International Business Sixteenth Edition, Global Edition Chapter 14 Modes of Trading Internationally Copyright © 2018 Pearson Education Limited. All Rights Reserved. Our Road Map 2 2 Copyright © 2018 Pearson Education Limited. All Rights Reserved. PARAMETERS FOR SELECTION OF FOREIGN MARKETS WHICH COUNTRY? consider more carefully your product – is it suitable for any of the countries on your list? WHEN TO ENTER? ‘first to market’, you will be taking several risks. SCALE OF ENTRY ? The obvious issue here is cost. Entering a market on a large scale will require significant resources. Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 1.Exporting 2.Licensing 3.Franchising 4.Management Contracts 5.Manufacturing Contracts 6.Turnkey Investment Projects 7.Strategic Alliance. 8.Joint Venture 9. Wholly Owned Subsidiary 10.Merger & Acquisition Fast entry Cost Risk Control Knowledge Restrictions Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 1.Exporting A. Direct - Export direct to the host country B. Indirect - Through Agent C. Intra-cooperative Agreement for a distributor Fast entry Cost Risk Control Knowledge Restrictions Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 2. Licensing - in this mode of entry, the manufacturer of the home country leases the right of intellectual properties, i.e., technology, copyrights, brand name, etc., to a manufacturer of a foreign country. In May 2018, Nestle and Starbucks entered a $7.15 billion coffee licensing deal. Nestle (the licensee) agreed to pay $7.15 billion in cash to Starbucks (the licensor) for exclusive rights to sell Starbucks’ products Fast entry Cost Risk Control Knowledge Restrictions Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 3. Franchising Franchising is mode in which the franchisee is granted permission to use a name, process, method, or trademark. And also the franchisor firm assists the franchisee with the operations of the franchise or supplies raw materials, or both. The franchisor generally also has a larger degree of control over the quality of the product. Fast entry Cost Risk Control Knowledge Restriction s Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 2. Licensing 3. Franchising Fast entry Cost Risk Control Knowledge Restriction s Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 4. Management Contracts Management contracts are contracts under which a firm basically rents its expertise or know-how to a government or company in the form of personnel who enter the foreign environment and run the concern. 5. Manufacturing Contracts In this case, an MNC contracts with a local firm to provide manufacturing services Fast entry Cost Risk Control Knowledge Restrictions Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 6. Turnkey Investment Projects It is a contract under which a firm agrees to fully carry out the design, create, and equip the production facility and shift the project over to the purchaser when the facility is operational. The amount of relevant remuneration is charged for the same. Fast entry Cost Risk Control Knowledge Restriction s Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 7. Strategic Alliance. A strategics alliance can be defined as an agreement between two or more companies to achieve common business goals by sharing their strengths and resources. However, the parties involved in a strategics alliance remain independent in their business operations. 8. Joint Venture A joint venture is an agreement between two or more parties who agree to pool their resources for the accomplishment of certain activity or task. Fast entry Cost Risk Control Knowledge Restrictions https://www.educba.com/joint-venture-vs-strategic-alliance/ Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 9. WHOLLY OWNED SUBISIDIARY Wholly Owned Subsidiary is a company whose common stock is fully owned by another company, known as the parent company. A wholly owned subsidiary may arise through acquisition or by a spin-off from the parent company. Fast entry Cost Risk Control Knowledge Mercedes Benz began its Indian production in the mid-1990s from a plant based in the small town of Pimpri. Restrictions Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . 10. Merger & Acquisition Strategic acquisition implies that the company acquires a controlling interest in an existing company in the overseas market. A merger is a combination of two or more district entities into one Fast entry Cost Risk Control Knowledge Restrictions Copyright © 2018 Pearson Education Limited. All Rights Reserved. MODES OF ENTRY PROS & CONS . Copyright © 2018 Pearson Education Limited. All Rights Reserved. THANKS Copyright © 2018 Pearson Education Limited. All Rights Reserved.
