VI. STRATEGIES FOR REACHING
GLOBAL MARKETS
OBJECTIVE 6
► LEARNING
Discuss the different strategies for reaching
global markets. (Text pages 86-93)
A. There are many ways an organization can
participate in global trade.
B. Licensing
1. LICENSING is selling the right to
manufacture a product or use a
trademark to a foreign company (the
licensee) for a fee (a royalty).
2. In a licensing agreement, one
company allows another company to
produce goods under their name.
3. The advantages of licensing are:
a. A company can gain additional
revenues from a product it would
not have normally produced
domestically.
b. A company can gain from the sale
of start-up supplies, component
materials, and consulting services
from the licensing firm.
c. Companies such as Coca-Cola
and Disney often enter foreign
markets through licensing
agreements.
d. Licensing works well for small
companies that developed a new
product.
4. The problems of licensing are:
a. Often a firm must grant licensing
rights to its product for an
extended period.
b. If a product experiences
TEXT FIGURE 3.5
Strategies for Reaching
Global Markets (Box in text
on page 86)
POWERPOINT 3-10
Strategies for Reaching
Global Markets (Refers to
text page 86)
TEXT REFERENCE
Career Development
Developing Skills for
Successful Career
(Box in text on page 87)
An additional exercise and
discussion is available in this
chapter on page 3.Error!
Bookmark not defined. of
this manual.
POWERPOINT 3-11
Strategies for Reaching
Global Markets (Refers to
text pages 86-90)
remarkable growth in the foreign
market, the bulk of the revenues
go to the licensee.
c. If the foreign licensor learns the
technology, it may break the
agreement and begin to produce a
similar product on its own.
C. Exporting
1. Export assistance centers (EACs)
were created by the U.S. government
to provide hands-on exporting
assistance and trade-finance support
for small and medium-sized
businesses.
2. Small and medium-sized firms
represent 95% of exporters.
3. To overcome small firms’ reluctance,
export-trading companies can match
buyers and sellers from different
countries.
4. Export trading companies also help
exporters reduce a key risk—getting
paid.
D. Franchising
1. A FRANCHISING AGREEMENT is an
arrangement whereby someone with a
good idea for a business sells the
rights to use the business name and
sell a product or a service to others in
a given territory.
a. The FRANCHISOR is a company
that develops a product concept
and sells others the rights to make
and sell the product.
b. The FRANCHISEE is the person
who buys a franchise.
2. Franchising is popular both
domestically and in global markets.
3. Franchising allows the use of an entire
concept, not just the product.
4. Franchisers must adapt in the
countries they serve.
a. KFC failed in Hong Kong because
consumers considered it too
greasy.
b. Pizza Hut found that Germans like
small, individual pizzas.
c. Domino’s Pizza found that
Japanese enjoyed squid and
sweet mayonnaise pizza.
E. Contract Manufacturing
1. CONTRACT MANUFACTURING is
when one country produces goods
with another country’s company label
on it; this is also called outsourcing.
2. Example, Dell Computer using Quanta
Computers
3. Using contract manufacturing a
company can often experiment in a
new market without heavy start-up
costs.
4. A firm can also use contract
manufacturing temporarily to meet an
unexpected increase in orders.
5. A major disadvantage is that
intellectual property and copyright laws
differ from country to country
(example: China).
F. International Joint Ventures and
Strategic Alliances
1. A JOINT VENTURE is a partnership in
TEXT REFERENCE
Thinking Critically:
McDonalizing the World
(Box in text on page 89)
In all markets in which
McDonald’s operates, the
company continuously listens
to customers and adapts to
their culture and preferences.
POWERPOINT 3-12
Strategies for Reaching
Global Markets (Refers to
text pages 90-92)
2.
3.
4.
5.
6.
7.
which two or more companies (often
from different countries) join to
undertake a major project for a specific
time period.
The text offers the example of the joint
venture among Volkswagen, General
Motors, and China’s Shanghai
Automotive Industrial Corporation.
A unique joint venture is that between
University of Pittsburg and the
government of Italy to build a medical
transplant center in Italy.
The benefits of joint venture include:
a. Shared technology.
b. Shared marketing and
management expertise.
c. Entry into markets where foreign
companies are not allowed unless
their goods are produced locally.
d. Shared risk.
The drawbacks are:
a. One partner can learn the
technology and practices of the
other and leave to become a
competitor.
b. The technology may become
obsolete.
c. The partnership may be too large
to be as flexible as needed.
In a GREENFIELD INVESTMENT, a
company decides to enter a country
and build offices and production
facilities.
A STRATEGIC ALLIANCE is an
agreement between two or more
companies to work together to achieve
TEXT REFERENCE
Ethical Challenge: Doing
Bad by Trying to Do Good
(Box in text on page 92)
The CEO of a major
pharmaceutical manufacturer
has announced plans to
donate its AIDS drugs to
government clinics in several
competitive market advantages.
a. Alliances can provide access to
markets, capital, and technical
expertise.
b. They usually do not involve
sharing costs, risks, management,
or profits.
c. Strategic alliances can be flexible
and can be effective between
firms of different sizes.
d. The text uses several examples,
such as Motorola and Oracle
Corporation.
G. FOREIGN DIRECT INVESTMENT is
buying permanent property and business
in foreign nations.
1. A FOREIGN SUBSIDIARY is a
company owned in a foreign country
by another company (parent
company).
a. The legal requirements of both the
parent (home) and the foreign
(host) countries must be
observed.
b. The advantage of foreign
subsidiaries is that the company
maintains complete control over
any technology or expertise it may
possess.
c. The major disadvantage is
EXPROPRIATION, when a host
government takes over a foreign
subsidiary in a country.
d. The text uses the example of
consumer giant Nestlé as a
company with many foreign
subsidiaries.
developing countries. She is
surprised by the criticism of
her actions by many
humanitarian groups, who
prefer that the drug price be
lowered for everyone, not
just selected patients.
POWERPOINT 3-13
Strategies for Reaching
Global Markets (Refers to
text pages 92-93)
CRITICAL THINKING
EXERCISE 3-2
Evaluating Global
Expansion
One company is faced with
the decision of whether or
not to enter a joint venture
with a Latin American
country. (See complete
exercise on page 3.Error!
Bookmark not defined. of
this manual.)
LECTURE LINK 3-3
2.
3.
Multinational corporations
a. A MULTINATIONAL
CORPORATION is an
organization that manufactures
and markets products in many
different countries; it has
multinational stock ownership and
multinational management.
b. Only firms that have
manufacturing capacity or other
physical presence in different
nations can truly be called
multinational.
Different strategies reflect different
levels of ownership, financial
commitment, and risk.
SELF CHECK QUESTIONS (Text page 93)
1.
2.
3.
Why would a firm choose to export rather than become
involved in a joint venture?
What do you think would be the best way to get
involved in global business as a small soap
manufacturer?
What are the advantages and disadvantages of creating
a subsidiary?
Why There Are No Indian
Wal-Marts
There are millions of small
shop owners in India that are
fighting to keep the big retail
chains out of the country.
(See complete lecture link on
page 3.Error! Bookmark
not defined. of this manual.)