©2004 Prentice Hall12-1 Chapter 12: Strategies for Analyzing and Entering Foreign Markets...
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Transcript of ©2004 Prentice Hall12-1 Chapter 12: Strategies for Analyzing and Entering Foreign Markets...
©2004 Prentice Hall12-1
Chapter 12:Strategies for Analyzing and Entering Foreign Markets
International Business, 4th Edition
Griffin & Pustay
©2004 Prentice Hall12-2
Chapter Objectives_1
Discuss how firms analyze foreign markets
Outline the process by which firms choose their mode of entry into a foreign market
Describe forms of exporting and the types of intermediaries available to assist firms in exporting their goods
©2004 Prentice Hall12-3
Chapter Objectives_2
Identify the basic issues in international licensing and discuss the advantages and disadvantages of licensing
Identify the basic issues in international franchising and discuss the advantages and disadvantages of franchising
©2004 Prentice Hall12-4
Chapter Objectives_3
Analyze contract manufacturing, management contracts, and turnkey projects as specialized entry modes for international business
Characterize the greenfield and acquisition forms of FDI
©2004 Prentice Hall12-5
Foreign Market Analysis
Assess alternative markets Evaluate the respective costs, benefits,
and risks of entering each Select those that hold the most
potential for entry or expansion
©2004 Prentice Hall12-6
Table 12.1 Factors in Assessing New Market Opportunities
Product-market dimensions
Major product-market differences
Structural characteristics of the national product market
Competitor analysis Potential target
markets Relevant trends Explanation of
change Success factors Strategic options
©2004 Prentice Hall12-7
Map 12.1 A Tale of Two Chinas
©2004 Prentice Hall12-8
Dole Food Company’s international operations are subject to a variety of costs, benefits, and risks.
©2004 Prentice Hall12-9
Figure12.1 Choosing a Mode of Entry
Exporting
InternationalLicensing
InternationalFranchising
Specialized Modes
Foreign Direct Investment
Decision Factors:Ownership advantagesLocation advantagesInternalization advantagesOther factors
Need for controlResource availabilityGlobal strategy
©2004 Prentice Hall12-10
Map 12.2 Turkey
©2004 Prentice Hall12-11
Exporting
Advantages Relatively low
financial exposure Permit gradual market
entry Acquire knowledge
about local market Avoid restrictions on
foreign investment
Disadvantages Vulnerability to tariffs
and NTBs Logistical
complexities Potential conflicts
with distributors
©2004 Prentice Hall12-12
Motivations for Exporting
Proactive motivations: pull a firm into foreign markets as a result of opportunities available there
Reactive motivations: push a firm into foreign markets because opportunities are decreasing in the domestic market
©2004 Prentice Hall12-13
Forms of Exporting
Indirect exporting Direct exporting Intracorporate transfers
©2004 Prentice Hall12-14
Figure 12.2 Forms of Exporting
©2004 Prentice Hall12-15
Export Intermediaries
Export Management Company Webb-Pomerene Association International Trading Company Other intermediaries
©2004 Prentice Hall12-16
Figure 12.3 The Licensing Process
LICENSOR•Leases the right to use its intellectual property•Earns new revenues with relatively low investment
LICENSEE•Uses the intellectual property to create products for local sale•Pays a royalty back tothe licensor
Basic Issues1. Set the boundaries of the agreement2. Establish compensation rates3. Agree on the rights, privileges, and constraints 4. Specify the duration of the agreement
©2004 Prentice Hall12-17
Licensing
Advantages Low financial risks Low-cost way to
assess market potential Avoid tariffs, NTBs,
restrictions on foreign investment
Licensee provides knowledge of local markets
Disadvantages Limited market
opportunities/ profits Dependence on
licensee Potential conflicts
with licensee Possibility of creating
future competitor
©2004 Prentice Hall12-18
Franchising
Advantages Low financial risks Low-cost way to assess
market potential Avoid tariffs, NTBs,
restrictions on foreign investment
Maintain more control than with licensing
Franchisee provides knowledge of local market
Disadvantages Limited market
opportunities/ profits Dependence on franchisee Potential conflicts with
franchisee Possibility of creating
future competitor
©2004 Prentice Hall12-19
Specialized Entry Modes
Contract Manufacturing Management Contract Turnkey Project
©2004 Prentice Hall12-20
Contract Manufacturing
Advantages Low financial risks Minimize resources
devoted to manufacturing
Focus firm’s resources on other elements of the value chain
Disadvantages Reduced control (may
affect quality, delivery schedules, etc.)
Reduce learning potential
Potential public relations problems
©2004 Prentice Hall12-21
Management
Advantages Focus firm’s resources
on its area of contracts Minimal financial
exposure
Disadvantages Potential returns
limited by contract expertise
May unintentionally transfer proprietary knowledge and techniques to contractee
©2004 Prentice Hall12-22
Turnkey Projects
Advantages Focus firm’s
resources on its area of expertise
Avoid all long-term operational risks
Disadvantages Financial risks
– Cost overruns
Construction risks– Delays– Problems with
suppliers
©2004 Prentice Hall12-23
Foreign Direct Investment
Building new facilities (the greenfield strategy)
Buying existing assets in a foreign country (acquisition strategy)
Participating in a joint venture
©2004 Prentice Hall12-24
Volkswagon was the first auto manufacturer to open a plant in Mexico
©2004 Prentice Hall12-25
Foreign Direct Investment
Advantages High profit potential Maintain control over
operations Acquire knowledge of
local market Avoid tariffs and
NTBs
Disadvantages High financial and
managerial investments
Higher exposure to political risk
Vulnerability to restrictions on foreign investment
Greater managerial complexity
©2004 Prentice Hall12-26
Greenfield Strategy
Best site Modern facilities Economic development incentives Clean slate