Modes to Enter International Market

EXPORTING

EXPORTING
A company, without any marketing or production organization overseas, exports a product from its home base usually the same product as the one marketed in the home market.

EXPORTING
ADVANTAGES Simplest of all; Risks are minimal as the company exceeds its production capacity only when it receives orders from abroad. DISADVANTAGES - Not always an optimal strategy;
- Makes a companys marketing strategy inflexible & unresponsive due to lack of product modification; - Performs poorly when the companys home- countrys currency is strong

This strategy is employed by small firms or when the they first become involved with international business

LICENSING

LICENSING
An agreement that permits a foreign company to use:
Industrial Property: Patents, Trademarks & Copy rights Technical Know how & skills: feasibility studies, manuals, technical advice etc. Architectural & Engineering designs or any combination of these in a foreign market Not only restricted to tangible products for e.g. CHICAGO MERCANTILE EXCHANGE

LICENSING
ADVANTAGES
It enables a company to spread out its R&D and investment cost; while enabling it to receive incremental income with only negligible expenses; It also protects a companys patents &/or trademark against cancellation for non use; This strategy is favorable when import restrictions discourage direct entry and when country is sensitive to foreign ownership; as it is quick & easy; It works well when transportation cost is low; Generates revenue as royalty of brand licensing Licensing provides an intangible benefit of free promotion & advertising of the licensors brand, which reinforces the brand image.

LICENSING
DISADVANTAGES

It reduces the risks which in turn brings reduced profits; so it is a least profitable strategy; By granting licensing a manufacturer is nurturing a competitor in future- some one who is gaining technological & product knowledge; When the licensee performs poorly, it may be difficult to terminate the license; It may also be difficult to enter the market directly when you have granted license to some firm in that market; Inconsistent product quality across countries caused by can injure the reputation of a product on worldwide bases. For e.g. Mc Donald' successfully stopped its franchisee in France because of sub standard product quality.

JOINT VENTURE

JOINT VENTURE
A partnership at corporate level An enterprise formed for a specific business purpose by two or more investors sharing ownership & control. For e.g. Hero - Honda, Kawasaki- Bajaj.

JOINT VENTURE
ADVANTAGES - It reduces the amount of resources (money & personnel) that each partner must contribute - It simultaneously works to satisfy social, economic, & political needs.

JOINT VENTURE
DISVANTAGES - Decision making process may get delayed when joint ventures do not have a clear-cut decision making policy. - More conflicts because of cultural problems, divergent goals, disagreements over production & marketing strategies, & weak contributions by one or the other partner. - As we know that a joint venture deals with double management; If a partner has less than 50% ownership then the majority partner makes decision, but If the mgt. has a 50-50 split, it is difficult to make a decision or at all.

MANUFACTURING

MANUFACTURING
It may range from complete manufacturing to contract manufacturing with local manufacturer and partial manufacturing. SOURCING It is a kind of manufacturing process that involves manufacturing operations in a host country, not so much to sell there but for the purpose of exporting from that country to a companys home country or to other countries. BMW is considering building a manufacturing site in India.

MANUFACTURING
REASONS: To set up a production base inside a target market to invade it; To gain access to raw material i.e. backward vertical integration To take advantage of lower labour cost or other abundant factors of production To make product more price competitive
By reducing transportation cost, By minimizing/ avoiding high import taxes & other trade barriers

MANUFACTURING
FACTORS TO BE CONSIDERED BEFORE STARTING PRODUCTION ABROAD: Product image: it determines product acceptance in the foreign market; Competition: it determines potential profits; Resources of various countries: to determine each countrys competitive advantage; Changes in labour costs: to estimate cost; Types of products: To determines whether foreign manufacturing is an economical & effective venture; Taxation Investment climate

ASSEMBLY OPERATIONS

ASSEMBLY OPERATIONS
Parts/ components are produced in various countries in order to gain each countrys comparative disadvantage. For e.g. capitalintensive parts may be produced in advanced nations, & labour- intensive parts in an LDC. Skoda Auto India, the Indian subsidiary of Skoda Auto, has its assembly operations in India

ASSEMBLY OPERATIONS
This strategy is used as a defense strategy against cheap imports by providing the good quality product at comparatively low price; It allows a companys products to enter many markets without being subject to tariffs & quotas; the extent of freedom & flexibility is limited by local product- contents law; However it should be kept in mind that if product content is less than half of all the components used, the product may be viewed as imported, subject to tariffs & quota restrictions.

MANAGEMENT CONTRACT

MANAGEMENT CONTRACT
In some cases the government pressure & restrictions force a foreign company either to sell its domestic operations or to relinquish control. In such cases the company has to formulate another way to generate revenue; one way is to sign management contract with the govt. or the new owner. The new owner may lack technical & managerial expertise & may need the former owner to manage until the local employees are trained to manage the facility. This is used as a sound strategy for entering a market with minimum investment & political risks.

TURNKEY OPERATIONS

TURNKEY OPERATIONS
It is an agreement by the seller to supply a buyer with a facility fully equipped & ready to be operated by the buyers personnel, who will be trained by the seller. In international marketing the term is used for giant projects that are sold to government or govt. run companies. Large-scale plants requiring technology & large-scale construction processes unavailable in local market commonly uses this strategy

TURNKEY OPERATIONS
Metro Tunneling Group Joint Venture of five companies: 1. Dywidag from Germany 2. L&T from India 3. Samsung from South Korea 4. IRCON INTERNATIONAL LIMITED from India 5. Shimizu from Japan

ACQUISITION

ACQUISITION
An attempt of one firm to acquire ownership or control over another firm usually against the wishes of the latters management. Acquisition displaces and replaces domestic ownership; therefore it is perceived as exploitation or a blow to national pride. Acquisition can be hostile against the wishes of the acquired firm, in such a case it is called TAKE OVER; It can be friendly through the mutual consent o0f both the parties

ACQUISITION
ADVANTAGES: It ensures management accountability Provides easy growth opportunities It also provides chances to survive to the sick units DISADVANTAGES: In acquisition the professionalism of management may be replaced by money power; It results in monopoly & concentration of economic power i.e. detrimental to society; In this the interest of minority shareholders are not protected; This is very complicated mode of entry as in this there are more chances of legal hurdles to surmount. E.g. Corus by Tata Steel

STRATEGIC ALLIANCES

STRATEGIC ALLIANCES
A comparatively new & competitive cooperation strategy. A strategic alliance may be a result of Mergers, Acquisition, Joint Venture &/ or Licensing Agreements. For e.g. Educational Testing Service (ETS), the worlds leading educational measurement and research organization, and NIIT, a leading Global Talent Development Corporation and Asias largest trainer have entered into a strategic alliance to offer an ETS suite of products in India. The new initiative will enhance employability and provide competitive advantage to Indian organizations in the global market place.

STRATEGIC ALLIANCES
All joint ventures are strategic alliances not all joint ventures are strategic alliances; because in Joint Ventures 2 or more partners create a separate entity which is not compulsory in case of a strategic alliance. A strategic alliance is more like a contractual agreement where two or more partners agree to cooperate with each others resources and expertise.