nternationalization 1.ppt

7/28/2019 nternationalization 1.ppt

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Internationalization

Entry and Expansion


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Learning ObjectivesTo learn how firms gradually progressthrough an internationalization process.To understand the strategic effects of internationalization.To study the various modes of enteringinternational markets.To understand the role and functions of international intermediaries.To learn about the opportunities andchallenges of cooperative marketdevelopment.


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International ManagementSuccessful international managers tend to:

Be active

Be aggressiveDisplay a high degree of international orientation

Managerial commitment is critical becauseforeign market penetration requires a vastamount of market development activity,sensitivity toward foreign environments,research, and innovation.


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The Steps to DevelopingInternational Commitment

Become aware of internationalbusiness opportunities.Determine the degree of thefirms internationalization. Decide the timing of when tostart the internationalizationprocess and how quickly itshould progress.


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Motivations for GoingInternational

Proactive MotivationsProfit advantage

Unique productsTechnologicaladvantageExclusive information

Tax benefitEconomies of scale

Reactive MotivationsCompetitive pressures

OverproductionDeclining domestic salesExcess capacitySaturated domestic

marketsProximity to customersand ports


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Psychological DistanceSometimes cultural variables, legalfactors, and other societal norms makea foreign market that is geographically

close seem psychologically distant. The two major issues of psychologicaldistance are:

Some of the distance seen by firms is basedon perception rather than reality.Closer psychological proximity makes it easierfor firms to enter markets.


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Profit Risk During EarlyInternationalization

In the short term, firms may experienceincreased risk and decreasing profits whengoing international.

Profit

Risk

MarketGap

International Experience

B e f o r e

G

o i n g

I n t e r n a t

i o n a l


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The Keys to SuccessfulInternational Performance

Efficiency CompetitiveStrength

Effectiveness


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International EntryStrategies

Licensing

Franchising

Interfirm Cooperation

Foreign DirectInvestment

ImportingExporting


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Exporting and Importing Firms can export and import using twomethods:

Indirect involvement means that the firmparticipates in international business throughan intermediary and does not deal withforeign customers or markets.Direct involvement means that the firm workswith foreign customers or markets with theopportunity to develop a relationship.

Firms decide on the desired method byimplementing transaction cost theory .


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International IntermediariesImporters and exporters often useinternational intermediaries whoprovide assistance in:

DocumentationFinancingTransportation

Identification of foreign suppliers and tradingcompaniesProviding business contacts


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Export ManagementCompanies

Firms that specialize inperforming international

business services for othercompanies are known asexport management companies (EMCs)

The two primary roles of EMCs are: AgentsDistributors


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Trading CompaniesTrading companies help firms by importing,exporting, countertrading, investing, andmanufacturing.The sogashosha of Japan are the most powerfultrading companies in the world for four reasons:

They efficiently gather, evaluate, and translate marketinformation into business opportunities.Economies of scale give them preferential treatment.

They operate around the world, not just Japan.They have vast quantities of capital.

In the U.S., export trading company legislation isdesigned to improve the export performance of small and medium-sized firms.


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FacilitatorsFacilitators are entities outside the firmthat assist in the process of goinginternational by supplying knowledge and

information.Private sector facilitators include:

Banks Accounting firms

Consulting firmsPublic sector facilitators include:

Departments of commerceExport-Import Banks

Educational Institutions


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LicensingUnder a licensing agreement , one firmpermits another to use its intellectualproperty for compensation designated as

royalty. The property licensed may include: PatentsTrademarks

CopyrightsTechnologyTechnical know-howSpecific business skills


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Benefits and Costs of Licensing

BenefitsIt requires neither capitalinvestment nor detailedinvolvement with foreigncustomers.It capitalizes on researchand development alreadyconducted.It helps avoid host countryregulations applicable toequity ventures.

CostsIt is a very limited form of foreign marketparticipation.It does not guarantee abasis for future expansion.The licensor may create itsown competitor.


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FranchisingFranchising is the granting of the right by aparent company to another independent entityto do business in a prescribed manner.

The major forms of franchising are:Manufacturer-retailer systems such as car dealerships,Manufacturer-wholesaler systems such as soft drink,companies

Service-firm retailer systems such as fast-food outlets.To be successful, the firm must offer uniqueproducts or propositions, and a high degree of standardization.


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Key Reasons for FranchisingMarket Potential

Financial Gain Saturated DomesticMarkets


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Interfirm Cooperation A strategic alliance is an arrangement betweentwo or more companies with a commonbusiness objective.

To better compete, many companies formstrategic alliances with suppliers, customers,competitors, and companies in other industriesto achieve goals.Reasons for interfirm cooperation include:

Market developmentTo share risk or resourcesTo block and co-opt competitors


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Types of Interfirm CompetitionNumber of Partners

2 More than 2Equity

None

None

New

Some

Informal Cooperation

(no binding agreement)

ContractualAgreement

Joint Venture

Consortia

EquityParticipation


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Contractual AgreementsStrategic alliance partners may join forces forR&D, marketing, production, licensing, cross-licensing, cross-market activities , or

outsourcing.Contract manufacturing allows the corporationto separate the physical production of goodsfrom the R&D and marketing stages.Management contracts involve selling onesexpertise in running a company while avoidingthe risk or benefit of ownership.

A turnkey operation is a contractual agreementthat permits a client to acquire a completesystem following its completion.


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Equity ParticipationSome companies have acquiredminority ownerships in companiesthat have strategic importance forthem.Reasons for engaging in equityparticipation include:

It ensures supplier abilityIt builds working relationshipsIt creates market entry and support of global operations


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Joint Ventures A joint venture involves the participation of two or more companies in an enterprise inwhich each party contributes assets, has someequity, and shares risk.

The 3 reasons for establishing a joint ventureare:

Government policy or legislation.One partners needs for another partners skills.

One partners needs for another partners attributes orassets.

The key to a joint venture is the sharing of acommon business objective.


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ConsortiaTo combat the high costs and risksof research and development,research consortia have emerged inthe United States, Japan, and

Europe.The Joint Research and Development Act of 1984 allowsdomestic and foreign firms toparticipate in joint basic researchefforts without the fear of antitrustaction.

Since this act passed, over 100consortia have been registered inthe United States.


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Managerial ConsiderationsIssues to address before the formation of a venture include:

1. clear definition of the venture 7. government assistance,

and its duration, 8. transfer of technology,2. ownership, control, and 9. marketing arrangements,

management, 10. environmental protection,3. financial structure and policies, 11. record keeping and4. taxation and fiscal obligation, inspection, and5. employment and training, 12. settlement of disputes.6. production,


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Full OwnershipFor some firms, foreign direct investmentrequires full ownership. Reasons include:

An ethnocentric approachFinancial concerns

In order to make a rational decision about theextent of ownership, management mustevaluate the extent to which total control is

important to the success of its internationalmarketing activities.

Increasingly, the international environment ishostile to full ownership by multinationalfirms.


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International Market Entryand Development Model

DomesticFocus

MultinationalFocus

AlternativeStrategies

TradingExport/Import

Licensing/Franchising Local presencealliancesfull ownership

Level of ManagementCommitment Aware

Interested Trial Evaluation Adaptation

Motivations Proactive Reactive

Inter-mediaries

EMC Trading Co. Facilitators

Concerns Information Mechanics Communication Sales Effort Service Regulations

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