International Business Communication

Prof: Gisle DUDOGNON gdudognon@strammacom.com

Todays agenda
Market selection: risk evaluation Selection of entry mode: distribution channel

International Business Communication

MARKET SELECTION: RISK EVALUATION

Market risk and security

Political risks:
Stability Social situation Ethnic or religious problems

Identification of possible causes for social break-ups

Market risk and security

Business Environment Risk Intelligence: index BERI
ORI: Operations Risk Index
115 experts score 49 countries on 15 criteria to define the business climate

MOR: Market Opportunities Rating

www.beri.com

Criteria included in the overall BERI index

Political stability Economic growth Currency convertibility Labour cost/ productivity Short-term credit Long-term loans/venture capital Attitudes Nationalization Monetary inflation Balance of payments Enforceability of contracts Bureaucratic delays Communications Local management Professional services

Countries listed on the BERI

Argentina Australia Austria Belgium Brazil Canada Chile China (P.R.C.) Colombia Czech Republic Denmark Ecuador European Union France Germany Greece

Hungary India Indonesia Iran Ireland Israel Italy Japan Korea (R.O.K.) Malaysia Mexico Morocco Netherlands Nigeria Norway Pakistan

Peru Philippines Poland Portugal Russia Saudi Arabia Singapore South Africa Spain Sweden Switzerland Taiwan (R.O.C.) Thailand Turkey United Kingdom United States Venezuela

Market attractiveness / competitive strength matrix

Dimensions of market/country attractiveness

Market size Market growth Buying power of customers Market seasons Average industry margin Competitive conditions Market prohibitive conditions Government regulations Infrastructure Economic and political stability Psychic distance

Dimensions of competitive strength

Market share Marketing ability and capacity Products to fit market demands Price Contribution margin Image Technology position Product quality Market support Quality of distributors Financial resources Access to distribution channels

Categories of Markets
A countries: primary markets offering the best opportunities for long-term strategic development B countries: secondary markets where opportunities are there but risk is high C countries: tertiary markets with high risk

Questionnaire for locating countries on a market attractiveness/ competitive strength matrix

International Business Communication

SELECTION OF ENTRY MODE

Factors affecting foreign market entry mode decision

Internal factors:
Firms size International experience Product complexity Product differentiation advantage

Internal factors affecting market entry mode decision

Product

Product complexity

Product differentiation advantage

+ +

International experience
+

Entry mode decision

+

Firm size

Factors affecting foreign market entry mode decision

Desired mode characteristics:
Flexibility Control Risk aversion

Desired mode characteristics affecting market entry mode decision

Risk averse
+

Control

Entry mode decision

Flexibility

Factors affecting foreign market entry mode decision

Transaction-specific factors:
Tacit nature of know-how Opportunistic behaviors Transaction costs

Transaction-specific factors affecting market entry mode decision

Tacit nature of know-how

Entry mode decision

Opportunistic behaviour
+ +

Transaction costs

Factors affecting foreign market entry mode decision

External factors:
Sociocultural distance Country risk, demand uncertainty Market size, growth Direct / indirect trade barriers Intensity of competition Number of export intermediaries

External factors affecting market entry mode decision

-

Sociocultural distance Country risk/ demand uncertainty Market size/ growth

Entry mode decision

+

Number of export intermediaries

Direct/ indirect trade barriers

Intensity of competition

All factors of influence

Major types of exporting

Indirect export Direct export Cooperative export

Diversity of entry modes

Marcadet Mobilier:
Europe: exclusive importatordistributor Asia & Maghreb: licencing United States & Canada: production subsidiaries

Indirect Exportation
The company chooses intermediaries who will be in charge all/parts of the commercialization process (from doemstic country or from host country) Importer : seller who buys and sells foreign merchandises produced by the exporter under his own name/brand
Own margin (purchasing price selling price) Manages his market, responsible for risk of non-payment Responsible for after-sales services (inventory) Responsible for the products promotion

Indirect exportation
Exporter has NO control on the commercial policy , doesnt know the final customer Exporter is responsible for the risk of nonpayment of the importer:
Carefully select the importers
Technical competences Commercial capacities

Indirect exportation
Exclusive importer: dealer
By contract: information and service obligations of the dealer towards the exporter,in return he gets the exclusivity of territory (exporter engaged not to sell directly on the dealers territory) Exporter controls the commercialization Financial risk concentrated in only 1 partner Reduction of export distribution costs

Indirect exportation
Other intermediaries:
owner intermediaries
Merchant exporter Export management company /export house:
Specialist companies that act as the export department Specialized by product categories (food, catering equipment, machinetools, ) or geographical areas EMCs spread selling, administrative, and transport costs because of economies involved making large shipments of goods from a number of companies Offer far wider exposure for client products at a lower cost

non-owner intermediaries
Commission agent (commissioned at the purchase or the sale) Broker Depositary (importer agent)

Indirect exportation
Other intermediaries:
International development companies
Responsible for all export functions on behalf of the exporter (administrative matters and sales assistance) Monthly fee, attractive for SMEs with limited resources

Foreign Procurement Offices

Located in the host country Subsidiaries or branches of foreign companies settled in the host countries (specialty stores, distribution groups) Search for suppliers in the host country for consumers of their home country

Direct exportation
The company controls the entire commercialization of its products. From the country of origin or from the host country (settlement) Direct exportation: direct response to foreign customers
Sales on trade fairs Sales through RFP Distance selling, e-commerce

Representatives abroad:
Employee of the export company (from home country or on site) Prospection, ordering, provides the company with information about the market and the customers

Direct exportation
Representation office:
Just an office to represent the brand: no commercial activity

Branch : decentralized service with a legal status based on the local laws
Responsible for the foreign salesforce network Showroom and orders management

Distribution subsidiary: legal status (registered company)

Buys and re-sells headquarters products (store, manageme, promotes)

Direct exportation
Production subsidiary: production unit of the headquarters settled abroad
Cost reduction: procurement, production, commercialization Covers a greographical area nearby

Agent: in charge of negotiations, contract deals, purchase of products and services on behalf of the export company
Doent belong to the company (mandate contract) Exporter controls the commercialization process

Cooperative exportation
The company exports in cooperation with other companies of the same country, or from the host country. Exporters group: companies put together part of their export activities to take advantage of synergies
Joint financial and human resources, share of costs For SMEs with no international experience, experienced companies wishing to cut their costs Exchange of information Prospection, commercialization

Cooperative exportation
Franchise: concession by company A to company B to sell its products using the brand name A. In return, A gets royalties from B
Obligation of technical assistance technique from A to B (franchiser to franchisee) Franchisee responsible for the operations risk

Types of franchises:
Distribution franchise: products sales Service franchise: transfer of know-how (hospitality, restauration, photocopies, ) Industrial franchise: products manufacturing

Cooperative exportation
Joint-venture:
Joint creation of a new industrial or commercial company by 2 partners from different nationalities Stake in the capital of a foreign company, located in the exportation target market