Course: EXPORT MANAGEMENT

Class: BBA (Hons) 7th Semester Morning & Evening.

Instructor: Ahmad Imran Khan

Opportunity Identification, Country

Selection and Entry

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Foreign Market Entry

Firm Specific
Characteristics
Objectives of
Market Entry

Product
Selection

Country
Selection

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Mode of Entry

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Strategy and
Time of Entry

1. Firm Specific Characteristics

Firm Specific Characteristics Provide the Lens to Assess the

Foreign Market Entry Decision. Product Selection, Country
Selection, Mode of Entry, Strategy, and Timing All Depend
on Firm Specific Characteristics.

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1. Firm Specific Characteristics

-Company Resources
Core Competencies
Financial Resources
Ability to take Risk
Human Resources
R&D
Sources of Supply
Alliances and Strategic Networks
Connections with Customers, Politicians,
Governmental Agencies, Related Companies

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1. Firm Specific Characteristics (Cont.)

-Competitive Environment
Positioning
Competitive Advantage
Strength and Weaknesses

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2. Objectives of Market Entry (Cont.)

Innovation and Competition

Companies gain advantage against the worlds best competitors

because of pressure and challenge. They benefit from having strong
domestic rivals, aggressive home based suppliers, and demanding local
customers
Michael Porter

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Without Coke, Pepsi would have a tough time being an

original and lively competitor..And on the other side of
the fence, Im sure the folks at Coke would say that nothing
contributes as much to the present day success of the CocaCola Company thanPepsi
Roger Enrico
Ex-CEO of Pepsi Cola

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2. Objectives of Market Entry (Cont.)

Innovation and Economic Clusters
Strategic Implications:
Choosing location not only based on input cost.
Consideration of Potential for Innovation is a
critical factor for long term success.

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If you are going to be the worlds best furnishing

company, you have to show you can succeed in
America, because there is so much to learn here.
Goran Carstedt
Head of Marketing IKEA

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3. Country Selection

Sociopolitical
Factors

Cost /
Factors

Fit with
Company
Regulatory
Factors

Demand
Factors
Strategic
Factors

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3. Country Selection
1. Region
Identification

Potential candidates are identified

using easily available statistical
data.

2. Preliminary
Screening

Involves rating the identified

countries on macro level
indicators, such as political
stability, geographic distance and
economicc development.
3. In-depth Screening Analyzes data specific to the
industry and product markets and
segments. Analyses of Market
Attractiveness
4. Final Selection
Company objectives are brought
to bear for a match.

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3. Country Selection (cont.)

Analysis of Market Attractiveness
Size
Growth
Competition
Trade Barriers
Analysis of Political Risk
Currency
Infrastructure
Capital Requirements
Production Cost
Taxes

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Economic Freedom Index

http://www.heritage.org/Index/Ranking.aspx

Market Potential Index

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http://globaledge.msu.edu/resourcedesk/mpi/

Motivators for International Marketing:

Proactive Motivator: Motivators that pull firm into

foreign market as opportunities available.

Reactive Motivator: Motivator that push firm into

foreign market as profit decreasing in local market.

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4. Mode of Entry

Exporting
Licensing
Strategic Alliance
Joint Venture
M&A
Direct Investment

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Foreign Market Entry Strategies

High risk/reward
Low risk/reward

Wholly owned subsidiary

Local production
Joint venture

Local assembly

Contract manufacturing

Franchising/Licensing

Sales subsidiary

Direct exporting
Indirect exporting

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4. Exporting
Exporting is the most popular way for many companies to become international.
Exporting is usually the first mode of foreign entry used by companies.
Selling to foreign markets involves numerous high risks, arising from a lack of knowledge
about and unfamiliarity with foreign environments, which can be heterogeneous, sophisticated.
Manufactured goods accounted for almost 60 percent of the exports of developing countries.
For successful development of export activities, systematic collection of information is
critical.
What are the pitfalls facing exporters?
Common pitfalls for exporters include:
1. poor market analysis
2. poor understanding of competitive conditions
3. a lack of customization for local markets, poor distribution arrangements, bad promotional
campaigns
4. a general underestimation of the differences and expertise required for foreign market penetration
5. difficulty dealing with the tremendous paperwork and formalities involved -

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4. Exporting
Indirect exporting involves the use of independent middlemen to market the
firms products overseas.
Combination Export Manager (CEM)
Export Merchants
Export Broker
Export Commission House
Trading Companies (sogoshosha; see Exhibit 17-1)
Example of Indirect exporting:
Intel & HP.
If Hewlett Packard (US firm) buys microchips from Intel (US firm) to use in
manufacturing computers and then exports those to Europe. So Intel chips are
indirectly exported.

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Indirect Export Trading Companies (TCs)

Engaged in exporting and importing of wide variety of goods.
Provide a full array of services including market research, customs, documentation,
transportation, distribution, marketing and financing.
Agents and offices worldwide
Japans Sogo sosha

Advantages

Open new markets without expertise or investment

TCs cover market well and service products they sell

Disadvantages

TCs control market selection and marketing

Product may not get attention it deserves

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Indirect Export Export Management Companies

EMC staff typically is knowledge about the legal, financial and logistical details of exporting.
Basically operate in two ways:
a. Some act as commission agent for exporters. They handle the details of shipment, clearing
customs and document preparation on agreed fee.
b. Other EMC take title of goods. They make money by buying the goods from exporter and
reselling them at higher price.

Instant foreign market knowledge

and contacts
Advantages
Sales are on commission basis (variable cost)
Potentially better feedback than TC
Disadvantages
EMCs may spread themselves too thin with too many customers
Product may not get attention it deserves
Market expertise/contacts can be limited to one or two countries

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Direct Exporting :
Direct exporting occurs when a manufacturer or exporter sells directly to
an importer or buyer located in a foreign market.
Export Department
Export Sales Subsidiary
Foreign Sales Branch
Advantages
Usually yields higher sales than indirect exporting
Company has greater control, better market information
Company develops in-house expertise
Company has greater freedom to choose entering markets
Disadvantages
Costs are higher than with indirect exporting
It may take longer to establish market entry, distribution network, etc.

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Example of Direct exporting:

Baskin- Robbins.
Followed its deliberate approach entering the Russian Market.
It began shipping ice-cream to country in 1990 from company owned plants in
Canada and Texas. Over 5year period company opened 74 retail outlets.
Only after gaining a thorough understanding of the Russian market and invest
830M in new ice cream plant in Moscow with 30 new flavors to please Russian
people.

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Mechanics of Exporting

The Automated Export System (AES) on the Internet

In the U.S., the AES which was launched in October 1999,
enables exporters to file export information at no cost over
the Internet. AES is a nationwide system operational at all
ports.
Legality of Exports
Export license (general or validated license)
Export Transactions
The terms of sale
Monitoring the transportation and delivery of the goods to
the assigned party
Shipping and obtaining the bill of lading
Bill of lading
A straight bill of lading
A shippers order bill of lading
Terms of Shipment and Sale
INCOTERMS 2000 (International Commercial Terms)
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Role of the Government in Promoting Exports

Export promotion activities generally comprise:

1. Export service programs
2. Market development programs
Export Enhancement Act of 1992
Export - Import Bank (Ex-Im Bank; see Exhibit 17-7)
Tariff Concessions
Foreign Trade Zones
Foreign Sales Corporation (FSC)
Export Regulations:
The Trade Act
The Foreign Corrupt Practices Act (FCPA)
COCOM (Coordinating Committee for Multilateral Exports)
Export policies
Role of WTO

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5. Strategy and Time of Entry (Cont.)

Profit and Risk in International Markets

Operating Profit

Risk

Domestic Operations Only

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International Experience

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Export and Import Financing

Question: How can firms deal with the lack of trust
that exists in export transactions?

See the next slide.

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Exporting Conundrum

A German firms wants to sell goods to a new client in

China.
The German firm wants to get paid first then it will ship
the goods.
The Germans would say, Of course we trust the Chinese. We just
want to see their money first.

The Chinese firm wants to see the goods before paying for
them.
The Chinese, of course, trust the Germans; they just want to be
sure the goods are what they ordered.

How do they solve this problem?

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Letter of Credit

A letter of credit

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