, they should consider direct investment through acquisitions.

2. Grant-back or cross-licensing are one of the basic elements that should include a license
contract, where one party grants the license to the licensor if the licensee agrees to any
improvements made by the licensee to the patent, the other party grants another person the
right to use the patent.
3. Stability of government, flexibility of government policy, tax rate, transportation and
infrastructure, economic scale, among others.
4. Foreign trade zones (FTZs), A free trade zone is a safe domestic area in international
trade, which is considered legally outside the customs territory of a country. This is a tax-
free entry zone designated by the government. There are also very few regulations on
imported goods, and there are few or no tariffs and consumption taxes.

The benefits
- One of the benefits is to retain and create jobs. If better facilities and grants are
provided to attract multinational companies, free trade zones can create foreign
investment and employment opportunities.
- From the perspective of certain countries/regions, certain countries/regions provide
high-quality facilities (such as utilities and telecommunications) at lower prices.
Other benefits are region-specific, as some regions may be better in terms of
taxation and transportation convenience than other regions in the same country.
- The regional-related benefits constitute the overall advantage of using a free trade
zone. Some of the regional-related benefits are: reduced theft rate, lower insurance
costs, delayed tax payment, and reduced inventory in transit.