Chapter 9
Market Entry and Expansion
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Stimuli to Internationalize
• In business activities, a variety of stimuli
are responsible for firms taking steps in a
given direction
• The major motivations for firms to go
international have been differentiated
into proactive and reactive
• Proactive motivations • Reactive motivations © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Going International
• Firms in smaller markets may be born
global
• Born global firms:
• Export
•
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Going International
• Export
• Modes of export
•
•
•
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Going International
• Export management companies (EMC)
•
• Two primary forms of operation
•
•
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Going International
• Both parties must recognize:
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•
•
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Going International
• Trading companies
• The most famous trading companies are the
_________ of Japan
• Reasons for the success of the Japanese
sogoshosha:
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Going International
• Export trading companies (ETCs)
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•
•
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Going International
• Firms participating in trading companies
by joining or forming them need to:
•
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Going International
• International success depends on market
demand
•
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Going International
• E-commerce
•
• Various methods to market products over the
Internet:
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•
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Going International
• Concerns for a firm using e-commerce:
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•
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Going International
• Legal concerns for e-commerce:
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Licensing and Franchising
• Are market expansion alternatives used
by all types of firms, large and small
• They offer flexibility and reflect the needs
of the firm and the market
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Licensing
• Licensing agreement:
• The recipient firm is the licensee
• Advantages of licensing
•
• Royalty income provides additional return on R&D
investments already incurred
•
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Licensing
• Ongoing licensing cooperation and support enables the
licensee to benefit from new developments
•
• Allows a firm to test a foreign market without major
investment of capital or management time
• Preempts a market for competition, especially if the
licensor’s resources permit full-scale involvement only
in selected markets
•
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Licensing
• Disadvantages of licensing
•
•
•
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Licensing
• Principal issues in negotiating licensing
agreements:
•
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Licensing
• The licensor should cover :
• Transfer costs:
• R&D costs:
• Opportunity costs:
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Licensing
• Licensee compliance in the agreement should
address:
•
•
•
• Specification of term, termination, and
survival of rights
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Licensing
• Trademark licensing
•
•
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Licensing
• The licensor and licensee may run into
difficulty if:
•
•
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Franchising
• A situation under which a parent
company (the franchiser) grants another
independent entity (the franchisee) the
right to do business in a specified manner
•
• The major forms of franchising are:
•
•
•
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Franchising
• Product/trade franchising emphasizes the
product or commodity to be sold
•
• Reasons for the international expansion
of franchise systems:
•
•
•
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Licensing and Franchising
• Franchising concerns
•
•
•
• For successful growth, companies adopt
master franchising system
• Master franchising system:
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Foreign Direct Investment (FDI)
• International investment flows that
acquire properties and plants
• Portfolio investment:
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Major Foreign Investors
• Multinational corporations through their
investment:
•
•
• Foreign direct investors bring with them
imports on an ongoing basis
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Reasons for FDI
• Marketing factors
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•
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Reasons for FDI
• Derived demand:
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Reasons for FDI
• Government incentives
• Fiscal incentives:
• Financial incentives:
• Non-financial incentives
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•
•
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A Perspective on Foreign Direct
Investors
• Positive perspectives:
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A Perspective on Foreign Direct
Investors
• Negative perspectives:
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Types of Ownership
• Full ownership
•
•
• A major concern is the “fairness” of
____________, or transfer of profits, and
the extent to which firms reinvest into their
foreign operations
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Types of Ownership
• Can be limited either through outright legal
restrictions or through measures designed to
make foreign ownership less attractive
• Joint ventures
•
•
•
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Types of Ownership
Advantages of joint
ventures
• Pooling of resources
•
• The partner’s
knowledge of the local
market
•
• Tap local capital
markets
Disadvantages of joint
ventures
• Different levels of
control are required
•
• Disagreements over
business decisions
•
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Types of Ownership
• Strategic alliances
•
• Can be formed, adjusted, and dissolved
rapidly
•
• The most successful alliances are those that:
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Types of Ownership
• Management contract
• Supplier brings together a package of skills
that:
•
• Provides:
•
•
•
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Types of Ownership
• Lowers the risk of participating in an
international venture and allows operational
control
• Government consortia
•
•
• Research consortia:
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